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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For
the fiscal year ended December 31, 1999
Commission File Number: 0-19131
MEDIMMUNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1555759
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or organization)
35 West Watkins Mill Road
Gaithersburg, Maryland 20878
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code: (301) 417-0770
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Aggregate market value of the 68,201,865 shares of voting stock held by
non-affiliates of the registrant based on the closing price on February 29, 2000
was $13,538,070,203. Common Stock outstanding as of February 29, 2000:
68,814,576 shares.
Documents Incorporated by Reference:
DOCUMENT PART OF FORM 10-K
- -------- -----------------
Proxy Statement for the Annual Meeting Part III
of Stockholders to be held May 18, 2000.
MEDIMMUNE, INC.
FORM 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business........................................................................................1
Item 2. Properties.....................................................................................35
Item 3. Legal Proceedings..............................................................................36
Item 4. Submission of Matters to a Vote of Security Holders............................................36
PART II
Item 5. Market for MedImmune, Inc.'s Common Stock and Related
Shareholder Matters............................................................................37
Item 6. Selected Financial Data........................................................................38
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................40
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...........................................................................................49
Item 8. Financial Statements and Supplementary Data....................................................50
Report of Independent Accountants..............................................................77
Report of Management...........................................................................78
Item 9. Changes in and Disagreements with Accountants on
Accounting Financial Disclosure................................................................78
PART III
Item 10. Directors and Executive Officers of MedImmune, Inc.............................................79
Item 11. Executive Compensation.........................................................................79
Item 12. Security Ownership Certain Beneficial Owners and Management....................................79
Item 13. Certain Relationships and Related Transactions.................................................79
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K............................................................................80
SIGNATURES.......................................................................................................80
Schedule I......................................................................................................S-1
Exhibit Index...................................................................................................E-1
Exhibits......................................................................(Attached to this Report on Form 10-K)
Synagis, CytoGam, Ethyol, RespiGam, NeuTrexin, and Hexalen are registered
trademarks of the Company.
(i)
------------------------------
THE STATEMENTS IN THIS ANNUAL REPORT THAT ARE NOT DESCRIPTIONS OF HISTORICAL
FACTS MAY BE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT MANAGEMENT'S
CURRENT VIEWS, ARE BASED ON CERTAIN ASSUMPTIONS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THE INFORMATION SET FORTH UNDER
THE CAPTION "RISK FACTORS", AS WELL AS OTHER RISKS DETAILED BELOW AND IN THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AS A RESULT OF
THE FOREGOING OR OTHER FACTORS.
------------------------------
PART I Item 1. Business
MedImmune, Inc. (together with its subsidiaries,"the Company"), is a
biotechnology company headquartered in Gaithersburg, Maryland with six products
on the market and a diverse product development portfolio. The Company is
focused on using advances in immunology and other biological sciences to develop
important new products that address significant medical needs in areas such as
infectious diseases, immune regulation and oncology.
In 1998, the Company launched Synagis (palivizumab) in the United States for
preventing respiratory syncytial virus (RSV) in high-risk pediatric patients.
Synagis is the first and only monoclonal antibody approved for an infectious
disease and has become an important new pediatric product for the prevention of
RSV, the leading cause of viral pneumonia and bronchiolitis in infants and
children.
The Company also markets CytoGam (Cytomegalovirus Immune Globulin Intravenous
(Human), CMV-IGIV) and RespiGam (Respiratory Syncytial Virus Immune Globulin
Intravenous (Human), RSV-IGIV) and has six product candidates undergoing
clinical trials.
In November 1999, the Company acquired U.S. Bioscience Inc. ("USB"), now a
wholly-owned subsidiary, renamed MedImmune Oncology, Inc., to build its
franchise in oncology. This transaction was accounted for as a
pooling-of-interests. Through this acquisition, the Company gained three
marketed products: Ethyol (amifostine), NeuTrexin (trimetrexate glucuronate for
injection), and Hexalen (altretamine); oncology marketing and sales
capabilities; a manufacturing facility in Nijmegen, The Netherlands; and
clinical research expertise in cancer.
1
Products on the Market.
Synagis
Synagis is a humanized monoclonal antibody approved for marketing in June 1998
by the U.S. Food and Drug Administration ("FDA") for the prevention of serious
lower respiratory tract disease caused by respiratory syncytial virus ("RSV") in
pediatric patients at high risk of RSV disease. Synagis is administered by
intramuscular injection at 15mg/kg and is given once per month during
anticipated periods of RSV prevalence in the community. In the Northern
Hemisphere, the RSV season typically commences in October and lasts through
April.
RSV is the most common cause of lower respiratory infections in infants and
children worldwide. Healthy children and individuals with adequate immune
systems often acquire a benign chest cold when infected with RSV. In contrast,
certain high-risk infants such as premature infants and children with chronic
lung disease ("CLD", also known as bronchopulmonary dysplasia or "BPD") are at
increased risk for acquiring severe RSV disease (pneumonia and bronchiolitis),
often requiring hospitalization. Each year in the United States, more than
100,000 infants are hospitalized with RSV disease. The mortality rate of
hospitalized infants with RSV infection of the lower respiratory tract is about
two percent. There are approximately 325,000 infants at high risk of acquiring
severe RSV disease in the United States. Clinical studies have shown a 55%
reduction in RSV hospitalizations among high-risk pediatric patients receiving
Synagis versus those patients receiving placebo. Synagis was safe and generally
well-tolerated, and the proportions of subjects in the placebo and Synagis
groups who experienced any adverse event or any serious adverse event were
similar.
In December 1997, the Company formed an exclusive worldwide marketing alliance
with Abbott Laboratories ("Abbott") to commercialize Synagis. Within the United
States, the Ross Products Division of Abbott co-promotes Synagis with the
Company. The Company records all U.S. sales and Abbott receives a commission on
sales above defined annual thresholds. Each company is responsible for its own
selling expenses. Outside the United States, the International Division of
Abbott Laboratories has the exclusive right to distribute Synagis. The Company
manufactures and sells Synagis to Abbott for sales outside the United States. In
May 1999, the European Union's ("EU") Committee for Proprietary Medicinal
Products ("CPMP") adopted a positive opinion on Synagis, which was followed in
August 1999 by a marketing authorization by the centralized European Agency for
the Evaluation of Medicinal Products ("EMEA"). Pricing and reimbursement of
Synagis are being set on a country-by-country basis. As of December 31, 1999,
the Company and Abbott have submitted regulatory applications requesting
approval to market Synagis in 46 countries outside the United States and have
received approval in 28: Argentina, Austria, Australia, Bahrain, Belgium,
Brazil, Chile, Colombia, Denmark, Finland, France, Germany, Greece, Guatemala,
Ireland, Italy, Kuwait, Luxembourg, Mexico, Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom and Uruguay. Net
transfer price revenue from Abbott in 1999 for sales of Synagis outside of the
United States were $8.3 million. In addition, the Company received a $15 million
milestone payment from Abbott upon EMEA approval of Synagis.
The Company has established a manufacturing alliance with German-based
Boehringer Ingelheim Pharma KG ("BI") to supplement its own manufacturing
capacity. In September 1998, the FDA approved the Company's supplement to its
Biologic License
2
Application ("BLA") allowing the Company to import and sell in the United States
product from the BI facility.
In December 1999, the FDA approved the Company's 91,000 square foot
manufacturing facility in Frederick, Maryland ("Frederick Manufacturing Center"
or "FMC"). This approval allows the Company to begin distributing Synagis
manufactured at this facility. There can be no assurances that product supply
will be properly matched with demand.
The Company will continue to rely upon BI for the majority of production of
Synagis for the foreseeable future. BI produces Synagis in large lot sizes
relative to overall product supply; there can be no assurances that failure of
one or more lots of Synagis will not adversely impact the Company's supply of
product and/or market perception. Additionally, because Synagis costs rely on
favorable foreign exchange rates and production yields, there can be no
assurances that Synagis will continue to be economical to purchase from BI.
In 1999, the Company sold $293.0 million of Synagis, $151.1 million of which
occurred in the fourth quarter. In general, the Company expects most of its
Synagis sales to occur in the fourth and first quarters of the year because of
the seasonality of RSV in the United States; limited sales are expected in the
second and third quarters. The Company expects this seasonality to continue in
the foreseeable future.
The Company believes that Synagis was broadly reimbursed by third party payors
during the 1998 - 1999 RSV season and the first part of the 1999 - 2000 RSV
season. There can be no assurances that third party payors will not attempt to
restrict reimbursement guidelines of Synagis in future RSV seasons.
The Company is continuing to evaluate Synagis in post-marketing clinical trials,
including a multi-year Phase 3 safety and efficacy study in children under 2
years of age with congenital heart disease ("CHD") and a multi-year Phase 4
safety study in children with cystic fibrosis. In addition, the Cooperative
Antiviral Studies Group ("CASG") at the National Institutes of Health ("NIH")
has opened enrollment in a Phase 3 study evaluating the ability of Synagis to
prevent RSV disease in bone marrow transplant recipients. There can be no
assurances that data from these clinical trials will establish the safety or
efficacy of Synagis in these populations, or that results from these trials will
not adversely affect perceptions of Synagis in the marketplace.
The Company received a composition of matter patent protecting Synagis and its
cell line through October 20, 2015. Other than the Company's product RespiGam
(see below), the Company is not aware of any competing products being marketed
anywhere in the world for the prevention of RSV disease. The Company believes
that any products being developed, if successfully commercialized, would require
at least four years of clinical development and regulatory approval prior to
reaching the marketplace. Nevertheless, there can be no assurances that a
competitive product will not be brought to market sooner than expected, or, if
brought to market, would not be superior to Synagis. The Company is currently
working on developing third-generation products and/or formulations for the
prevention of RSV.
3
CytoGam
CytoGam is an intravenous immune globulin product enriched in antibodies against
cytomegalovirus ("CMV") and is marketed for prophylaxis against CMV disease
associated with transplantation of kidney, lung, liver, pancreas, and heart. CMV
contributes significantly to morbidity and mortality in organ transplant
recipients. CMV can cause severe pneumonia and other organ complications related
to invasive CMV disease which, if not successfully treated, can lead to organ
failure. CMV has also been shown to cause increased bacterial and fungal
infections, and has been associated with an increased risk of rejection of the
transplanted organ. There are approximately 20,000 kidney, lung, liver,
pancreas, and heart transplants performed annually in the United States.
Clinical studies have shown a 50 percent reduction in CMV disease in kidney
transplant patients given CytoGam and a 56 percent reduction in serious CMV
disease in liver transplant patients given CytoGam. CytoGam prophylaxis has also
been associated with increased survival in liver transplant recipients.
CytoGam was initially approved for marketing by the FDA in 1991 for the
attenuation of primary CMV disease in donor-positive/recipient-negative kidney
transplant patients, a condition that affects approximately 2,000 patients
annually. The approved indication was expanded in 1998 to include lung, liver,
pancreas and heart transplant recipients, which in the aggregate includes
approximately 20,000 patients annually. The Company believes that the expanded
indication has not significantly affected sales in the United States as many
physicians were already prescribing CytoGam in the setting of solid organ
transplantation.
The Company relies on third-party manufacturers for the production of CytoGam.
Should any of the suppliers or manufacturers be unable to supply the Company
with product for any reason, there can be no assurances that the Company would
be able to arrange alternate production capabilities in a timely fashion or at
all.
CytoGam was first sold through an exclusive distribution agreement with
Connaught Laboratories. The Company began marketing CytoGam through its own
hospital-based sales force in 1993. Sales of CytoGam have grown at a compounded
annual rate of approximately 26 percent since 1993 to $34.7 million in 1999.
Sales outside the United States were $7.0 million in 1999. The Company believes
that the increased level of sales of CytoGam in 1999 reflects both an increase
in core transplantation business and substitution occurring as a result of the
worldwide shortage of standard intravenous immune globulin (IVIG). It is unclear
when and if the current supply shortage of IVIG will end and if the continuation
of such a shortage would affect sales of CytoGam. The Company believes the
United States marketplace for CMV drugs in transplantation is competitive and no
assurances can be given that growth in the United States will continue or that a
continued IVIG shortage would increase CytoGam sales.
Internationally, CytoGam is approved for marketing and is sold by distributors
in Poland, Argentina, Canada, Turkey and South Korea. Product is available on a
named patient basis in nine other countries. The Company's orphan drug status in
the United States expired in 1997 and there can be no assurance that additional
CMV intravenous specialty immune globulin products will not be successfully
commercialized by other companies. The Company is aware of one other CMV immune
globulin in development by NABI, Inc.
4
RespiGam
RespiGam, an intravenous immune globulin enriched in neutralizing antibodies
against RSV, was approved by the FDA for marketing in the United States in
January 1996. RespiGam is indicated for the prevention of serious RSV disease in
children under 24 months of age with BPD or a history of premature birth (i.e.,
born at 35 weeks or less gestation) and is administered by an approximately four
hour intravenous infusion. RespiGam was the first product demonstrated to be
safe and effective in reducing the incidence and duration of RSV hospitalization
and the severity of RSV illness in these high risk infants. The Company believes
that RespiGam has largely been replaced by Synagis in the marketplace. Sales of
RespiGam were $2.9 million in 1999.
Ethyol
Ethyol, which was acquired in connection with the merger with USB, is an
intravenous organic thiophosphate cytoprotective agent indicated for the
reduction of both cumulative renal toxicity associated with repeated
administration of cisplatin in patients with advanced ovarian cancer or
non-small cell lung cancer ("NSCLC") and the incidence of moderate to severe
xerostomia in patients undergoing post-operative radiation treatment for head
and neck cancer, where the radiation port includes a substantial portion of the
parotid glands. Xerostomia, or dry mouth, caused by reduction of salivary
function, is a frequent and debilitating toxicity associated with radiation to
the head and neck region. Patients with xerostomia are at increased risk of oral
infection, dental cavities and loss of teeth and often have difficulty chewing,
swallowing, and speaking. According to the American Cancer Society,
approximately 40,000 cases of head and neck cancer are diagnosed each year in
the United States. Radiation therapy, often in conjunction with surgery and/or
chemotherapy, is standard treatment for this type of cancer.
Ethyol was initially approved by the FDA in 1995 for the ovarian cancer
indication. In 1996, the FDA approved USB's supplemental new drug application
("NDA") under the Accelerated Approval Regulations to include treatment of
patients with NSCLC. Products approved under the Accelerated Approval
Regulations require further adequate and well-controlled studies to verify and
describe clinical benefit. The Company has a clinical trial ongoing that the
Company anticipates may fulfill this requirement. In the event the clinical
trial fails to verify the benefit of Ethyol for the NSCLC indication, the FDA
may, under certain circumstances, withdraw approval of this indication.
The label was expanded in June 1999 to include the xerostomia indication
following the presentation of data from a Phase 3 open-label, prospective,
multi-center, randomized trial involving approximately 300 patients with head
and neck cancer. At the end of the treatment period, patients treated with
Ethyol prior to radiation experienced a 35 percent reduction in the incidence of
severe xerostomia than patients who did not receive Ethyol. Moreover,
approximately one year after radiation therapy, 57 percent of the patients in
this trial who had been treated with radiation alone were still experiencing
severe xerostomia, as compared to 34 percent of the patients in the Ethyol arm.
In December 1995, USB entered into an exclusive marketing and distribution
agreement with ALZA Corporation ("ALZA") for Ethyol in the United States. Under
the terms of the agreement, ALZA has exclusive rights to market Ethyol in the
United States until
5
April 2001, subject to a one-year extension, and is responsible for sales and
marketing of the product. The Company's oncology/immunology sales force
co-promotes the product with ALZA in the United States. The Company sells Ethyol
to ALZA at a price based on a percentage of the net sales price of Ethyol in the
United States, and ALZA then sells Ethyol to the distributors and wholesales
that supply Ethyol for prescription sales. ALZA's rights expire on April 1,
2001, or on April 1, 2002, if ALZA chooses to exercise a one-time option to
extend the agreement. ALZA is required to notify the Company of its intent with
respect to the marketing extension by April of 2000. Following the expiration of
the rights, marketing rights to Ethyol will revert to the Company, and ALZA will
receive a commission from the Company for 10 years (nine years if ALZA exercises
the option), based on sales of Ethyol in the United States.
Outside the U.S., Ethyol is primarily marketed by affiliates of Schering-Plough
Corporation ("Schering"). In the EU, Schering purchases Ethyol from the Company
at a price based on a percentage of the net sales price of Ethyol in Germany,
the United Kingdom, Spain, Italy and France. Schering's exclusive rights to
market the products in the EU will continue through December 31, 2003, with an
option for an additional two years, after which the rights revert back to the
Company, in exchange for a future royalty stream. The Company has various other
distribution and marketing arrangements for Ethyol outside the U.S. and the EU,
primarily with affiliates of Schering. In 1999, net revenue of Ethyol to the
Company was $19.6 million.
The Company is continuing the post-marketing evaluation of Ethyol in clinical
trials, including a Phase 3 trial of Ethyol in conjunction with
cisplatin/vinblastine in NSCLC, to fulfill the FDA's requirements for products
approved under the Accelerated Approval Regulations; a Phase 3 of Ethyol with
carboplatin/paclitaxel in NSCLC; and a Phase 2/3 trial of Ethyol with
combination therapy of chemotherapy plus radiation in head and neck cancer.
There can be no assurances that data from these clinical trials will establish
the efficacy of Ethyol in these populations, or that results from these trials
will not adversely affect the perception of Ethyol in the marketplace.
NeuTrexin
NeuTrexin, which was acquired in connection with the merger with USB, is a
lipid-soluble, intravenously administerable analog of methotrexate, a commonly
used anticancer agent. In December 1993, the FDA approved the NDA and the
Canadian regulatory authority, the Health Protection Branch, granted commercial
clearance for NeuTrexin for use with concurrent leucovorin administration as an
alternative therapy for the treatment of moderate-to-severe Pneumocystis carinii
pneumonia ("PCP") in immunocompromised patients, including patients with AIDS,
who are intolerant of, or are refractory to, trimethoprim-sulfamethoxazole
therapy or for whom trimethoprim-sulfamethoxazole is contraindicated. In
September 1994, the EU's CPMP recommended approval for NeuTrexin with concurrent
leucovorin administration as an alternative therapy for the treatment of
moderate-to-severe PCP in patients with AIDS who are intolerant of or refractory
to standard therapy or for whom standard therapy is contraindicated. NeuTrexin
was designated a "high tech" drug under the CPMP's Concertation Procedure which
provided for concurrent review of the dossier by the then 12 members of the EU
and provides up to 10 years of regulatory exclusivity in the EU markets upon
approval. Following the positive CPMP recommendation, the Company
6
received local regulatory approvals in 11 of the 12 original EU member
countries. As of December 31, 1999, local health regulatory approvals for
NeuTrexin have been received in 31 countries outside the United States,
including Canada, Denmark, France, Germany, Ireland, Luxembourg, the United
Kingdom, Spain, Greece, Sweden, Norway, Portugal, The Netherlands, Italy and
Argentina.
In mid-1999, USB regained sole responsibility for the distribution, marketing
and promotion of NeuTrexin in the U.S. market, which had previously been
conducted under a co-promotion agreement with ALZA. ALZA is entitled to be paid
residual commissions based on a percentage of NeuTrexin sales during the
three-year period following the end of the co-promotion term. The Company has
distribution or licensing agreements for NeuTrexin with a number of
pharmaceutical companies, primarily affiliates of Schering, for several
territories outside of the United States. To date, commercial sales of NeuTrexin
outside the U.S. have been minimal.
The Company is continuing to investigate NeuTrexin as an anti-cancer agent.
Currently, the Company's clinical trials include a Phase 3 trial of
5-fluorourocil ("5-FU") plus NeuTrexin or placebo in previously untreated
patients with advanced colorectal cancer, and a Phase 3 trial of 5-FU/leucovorin
with or without NeuTrexin, in previously untreated patients with advanced
colorectal cancer. There can be no assurance that data from these clinical
trials will establish the efficacy of NeuTrexin in this indication, or that
results from these trials will not adversely affect perceptions of NeuTrexin in
the marketplace.
Upon approval of the NDA for NeuTrexin in December 1993, the product received
seven years of orphan drug marketing exclusivity for the approved PCP
indication. NeuTrexin is also designated as an orphan drug for the treatment of
metastatic colorectal adenocarcinoma, metastatic carcinoma of the head and neck,
pancreatic adenocarcinoma and advanced non-small cell carcinoma of the lung. If
the Company obtains the first FDA approval for the product for any of these
indications, NeuTrexin would be eligible for seven years of orphan drug
marketing exclusivity for such approved indications.
Hexalen
Hexalen, which was acquired in connection with the merger with USB, is an oral
synthetic cytoxic antineoplastic chemotherapeutic agent cleared for marketing by
the FDA in December 1990 for use as a single agent in the palliative treatment
of patients with persistent or recurrent ovarian cancer following first-line
therapy with cisplatin and/or alkylating agent-based combination chemotherapy.
In mid-1999, USB regained sole responsibility for the distribution, marketing
and promotion of Hexalen in the U.S. market from ALZA, which formerly conducted
these activities under a co-promotion agreement. ALZA is entitled to receive
commissions based on a percentage of net sales of Hexalen during the three-year
residual period following the end of the co-promotion term. As of December 31,
1999, Hexalen has been approved for the treatment of ovarian cancer in 20
countries outside the United States, including Canada, the United Kingdom,
Australia, Israel, Sweden, Norway, China, South Korea, Egypt and Hong Kong.
Commercial sales of Hexalen outside the United States
7
Products In Development
Human Papillomavirus Vaccine
The Company is developing vaccines for human papillomaviruses ("HPVs"), the
cause of genital warts and cervical cancer. There are over 75 different types of
HPVs associated with a variety of clinical disorders ranging from benign lesions
to potentially lethal cancers. Four types of HPV cause the majority of genital
warts and cervical cancer cases: HPV-6 and HPV-11 (genital warts) and HPV-16 and
HPV-18 (cervical cancer). There are currently no vaccines to prevent these
common sexually transmitted diseases that affect 24 to 40 million men and women
in the United States.
In December 1997, the Company announced a strategic alliance with SmithKline
Beecham ("SB") to develop and commercialize the Company's HPV vaccines. Under
the terms of the agreement, SB receives exclusive worldwide rights to the
Company's HPV vaccine technology and both companies will collaborate on research
and development activities. To date, the Company has received a total of $31.6
million in up-front payments, an equity investment, and research funding from
SB. Pursuant to the agreement, the Company will continue to receive certain
research funding, would receive milestone payments if specified development and
sales goals are met, and royalties on any product sales. Total funding and
payments to the Company, exclusive of royalties, could total over $85 million.
Under the terms of the agreement, the Company conducts Phase 1 and Phase 2
clinical trials, manufactures clinical material for those studies and receives
funding from SB for these activities. SB is responsible for the final
development of the product, as well as regulatory, manufacturing, and marketing
activities.
The Company's strategy for vaccine development relies on a virus-like particle
("VLP") technology for producing a structurally identical, non-infectious form
of the virus. Scientists at the Company, in collaboration with a team at
Georgetown University, first demonstrated the effectiveness of a VLP vaccine
candidate using a dog model for papillomavirus infection.
8
In 1999, the Company initiated clinical evaluation of its HPV-16 and HPV-18
vaccine candidates, MEDI-503 and 504. These initial trials were designed to
evaluate the safety and tolerance of the HPV vaccine candidates. The Company
also initiated Phase 2 trials in 1999, with a combined version of the HPV-16 and
HPV-18 vaccines. In 1998, the Company completed a double-blind, randomized,
dose-escalating, adjuvant-controlled Phase 1 clinical trial with its HPV-11
vaccine candidate, MEDI-501, evaluating its safety, tolerance, and
immunogenicity.
MEDI-507, Anti-CD2 Humanized Monoclonal Antibody
MEDI-507 is a humanized monoclonal antibody being developed by the Company in
collaboration with BioTransplant Incorporated ("BioTransplant"). MEDI-507 was
derived from a rat monoclonal antibody called BTI-322. Both MEDI-507 and BTI-322
bind specifically to the CD2 antigen receptor found on T cells and natural
killer ("NK") cells. Laboratory studies have suggested that BTI-322 and MEDI-507
primarily inhibit the response of T cells directed at transplant antigens while
subsequently allowing immune cells to respond normally to other antigens. The
selectivity and long lasting effects of this inhibition suggest that these
molecules may have potential utility in applications in the transplantation
field including treatment or prevention of graft-versus-host disease ("GvHD"),
or in patients with certain autoimmune diseases. BTI-322 is a registered
trademark of BioTransplant.
BioTransplant exclusively licensed BTI-322 and MEDI-507 to the Company for
evaluation and potential commercialization. The Company is responsible for all
activities related to commercialization, and BioTransplant would receive
milestone payments at various stages related to regulatory approval and
royalties if the products are commercialized. BioTransplant has retained the
right to use BTI-322 and/or MEDI-507 in its proprietary ImmunoCognance systems.
In the MEDI-507 antibody, the rat components of the BTI-322 antibody are
replaced with human components thereby reducing the likelihood that a recipient
will recognize the drug as foreign and develop an immune reaction. This
potential reaction is especially possible if the antibody is administered
chronically in a patient whose immune system is not severely suppressed, such as
in many patients with autoimmune diseases. The Company has therefore suspended
development of BTI-322 pending the results of studies evaluating MEDI-507.
GvHD is a potentially fatal complication of bone marrow or stem cell
transplantation caused when certain white blood cells from the donor bone marrow
attack the tissue of the recipient. Clinical manifestations include skin rash,
severe diarrhea, and liver abnormalities and jaundice. GvHD is usually treated
with a first-line therapy of corticosteroids. Patients who develop moderate or
severe GvHD have over a 70% chance of death despite diverse treatments. Lack of
understanding of the physiologic mechanism of the disease has been a major
impediment to the development of more effective treatments. Both T cells and NK
cells may play a role in development of GvHD. MEDI-507 which specifically
inhibits both types of cells may provide certain advantages over current
therapies. There are approximately 30,000 bone marrow and stem cell transplants
done worldwide each year.
9
Autoimmune diseases are of major medical importance worldwide and include common
afflictions such as rheumatoid arthritis, multiple sclerosis, Crohn's disease
and psoriasis. Psoriasis is a common chronic, recurrent disease characterized by
dry, scaling, red lesions on the skin. Approximately six million Americans have
psoriasis, with between 150,000 and 260,000 new cases reported each year. There
is no cure for psoriasis and the treatments are often inconvenient, difficult to
use or cause side effects.
During 1999, the Company announced data from a Phase 1/2 trial with MEDI-507 in
patients with steroid-resistant, severe GvHD. Of the 17 patients in the trial,
12 improved their grade of GvHD and 10 achieved grade 0 at some point during
follow-up. The grade of GvHD was measured on a scale of 1 (mild) to 4 (severe).
Seven patients with GvHD grade 2 and 10 patients with GvHD grade 3-4 were
enrolled in this study. All but four of the patients had gut and/or liver
involvement. Patients received a short regimen of four doses of intravenous
MEDI-507 weekly for four weeks. Patients were followed for 100 days. Treatment
with MEDI-507 was generally well tolerated, and no antibodies to MEDI-507 were
detected. Eleven patients experienced acute adverse events associated with
MEDI-507, including chills, fever and nausea. These events were generally mild
and did not interrupt therapy. Notwithstanding improvements in GvHD in certain
patients, 12 of the 17 patients ultimately died during the 100 day period,
typically as a result of progression of their GvHD or complications such as
infections.
In 1999 the Company also initiated a Phase 1/2 in adult steroid-naive stem cell
transplant ("SCT") or bone-marrow transplant ("BMT") recipients. In this study,
patients receive MEDI-507 or placebo combined with corticosteroids
(methylprednisolone) for initial treatment of acute GvHD. Because this study is
the first to evaluate MEDI-507 as part of initial treatment of GvHD, all
patients are receiving the standard initial GvHD treatment with corticosteroids.
MEDI-507 has received orphan drug designation from the Office of Orphan Products
Development of the FDA for the treatment of GvHD (see "Government Regulation").
Enrollment began in 1999 in an open-label GvHD treatment trial in pediatric SCT
or BMT patients. Currently there are no agents approved for the treatment of
GvHD in children. Up to 20 pediatric patients (age 2-17) are expected to be
recruited from at least ten centers for this Phase 1/2 study.
The Company continued to evaluate psoriasis patients in a Phase I safety and
pharmacokinetics study in 1999. The study was expanded to examine four dose
levels of MEDI-507 in twelve patients.
No assurance can be given that the current clinical trials will be successful,
or if successful, would lead to a continuation of the programs in the
indications currently studied or at all.
MEDI-491, B19 Parvovirus Vaccine
The Company is developing a vaccine for B19 parvovirus based on virus-like
particle technology. Discovered in 1975, B19 parvovirus has been linked to a
number of serious conditions including certain types of miscarriages in pregnant
women, life-threatening sudden reduction of red blood cells in sickle cell
anemia patients, chronic anemia in
10
AIDS and chemotherapy patients, and persistent arthritis in some adults. There
are no agents available for the prevention of B19 parvovirus infection.
MEDI-491 is a vaccine intended to prevent human B19 parvovirus infection.
MEDI-491 utilizes VLP technology similar to that used for the Company's HPV
vaccine candidates. By producing two natural B19 parvovirus proteins in the
correct proportions in an insect cell recombinant protein production system, the
Company and collaborators at the National Heart, Lung, and Blood Institute
("NHLBI") are able to generate VLPs that resemble the natural B19 parvovirus
particles, but are not infectious. MEDI-491 received orphan drug designation in
May 1999 from the Office of Orphan Products Development of the FDA for the
prevention of B19 parvovirus infection.
In 1998, the Company entered into an agreement with Chiron Corporation
("Chiron") to use MF59, Chiron's proprietary vaccine adjuvant, to improve the
antibody response of MEDI-491. Pursuant to the agreement, the Company would
provide payments to Chiron if certain milestones are achieved and would pay
royalties on any commercialized products. MF59 has been evaluated by Chiron in
clinical trials involving over 15,000 people. It was shown to enhance the immune
response to certain antigens and was generally safe and well-tolerated. The
Company believes MF59 has the advantage of being one of the most extensively
tested investigational vaccine adjuvants in human clinical trials. Additionally,
the Company has seen significant immune responses to MEDI-491 when formulated
with MF59 in animal studies compared to other available adjuvants.
The Company has completed a Phase 1 clinical trial to evaluate the safety of
MEDI-491 adjuvanted with aluminum hydroxide. MEDI-491 in this trial appeared
generally well-tolerated and measurable antibody responses were observed.
In 1999, the Company initiated a Phase 1 study of MEDI-491 formulated with MF59.
The study is designed to evaluate the safety of the vaccine at two dose levels
compared with placebo in 24 patients (12 volunteers per dose level).
Urinary Tract Infection Vaccine
The Company is developing a vaccine candidate for urinary tract infections
("UTIs"). UTIs are a significant medical problem and one of the most common
disorders prompting medical attention in otherwise healthy women and children.
UTIs, caused by the bacterium Escherichia coli ("E. coli"), result in 7-8
million physician and hospital visits per year at a cost of greater than $1
billion. It is estimated that by age 30, roughly 50% of women have had at least
one infection and 2-10% are affected by recurrent infections. Recent studies
have shown that, on average, women who are 18-40 years old get 1-2 infections
over a two year period. Older adults are also at risk with the incidence as high
as 33 out of 100 people. Currently, there are no vaccines to prevent UTIs.
Most infections can be treated with antibiotics; however, recurrence is common
and emerging antibiotic resistant bacteria create an additional threat. Earlier
attempts to use pili, the hair-like protein appendages on the surface of
bacteria, as vaccine targets were not successful in protecting against a broad
range of pathogenic bacteria, including E. coli, because of the strain-to-strain
variation in the major component of the pili.
11
The identification of specific proteins, or "adhesins", at the end of pili which
facilitate the attachment of E. coli to human tissue, provided a novel target
for vaccine development. The Company's vaccine strategy is based on blocking
these adhesins, preventing the disease-causing bacteria from binding and
accumulating in the bladder. The novel target of the Company's vaccine candidate
is the FimH adhesin. FimH does not vary widely among the different strains of E.
coli which cause UTIs. The Company believes this is a requisite quality for
development of a broadly effective UTI vaccine.
The Company first demonstrated the feasibility of a FimH-based UTI vaccine to
prevent UTIs in mice. In 1998, the Company completed studies in monkeys with its
UTI vaccine formulated with Chiron's MF59 (see also B19 Parvovirus vaccine) that
further supported its potential to prevent UTIs. Laboratory tests indicated that
the antibodies generated in animals to the Company's UTI vaccine candidate react
against a wide range of UTI E. coli strains.
In 1999, the Company initiated a Phase I clinical study of the UTI vaccine
formulated in MF59. The study is designed to evaluate the safety of the vaccine
at four dose levels compared with placebo in 48 patients (12 volunteers per dose
level).
Vitaxin
In 1999, the Company acquired the worldwide rights to Vitaxin from Ixsys, Inc.,
a privately held biopharmaceutical company engaged in the development of novel
therapeutics, as part of a four antibody development agreement. Pursuant to the
agreement, the Company will be responsible for clinical development,
manufacturing and commercialization of Vitaxin and will fund certain research to
be performed by Ixsys and will make future milestone and royalty payments on
sales of any resulting products.
The Company is developing Vitaxin, an anti-angiogenic monoclonal antibody
product, for potential use in both cancer and non-cancer indications.
Angiogenesis is the growth of new blood vessels from pre-existing cells. In
solid tumors, angiogenesis allows new blood vessels to grow into solid tumor
tissue, providing the growing tumor both a means of nutrient and oxygen uptake,
and a possible route for tumor metastasis into other organs. During
angiogenesis, the solid tumor secretes growth factors which cause blood
vessel-forming endothelial cells to multiply and extend toward the solid tumor.
These cells use a family of proteins called integrins to adhere to the
surrounding tissue, allowing them to continue their extension toward the tumor.
The lead candidate, Vitaxin, has been shown to bind to the integrins, called
alpha-v beta-3, which is specifically found on newly sprouting blood vessels,
and to stop the growth of these vessels through an apoptotic (programmed cell
death) signaling mechanism. This inhibition of new blood vessel formation has
been shown to block the growth and spread of solid tumors in various animal
models. A product such as this may have use in other diseases that require
angiogenesis, including macular degeneration, diabetic retinopathy, rheumatoid
arthritis, and restenosis following angioplasty.
Vitaxin was developed by Ixsys based on the initial discoveries made by David A.
Cheresh, Ph.D. and his colleagues at The Scripps Research Institute with a
precursor murine antibody known as LM609. Ixsys humanized and optimized the
original murine antibody developed by Dr. Cheresh using its protein engineering
technology called
12
Directed Evolution. Ixsys completed a Phase I clinical trial to assess the
safety of Vitaxin in patients with incurable malignant cancer. In this trial,
Vitaxin was found to be generally safe and well tolerated. Of the fourteen
evaluable patients, eight experienced stabilization of their disease of which
one, a leiomyosarcoma (smooth muscle tumor) patient, experienced a reduction in
tumor size. Ixsys has also completed a Phase 1/2 imaging study at the University
of Alabama.
During 1999, the Company continued a 15 patient Phase 1/2 study in
leiomyosarcoma patients. Patients received Vitaxin every week for a maximum of
six months or until a maximum response was observed, a patient's tumor
progressed, or a grade 3-4 toxicity was encountered.
In 1999, the Company began preclinical development and scale-up of a second
generation variant of Vitaxin, developed by Ixsys, with significantly increased
potency and production advantages. The Company expects to begin clinical
evaluation of the second generation Vitaxin molecule in both cancer and
non-cancer indications in 2000. The second generation variant is expected to
largely replace the first generation Vitaxin.
Streptococcus pneumoniae Vaccine
The Company is involved in the discovery and screening of new proteins for
development of a Streptococcus pneumoniae vaccine. Streptococcus pneumoniae is a
major cause of pneumonia, middle-ear infections and meningitis worldwide,
especially in the very young or elderly. Pneumonia causes more than one million
deaths per year and is the most common cause of childhood death in developing
countries. In industrialized countries, pneumococcal pneumonia is a serious
problem among the elderly. Middle-ear infections affect almost every child at
least once during the first two years of life. Vaccination against pneumococcal
infections has become more urgent in recent years due to the emergence of
antibiotic-resistant strains throughout the world.
The Company has established a research collaboration with St. Jude Children's
Research Hospital ("St. Jude") to develop products for the prevention and
treatment of Streptococcus pneumoniae infection. The Company has been granted a
worldwide exclusive license from the Rockefeller University to commercialize
product candidates developed from a novel set of genes discovered by scientists
at St. Jude, formerly at Rockefeller University. In addition, research efforts
are underway by scientists at the Company and St. Jude to identify novel
conserved surface proteins for potential vaccine applications.
The Company has also established a research collaboration with Human Genome
Sciences, Inc. ("HGS") to develop vaccines and immunotherapeutic products,
including a vaccine for Streptococcus pneumonia. Pursuant to the agreement with
HGS, the Company will be solely responsible for the commercialization of any
products developed through the collaboration, and HGS will be entitled to
royalties based upon the extent to which any products jointly developed are
covered by patents or license rights held by HGS.
13
During 1999, a number of promising candidates were identified and evaluated in
animal models. Preclinical evaluation of these candidates will continue, and the
Company expects that candidates will be selected for clinical development in
2000.
Catalytic Antibody against Cocaine
In February 1999, the Company established an exclusive licensing agreement and a
research collaboration with Columbia University ("Columbia") to develop and
commercialize a catalytic antibody against cocaine to treat overdose and
addiction. Currently, the lead candidate is a catalytic monoclonal antibody
called 15A10. In the brain, there is a constant cycle of release and reuptake of
neurotransmitters, including dopamine, which is responsible for emotional
response, movement and the ability to experience pleasure. This cycle regulates
and controls feelings and emotions. Cocaine binds to the same receptors that
bind free dopamine for uptake, breaking the cycle. The brain continues to make
dopamine, but is unable to remove it from the system, resulting in an artificial
increase in dopamine levels and subsequent euphoria. Addiction occurs with
continued use of cocaine, as the brain can no longer respond to natural reward
stimulation and is forced to rely on the drug to maintain the artificial high.
At the extremely high concentrations seen in drug overdose, the drug binds to
multiple receptors in the nervous system and the cardiovascular system, possibly
causing arrhythmia and sudden death. In laboratory studies, Mab 15A10 has been
shown to bind, cleave and release the degraded cocaine thus freeing itself for
further cocaine binding.
In the U.S., there are over four million chronic cocaine users, and an estimated
two million people are addicted to cocaine. Since 1980, an estimated 40 million
Americans have used cocaine or crack, the street name given to cocaine processed
to a free base for smoking, with an estimated 500,000 new users per year. Each
year, an estimated 45,000 women use cocaine during pregnancy; health care costs
to treat their addicted babies in the U.S. are estimated at $500 million per
year. Current treatment options for cocaine addiction are limited and include
treatment medications and behavioral interventions, including cognitive
behavioral therapy. Cocaine overdose is the most frequent cause of addiction
related emergency room admissions in the U.S. and Europe, with approximately
150,000 and 100,000 admissions, respectively, in 1998.
Mab 15A10 has been evaluated in animal models in its ability to protect against
acute side effects of cocaine overdose, and its ability to protect against
lethal challenge with cocaine. It has also been shown to inhibit cocaine
addiction in animal models. The Company expects to continue preclinical
evaluation of the molecule in 2000.
Pursuant to the agreement with Columbia, the Company is responsible for
worldwide research, clinical development, manufacturing and commercialization of
any product resulting from the collaboration and Ixsys will optimize the primary
product candidate. The Company paid a one-time license fee to Columbia in 1999
and will make milestone and royalty payments based on clinical development
progress and sales of resulting products, if any.
14
Lyme Disease Vaccine
The Company is developing a second-generation Lyme disease vaccine candidate
based on a protein known as decorin binding protein ("DbpA"), found on the
organism that causes Lyme disease. In 1998, the Company announced that it had
granted worldwide rights to its Lyme disease vaccine candidate to Aventis
Pasteur, formerly Pasteur Merieux Connaught ("PMC"), in exchange for potential
milestone payments and royalties on any future sales. PMC intends to use DbpA as
a component in the development of European and improved U.S. vaccines for the
prevention of Lyme disease.
Lyme disease is the most common arthropod-borne disease in the United States.
Forty-eight states have reported cases of Lyme disease with an annual nationwide
incidence of approximately 16,000 new cases. Lyme disease is also reported in
Europe, Japan, China, and Russia. Difficulties with early diagnosis as well as
the occurrence of serious treatment-resistant infections emphasize the need for
safe and effective vaccines against Lyme disease.
In 1999, the Company and PMC announced data showing that a combination vaccine
composed of DbpA and outer surface protein A ("OspA") is more efficacious in
preventing infection by BORELIA BURGDORFERI and related species in mice than
vaccination with either immunogen alone. B. BURGDORFERI is a bacterium which
causes Lyme disease. In these experiments, the combination vaccine prevented
infection in mice by genetically diverse strains of B. BURGDORFERI. These data
suggest that the addition of DbpA to an OspA vaccine for Lyme disease might
enhance the level of protection provided by vaccination with OspA alone against
infection by the Lyme disease-causing bacterium.
Lodenosine (FddA)
Under an agreement with the National Institutes of Health of the United States
Public Health Service, USB received a worldwide exclusive license to the United
States government's patent rights for the use of the compounds known as FddA and
its active metabolite, FddI, for the treatment of HIV infection, HIV-related
infection or HIV-related disease in humans. USB also was a party to a
Cooperative Research and Development Agreement ("CRADA") with the National
Cancer Institute ("NCI") for the clinical development of lodenosine. Lodenosine
is an acid stable, purine-based nucleoside reverse transcriptase inhibitor that
was discovered, patented and developed preclinically by researchers at the NCI.
Until late 1999, USB was collaborating with the NCI on the clinical development
of lodenosine under the CRADA and was conducting its own 48-week, multi-center
Phase 2 trial of lodenosine in combination with indinavir and stavudine in
patients with HIV who had not had prior anti-retroviral therapy. On October 14,
1999, USB announced that it had suspended clinical testing of lodenosine and
that its IND was on clinical hold pending review of additional scientific
information regarding serious adverse events seen during the Phase 2 clinical
trial, including patient deaths. USB has terminated all treatment under this
Phase 2 trial. The Company will assess the opportunity to continue the
development of lodenosine when all clinical results have been analyzed. No
patient is currently being treated with lodenosine.
15
Other Products
The Company continues to work on feasibility studies in a number of other areas.
Any of these programs could become more significant to the Company over the next
12 months; however, there can be no assurances that any of the new programs
under review will generate viable product opportunities. The Company may choose
to address new opportunities for future growth in a number of different ways
including, but not limited to, internal discovery and development of new
products, in-licensing of products and technologies, and/or merger or
acquisition of companies with products and/or technologies. Any of these
activities may require substantial capital investment.
Products and Product Development Programs
The following table summarizes the indications and current status of the
Company's products and product development programs.
PRODUCT INDICATION STATUS(1)
Synagis RSV Prevention of RSV disease Marketed
Monoclonal in pediatric patients at
Antibody high risk of RSV disease
CytoGam Prophylaxis of cytomegalovirus Marketed
CMV Immune disease associated with
Globulin transplantation of kidney,
lung, liver, pancreas and heart
RespiGam Prevention of serious RSV Marketed
RSV Immune disease in infants with
Globulin prematurity or lung disease
Ethyol Reduction of cumulative Marketed
Cytoprotective renal toxicity associated
Agent with repeated administration
of cisplatin in patients with
advanced ovarian cancer or non-
small cell lung cancer
Ethyol Reduction of the Marketed
Cytoprotective incidence of moderate to
Agent severe xerostomia in patients
undergoing post-operative radiation
treatment for head and neck cancer where
the radiation port includes a substantial
portion of the parotid glands
Hexalen Palliative treatment of patients Marketed
Single Chemotherapeutic with persistent or recurrent
Agent ovarian cancer following first-line
16
therapy with cisplatin and/or
alkylating agent-based combination
chemotherapy.
NeuTrexin For use with concurrent leucovorin Marketed
Pneumonia administration as an alternative treatment
Treatment of moderate-to-severe
Pneumocystis carinii pneumonia
in immunocompromised patients,
including patients with AIDS, who are
intolerant of, or are refractory to,
trimethoprim- sulfamethoxazole therapy or
for whom trimethoprim-sulfamethoxazole is
contraindicated.
Synagis RSV Treatment of RSV disease in Phase 3
Monoclonal bone marrow transplant
Antibody (4) recipients
Synagis RSV Prevention of RSV disease in Phase 4
Monoclonal children under 2 years of age
Antibody with cystic fibrosis
Synagis RSV Prevention of RSV disease in Phase 3
Monoclonal children under 2 years of age
Antibody with congenital heart disease
Ethyol Treatment of NSCLC in conjunction Phase 3
Cytoprotective with cisplatin/vinblastine in NSCLC
agent
Ethyol Treatment of NSCLC in conjunction Phase 3
Cytoprotective with carboplatin/paclitaxel in NSCLC
agent
Vitaxin I Anti- Treatment of cancer by inhibition Phase 2
Alpha-V Beta-3 of angiogenesis in leiomyosarcoma
Monoclonal patients
Antibody
NeuTrexin Treatment of colorectal cancer Phase 3
Anticancer
Agent
MEDI-507 Treatment of graft-versus-host Phase 1/2
Monoclonal disease
Antibody
17
MEDI-501 HPV-11 Prevention of genital warts Phase 1
Vaccine(2)
MEDI-507 Treatment of psoriasis Phase 1
Monoclonal
Antibody
MEDI-491 B19 Prevention of B19 parvovirus Phase 1
Parvovirus infection
Vaccine
E. coli Vaccine Prevention of urinary tract Phase 1
(FimH Adhesin) infections
HPV Cervical Cancer Prevention of cervical cancer Phase 2
Vaccine(2)
Vitaxin II Anti- Treatment of cancer and non- Preclinical
Alpha-V Beta-3 cancer angiogenic diseases Development
Monoclonal by inhibition of angiogenesis
Antibody
Anti-cocaine Mab Treatment of cocaine overdose Preclinical
and addiction Development
Second-Generation Prevention of Lyme disease Preclinical
Lyme Disease Development
Vaccine (3)
S. pneumoniae Prevention and treatment of Research
Vaccine streptococcus pneumoniae
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(1) "Phase 1" and "Phase 2" clinical trials generally involve administration of
a product to a limited number of patients to evaluate safety, dosage and,
to some extent, efficacy. "Phase 3" clinical trials generally examine the
efficacy and safety of a product in an expanded patient population at
multiple clinical sites.
(2) These products are being co-developed by the Company and SmithKline
Beecham. The Company is entitled to certain milestone payments and
royalties on any sales, if and when cleared for marketing by the FDA. The
specific clinical status of these products is not disclosed.
(3) This product was out-licensed to Aventis Pasteur, formerly Pasteur-Merieux
Connaught ("PMC") in 1998. PMC is responsible for clinical development and
commercialization. The Company is entitled
18
to certain milestone payments and royalties on any sales, if and when
cleared for marketing by the FDA.
(4) This clinical trial is sponsored by the Cooperative Antiviral Studies Group
of the National Institutes of Health
Marketing, Research, Development and Collaborative Agreements
The Company's internal research programs are augmented by collaborative projects
with its scientific partners. As part of its strategy, the Company has
established alliances with pharmaceutical and other biotechnology companies,
academic scientists and government laboratories. Currently, its principal
strategic alliances are the following:
Abbott Laboratories
In December 1997, the Company entered into two agreements with Abbott
Laboratories ("Abbott"). The first agreement calls for Abbott to co-promote
Synagis in the United States in exchange for a percentage of net sales in excess
of annual sales thresholds. Each company is responsible for its own selling
expenses.
The second agreement allows Abbott exclusively to distribute Synagis outside the
United States. The Company manufactures and sells Synagis to Abbott at a price
based on end user sales. In August 1999, the EMEA granted marketing
authorization for Synagis. As of December 31, 1999, the Company and Abbott had
submitted a total of 46 regulatory applications for approval to market Synagis
and have received approval in 28 countries. No assurance can be given that any
of the remaining applications submitted or any future submissions to any other
countries for marketing licensure will be approved in a timely manner or at all.
ALZA Corporation
In December 1995, USB entered into an exclusive marketing and distribution
agreement with ALZA Corporation ("ALZA") for Ethyol in the United States. Under
the terms of the agreement, ALZA has exclusive rights to market Ethyol in the
United States until April 2001, subject to a one-year extension, and is
responsible for sales and marketing of the product. The Company's
oncology/immunology sales force co-promotes the product with ALZA in the United
States. The Company sells Ethyol to ALZA at a price based on a percentage of the
net sales price of Ethyol in the United States, and ALZA then sells Ethyol to
the distributors and wholesales that supply Ethyol for prescription sales.
ALZA's rights expire on April 1, 2001, or on April 1, 2002, if ALZA chooses to
exercise a one-time option to extend the agreement. ALZA is required to notify
the Company of its intent with respect to the marketing extension by April of
2000. Following the expiration of the rights, marketing rights to Ethyol will
revert to the Company, and ALZA will receive a commission from the Company for
10 years (nine years if ALZA exercises the option), based on sales of Ethyol in
the United States.
19
ALZA was co-promoting NeuTrexin and Hexalen in the United States until mid-1999.
At that time, the Company regained sole responsibility for the distribution,
marketing and promotion of these products in the United States.
SmithKline Beecham
In December 1997, the Company entered into a strategic alliance with SmithKline
Beecham PLC ("SB") to research, develop, manufacture and commercialize
therapeutic and prophylactic HPV vaccines. In exchange for exclusive worldwide
rights to the Company's HPV technology, SB provided the Company with an up-front
payment of $15 million, which was received and recorded in 1998, future funding
and potential developmental and sales milestones which together could total over
$85 million, royalties on any product sales and an equity investment of $5
million. Under the terms of the agreement, the companies will collaborate on
research and development activities. The Company conducts Phase 1 and Phase 2
clinical trials and manufactures clinical material for those studies. SB is
responsible for the final development of the product, as well as regulatory,
manufacturing, and marketing activities.
BioTransplant, Incorporated
In October 1995, the Company and BioTransplant, Incorporated ("BTI") formed a
strategic alliance for the development of products to treat and prevent organ
transplant rejection. The alliance is based upon the development of products
derived from BTI's anti-CD2 antibody, BTI-322, the Company's anti-T cell
receptor antibody, MEDI-500, and future generations of products derived from
these two molecules (such as MEDI-507, or humanized BTI-322). Pursuant to the
alliance, the Company received an exclusive worldwide license to develop and
commercialize BTI-322 and any products based on BTI-322, with the exception of
the use of BTI-322 in kits for xenotransplantation or allotransplantation. The
Company has assumed responsibility for clinical testing and commercialization of
any resulting products. The Company's clinical development efforts are focused
on MEDI-507; further development of BTI-322 has been suspended pending the
results of studies evaluating MEDI-507. BTI may receive milestone payments which
could total up to an additional $11.0 million, as well as royalties on any sales
of BTI-322, MEDI-500, MEDI-507 and future generations of these products, if any.
Human Genome Sciences, Inc.
In July 1995, the Company entered into a collaborative research and development
relationship with Human Genome Sciences, Inc. ("HGS") to create antibacterial
vaccines and immunotherapeutic products based upon the genomic sequences of
bacteria. The Company and HGS have collaborative research efforts underway to
develop a vaccine for Streptococcus pneumoniae. Rights to another genomic
sequence for vaccine development, Helicobacter pylori, were out-licensed to
Oravax, Inc. and Pasteur Merieux Connaught in November 1996 for license payments
as well as milestone and royalty obligations. Pursuant to a collaboration and
license agreement between the Company and HGS, the Company will be solely
responsible for the commercialization of any products developed through the
collaboration, and HGS will be entitled to royalties based upon the extent to
which any products jointly developed are covered by patents or license rights
held by HGS.
20
American Home Products Corporation
The Company's strategic alliance with American Home Products ("AHP") provided
for the co-development and co-promotion of RespiGam by the two companies. The
agreement provided for AHP to fund a portion of the cost of the development of
RespiGam and to co-promote the product in the United States. AHP shared in the
profits and losses of RespiGam in the U.S. The alliance provides for the Company
to receive royalties on any sales of AHP's RSV subunit vaccine candidate, and
for AHP to receive royalties on U.S. sales of Synagis.
Pursuant to an amendment to the agreement signed in December 1999, AHP's
obligation to co-promote RespiGam in the U.S. was terminated. In addition, AHP
no longer shares in any profits or losses of RespiGam in the U.S.; the royalty
obligations for Synagis and AHP's RSV subunit vaccine candidate remain
unchanged.
Massachusetts Health Research Institute and Massachusetts Biologics
Laboratories.
In August 1989 and April 1990, the Company entered into a series of research,
supply and license agreements with Massachusetts Health Research Institute
("MHRI") and Massachusetts Public Health Biologics Laboratories, then a division
of the Massachusetts Department of Public Health ("The State Lab"), covering
products intended for the prevention or treatment of CMV and RSV infection and
other respiratory virus infections by immune globulins or monoclonal antibodies.
The Company has agreed to pay royalties on all sales using the licensed
technology. Pursuant to the agreements, the Company paid $18.4 million in 1999,
$17.8 million in 1998, and $13.3 million in 1997, for royalties, process
development and manufacturing.
Pasteur Merieux Connaught
In December 1998, the Company entered into a license agreement with Aventis
Pasteur, formerly Pasteur Merieux Connaught ("PMC"), to develop a second
generation vaccine for the prevention of Lyme disease. The first generation
vaccine candidate of PMC, OspA, has completed a Phase 3 clinical trial. In
exchange for exclusive worldwide rights to the Company's DbpA technology, PMC
made an up-front payment in December 1998, and agreed to make additional
payments if certain development and sales milestones are achieved, and agreed to
pay royalties on any product sales. PMC has indicated that it intends to use
DbpA for the development of European and improved U.S. vaccines for the
prevention of Lyme disease.
Schering-Plough Corporation
In May 1993, USB entered into an exclusive marketing and distribution agreement
with Scherico, Ltd. ("Scherico"), an affiliate of Schering, for Ethyol in the
countries comprising the EU and European Free Trade Association (the "European
Territories"). Under this agreement, Scherico purchases Ethyol from the Company
at a price based on a percentage of the net sales price of Ethyol in Germany,
United Kingdom, Spain, Italy and France. Scherico's exclusive rights to market
the product will continue through December 31, 2003. At the end of the exclusive
period, the Company may co-promote Ethyol with Scherico for two years, through
December 31, 2005. Thereafter, the
21
Company will reacquire sole marketing rights, subject to an obligation to pay
Scherico a royalty based on a percentage of net sales, if any, from the European
Territories for a period of three years. Scherico may terminate the agreement at
any time by providing 180 days written notice.
USB also entered into licensing agreements for Ethyol and NeuTrexin with
affiliates of Schering for several additional territories outside the United
States. The licensees are required to pay the Company compensation based on
their net sales of the products, and the Company sells the products to the
licensees at an agreed upon price.
Other Agreements
The Company has a number of other collaborative and business agreements with
academic institutions and business corporations, including agreements with: 1)
Washington University in St. Louis, Missouri covering development of pilus-based
anti-bacterial vaccines; 2) Georgetown University, the German Cancer Research
Center and the University of Rochester covering development of vaccines for
human papillomaviruses; 3) Chiron Corporation covering supply of MF59, a
proprietary vaccine adjuvant to be used for B19 parvovirus and E.coli
development; and 4) scientists at St. Jude for the discovery and
commercialization of products to treat and prevent Streptococcus pneumoniae. In
addition, the Company has license agreements with third parties for CytoGam,
RespiGam, Synagis and substantially all of its other potential products. Under
such license agreements the Company is obligated to pay royalties on any sales
of these products.
Marketing and Sales
The Company has developed a sales and marketing organization which it believes
is responsive to the increased importance of managed care and the need of the
healthcare industry to provide higher quality care at lower costs.
The Company now employees approximately 140 people devoted to sales and
marketing of its products in the United States. Approximately 50 sales and
managed care representatives cover approximately 500 hospitals and clinics in
the United States, which specialize in transplantation and/or pediatric/neonatal
care, for the promotion of CytoGam and Synagis or RespiGam, respectively. Each
of these 50 sales representatives is responsible for selling all three of these
products. Approximately 25 oncology/immunology specialists and one national
accounts manager are devoted to sales and marketing of Ethyol and Hexalen to
oncologists practicing in cancer treatment centers, large hospitals and private
medical practices. These oncology/immunology specialists are also responsible
for sales and marketing of NeuTrexin to physicians treating patients at risk for
PCP.
The Company has co-promotion agreements with Abbott, through its Ross Products
division, and with ALZA to co-promote its products in the United States. Through
its 500 sales representatives, the Ross Products division details Synagis to
27,000 office-
22
based pediatricians and 6,000 birth hospitals. ALZA has approximately 90 sales
and managed care representatives selling Ethyol in the U.S.
Sales outside the United States are made through distributors. Abbott serves as
the Company's exclusive distributor for Synagis outside of the U.S. Scherico is
the exclusive marketing and distribution partner for Ethyol in the countries
comprising the European Territories. Scherico and other affiliates of Schering
have various other licensing and distribution arrangements for Ethyol and
NeuTrexin outside of the United States. CytoGam, Hexalen, Neutrexin and RespiGam
are marketed outside of the United States under distribution agreements with
various companies.
Manufacturing and Supply
The Company has entered into manufacturing, supply and purchase agreements in
order to provide a production capability for all of its products.
The Company has a manufacturing and supply agreement with BI to provide
supplemental production capability for Synagis, a humanized monoclonal antibody
product. BI is currently the primary manufacturer of Synagis. BI also fills and
packages Synagis produced at its facility. The BI facility is subject to
inspection and approval by the appropriate regulatory authorities in connection
with maintaining its FDA licensure as well as for obtaining and maintaining
approval from certain ex-U.S. countries. Should BI be unable to supply Synagis
to the Company for any reason, there can be no assurance that the Company would
be able to secure an alternate manufacturer in a timely basis or without
increased cost. While the Company's Frederick manufacturing facility was
licensed for production by the FDA in December 1999, the Company will continue
for the foreseeable future to rely upon BI for production of additional
quantities of Synagis in order to meet expected worldwide demand for the
product.
The Company's manufacturing facility in Frederick, Maryland is a multi-use
biologics facility intended to provide production capability for the manufacture
of immune globulins and by-products from human plasma. In addition, the facility
contains a cell culture production area for the manufacture of recombinant
products, such as Synagis, MEDI-501 and MEDI-507, if and when MEDI-501 and
MEDI-507 are cleared for marketing by the FDA. The Company's amendment to its
BLA for approval of the facility for production of Synagis was approved in
December 1999. There can be no assurance that the facility will receive
regulatory approval for its other intended purposes. The Company has limited
experience in commercial manufacturing. Accordingly, the Company may encounter
risks associated with commercial manufacturing, including cost overruns, product
defects and environmental problems. Furthermore, there can be no assurance that
the Company will be able to manufacture products at a cost that is competitive
with third party manufacturing operations or that the production yields will be
comparable or better than those achieved at third party manufacturing
operations.
The Company's pilot plant facility in Gaithersburg, Maryland was licensed by the
FDA for the commercial production of Synagis in June 1998. Due to the small
capacity at the facility, only limited quantities of Synagis are produced at
this site. In addition, this site
23
produces materials for the Company's clinical trials. Materials currently being
used in clinical trials for MEDI-501, MEDI-507, and MEDI-491 have been produced
at the Company's pilot plant.
The Company entered into an agreement with Chiron Corporation ("Chiron") in
1997, pursuant to which Chiron fills and packages Synagis produced at the
Gaithersburg pilot plant and Frederick manufacturing plant. The term of the
agreement is for three years.
CytoGam and RespiGam are produced from human plasma collected from donors who
have been screened to have high concentrations of antibodies against CMV and
RSV, respectively. Human plasma for CytoGam and RespiGam is converted to an
intermediate raw material (Fraction II+III paste) under supply agreements with
Baxter and V.I. Technologies, Inc. ("Vitex"). The State Lab, which holds the
sole product and establishment licenses for CytoGam and RespiGam, processes the
Fraction II+III paste into bulk product. The supply agreements with Baxter and
Vitex expired during 1999.
During the fourth quarter of 1999, the Company completed the production
requirements for an amendment to the establishment license held by the State Lab
to allow production of Fraction II + III paste at the FMC. The Company and the
State Lab intend to file the amendment with the FDA during the first quarter of
2000. No assurance can be given that the amendment will be approved. Unless and
until the amendment is approved, the Company will continue to rely on the State
Lab for production of Fraction II + III paste. The Company also has an agreement
with Aventis Pasteur, formerly Connaught Laboratories, Inc. ("Connaught") to
fill and package CytoGam and RespiGam. If the State Lab or Connaught is unable
to satisfy the Company's product requirements on a timely basis or is prevented
for any reason from manufacturing its products, the Company may be unable to
secure an alternative supplier or manufacturer without undue and materially
adverse operational disruption and increased cost.
As part of the merger with USB, the Company acquired a small volume parenteral
products manufacturing facility in Nijmegen, The Netherlands. This manufacturing
facility received the approval of the Dutch regulatory authorities and is now
able to manufacture Ethyol and the finished dosage form of NeuTrexin for
commercial sale in Europe. The Nijmegen manufacturing facility has also been
inspected by the FDA and approved as a manufacturing site for NeuTrexin and
Ethyol for commercial sale in the United States.
The Company relies on third parties to manufacture drug substance for Ethyol,
NeuTrexin and Hexalen and, to a decreasing but still important extent, on third
parties to manufacture these finished drug products. The Company is dependent on
third party suppliers for the manufacture of Hexalen. The Company uses one
approved source of altretamine drug substance and two approved sources for the
finished dosage form of Hexalen. Should the Company be unable to obtain product
from its suppliers, there can be no assurance that an alternate supplier or
manufacturer could be arranged. However, revenues from Hexalen are at such a
level that should supply issues arise, the Company does not believe there would
be a material impact on operations or earnings.
24
Patents, Licenses and Proprietary Rights
Products currently being developed or considered for development by the Company
are in the area of biotechnology, an area in which there are extensive patent
filings. The Company relies on patent protection against use of proprietary
products and technologies by competitors. The patent position of biotechnology
firms generally is highly uncertain and involves complex legal and factual
questions. To date, no consistent policy has emerged regarding the breadth of
claims allowed in biotechnology patents. Accordingly, there can be no assurance
that patent applications owned or licensed by the Company will result in patents
being issued or that, if issued, such patents will afford protection against
competitors with similar technology.
The Company believes that there are other patents issued to third parties and/or
patent applications filed by third parties which could have applicability to
each of the Company's products and product candidates and could adversely affect
the Company's freedom to make, have made, use or sell such products or use
certain processes for their manufacture. Some of these third parties have
contacted the Company claiming patent infringement by the Company. The Company
is unable to predict whether it will ultimately be necessary to seek licenses
from such third parties or, if such licenses were necessary, whether such
licenses would be available on terms acceptable to the Company. The necessity
for such licenses could have a material adverse effect on the Company's
business.
There has been substantial litigation regarding patent and other intellectual
property rights in the biotechnology industry. Litigation may be necessary to
enforce certain intellectual property rights of the Company. Any such litigation
could result in substantial cost to and diversion of effort by the Company.
Government Regulation
The production and marketing of the Company's products and research and
development activities are subject to regulation for safety and efficacy by
numerous governmental authorities in the United States and other countries. In
the United States, vaccines, biologics, drugs and certain diagnostic products
are subject to FDA review and licensure. The federal Food, Drug and Cosmetics
Act, the Public Health Service Act and other federal statutes and regulations
govern or influence the testing, manufacture, safety, labeling, storage, record
keeping, licensure, advertising and promotion of such products. No assurances
can be given that any products under development will be licensed for marketing
by the FDA or, if approved, that the product would be successfully
commercialized or maintained in the marketplace. Non-compliance with applicable
requirements could result in fines, recall or seizure of products, total or
partial suspension of production, refusal of the government to approve product
license applications, restrictions on the Company's ability to enter into supply
contracts and criminal prosecution. The FDA also has the authority to revoke
product licenses and establishment licenses previously granted.
25
The Orphan Drug Act was established to encourage development of drugs for rare
diseases and conditions affecting a small patient population (generally fewer
than 200,000 people). Orphan designation of a product can potentially provide a
company with seven years of market exclusivity if the company is the first to
receive FDA product marketing approval for the orphan drug in the designated
indication. Additionally, this designation provides a company with tax credits
of 50% for qualified clinical research expenses and the opportunity for clinical
research grants. CytoGam, RespiGam, Ethyol, NeuTrexin and MEDI-507 have been
designated as Orphan Drugs for certain indications by the FDA. Accordingly, (1)
RespiGam has market exclusivity for its currently licensed indication through
January 17, 2003; (2) Ethyol has market exclusivity for its currently licensed
chemoprotective indication for patients with ovarian cancer through December
2002, and for its radioprotective indication through June 2006; and (3)
NeuTrexin has market exclusivity for its currently licensed PCP indication
through December 2000. NeuTrexin also has exclusivity until May 2004 pursuant to
the Drug Price Competition and Patent Term Restoration Act. Marketing
exclusivity for CytoGam's originally licensed indication for use in kidney
transplantation expired in 1997. Ethyol has also been designated as an orphan
drug for use as a chemoprotective agent for use with cyclophosphamide in the
treatment of advanced ovarian carcinoma, as a chemoprotective agent for use with
cisplatin in the treatment of metastatic melanoma, for the treatment of
myelodysplastic syndromes, and for the reduction of the incidence and severity
of cisplatin-induced toxicities. NeuTrexin has also been designated as an orphan
drug for the treatment of metastatic colorectal adenocarcinoma, metastatic
carcinoma of the head and neck, pharynx and larynx, pancreatic adenocarcinoma
and advanced non-small cell carcinoma of the lung. MEDI-507 has been designated
as an orphan drug for the treatment of GvHD. MEDI-491 has been designated as an
orphan drug for prevention of transient aplastic crisis in people with sickle
cell anemia. Accordingly, each of these products would have market exclusivity
for seven years from the date of FDA approval if it is the first product
approved by the FDA for treatment of the designated orphan indication.
The Company is also subject to regulation by the Occupational Safety and Health
Administration ("OSHA") and the Environmental Protection Agency ("EPA") and to
regulation under the Toxic Substances Control Act, the Resources Conservation
and Recovery Act and other regulatory statutes, and may in the future be subject
to other federal, state or local regulations. OSHA and/or the EPA may promulgate
regulations concerning biotechnology that may affect the Company's research and
development programs. The Company is unable to predict whether any agency will
adopt any regulation which would have a material adverse effect on the Company's
operations. The Company voluntarily attempts to comply with guidelines of the
National Institutes of Health regarding research involving recombinant DNA
molecules. Such guidelines, among other things, restrict or prohibit certain
recombinant DNA experiments and establish levels of biological and physical
containment that must be met for various types of research.
Sales of pharmaceutical and biopharmaceutical products outside the United States
are subject to foreign regulatory requirements that vary widely from country to
country. Whether or not FDA licensure has been obtained, licensure of a product
by comparable regulatory authorities of foreign countries must be obtained prior
to the commencement
26
of marketing the product in those countries. The time required to obtain such
licensure may be longer or shorter than that required for FDA approval, and no
assurance can be given that such approval will be obtained.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. The Company's competitors include
pharmaceutical, chemical and biotechnology companies, many of which have
financial, technical and marketing resources significantly greater than those of
the Company. In addition, many specialized biotechnology companies have formed
collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with those
of the Company. Academic institutions, governmental agencies and other public
and private research organizations are also conducting research activities and
seeking patent protection and may commercialize products on their own or through
joint ventures.
The Company is aware of certain products manufactured by competitors that are
used for the prevention or treatment of certain diseases the Company has
targeted for product development, including CMV, RSV, Lyme disease, HPV
infections and organ graft rejection. In the prevention of CMV disease, the
Company's CytoGam competes with several other products including other antiviral
drugs, standard immune globulin preparations and intravenous and oral
ganciclovir, marketed by Hoffmann-La Roche Inc. The Company is aware that a
number of physicians have prescribed CytoGam in combination with ganciclovir for
the prevention of CMV disease in certain patients.
The Company believes that for the prevention of RSV disease, the Company's
second generation RSV product, Synagis, and its first generation product,
RespiGam, which has largely been replaced by Synagis, do not compete directly
with any product; however, the Company is aware of one product in the U.S.,
ribavirin, which is indicated for the treatment of RSV disease. The existence of
this product, or other products or treatments of which the Company is not aware,
or products or treatments that may be developed in the future, may adversely
affect the marketability of products developed by the Company.
Many companies, including well known pharmaceutical companies, are marketing
anticancer drugs and drugs to ameliorate or treat the side effects of cancer
therapies, and are seeking to develop new products and technologies for these
applications. Many of these drugs, products and technologies are, or in the
future may be, competitive with the Company's oncology products. In the United
States, the Company believes that Bristol-Myers Squibb Company holds the largest
share of the chemotherapy market both in terms of approved products and annual
sales, and therefore dominates the market place. Other companies maintaining an
active oncology marketing and sales presence include Schering-Plough
Corporation, Pharmacia & Upjohn, AstraZeneca, Hoffmann-La Roche, Inc., Johnson &
Johnson, Immunex Inc. (a subsidiary of American Home Products), Amgen, Inc.,
Chiron Corporation, Aventis SA, Eli Lilly and Company and SmithKline Beecham
p.l.c. Many of these companies have substantially greater financial, technical,
manufacturing, marketing and other resources than the Company and may be better
27
equipped than the Company to develop, market and manufacture these therapies. No
assurance can be given that the oncology drugs developed by the Company will be
able to compete successfully against therapies already established in the
marketplace or against new therapies that may result from advances in
biotechnology or other fields which may render the Company's oncology drugs less
competitive or obsolete. In addition, the Company's oncology drugs may become
subject to generic competition at such times as generic applications for drug
approvals may be filed and approved by the FDA.
The Company expects its products to compete primarily on the basis of product
efficacy, safety, patient convenience, reliability, price and patent position.
In addition, the first product to reach the market in a therapeutic or
preventive area is often at a significant competitive advantage relative to
later entrants to the market. The Company's competitive position will also
depend on its ability to attract and retain qualified scientific and other
personnel, develop effective proprietary products, implement product and
marketing plans, obtain patent protection and secure adequate capital resources.
EXECUTIVE OFFICERS OF THE COMPANY
Officer
Name Age Position Since
Wayne T. Hockmeyer, Ph.D. 55 Chairman and Chief Executive Officer 1988
Melvin D. Booth 54 President and Chief Operating Officer 1998
David M. Mott 34 Vice Chairman and Chief Financial Officer 1992
Franklin H. Top, Jr., M.D. 64 Executive Vice President and Medical Director 1988
James F. Young, Ph.D. 47 Executive Vice President Research and 1989
Development
Bogdan Dziurzynski 51 Senior Vice President Regulatory Affairs and 1994
Quality Assurance
Armando Anido 42 Senior Vice President Sales and Marketing 1999
Dr. Hockmeyer founded the Company in April 1988 as President and Chief Executive
Officer and was elected to serve on the Board of Directors in May 1988. He
became Chairman of the Board of Directors in May 1993. From 1986 to 1988, Dr.
Hockmeyer
28
served as Vice President, Research and Development, of Praxis Biologics, Inc.
("Praxis"). From 1980 to 1986, Dr. Hockmeyer served as Chairman, Department of
Immunology, Walter Reed Army Institute of Research. Dr. Hockmeyer is a member of
the Maryland Economic Development Commission, a member of the Board of Directors
of Digene Corporation, serves on the Advisory Board of the University of
Maryland Biotechnology Institute, is a member of the Board of Advisors of the
Institute of Human Virology, is a Member of the Board of Directors of the High
Technology Council of Maryland and is Chairman of the Maryland Bioscience
Alliance. Dr. Hockmeyer holds a doctorate from the University of Florida and a
bachelor of science degree from Purdue University.
Mr. Booth joined the Company in October 1998 as President and Chief Operating
Officer and was elected to serve on the Board of Directors in November 1998.
Prior to joining the Company, he was President, Chief Operating Officer and a
member of the Board of Directors of Human Genome Sciences, Inc. from July 1995
until October 1998. Prior to this time, Mr. Booth was employed at Syntex
Corporation from 1975 to 1995, where he held a variety of positions, including
President of Syntex Laboratories, Inc. from 1993 to 1995 and Vice President of
Syntex Corporation from 1992 to 1995. From 1992 to 1993, he served as the
President of Syntex Pharmaceuticals Pacific. From 1991 to 1992, he served as an
area Vice President of Syntex, Inc. From 1986 to 1991, he served as the
President of Syntex, Inc., Canada. Mr. Booth is a past Chairman of the
Pharmaceutical Manufacturers Association of Canada and currently is a member of
the Board of Directors of Neoprobe Corporation and Spacehab, Inc. Mr. Booth
graduated from Northwest Missouri State University and holds a Certified Public
Accountant Certificate.
Mr. Mott joined the Company in April 1992 as Vice President, with responsibility
for business development, strategic planning and investor relations. In 1994,
Mr. Mott assumed additional responsibility for the medical and regulatory
groups, and in March 1995 was appointed Executive Vice President and Chief
Financial Officer. In November 1995, Mr. Mott was appointed to the position of
President and Chief Operating Officer and was elected to the Board of Directors.
In October 1998, Mr. Mott was appointed Vice Chairman and Chief Financial
Officer. Prior to joining the Company, he was a Vice President in the Health
Care Investment Banking Group at Smith Barney, Harris Upham & Co., Inc. At Smith
Barney, where he was employed from July 1986 to April 1992, Mr. Mott's
activities included public and private equity and debt financings as well as
merger and acquisition work for biotechnology, healthcare services, and medical
product and device companies. Mr. Mott is Chairman of the Board of Directors of
Conceptis Technologies. He holds a bachelor of arts degree in economics and
government from Dartmouth College.
Dr. Top joined the Company in June 1988 as Executive Vice President. He was
elected to the Board of Directors in July 1988 and became the Company's Medical
Director in 1990. From 1987 to 1988, Dr. Top served as Senior Vice President for
Clinical and Regulatory Affairs at Praxis. Prior to 1987, Dr. Top served for 22
years in the U.S. Army Medical Research and Development Command, where he was
appointed Director, Walter Reed Army Institute of Research in 1983. Dr. Top
holds a doctorate of medicine cum laude and a bachelor of science degree in
biochemistry from Yale University.
29
Dr. Young, prior to joining the Company in 1989, held various positions at
Smith, Kline and French Laboratories from 1983 until 1989, culminating in the
position of Director, Department of Molecular Genetics. Dr. Young holds a
doctorate in microbiology and immunology from Baylor College of Medicine.
Mr. Dziurzynski, prior to joining the Company in 1994, was employed by Immunex
Corporation beginning in 1988, culminating in the position of Vice President of
Regulatory Affairs and Quality Assurance. Mr. Dziurzynski holds an undergraduate
degree in psychology from Rutgers University and a Master of Business
Administration from Seattle University.
Mr. Anido, prior to joining the Company in 1999, was Vice President of CNS
Marketing at Glaxo Wellcome, Inc. from 1996 to 1999. Prior to this time, Mr.
Anido served in various positions at Lederle Laboratories from 1989 to 1995,
culminating in his service as the Vice President of Anti-Infectives Marketing.
Mr Anido is a registered pharmacist, and holds a Bachelor of Science in pharmacy
and a Master of Business Administration degree from West Virginia University.
EMPLOYEES
As of February 15, 2000, the Company had 664 full time employees. The Company
considers relations with its employees to be good.
RISK FACTORS
In addition to the other information included in this report, you should
consider the following risk factors. This report contains forward-looking
statements covered by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve risks
and uncertainties that may affect our business and prospects. Our results may
differ significantly from the results discussed in the forward-looking
statements as a result of certain factors which are listed below or discussed
elsewhere in this report and our other filings with the Securities and Exchange
Commission.
PRODUCT SALES MAY VARY: The amount we receive from sales of our products may
vary from period to period for several reasons, including: seasonal demand for
our principal product, general market demand for our products, which may
fluctuate, availability of other competitive products in the market,
availability of third-party reimbursement for the cost of treatment with our
products, effectiveness and safety of our products, rate of adoption and use of
our products for approved indications and possible additional indications,
likelihood and timing of FDA and other regulatory approvals.
We do not expect any of the products we have under development to be
commercially available prior to 2002 and they may never become commercially
available.
30
INCREASED WORK FORCE COULD RESULT IN SUBSTANTIAL COSTS AND TIME DELAYS: Recent
increases in the size of our work force and scope of operations could be harmful
to us. In connection with our increased marketing efforts for Synagis, for
manufacturing in our Frederick facility, and the acquisition of USB, we have
substantially increased the size of our work force. This rapid growth and
increased scope of operations present new risks we have not previously
encountered and could result in unanticipated and substantial costs and time
delays which could materially and adversely affect the Company.
SIGNIFICANT COSTS COULD RESULT FROM OUR MANUFACTURING FACILITY: Our Frederick
manufacturing facility could result in significant costs to us. We received
approval from the FDA in 1999 for an amendment to our Biologics License
Application for the production of Synagis at the Frederick manufacturing
facility. However, the portion of the facility that will be used for production
of plasma-based products is not currently approved. The Company and the State
Lab intend to submit to the FDA in 2000 an amendment to the license held by the
State Lab for approval of a portion of the production of CytoGam. We cannot sell
any CytoGam manufactured in the facility unless and until the FDA inspects the
facility and approves our application. We cannot guarantee that our facility
will be approved for the production of CytoGam on a timely basis, or at all.
Even if the approval process goes according to our expectations, we anticipate
that sales of product manufactured in the facility will not begin for at least
the next six to nine months. Until approval is received, all costs of operating
our manufacturing facility must be borne by us without being offset by revenue
from sales of CytoGam that we manufacture. If approval were substantially
delayed, or we were unable to obtain approval at all, we could be forced to
continue to incur these costs and to seek alternative sources of supply for
CytoGam, which could have a material adverse effect on our business, financial
condition or results of operations.
WE HAVE LIMITED EXPERIENCE IN COMMERCIAL MANUFACTURING: We may encounter many
new risks associated with commercial manufacturing, such as: manufacturing
processes appropriate for low-volume production may not be suitable for
higher-volume production; costs of operating and maintaining the production
facility may be in excess of our expectations; product defects may result;
contamination of product or product loss could occur; our production process may
result in environmental problems; we may not be able to manufacture products at
a cost that is competitive with third party manufacturing operations. If we were
to experience any one or more of these problems, there could be a material
adverse effect on our business, financial condition or results of operations.
WE ARE DEPENDENT ON THIRD PARTY MANUFACTURERS AND SUPPLIERS: We are currently,
and for the foreseeable future expect to be, dependent on a limited number of
contract manufacturers for some or all of the manufacture of our current and
future products (if any). We depend on Boehringer Ingleheim Pharma KG ("BI") to
produce the majority of the Synagis we sell. BI's facility is subject to
inspection and approval by both U.S. and foreign regulatory authorities in order
to maintain its license to manufacture our products. Should BI be unable to
supply Synagis to us for any reason, there can be no assurance that we would be
able to secure an alternate manufacturer on a timely basis or without increased
cost.
31
We also depend on the University of Massachusetts, Massachusetts Biologics
Laboratories (the "State Lab") to produce all the CytoGam and RespiGam we sell.
The State Lab holds the sole product and establishment licenses from the FDA for
the manufacture of CytoGam and RespiGam. Our manufacturing arrangements with the
State Lab are renegotiated annually. We cannot guarantee that any new
arrangements will be on terms favorable to us. In addition, we rely on a limited
number of suppliers to obtain substantially all of the plasma used as raw
material for the production of CytoGam and RespiGam. The State Lab or these
suppliers of raw material could fail to meet our requirements for the production
of CytoGam and RespiGam. If we were unable to obtain these products on
reasonable terms or at all, we could be unable to secure alternative suppliers
or manufacturers without unduly disrupting our operations. Such a disruption
could have a materially adverse effect on our business, financial condition or
results of operations. We have previously experienced shortages of CytoGam and
RespiGam, which has limited sales of these products without reducing our sales
and marketing costs.
We depend on third parties to manufacture the drug substance for Ethyol,
NeuTrexin and Hexalen. We also depend, to a decreasing but still important
extent, on third parties to manufacture our finished oncology drug products
under contract. There can be no assurance that third party manufacturers will
give our orders highest priority, or that we would be able to readily find
substitute manufacturers without significant delays or increased costs.
WE ARE DEPENDENT ON STRATEGIC ALLIANCES: We depend on strategic alliances with
our corporate partners to accomplish many of our goals. If those corporate
partners fail to devote sufficient effort and attention to achieving those
goals, we would be adversely affected.
PATENT PROTECTION FOR OUR PRODUCTS MAY BE INADEQUATE OR COSTLY TO ENFORCE: We
may not be able to obtain effective patent protection for products we develop.
We are currently developing, or considering developing, products in the
biotechnology industry, an industry in which there are extensive patent filings.
The patent position of biotechnology firms generally is highly uncertain and
involves complex legal and factual questions. To date, no consistent policy has
emerged regarding the breadth of claims allowed in biotechnology patents.
Accordingly, there can be no assurance that our patent applications will result
in patents being issued or that, if issued, such patents will afford protection
against competitors with similar technology. Litigation could be necessary from
time to time in order to enforce our intellectual property rights. There has
been substantial litigation regarding patent and other intellectual property
rights in the biotechnology industry. If we were required to litigate, there
could be substantial cost involved and significant diversion of our business
efforts.
WE MAY BE REQUIRED TO SEEK PATENT LICENSES FROM THIRD PARTIES: We believe that
there are patents issued to third parties and/or patent applications filed by
third parties which could apply to each of our products and product candidates.
These patents and/or applications could limit our ability to manufacture, use or
sell our products. In such a case, we may be required to obtain a patent license
in order to avoid infringing a third party's intellectual property rights. If
such a license were necessary, there can be no assurance that it would be
available on terms acceptable to us or at all, which could have a material
adverse effect on our business, financial condition or results of operations.
32
TECHNOLOGICAL DEVELOPMENTS BY OUR COMPETITORS MAY RENDER OUR PRODUCTS OBSOLETE:
If our competitors were to develop superior products or technologies, our
products or technologies could be rendered noncompetitive or obsolete.
Biotechnology and pharmaceuticals are evolving fields in which developments are
expected to continue at a rapid pace. Our success depends upon achieving and
maintaining a competitive position in the development of products and
technologies. Competition from other biotechnology and pharmaceutical companies
is intense. Many of our competitors have substantially greater research and
development capabilities, marketing, financial and managerial resources and
experience in the industry. Were a competitor to develop a better product or
technology, our products or technologies could be rendered obsolete, decreasing
our product sales and resulting in a material adverse effect on our business,
financial condition or results of operations.
COMPLIANCE WITH GOVERNMENT REGULATIONS IS COSTLY AND TIME-CONSUMING:
Substantially all of our products require costly and time-consuming regulatory
approval by governmental agencies. In particular, human therapeutic and vaccine
products are subject to rigorous preclinical and clinical testing for safety and
efficacy and approval processes by the FDA in the United States, as well as
regulatory authorities in foreign countries. There can be no assurance that
required approvals will be obtained. If we were unable to obtain these approvals
on a timely basis or at all, our ability to successfully market products
directly and through our collaborators, and to generate revenues from sales or
royalties, would be impaired.
Any approved products are subject to continuing regulation. If we were to fail
to comply with applicable requirements, we could be subject to fines, recall or
seizure of products, total or partial suspension of production, refusal by the
government to approve our product license applications, restrictions on our
ability to enter into supply contracts, and criminal prosecution.
The FDA also has the authority to revoke product licenses and establishment
licenses previously granted to us. Further, the regulation of recombinant DNA
technologies and the regulation of manufacturing facilities by state, local and
other authorities is subject to change. Any changes to existing regulations
would obligate us to comply, which could entail additional cost, time and risk
of non-compliance.
PRODUCT LIABILITY CLAIMS MAY RESULT FROM SALES OF OUR PRODUCTS AND PRODUCT
RECALLS MAY BE NECESSARY: As a developer, tester, manufacturer, marketer and
seller of health care products, we are potentially subject to product liability
claims. Our blood products, such as CytoGam and RespiGam, involve heightened
risks of claims, including the risk of claims resulting from the transmission of
blood-borne diseases. Defending a product liability claim could be costly and
divert our focus from business operations. There can be no assurance that we
will be able to maintain our current product liability insurance at a reasonable
cost, or at all. If a claim were successful, there is no guarantee that the
amount of the claim would not exceed the limit of our insurance coverage.
Further, a successful claim could result in the recall of some or all of our
products. Any of these occurrences could have a material adverse effect on our
business, financial condition or results of operations. Additionally, blood
products like CytoGam and RespiGam are occasionally recalled from the market
because of risks of contamination from infectious
33
agents or for other reasons. Any such recall of our products could have a
material adverse effect on our business, financial condition or results of
operations.
WE DEPEND ON KEY PERSONNEL: Our success depends upon the continued contributions
of our executive officers and scientific and technical personnel. Many key
responsibilities have been assigned to a relatively small number of individuals.
The competition for qualified personnel is intense, and the loss of services or
certain key personnel could adversely affect our business. We do not maintain or
intend to purchase "key man" life insurance on any of our personnel.
THE PRICE OF OUR COMMON STOCK COULD FLUCTUATE SIGNIFICANTLY OVER TIME: The
market price of our common stock has fluctuated significantly over time, and it
is likely that the price will fluctuate in the future. Investors and analysts
have been and will continue to be, interested in our reported earnings, as well
as how we perform compared to their expectations. Announcements by us or others
regarding operating results, existing and future collaborations, results of
clinical trials, scientific discoveries, commercial products, patents or
proprietary rights or regulatory actions may have a significant effect on the
market price of our common stock. In addition, the stock market has experienced
extreme price and volume fluctuations that have particularly affected the market
price for many high technology companies and that have often been unrelated to
the operating performance of these companies. These broad market fluctuations
may adversely affect the market price of our common stock.
CHANGES IN FOREIGN CURRENCY EXCHANGE RATES OR INTEREST RATES COULD CAUSE US
LOSSES: We have entered into foreign exchange forward contracts which could
result in losses. Because we have contracts for the future purchase of inventory
which are denominated in foreign currencies, there is a chance that the foreign
currency exchange rate could change between the time those contracts become due
and the time when our payments are actually made, resulting in increases or
decreases in the actual cost of our purchases. To reduce the risk of
unpredictable changes in the cost of our purchases, we may enter into forward
foreign exchange contracts, which allow us to purchase, for a fixed price on a
specific date in the future, the amount of foreign currency necessary to pay for
our contractual purchase of inventory. Fluctuations in the anticipated payment
date for the inventory could require us to adjust the date of the contract,
which could result in a change in the foreign currency exchange rate, which
could have a material adverse effect on our financial condition. Additionally,
certain of our distribution agreements outside the United States provide for us
to be paid based upon sales in local currency. Changes in foreign currency
exchange rates could adversely affect the amount we expect to collect.
A discussion of our accounting policies for financial instruments and further
disclosure relating to financial instruments is included in the Notes to
Financial Statements, located in Part II, Item 8 of this report.
THE SUCCESS OF OUR PRODUCTS MAY BE LIMITED BY GOVERNMENT AND THIRD-PARTY PAYORS:
The continuing efforts of government and third party payors to contain or reduce
the costs of health care through various means may negatively affect sales of
our products. In some foreign markets, pricing and profitability of
pharmaceutical products is subject to governmental control. In the United
States, there have been, and we expect there will
34
continue to be, various Federal and state proposals to implement similar
government controls over pricing and profitability. The adoption by Federal or
state governments of any such proposals could limit the commercial success of
our existing or any future products.
Both in the United States and elsewhere, sales of pharmaceutical products depend
on the availability of reimbursement to the consumer from third party payors,
such as government and private insurance plans. Third party payors are
increasingly challenging the prices charged for products, and are limiting
reimbursement levels offered to consumers for these products. To the extent that
third party payors focus their efforts on our products, sales of our products
could be negatively impacted.
ITEM 2. PROPERTIES
The Company occupies, under leases expiring in 2006, a facility in Gaithersburg,
Maryland, that contains approximately 104,000 square feet of research,
development and administrative space. The Company also occupies approximately
26,860 square feet of space in West Conshohocken, Pennsylvania, where the
principal offices of its oncology business are located. The space is rented
pursuant to a lease which expires on October 31, 2003, but which may be
terminated early, on October 31, 2001, in accordance with the notice and other
conditions for early termination set forth in the lease. The Company also leases
10,000 square feet of laboratory space in Exton, Pennsylvania, which is used as
an analytical laboratory to conduct small scale product analysis, testing and
development. This laboratory space is leased pursuant to a lease that expires
June 30, 2000. The Company plans to relocate the activities conducted at this
laboratory to its Frederick and Nijmegen facilities by the end of the lease
term. The operations of the Company's oncology business in the United Kingdom
are presently housed in a 1,362 square foot office rented in Watford,
Hertfordshire, England. The Company plans to discontinue operations in the
United Kingdom during 2000. These operations were previously housed in an 8,689
square foot office, also in Watford, Hertfordshire, England, which space has
been assigned to a new tenant for the remainder of a ten-year lease term that
began March 25, 1997. The assigned lease can be terminated at the end of five
years subject to an early termination fee of 50,000 pounds sterling. The Company
has guaranteed the obligations of the new tenant under the assigned lease. The
Company also leases warehouse space in Nijmegen, The Netherlands of
approximately 9,000 square feet, which is subject to a lease that may be
terminated effective in 2003.
In 1996, the Company acquired a 27 acre parcel of land in Frederick, Maryland.
The Company operates a 91,000 square foot multi-use biologics facility on this
site to provide for the manufacture of immune globulins and by-products from
human plasma and a cell culture production area for manufacture of products such
as Synagis. The Company also purchased in December 1998, administrative and
warehouse space on approximately a six acre parcel of land adjacent to the
existing Frederick facility. The structure contains approximately 56,000 square
feet. The Company owns an 18,000 square foot manufacturing facility in Nijmegen,
The Netherlands.
35
ITEM 3. LEGAL PROCEEDINGS
In 1996, the Company entered into a Material Transfer Agreement and a
Confidentiality Agreement with MediGene AG ("MediGene") relating to human
papillomavirus vaccine ("HPV") technology in which the Company had a potential
interest. In 1997, the Company learned information that caused it to believe
that such technology had been developed by employees of Loyola University of
Chicago ("Loyola"). As a result, the Company acquired from Loyola a license to
patent applications directed to such technology. The Company granted to
SmithKline Beecham a sublicense under the Loyola license.
In 1998, MediGene initiated a legal action against Loyola in the U.S. District
Court for the Northern District of Illinois alleging that the patent
applications licensed by Loyola to the Company are, in fact, owned and/or
licensed to MediGene. Also in 1998, MediGene amended the complaint to add the
Company as a defendant.
In the amended complaint, MediGene alleges that the Company breached the
Confidentiality Agreement and the Material Transfer Agreement and tortiously
interfered with an alleged prospective business relationship and an alleged
contract between MediGene and Loyola involving the HPV technology. MediGene
claims monetary damages from the Company and ownership of the patents in
question, as well as rescission of the license granted to the Company by Loyola
or rights as a third party beneficiary thereof.
After consultation with its patent counsel, the Company believes that, while the
matter is not free from doubt, it is unlikely that MediGene can successfully
assert it claims against the Company. The Company also believes that the outcome
of such dispute is unlikely to have a material adverse effect on its financial
position.
On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co. ("Ichthyol
Gesellschaft") filed a complaint for refrain, information and damages with the
Regional Court of Hamburg against U.S. Bioscience, Inc. on the grounds of
trademark infringement in respect of the use of the trademark "Ethyol" in
Germany. The suit was dismissed on January 29, 1997 by the Regional Court of
Hamburg, Germany at which time Ichthyol Gesellschaft was given leave to appeal
against the judgment rendered in favor of U.S. Bioscience. Ichthyol Gesellschaft
filed an appeal, and a judgment was rendered in favor of U.S. Bioscience in the
appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on
points of law with the Federal Court of Justice, and in June 1999, Ichthyol
Gesellschaft filed the grounds for the appeal on points of law. In October 1999,
the Federal Court of Justice accepted Ichthyol Gelleschaft's appeal. U.S.
Bioscience was advised that it usually takes a year and one-half from the
acceptance of such an appeal until a hearing is held, and it is not possible to
predict the decision of the Federal Court of Justice with respect to the matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
36
PART II
ITEM 5. MARKET FOR MEDIMMUNE, INC.'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"MEDI". At February 29, 2000, the Company had 1,513 common stockholders of
record. This figure does not represent the actual number of beneficial owners of
common stock because shares are generally held in "street name" by securities
dealers and others for the benefit of individual owners who may vote the shares.
The following table shows the range of high and low closing prices and year end
closing prices for the common stock for the two most recent fiscal years,
adjusted to reflect a two-for-one stock split on December 31, 1998.
1999 1998
--------------------- ----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $66 $43 $29 1/8 $19 3/8
Second Quarter 74 45 32 15/16 22 1/16
Third Quarter 120 5/8 68 7/8 34 7/8 21
Fourth Quarter 175 3/16 89 50 11/16 25 5/8
Year End Close $165 7/8 $49 11/16
The Company has never declared or paid any cash dividends on its common stock
and does not anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain any earnings to fund future growth, product
development, and operations.
37
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
All amounts have been restated to give effect for the merger with USB in 1999,
accounted for as a pooling-of-interests transaction.
RESULTS FOR THE YEAR 1999 1998 1997* 1996* 1995*
---- ---- ----- ----- -----
Total revenues $383,375 $227,221 $105,748 $45,565 $48,980
Gross profit 266,622 107,988 39,315 23,933 11,660
Net earnings/(loss) 93,371(2) 47,187(1) (44,804) (32,358) (19,066)
Earning/(Loss) per Share*
Basic 1.47 0.83 (0.90) (0.71) (0.54)
Diluted 1.33 0.73 (0.90) (0.71) (0.54)
YEAR END POSITION
Cash and marketable
securities $270,394 $176,860 $101,246 $74,716 $68,123
Total assets 648,424 405,777 232,717 106,443 106,604
Long term debt 11,856 87,910 90,276 3,829 21,178
Shareholders' equity 537,079 248,566 87,560 80,673 62,982
*Note: loss per share data have been restated to give effect for the two-for-one
stock split on December 31, 1998.
(1) Includes deferred income tax benefit of $47,428.
(2) Includes deferred income tax benefit of $40,973.
38
QUARTERLY FINANCIAL DATA (UNAUDITED)
(thousands, except per share amounts)
All amounts have been restated to give effect for the merger with USB in 1999,
accounted for as a pooling-of-interests transaction.
1999 Quarter Ended
----------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
Net sales $171,459 $38,631 $13,311 $133,414
Gross profit 132,088 26,305 7,697 100,532
Net earnings 34,151 2,788 30,719(2) 25,713
Earnings per share:
Basic 0.51 0.04 0.51 0.44
Diluted 0.47 0.04 0.44 0.38
1998 Quarter Ended
----------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
Net sales $96,540 $28,022 $12,276 $47,110
Gross profit (loss) 68,351 19,555 (3,477) 23,559
Net earnings/(loss) 69,330(1) (13,508) (21,704) 13,068
Earnings/(loss) per share*:
Basic 1.20 (0.24) (0.38) 0.24
Diluted 1.02 (0.24) (0.38) 0.20
* Amounts have been restated to give effect for the two-for-one stock split on
December 31, 1998.
(1) Includes deferred income tax benefit of $47,428.
(2) Included deferred income tax benefit of $40,973.
39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This review contains management's discussion of the Company's operational
results and financial condition and should be read in conjunction with the
accompanying financial statements.
OVERVIEW
The Company, since inception, has incurred significant operating expenses
developing its products. Consequently, the Company had experienced substantial
operating losses. The Company's financial results improved in 1998 culminating
with the Company achieving profitability in 1998. The profitability was driven
by sales of Synagis, the Company's second generation anti-RSV drug which was
approved by the FDA on June 18, 1998. Synagis is approved in the U.S. for the
prevention of serious lower respiratory tract disease caused by RSV in pediatric
patients at high risk for RSV disease. Because of the seasonal nature of RSV,
limited sales, if any, are expected during the second and third quarters of any
calendar year, causing results to vary significantly from quarter to quarter.
Synagis sales for the 1998/1999 RSV season totaled $227 million. The Company
obtained marketing authorization by the Centralized European Agency for the
Evaluation of Medicinal Products ("EMEA") in August 1999 allowing Synagis to be
marketed in the European Union ("EU"). The Company also markets CytoGam for the
attenuation of primary CMV disease in kidney, lung, liver, pancreas and heart
transplant patients and RespiGam for the prevention of serious lower respiratory
tract infection caused by RSV in children under 24 months of age with BPD or a
history of prematurity. RespiGam, the Company's first generation anti-RSV drug,
has been largely replaced in the marketplace by Synagis.
In November 1999, the Company completed a merger with U.S. Bioscience, Inc.
("USB"), in a transaction accounted for as a pooling-of-interests. As a
consequence, historical results of MedImmune and USB have been combined. In
addition to gaining clinical, marketing and sales personnel specializing in
oncology, the Company also added three approved products to its product
portfolio, including two oncology products. Ethyol was made commercially
available by the Company's U.S. distribution partner, ALZA Corporation ("ALZA")
in March 1996. Administered intravenously, it was approved by the FDA in
December 1995 as a selective cytoprotective agent to reduce the cumulative renal
(kidney) toxicity associated with repeated administration of cisplatin in
patients with advanced ovarian cancer or non-small cell lung cancer ("NSCLC").
The label was expanded in June 1999 to include the prevention of severe dry
mouth caused by post-operative radiation treatment in certain head and neck
cancer patients. Hexalen, introduced in January 1991, is an orally administered
cytotoxic drug for use as a single agent in the palliative treatment of patients
with persistent or recurrent ovarian cancer. NeuTrexin, introduced in January
1994, is an intravenous drug approved for concurrent use with leucovorin
administration (leucovorin protection) as an alternative therapy for
40
the treatment of moderate-to-severe PNEUMOCYSTIS CARINII pneumonia ("PCP") in
immunocompromised patients, including patients with AIDS.
RESULTS OF OPERATIONS
----------------------------------------------------------------------
PRODUCT SALES (IN MILLIONS) 1999 1998 1997
---- ---- ----
Synagis $ 293.0 $109.7 $ --
----------------------------------------------------------------------
CytoGam 34.7 32.9 20.3
----------------------------------------------------------------------
Ethyol 19.6 13.0 7.1
----------------------------------------------------------------------
Other Products 9.5 28.3 50.7
----------------------------------------------------------------------
TOTAL $356.8 $183.9 $78.1
----------------------------------------------------------------------
1999 COMPARED TO 1998
REVENUES
Product sales of $356.8 million in 1999 increased 94.0% over 1998 levels of
$183.9 million. Synagis accounted for approximately 82% of the Company's 1999
product sales. Sales of Synagis for the year ended December 31, 1999 increased
167% over 1998. Contributing to the growth in 1999 sales were increases of 158%
and 443% in domestic and international sales unit volumes, respectively. The
domestic volume increase resulted from the combination of increasing demand for
the product after its introduction into the market as well as twelve months of
sales recorded in 1999, versus only four months of sales recorded in 1998,
following the launch of the product in September 1998. In addition, the selling
price of Synagis was increased by approximately 5% in May 1999. The Company has
also experienced increased demand for the product internationally following
marketing authorization by the EMEA in August 1999. Prior to the marketing
authorization, product was sold in the E.U. and other countries on a "named
patient" basis. Abbott International acts as the Company's exclusive distributor
for Synagis sales outside of the U.S. The terms of the Company's agreement with
Abbott provide for the Company to receive 40 to 50 percent of end user sales.
The Company initially recognizes sales to Abbott when Synagis is shipped to
Abbott based on a contractual, guaranteed transfer price; this amount
approximates 60 to 75 percent of the total sales revenue expected to be received
for each vial. Following the end of each quarter, Abbott remits to the Company a
report detailing end user sales by Abbott for the quarter and the Company
recognizes revenue for the additional amount due in excess of the transfer price
and up to 40 to 50 percent of the end user selling price. As of December 31,
1999, the Company and Abbott International had filed international
41
registrations in 46 countries for the approval of Synagis, of which approvals in
28 countries had been obtained. There can be no assurance that approvals by the
appropriate regulatory authorities will continue to be granted. Additionally,
the Company may not have received pricing and reimbursement approvals in
countries for which regulatory approvals have been obtained.
CytoGam accounted for approximately 10% of the Company's 1999 product sales.
CytoGam sales increased to $34.7 million in 1999 from $32.9 million in 1998, an
increase of 5%. Domestic sales unit volume increased 14%, international unit
volume increased 9% and a price increase of 5% was effective March 1999. These
increases were offset by increased government rebates for the product,
principally for Medicaid. In December 1998, the Company received FDA approval
for the use of CytoGam in kidney, lung, liver, pancreas and heart transplants,
which expanded its labeling from donor positive/recipient-negative kidney
transplant patients. The increase in domestic units sold reflects both an
increase in the core business for CytoGam and substitution occurring as a result
of the worldwide shortage of standard IVIG products. The increase in
international CytoGam sales reflects a greater focus on this market as well as
the effects of the worldwide shortage of IVIG products. The duration of this
shortage and continued impact on CytoGam sales cannot be determined at this
time. The increase in government rebates primarily related to the use of CytoGam
as an IVIG substitute.
Ethyol accounted for approximately 5% of the Company's sales in 1999. Ethyol
revenues increased 51% over 1998 levels. Ethyol is sold through distribution
partners in the U.S. and internationally; the Company receives a percentage of
end user sales and records all related cost of goods sold. In 1999, revenue for
Ethyol from ALZA, the Company's U.S. distributor, was $14.0 million versus $8.8
million in 1998. As a result of achieving a sales milestone in the fourth
quarter of 1998, the percentage of end user sales received by the Company from
ALZA increased to 25% in 1999 from 20% in 1998. Domestic unit volume decreased
by 5%, while international unit volume increased by 24%. In June 1999, the
Company received an expanded indication in the U.S. for use of Ethyol in the
prevention of severe dry mouth caused by post-operative radiation treatment of
certain head and neck cancer patients; a similar expanded indication was
approved in the E.U. in 1999. The impact on sales of the expanded indication
cannot be determined at this time. Additionally, sales made by the Company to
its distributors may not reflect the ultimate demand for the product by the end
users.
Sales of other products in 1999 decreased 66% from the prior year, reflecting
primarily a switch in customer demand from RespiGam to Synagis. Other product
sales in 1998 were reduced by a $12.5 million reserve for an estimate of
potential returns for RespiGam sold during the 1997/1998 RSV season, as a result
of the FDA approval of Synagis and switch in customer demand. Other product
sales in 1999 were also negatively affected by transitional factors relating to
the Company's assumption of full promotional responsibility of two of its
products in the United States in mid-1999, following the termination of the
co-promotion agreement with ALZA. ALZA now receives a commission based on a
percentage of net sales of these two products.
The level of future product sales will be dependent on several factors,
including, but not limited to, the timing and extent of future regulatory
approvals of the Company's products and product candidates, availability of
finished product inventory, approval and
42
commercialization of competitive products and the degree of acceptance of the
Company's products in the marketplace.
Other revenues for the year ended December 31, 1999 of $26.6 million decreased
38.6% from 1998 revenues of $43.3 million. In 1999, the Company earned $6.2
million under the SmithKline Beechum ("SB") collaborative agreement for HPV
vaccine development and received a milestone payment of $15.0 million from
Abbott upon European approval of Synagis. Other revenues in 1998 included a
$15.0 million milestone payment from Abbott received upon FDA approval of
Synagis, and a $15.0 million payment from SB in connection with the signing of
the HPV collaborative agreement. Also in 1998, the Company received a $5 million
clinical milestone payment from ALZA in connection with the development of
Ethyol for use in conjunction with radiation therapy in the treatment of
patients with head and neck cancer and $5.7 million in research funding in
connection with the SB agreement. The level of contract revenues in future
periods will depend primarily upon the extent to which the Company enters into
other collaborative contractual arrangements, if any, and the extent to which
the Company achieves certain milestones provided for in its existing agreements.
COST OF GOODS SOLD - Cost of goods sold rose 18.7% in 1999 to $90.2 million
versus $76.0 million in 1998. This increase is primarily a result of the
increase in 1999 sales volumes, offset by certain one-time adjustments in 1998.
These one-time adjustments to 1998 include a charge of $11.2 million to cost of
sales relating to the writedown of RespiGam inventory, and a credit to cost of
sales for the reversal of previously recorded RespiGam royalties expected to be
due to Massachusetts Health Research Institute ("MHRI"). Excluding these
one-time adjustments, gross margins increased to 75% in 1999 from 64% in 1998,
due largely to the increase of Synagis sales in proportion to total sales.
Synagis has a more favorable margin than the Company's other products. A
significant portion of the Company's products are primarily manufactured by
third parties and future per-unit cost of sales could increase if the Company is
unable to negotiate favorable pricing.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses increased
41.3% over the prior year from $42.2 million in 1998 to $59.6 million in 1999.
The increase is largely due to costs associated with the continuing Synagis
clinical trials conducted on infants with congenital heart disease. Also
contributing to the increase was $6.6 million in expenses associated with the
clinical studies of lodenosine (FddA), which began in late 1998, and were placed
on a clinical hold status in October 1999, following serious adverse events.
In 1999, the Company also provided research funding to IXSYS, a collaborative
partner, in an alliance formed in February 1999 to develop four monoclonal
antibodies primarily in the field of oncology. Also in 1999, the Company made a
milestone payment upon European approval of Synagis. Also contributing to
research and development expenses in 1999 were increases in the infrastructure
needed to support the Company as it expanded the number of product candidates in
its research and development portfolio, and moved more products into the clinic.
Clinical spending is expected to increase in the coming year as the Company
moves more of its product candidates into the clinic and expands trials on
products already in the clinic.
43
SELLING, ADMINISTRATIVE AND GENERAL EXPENSE - Selling, general and
administrative ("SG&A") expense was $139.4 million in 1999 versus $78.1 million
in 1998, an increase of 78.6%. Expenses in 1999 include $21.2 million for merger
and severance related costs associated with the acquisition of USB. Excluding
these merger related costs, SG&A expenses were 33% of product sales in 1999
versus 42% in 1998. A significant portion of the dollar increase relates to
co-promotion expenses due to Abbott for the promotion of Synagis in the United
States; these expenses increase as the sales for Synagis increase. Co-promotion
expense is recorded ratably as a percentage of net domestic Synagis sales.
Further increases were attributable to recruiting and staffing expenses incurred
in connection with the expansion of the Company's sales force in 1999 as the
Company assumed full responsibility for the marketing of NeuTrexin and Hexalen
from its former distribution partner. During the fourth quarter of 1999, the
Company favorably resolved a prior dispute with one of its partners resulting in
receipt of approximately $6.8 million to the Company. Such settlement amount was
recorded as a reduction to selling, administrative and general expense in the
fourth quarter of 1999.
OTHER OPERATING EXPENSES - Other operating expenses, which reflect manufacturing
startup costs, decreased 52.3% in 1999 to $17.4 million from $36.5 million in
1998. Expenses in both years include start-up costs for the Company's Frederick
Manufacturing Center ("FMC"). Expenses in 1999 include a $1.4 million charge for
the write off of certain equipment purchased for use in the Frederick facility,
as it was determined that the equipment ultimately will not be used in the
facility. One-time charges in 1998 included a charge of $10.5 million for the
buydown of certain Synagis royalty obligations prior to FDA approval. Expenses
in 1998 also included costs related to scale-up of production of Synagis at a
third-party manufacturer and at the Company's Gaithersburg Manufacturing and
Development Facility ("GMDF"). Other operating expenses are expected to decrease
in 2000 following the FDA approval in December 1999 of the Synagis portion of
the Frederick plant, as that portion of the plant operates at full capacity and
amounts produced will be inventoried. Start-up costs are expected to continue
until the Company receives regulatory approval of the plasma production portion
of the FMC. The Company expects to file an application for this approval
sometime in 2000; there can be no assurance that this portion of the facility
will receive regulatory approval for its intended purpose.
INTEREST INCOME AND EXPENSE - Interest income increased 34.5% to $12.6 million
from $9.4 million in 1998 as a result of higher cash balances available for
investment, partially offset by decreased yields on investments in the 1999
investment portfolio. Interest expense in 1999 decreased to $3.2 million from
$4.2 million in 1998. The decrease is the result of the conversion of the
Company's convertible debt in July 1999 and the retirement of most of the
Company's equipment financing during 1999. The Company's long term debt
decreased by $76.1 million in 1999.
TAXES - The Company recorded an income tax benefit of $7.1 million and $47.4
million in 1999 and 1998, respectively. The benefit in 1999 includes the
reversal of the Company's valuation allowance against deferred taxes relating to
federal net operating losses of USB in the amount of $41.0 million. In the
fourth quarter of 1998, the Company concluded that it was more likely than not
that it would realize a portion of the benefit of the federal net operating
losses and research and development credits generated
44
by MedImmune, Inc. Accordingly, the Company reduced the valuation allowance
against the asset and recorded a tax benefit of $47.4 million in December 1998.
The recognition of these deferred tax assets has no impact on the Company's
current period cash flows. The recognition of these deferred tax assets
increased reported earnings per share due to the resulting benefit recorded in
the statement of operations from the reduction in the Company's valuation
allowance.
Excluding the reversal of the valuation allowance, the Company's income tax
expense would have been $33.9 million in 1999, an effective rate of 39.3%. The
variation from the statutory rate is principally due to tax credits for research
and development expenditures and credits earned for orphan drug status of
certain R&D expenditures, offset by the nondeductibility of certain merger
related expenses. The Company expects that its effective tax rate in future
periods will approximate the applicable statutory rates.
NET EARNINGS - The 1999 net income of $93.4 million compared to 1998 net income
of $47.2 million. Basic earnings per share in 1999 of $1.47 on 63.5 million
shares compared to basic earnings of $0.83 in 1998 on 56.8 million shares.
Diluted earnings per share in 1999 of $1.33 on 70.8 million shares compared to
diluted earnings per share in 1998 of $0.73 on 67.0 million shares. The Company
does not believe inflation had a material effect on its financial statements.
These results were consistent with the Company's objectives for the year and
with the continued development of its products. The factors that affected 1999
results may continue to affect near-term financial results.
1998 COMPARED TO 1997
Product sales increased 135% to $183.9 million for the year ended December 31,
1998 over the year ended December 31, 1997 due primarily to demand for Synagis,
launched in 1998. Sales of Synagis commenced in September 1998 and were $109.8
million for the year. Of those sales, $2.3 million were sales to Abbott
International, the Company's exclusive distributor outside the U.S., for "named
patient" sales of Synagis. As of December 31, 1998, the Company and Abbott
International had filed international registrations in 25 countries for approval
of Synagis. Sales of CytoGam increased 62% to $32.9 million in 1998 from $20.3
million in 1997. Domestic units sold increased by 41% and international units
sold increased by 264%. CytoGam is sold at a lower selling price to
international distributors than domestic units. The increase in domestic units
sold reflected both an increase in the core business for CytoGam and
substitution occurring as a result of the worldwide shortage of standard IVIG
products. The increase in international CytoGam sales reflects a greater focus
on this market as well as the effects of the worldwide shortage of IVIG
products. Ethyol revenues of $13.0 million in 1998 compared to $7.1 million in
1997, an increase of 82%. Domestic units sold increased by 65% and international
units sold increased by 38%. The increase in Ethyol revenues reflects higher
shipments to and revenue received from the Company's domestic and international
distribution partners. Sales of other products decreased 44% to $28.3 million in
1998 from $50.7 million in 1997. This decrease primarily reflected shift in
45
customer demand from RespiGam to Synagis, following FDA approval of Synagis in
June of 1998.
Other revenue increased 57% to $43.3 million in 1998 from $27.6 million in 1997.
Revenues in 1998 include a $15.0 million milestone payment from Abbott received
upon FDA approval of Synagis; $20.9 million from SB in connection with the HPV
vaccine development collaboration, including a $15.0 million milestone payment
that was due upon signing of the agreement; and a $5 million payment from ALZA
for achieving a clinical development milestone in connection with the Phase 3
trial of Ethyol for use in severe dry mouth in post-operative radiation
treatment of patients with head and neck cancer. Other revenues in 1997 consist
primarily of a $15.0 million payment made by Abbott in connection with the
signing of the international distribution agreement, and a $10 million payment
from ALZA for achieving a clinical development milestone in connection with the
Company's Phase 3 randomized trial of paclitaxel, carboplatin, and amifostine
(Ethyol) in patients with advanced non-small cell lung cancer.
Cost of sales of $76.0 million was recorded in 1998 versus $38.8 million in
1997, an increase of 96%. Factors impacting 1998 cost of sales include a charge
of $11.2 million related to the writedown of RespiGam inventory and by-product
inventory, offset by credits for the reversal of previously recorded RespiGam
royalties expected to be due to MHRI. Excluding the RespiGam inventory writedown
and the royalty adjustments from cost of sales and excluding the RespiGam
returns from product sales, gross margins improved to 66% in 1998 from 50% in
1997, reflecting the change in product mix towards Synagis.
Research and development expenses decreased to $42.2 million in 1998 from $55.5
million in 1997, or 24%, reflecting primarily $14.5 million of expenses in 1997
for conducting the Company's Phase 3 Synagis clinical trial. Expenses in 1998
include an increase of approximately $2 million related to the Company's ongoing
Phase 3 trials of Ethyol and NeuTrexin.
SG&A expenses increased 63% to $78.1 million in 1998 from $47.9 million in 1997.
SG&A expenses were 42% of product sales in 1998 versus 61% in 1997. A
significant portion of the increase in expenses in 1998 reflects payments due to
Abbott for co-promotion of Synagis and approximately $9.3 million of marketing
expenses for the launch of Synagis. Additionally, 1998 SG&A reflects increased
spending over 1997 for increased distribution costs resulting from Synagis sales
as well as for added headcount and facilities needed to handle growth in the
Company's operations.
Other operating expenses were $36.5 million in 1998 versus $11.5 million in
1997, an increase of 216%. This increase is primarily a result of 1) increased
wages and supply costs as the Frederick manufacturing facility increased
staffing levels in 1998; 2) increased consulting costs for plant validation and
start-up activities; and 3) a $10.5 million charge for the buydown of certain
Synagis royalty obligations prior to FDA approval in June 1998.
Interest income increased to $9.4 million for 1998 from $6.8 million in 1997
reflecting higher cash balances available for investment, including the proceeds
from the
46
Company's private placement of stock in January 1998 resulting in net proceeds
of $66.2 million, offset by a decrease in interest rates which lowered the
overall portfolio yield.
Interest expense of $4.2 million was recorded in 1998 versus $3.7 million in
1997, reflecting primarily interest on the Company's convertible debt (net of
amounts capitalized) and interest on equipment financing beginning in June 1997.
Interest expense in 1998 and 1997 is net of $2.9 million and $2.2 million,
respectively, of interest capitalized for the Frederick manufacturing facility
and the Gaithersburg pilot plant expansion.
The Company recorded an overall net income tax benefit of $47.4 million in 1998
as a result of a reversal of the Company's valuation allowance against its
deferred tax assets.
The 1998 net income of $47.2 million compared to a 1997 net loss of $44.8
million. Basic earnings per share in 1998 were $0.83 on 56.8 million shares.
Diluted earnings per share in 1998 were $0.73 on 67.0 million shares.
Basic and diluted loss per share was $0.90 in 1997 on 49.7 million shares.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities were $270.4 million at December 31, 1999, an
increase of 52.9% over 1998. Working capital was $302.9 million at December 31,
1999, versus $186.6 million at December 31, 1998.
OPERATING ACTIVITIES
Net cash provided by operating activities increased to $59.4 million in 1999 as
compared to $5.1 million in 1998, primarily as the result of higher earnings,
offset by an increase in working capital requirements. Working capital
requirements increased due to an increase in receivables of $50.0 million,
reflecting the high volume of Synagis product sales in December, and an increase
in inventories of $6.8 million, required to support anticipated seasonal sales.
These increases were partially offset by an increase in accrued expenses of
$18.6 million, which was primarily due to amounts expected to be due to Abbott
for Synagis co-promotion, and an increase in royalties payable of $13.6 million,
which is the result of increased product sales.
INVESTING ACTIVITIES
Cash used for investing activities during 1999 amounted to $121.3 million, as
compared to $97.9 million in 1998, excluding capitalized interest of $1.7
million and $2.9 million, respectively. Capital expenditures included $6.0
million, net of capitalized interest, relating to the finalization of
construction and enhancements to the Company's manufacturing facility, and $6.2
million for further expansion of the Company's facilities and equipment to
support the continued growth of the Company's operations. Additionally, in 1999,
the Company made a $6.4 million equity investment in Ixsys, Inc. in connection
with the formation of a strategic alliance. Capital expenditures in 2000 are
47
expected to approximate $7.7 million, primarily for updating and maintaining the
Company's facilities and systems.
FINANCING ACTIVITIES
Financing activities generated $54.0 million in cash, as compared to $81.1
million in 1998. Approximately $43.9 million was received upon the exercise of
employee stock options in 1999, as compared to $12.4 million received in 1998.
Cash was used in the amount of $14.6 million to retire equipment and landlord
loans during 1999, and in the amount of $1.3 million to pay down other debt. As
a result of a private placement transaction by USB, 403,000 common shares were
issued resulting in proceeds of $20.0 million to the Company, and warrants to
purchase 80,602 shares of common stock were issued in 1999 concurrent with the
private placement. The warrants were exercised in November 1999 for net proceeds
to the Company of $6.0 million. Also in 1999, the Company's convertible debt of
$60.0 million was eliminated by the issuance of 6,097,545 shares of common stock
in July 1999.
The Company is obligated in 2000 to provide $14.0 million in funding for various
clinical trials, research and development and license agreements with certain
institutions. The Company's existing funds, together with funds contemplated to
be generated from product sales and investment income, are expected to provide
sufficient liquidity to meet the anticipated needs of the business for the
foreseeable future, absent the occurrence of any unforeseen events.
YEAR 2000
The Company experienced no material delays or disruptions as a result of the
Year 2000 matter, nor are any future material delays or disruptions anticipated.
However, the Company can provide no assurance that the Company will not
experience any material delays or disruptions in the future associated with Year
2000.
STOCK SPLIT
On February 17, 2000, the Company's Board of Directors declared a three-for-one
stock split of the Company's common stock payable in the form of a 200 percent
stock dividend. The stock split is contingent upon shareholder approval to
increase the number of authorized shares of common stock from 120 million to 320
million, an action that will be voted on at the Annual Meeting of Shareholders
on May 18, 2000. If approved, stockholders will receive, on or about June 2,
2000, two additional shares for each share of stock owned as of the close of
business on May 18, 2000.
48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
The Company did not have significant exposure to changing interest rates on
invested cash at December 31, 1999. The Company invests primarily in money
market funds, investment grade commercial paper and short-term notes. The
interest rates on these securities are primarily fixed, the maturities are
relatively short and the Company generally holds the securities until maturity.
The Company has issued debt in the form of notes in the amount of $11.9 million
at December 31, 1999, which bear interest at fixed rates. The Company does not
have significant exposure to changing interest rates related to the notes
because the interest rate on these notes is fixed.
The Company's contract for the purchase of Synagis from BI is denominated in
German Marks. In an effort to reduce the impact of fluctuations in the rate of
exchange between the U.S. Dollar and the German Mark on the cost of the
Company's purchases of Synagis, the Company periodically enters into foreign
exchange forward contracts. These contracts permit the Company to purchase
German Marks or Euros, in an amount the Company believes will be sufficient to
fund its inventory purchase obligations, at a fixed exchange rate. Each contract
terminates on the day the Company expects to make payment for a shipment of
Synagis. The Company does not enter into foreign exchange forward contracts for
speculative or trading purposes.
The table below provides information about the Company's foreign exchange
forward contracts. The anticipated purchase amount is the amount, in German
Marks ("DM") or Euros, that the Company is contractually obligated to pay BI.
The contract amount is the sum of all of the Company's forward contracts during
the period indicated. The forward contract exchange rate is the rate at which
the Company has agreed to purchase German Marks upon termination of the
contract.
2000
-----------------------------
DM 000'S EUROS 000'S
-------- -----------
Anticipated purchase amount 33,500 8,669
Related foreign currency forward contracts
Contract Amount 29,484 5,108
Average forward contract exchange
rate per U.S. Dollar 1.70 1.04
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
ASSETS
Cash and cash equivalents $ 36,570 $ 44,730
Marketable securities 214,750 124,643
Trade receivables, net 86,894 33,348
Inventory, net 31,777 22,632
Deferred tax assets 23,132 22,596
Other current assets 8,715 8,096
-------- --------
Total Current Assets 401,838 256,045
Property and equipment, net 87,452 80,256
Deferred tax assets, net 128,990 54,922
Marketable securities 19,074 7,487
Other assets 11,070 7,067
-------- --------
Total Assets $648,424 $405,777
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $2,995 $4,798
Accrued expenses 65,300 45,022
Product royalties payable 28,527 14,948
Other current liabilities 2,130 4,682
------- -------
Total Current Liabilities 98,952 69,450
Long-term debt 10,366 83,718
Other liabilities 2,027 4,043
------- -------
Total Liabilities 111,345 157,211
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value; authorized
5,524,525 shares; none issued or outstanding -- --
Common Stock, $.01 par value; authorized 120,000,000 shares;
issued and outstanding 67,946,778 and 58,309,322
at December 31, 1999 and 1998 respectively 679 583
Paid-in capital 656,244 460,026
Accumulated deficit (118,241) (211,612)
Accumulated other comprehensive loss (1,603) (431)
------- -------
Total Shareholders' Equity 537,079 248,566
------- -------
Total Liabilities and Shareholders' Equity $648,424 $405,777
======== ========
The accompanying notes are an integral part of these financial statements.
50
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
REVENUES
Product sales $ 356,815 $ 183,948 $ 78,141
Other revenue 26,560 43,273 27,607
--------- --------- ---------
Total revenues 383,375 227,221 105,748
--------- --------- ---------
COSTS AND EXPENSES
Cost of sales 90,193 75,960 38,826
Research and development 59,565 42,153 55,451
Selling, administrative and general 139,389 78,060 47,893
Other operating expenses 17,409 36,495 11,543
--------- --------- ---------
Total expenses 306,556 232,668 153,713
--------- --------- ---------
Operating income (loss) 76,819 (5,447) (47,965)
Interest income 12,633 9,396 6,828
Interest expense (3,176) (4,190) (3,667)
--------- --------- ---------
Income (loss) before income taxes 86,276 (241) (44,804)
Income tax benefit (7,095) (47,428) -
--------- --------- ---------
Net earnings (loss) $ 93,371 $ 47,187 $ (44,804)
========= ========= =========
Basic earnings (loss) per share $ 1.47 $ 0.83 $ (0.90)
========= ========= =========
Shares used in calculation of basic
earnings (loss) per share 63,474 56,776 49,709
========= ========= =========
Diluted earnings (loss) per share $ 1.33 $ 0.73 $ (0.90)
========= ========= =========
Shares used in calculation of diluted
earnings (loss) per share 70,770 67,049 49,709
========= ========= =========
The accompanying notes are an integral part of these financial statements.
51
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $93,371 $47,187 $(44,804)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Deferred taxes (7,457) (47,428) --
Depreciation and amortization 5,001 4,345 3,568
Capitalized interest (1,707) (2,901) (2,188)
Compensation element of stock options/grants 575 40 40
Amortization of (discount) premium on
marketable securities (78) (785) 937
Unrealized loss/(gain) on investments 539 18 (27)
(Decreases)/Increases in allowances for trade
accounts receivable (3,509) 17,153 984
Provision for inventory reserve (1,668) 9,672 (8)
Amortization of debt issuance costs 2 358 330
Other 1,479 67 596
Increase (decrease) in cash due to changes in assets and liabilities:
Trade receivables (49,974) (32,751) (8,748)
Inventory (6,839) (3,404) (25,204)
Other assets (600) (802) (1,887)
Accounts payable and accrued expenses 18,596 6,259 15,988
Product royalties payable 13,579 8,721 3,668
Other liabilities (1,918) (618) 2,302
------- ------- -------
Net cash provided by (used in) operating activities 59,392 5,131 (54,453)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in securities available for sale (333,849) (213,249) (101,339)
Maturities of securities available for sale 231,147 126,321 181,790
Capital expenditures (12,203) (10,966) (37,604)
Investment in strategic alliance (6,350) -- --
------------- ------------ -----------
Net cash (used in) provided by investing activities (121,255) (97,894) 42,847
-------------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and private
52
placement of securities 69,843 83,522 26,737
Proceeds from issuance of long-term debt -- 658 17,369
Deferred costs from debt issuance (2) (6) (306)
Repayments on long-term debt (15,869) (3,121) (1,136)
------- ------- -------
Net cash provided by financing activities 53,972 81,053 42,664
------- ------- -------
Effect of exchange rate changes on cash (269) (113) (189)
Net (decrease) increase in cash equivalents (8,160) (11,823) 30,869
Cash and cash equivalents at beginning of year 44,730 56,553 25,684
------- ------- -------
Cash and cash equivalents at end of year $36,570 $44,730 $56,553
======= ======= =======
The accompanying notes are an integral part of these financial statements.
53
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
ACCUMULATED
ACCUMU- OTHER
COMMON STOCK, $.01 PAR PAID-IN LATED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT STOCK INCOME (LOSS) TOTAL
------ ------ ------- ------- ----- ------------- -----
BALANCE, DECEMBER 31, 1996 47,105,511 $471 $323,245 $(213,995) $ -- $38 $109,759
Net loss -- -- -- (44,804) -- -- (44,804)
Foreign currency translation adjustment -- -- -- -- -- (663) (663)
Unrealized gain on investments -- -- -- -- -- 27 27
---------
Comprehensive loss (45,440)
---------
Common stock options exercised 1,251,653 12 5,285 -- -- -- 5,297
Conversion of Series A
Convertible Preferred Stock 3,986,706 40 (40) -- -- -- --
Issuance of common stock 176,835 2 17,902 17,904
Compensation related to stock options - - 40 -- -- -- 40
---------- ----- ------ ------- ------ ------ ---------
BALANCE, DECEMBER 31, 1997 52,520,705 525 346,432 (258,799) -- (598) 87,560
Net earnings -- -- -- 47,187 -- -- 47,187
Foreign currency translation adjustment -- -- -- -- -- 185 185
Unrealized loss on investments -- -- -- -- -- (18) (18)
---------
Comprehensive income 47,354
---------
Common stock options exercised 2,221,797 22 12,419 -- -- -- 12,441
Private placement of common stock,
January 1998, net of underwriting
commissions and expenses of $74 3,400,000 34 66,192 -- -- -- 66,226
Private placement of common stock,
January 1998 166,820 2 4,998 -- -- -- 5,000
Tax benefit associated with the
exercise of stock options -- -- 30,090 -- -- -- 30,090
Purchase of treasury stock -- -- -- -- (145) -- (145)
Compensation related to stock options -- -- 40 -- -- -- 40
---------- ---- -------- ------- ----- ------- ---------
BALANCE, DECEMBER 31, 1998 58,309,322 583 460,171 (211,612) (145) (431) 248,566
Net earnings -- -- -- 93,371 -- -- 93,371
Foreign currency translation adjustment -- -- -- -- -- (633) (633)
Unrealized loss on investments -- -- -- -- -- (539) (539)
---------
Comprehensive income 92,199
---------
Common stock options exercised 3,050,941 30 43,842 -- -- -- 43,872
Private placement of common stock,
February 1999 403,009 4 19,965 -- -- -- 19,969
Tax benefit associated with the
exercise of stock options -- -- 67,149 -- -- -- 67,149
Compensation related to stock options/grants 5,359 -- 575 -- -- -- 575
Conversion of debentures, net of
unamortized expenses of $1,253 6,097,545 61 58,686 -- -- -- 58,747
Exercise of warrants 80,602 1 6,001 -- -- -- 6,002
Cancellation of treasury stock -- -- (145) -- 145 -- --
---------- ----- -------- --------- ----- ------- --------
BALANCE, DECEMBER 31, 1999 67,946,778 $679 $656,244 $(118,241) $ -- $(1,603) $537,079
========== ===== ======== ========= ===== ======= ========
The accompanying notes are an integral part of these financial statements.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
MedImmune, Inc., a Delaware corporation, (together with its subsidiaries, "the
Company"), is a biotechnology company headquartered in Gaithersburg, Maryland.
In November 1999, the Company completed a merger with U.S. Bioscience, Inc
("USB"). The merger constituted a tax-free reorganization and has been accounted
for as a pooling-of-interests under Accounting Principles Board Opinion No.16.
Accordingly, all prior period consolidated financial statements have been
restated to include the combined results of operations, financial position, and
cash flows of USB as though it had been a part of MedImmune.
The Company currently markets six products and maintains a diverse product
development portfolio. The Company is focused on using advances in immunology
and other biological sciences to develop important new products that address
significant medical needs in areas such as infectious diseases, immune
regulation and oncology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies applied in the preparation of these financial
statements are as follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of
three months or less at date of purchase to be cash equivalents.
Marketable Securities
Investments consist principally of securities of the U.S. Treasury or government
agencies, bonds, commercial paper, and certificates of deposit. Investments with
original maturities of three to 24 months are considered current assets, while
those with maturities in excess of two years are considered non-current assets.
The securities are held for an unspecified period of time and may be sold to
meet liquidity needs and therefore are classified as available-for-sale as
defined by Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The Company
reports unrealized gains and losses on investments as a component of other
comprehensive income (loss).
Concentration of Credit Risk
The Company invests its excess cash generally in marketable securities of the
U.S. Treasury, U.S. government agencies, corporate debt securities, commercial
paper and
55
money market funds with strong credit ratings and deposits with a major bank.
The Company has not realized any significant losses on its investments. The
Company sells its products primarily to a limited number of pharmaceutical
wholesalers and distributors without requiring collateral. The Company
periodically assesses the financial strength of these customers and establishes
allowances for anticipated losses when necessary.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using a
weighted-average approach that approximates the first-in, first-out method.
Where the Company has a firm contract for their purchase, by-products that
result from production of the Company's principal products are accounted for as
a reduction of the cost of the principal products.
Product Sales
Product sales are recognized upon shipment of the product to customers. Product
sales are recorded net of allowances for estimated chargebacks, returns,
discounts, and Medicaid rebates. The Company maintains allowances at a level
that management believes is sufficient to cover estimated requirements.
Allowances for discounts, returns, bad debts, chargebacks and Medicaid rebates,
which are netted against accounts receivable, totaled $17.4 million and $20.9
million at December 31, 1999 and 1998, respectively. Product royalty expense is
recognized concurrently with the recognition of product revenue. Royalty
expense, included in cost of sales, was $46.7 million, $21.2 million and $9.2
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Contract Revenues
Contract revenues are recognized over the fixed term of the contract or, where
appropriate, as the related expenses are incurred. Non-refundable fees or
milestone payments in connection with research and development or
commercialization agreements are recognized when they are earned in accordance
with the applicable performance requirements and contractual terms. Payments
received that are related to future performance are deferred and recorded as
revenues as they are earned over specified future performance periods.
Co-promotion Expense
In connection with the agreement with Abbott Laboratories to co-promote Synagis
in the United States, the Company is required to pay Abbott an increasing
percentage of net domestic sales based on certain sales thresholds over the
annual contract year. The contract year extends from July to June and coincides
with the annual respiratory syncytial virus ("RSV") season, which occurs
primarily in the fourth and first quarters in the Northern Hemisphere. The
Company estimates its net sales and resulting co-promotion expense for the
entire contract year to determine a proportionate percentage of expense to apply
across all Synagis sales during that contract year.
56
Property and Equipment
Property and equipment are stated at cost. Interest cost incurred during the
period of construction of plant and equipment and prior to FDA licensure is
capitalized. Depreciation and amortization is computed using the straight-line
method based upon the following estimated useful lives:
Years
-----
Building and improvements 30
Manufacturing, laboratory, and facility equipment 5-15
Office furniture, computers and equipment 3-7
Amortization of leasehold improvements is computed on the straight-line method
based on the shorter of the estimated useful life of the improvement or the term
of the lease. Upon the disposition of assets, the costs and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in the statements of operations. Repairs and maintenance costs are
expensed as incurred and were $2.9 million, $2.6 million, and $1.1 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
Long-Lived Assets
The Company evaluates the recoverability of the carrying value of property and
equipment and intangible assets in accordance with the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." The
Company considers historical performance and anticipated future results in its
evaluation of the potential impairment. Accordingly, when the indicators of
impairment are present, the Company evaluates the carrying value of these assets
in relation to the operating performance of the business and future undiscounted
cash flows expected to result from the use of these assets. Impairment losses
are recognized when the sum of the expected future cash flows are less than the
assets' carrying value. To date, the Company has recorded no impairment losses.
Forward Exchange Contracts
The Company is obligated to make certain payments to foreign suppliers in local
currency. To hedge the effect of fluctuating foreign currencies in its financial
statements, the Company may enter into foreign forward exchange contracts. Gains
or losses associated with the forward contracts are computed as the difference
between the foreign currency contract amount at the spot rate on the balance
sheet date and the forward rate on the contract date. Unrealized gains or losses
are deferred until the obligation date and are then offset against the gains or
losses on the foreign currency transaction.
Fair Value of Financial Instruments
The carrying amount of financial instruments, including cash, trade accounts and
contracts receivable, other current assets, accounts payable, and accrued
expenses, approximate fair value as of December 31, 1999 and 1998 due to the
short maturities of these instruments.
57
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized and are reversed at
such time that realization is believed to be more probable than not. Income tax
expense is the tax payable for the period and the change during the period in
deferred tax assets and liabilities, exclusive of amounts related to the
exercise of stock options which benefit is recognized directly as an increase in
shareholders' equity.
Earnings (Loss) Per Share
Basic earnings(loss) per share is computed by dividing the net earnings (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing net earnings available to common shareholders by the weighted average
number of common shares outstanding after giving effect to all dilutive
potential common shares that were outstanding during the period. Potential
common shares are not included in the computation of diluted earnings per share
if they are antidilutive.
Comprehensive Income (Loss)
Under SFAS No. 130 the Company is required to display comprehensive income
(loss) and its components as part of the financial statements. Comprehensive
income (loss) is comprised of net earnings (loss) and other comprehensive income
(loss), which includes certain changes in equity that are excluded from net
income (loss). The Company includes foreign currency translation adjustments and
unrealized holding gains and losses on available-for-sale securities in other
comprehensive income (loss).
New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses depends on the intended use of the
derivative and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company will
adopt SFAS No. 133 by January 1, 2001. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of SFAS No. 133
will have a material effect on the earnings or financial position of the
Company.
58
Stock Split
On November 11, 1998, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% stock dividend payable December 31,
1998 to shareholders of record on December 15, 1998. This resulted in the
issuance of 27,327,421 additional shares of common stock. All share, per share
and weighted average share amounts for 1997 have been restated to reflect this
stock split.
Foreign Currency Translation
All balance sheet accounts of the Company's foreign subsidiaries have been
translated from their respective functional currencies to U.S. dollars using the
exchange rate in effect at the balance sheet date. Income statement amounts have
been translated using monthly average exchange rates for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported separately as a component of other comprehensive income (loss).
Reclassification
Certain prior year amounts have been reclassified to conform to the current
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the financial statement date and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. ACQUISITION OF U.S. BIOSCIENCE
In November 1999, the Company completed a merger with U.S. Bioscience, Inc., a
specialty pharmaceutical company that develops and markets products for patients
with cancer and AIDS, by exchanging 4,224,185 shares of MedImmune common stock
for all of the common stock of U.S. Bioscience. Each share of U.S. Bioscience
common stock was exchanged for .15 shares of MedImmune common stock. The
transaction was accounted for as a pooling-of-interests, and the consolidated
financial statements and related notes presented have been restated for all
periods to include the accounts and operations of U.S. Bioscience, Inc.
Revenues and net earnings of MedImmune, Inc. and U.S. Bioscience, Inc. for the
nine months ended September 30, 1999, and for the 1998 and 1997 fiscal years
were as follows:
Nine months ended Twelve months ended Twelve months ended
September 30, 1999 December 31, 1998 December 31, 1997
------------------ ------------------- -------------------
MEDIMMUNE, INC.
Revenues $ 187,871 $ 200,708 $ 80,964
Net earnings/(loss) $ 23,613 $ 56,240 $(36,895)
59
U.S. BIOSCIENCE, INC
Revenues $ 21,810 $ 26,513 $ 24,784
Net earnings/(loss) $ (5,404) $ (9,053) $ (7,909)
All intercompany transactions were eliminated in consolidation. There are no
material differences between the accounting policies of MedImmune, Inc. and U.S.
Bioscience, Inc.
4. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", at December 31, 1998. SFAS No. 131 establishes annual
and interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas and major
customers. Under SFAS No. 131, the Company's operations are considered one
operating segment as only aggregate profit and loss information is reported to
the chief operating decision makers of the Company.
The Company sells its products primarily to a limited number of pharmaceutical
wholesalers and distributors. Customers individually accounting for at least ten
percent of the Company's product sales during past three years are as follows:
1999 1998 1997
---- ---- ----
Company A 20% 19% 25%
Company B 16% 21% 18%
Company C 15% 17% 19%
Company D 11% 7% --
Company E 10% 11% 14%
--- --- ---
Total % of product sales 72% 75% 76%
==== === ===
The Company relies on a limited number of distributor agents/affiliates to sell
CytoGam, NeuTrexin and Hexalen internationally. The Company has also entered
into contractual agreements with Abbott International for distribution of
Synagis outside of the U.S. and with affiliates of Schering-Plough Corporation
for international distribution of Ethyol. The breakdown of product sales by
geographic region is as follows:
1999 1998 1997
-------- -------- -------
United States $335,161 $169,468 $68,215
All other 21,654 14,480 9,926
-------- -------- -------
Total product sales $356,815 $183,948 $78,141
======== ======== =======
60
Other revenue of $26.6 million, $43.3 million and $27.6 million in 1999, 1998
and 1997, respectively, consists mainly of United States licensing, milestone
revenues, corporate funding, and contract manufacturing revenues.
5. INVESTMENTS
Investments are comprised of the following:
Fair Value at
Principal Amortized Balance Sheet
Amount Cost Date
-------- -------- --------
December 31, 1999:
U.S. Government and Agencies $ 1,000 $ 1,011 $ 1,004
Corporate Debt Securities 203,030 206,067 205,560
Foreign Bank CD's 26,500 27,285 27,260
-------- -------- --------
Total $230,530 $234,363 $233,824
======== ======== ========
December 31, 1998:
U.S. Government and Agencies $ 9,052 $ 9,107 $ 9,107
Corporate Debt Securities 101,838 102,807 102,789
Foreign Bank CD's 20,000 20,234 20,234
-------- -------- --------
Total $130,890 $132,148 $132,130
======== ======== ========
The amoritized cost and fair market value of investments at December 31, 1999
and 1998, by contractual maturities are:
1999 1998
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
Due in one year or less $170,301 $169,868 $ 94,373 $ 94,355
Due after one year through two years 44,997 44,882 30,288 30,288
Due after two years through four years 19,065 19,074 7,487 7,487
-------- -------- -------- --------
Total $234,363 $233,824 $132,148 $132,130
======== ======== ======== ========
As of December 31, 1999, the Company had gross unrealized gains of $0.2 million
and gross unrealized losses of $0.7 million. As of December 31, 1998, gross
unrealized gains and losses were not material. Proceeds from sales of securities
in 1999 were $30.6 million. There were no proceeds from sales of securities in
1998. Proceeds from sales of securities in 1997 were $33.0 million. As the
securities sold in 1999 and 1997 were approaching their maturity, the gains and
losses recognized on the sales were immaterial. A net unrealized loss of $0.5
million was recorded in other comprehensive income (loss) in 1999. Unrealized
holding gains and losses in 1998 were immaterial.
6. INVENTORY
Inventory at December 31, is comprised of the following:
61
1999 1998
------ ------
Raw materials $ 11,502 $ 10,880
Work in process 15,129 10,202
Finished goods 9,365 6,499
-------- --------
35,996 27,581
Less noncurrent (4,219) (4,949)
-------- --------
$ 31,777 $ 22,632
======== ========
The Company has purchased plasma and other raw materials for use in production
of CytoGam in the Company's Frederick manufacturing facility, which is subject
to FDA licensure and approval. Due to the uncertainty surrounding the likelihood
and timing of FDA approval, this inventory has been classified as noncurrent in
the accompanying balance sheet.
In December 1999, the FDA granted approval for production of the Company's
second generation RSV product, Synagis, at the Frederick manufacturing facility.
As a result, all raw materials, work-in-process and finished goods inventories
of Synagis are classified as current assets as of December 31, 1999.
As a result of the June 1998 FDA approval of Synagis and the market acceptance
of Synagis, the Company reserved approximately $9.2 million against its RespiGam
inventory, as minimal product sales are expected to result from this inventory
in the foreseeable future.
Finished goods at December 31, 1999 and 1998 include approximately $1.7 and $1.6
million, respectively, of by-products that result from the production of the
Company's principal products at one of its contract manufacturers and are held
for resale. As of December 31, 1999, minimal sales of these by-products have
occurred. The December 31, 1999 and 1998 balances are net of reserves of $1.7
and $1.6 million, respectively.
7. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost at December 31, is comprised of the
following:
1999 1998
------ -----
Land and land improvements $2,166 $2,147
Buildings and building improvements 32,234 8,660
Leasehold improvements 14,560 13,195
Laboratory, manufacturing and facilities equipment 23,962 17,343
Office furniture, computers, and equipment 10,813 9,269
Construction in progress 25,316 48,167
------ ------
62
109,051 98,781
Less accumulated depreciation and amortization (21,599) (18,525)
-------- --------
$ 87,452 $ 80,256
======== ========
Construction in progress includes costs incurred in connection with the design
and construction of the Company's Frederick manufacturing facility and includes
capitalized interest costs of $4,009 and $5,324 at December 31, 1999 and 1998,
respectively.
As of December 31,1999, buildings includes costs associated with three
facilities. They are: 1) the portion of the Company's Frederick manufacturing
facility that was granted approval by the FDA for the production of Synagis in
December 1999, and was placed in service on December 31, 1999; 2) warehouse,
laboratory and administrative space located in Frederick, Maryland, which is
adjacent to the Frederick facility; and 3) the Company's manufacturing facility
in Nijmegen, The Netherlands. The Company will continue to capitalize costs,
primarily capitalized interest related to the plasma production portion of the
Frederick manufacturing facility until placed in service. The portions of the
facility that are subject to inspection and approval by the FDA will be placed
in service and depreciation will commence if and when such approval is received.
Laboratory, manufacturing and facilities equipment are net of a reserve of $0.8
million, which primarily consists of the remainder of equipment to be disposed
of from the Frederick manufacturing facility, as it was determined that the
equipment would not be used at the facility.
8. ACCRUED EXPENSES
Accrued expenses at December 31, is comprised of the following:
1999 1998
-------- --------
Accrued contracts $ 11,953 $ 7,204
Accrued manufacturing 6,526 6,655
Accrued sales and marketing 37,051 22,727
Accrued other 8,209 5,857
Accrued merger expenses 1,218 --
Accrued interest 343 2,579
-------- --------
$ 65,300 $ 45,022
======== ========
9. FACILITIES LEASES
The Company leases warehouse, laboratory and administrative space under numerous
operating leases. Under the leases, the Company is obligated to pay a basic
monthly rent which will increase each lease year. The leases also require the
Company to pay for utilities and its proportionate share of taxes, assessments,
insurance and maintenance costs. Rent expense for the years ended December 31,
1999, 1998 and 1997 was $2.6 million, $2.4 million and $2.4 million,
respectively.
63
The Company's future minimum lease payments under operating leases, are as
follows:
Year ending December 31,
------------------------
2000 $2,510
2001 2,438
2002 2,486
2003 2,404
2004 1,751
Thereafter 3,508
--------
$ 15,097
========
10. LONG-TERM DEBT
Long-term debt at December 31, is comprised of the following:
1999 1998
--------- ------
4% notes due to Maryland Department of Business and Economic Development,
due 2016 $6,286 $6,538
7.53% note due to Maryland Industrial Development Finance Authority, due
2007 4,379 4,744
Line of credit 728 849
Note due to Cooperative Rabobank, B.A., due 2009
Variable interest rate 354 456
Capital lease obligations 77 106
2% note payable to Commonwealth of PA, due 2000 32 107
7% convertible subordinated notes, due 2003 -- 60,000
Notes payable to Transamerica Business Credit Corporation due through
2004, interest 9.95%-10.6% -- 12,868
6.8% bank note payable -- 500
64
Notes payable to landlord, due through 2006, interest 11.5%-13% -- 1,742
---------- -----------
11,856 87,910
Less current portion included in other current liabilities (1,490) (4,192)
========== ===========
$10,366 $83,718
========== ===========
The convertible subordinated notes were issued in July 1996. In June 1999, the
Company called the notes and, in July 1999 all of the notes were converted into
6,097,545 shares of the Company's common stock at a conversion price of $9.84
per share.
Principal and interest payments on the Maryland notes began in 1998. Pursuant to
the terms of the agreements, the Company is required to meet certain financial
and non-financial covenants including maintaining minimum cash balances and net
worth ratios. The Company maintains a $0.4 million compensating balance related
to the notes, which is included in other assets. The notes are collateralized by
the land, buildings and building fixtures of the Frederick manufacturing
facility. The agreements include a provision for early retirement of the notes
by the Company.
During 1999, the Company retired the Transamerica notes and the Maryland
landlord notes.
In June 1995, the Company established a $1 million credit line with an
international financial institution. The line of credit is denominated in Dutch
guilders, currently bears an annual interest rate of 5.3125% and is utilized by
the Company's subsidiary, USB Pharma B.V., for funding working capital
requirements. The line of credit expires in March 2000 and is guaranteed by the
Company and collateralized by a portion of the Company's investment portfolio.
In May 1994, USB Pharma B.V. entered into a mortgage loan with Cooperative
Rabobank B.A. in the amount of 1.2 million Dutch guilders collateralized by the
land and buildings of its manufacturing facility in Nijmegen, The Netherlands
and guaranteed by the Company. Proceeds from the loan were used to partially
fund the purchase of additional equipment for the facility. The mortgage loan,
for which principal payments began in March 1995, has a 15-year term and bears
interest at a quarterly variable rate. The current interest rate is 5.8%
Maturities of long-term debt for the next five years are as follows: 2000,
$1,490; 2001, $773; 2002, $804; 2003, $839 and 2004, $890. Interest paid was
$5.2 million, $6.5 million and $4.8 million, for the years ended December 31,
1999, 1998 and 1997, respectively.
The estimated fair value of the Company's long-term debt at December 31, 1999,
based on quoted market prices or discounted cash flows based on currently
available borrowing rates, was $12.2 million compared to its carrying value of
$11.9 million.
65
11. SHAREHOLDERS' EQUITY
In connection with the closing of the Company's initial public offering in 1991,
the holders of the Series A Convertible Preferred Stock warrants agreed that if
such warrants were exercised, the holders thereof would simultaneously exercise
their right to convert the Series A Convertible Preferred Stock received upon
exercise of the warrants into 5,049,050 shares of common stock. Pursuant to an
amendment to the warrant agreement in which the holders could elect a cashless
exercise of the warrants for a reduced number of common shares based on a
calculation of the fair market value of the common stock on the exercise date,
2,108,652 and 415,873 of the Series A Convertible Preferred Stock warrants were
exercised and converted through a cashless exercise into 3,986,706 and 784,284
shares of common stock in 1997 and 1996, respectively. As of December 31, 1997,
all warrants were exercised and converted.
In July 1997, the Company's Board of Directors adopted a Stockholder Rights
Plan. Pursuant to the terms of the Plan, common stock purchase Rights were
distributed as a dividend at the rate of one Right for each share of common
stock of the Company held by stockholders of record as of the close of business
on July 21, 1997. The Rights will be exercisable only if a person or group
acquires beneficial ownership of 20 percent or more of the Company's common
stock or commences a tender or exchange offer upon consummation of which such a
person or group would beneficially own 20 percent or more of the Company's
stock. The Rights will expire on July 9, 2007.
In January 1998, the Company completed a private placement of 3.4 million new
shares of common stock to institutional investors for net proceeds of $66.2
million, and sold 166,820 shares of common stock to SmithKline Beecham for net
proceeds of $5.0 million.
In February 1999, the Company closed two private placements resulting in the
issuance of 0.4 million new shares of common stock to institutional investors
for net proceeds of $20.0 million. In connection with the private placements,
warrants to purchase 0.1 million shares of common stock at $74.47 per share were
issued. These warrants were exercised in November 1999 for net proceeds of $6.0
million.
In July 1999, $60 million of the Company's 7% converted subordinated notes were
converted into common stock. The transaction resulted in the issuance of
6,097,545 shares of common stock and increased shareholders' equity by $58.7
million, the carrying amount of the converted debt on the date of the
conversion.
12. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
diluted EPS computation for the years ended December 31, 1999 and 1998. No
reconciliation of the
66
numerator and denominator is necessary for 1997, as a loss was reported and
inclusion of potential common shares would be antidilutive.
1999 1998
---- ----
Numerator:
Net earnings $93,371 $47,187
Interest on 7% convertible notes, net of
amounts capitalized and related taxes 720 1,468
------- -------
Numerator for diluted EPS $94,091 $48,655
======= =======
Denominator:
Weighted average shares outstanding 63,474 56,776
Effect of dilutive securities:
Stock options 4,238 4,175
7% convertible notes 3,058 6,098
------- -------
Denominator for diluted EPS 70,770 67,049
======= =======
The following table shows the number of shares and related price ranges of those
shares that were excluded from the EPS computations above. These options to
purchase shares of common stock were outstanding in the periods reported, but
were not included in the computation of diluted earnings per share as the
exercise prices for these options were greater than the average market price of
the common stock during the period reported, and therefore would be
antidilutive.
Year Ended Year Ended
December 31,1999 December 31,1998
---------------- ----------------
Price range of stock options:
$85.00-$201.33 358,018
$29.75-$201.33 1,640,589
13. COMMON STOCK OPTIONS
The Company currently grants stock options under numerous stock option plans:
SHARES AUTHORIZED FOR OPTION
PLAN DESCRIPTION GRANTS
- --------------------------- --------------------------------------------------------- -----------------------------------
Old Plan Provides option incentives to employees, consultants
and advisors of the Company 500,000
- --------------------------- --------------------------------------------------------- -----------------------------------
67
- --------------------------- --------------------------------------------------------- -----------------------------------
1991 Plan Provides option incentives to employees, consultants
and advisors of the Company 11,000,000
- --------------------------- --------------------------------------------------------- -----------------------------------
Non-Employee Directors Provides option incentives to non-employee directors 500,000
Plan
- --------------------------- --------------------------------------------------------- -----------------------------------
1999 Plan Provides option incentives to employees, consultants
and advisors of the Company 2,750,000
- --------------------------- --------------------------------------------------------- -----------------------------------
Non-Executive Stock Provided option incentives to employees who are not
Option Plan officers or directors of USB, consultants and advisors
of the Company 337,500
- --------------------------- --------------------------------------------------------- -----------------------------------
1992 Stock Option Plan Provided option incentives to officers and directors of
USB 427,500
- --------------------------- --------------------------------------------------------- -----------------------------------
1996 Non-Employee Provided option incentives to elected non-employee
Directors Stock Option directors of USB 7,500
Plan
- --------------------------- --------------------------------------------------------- -----------------------------------
1999 Stock Option Plan Provided option incentives to employees, consultants
and advisors of USB 450,000
- --------------------------- --------------------------------------------------------- -----------------------------------
1991 Special Provided option incentives to employees, consultants
Non-Statutory Plan and advisors of USB 150,000
- --------------------------- --------------------------------------------------------- -----------------------------------
1987 Special Non Provided option incentives to employees and
Statutory Plan non-employees of USB 75,000
- --------------------------- --------------------------------------------------------- -----------------------------------
1987 Non Statutory Plan Provided option incentives to employees and
non-employee members of The Board of Directors of USB 150,000
- --------------------------- --------------------------------------------------------- -----------------------------------
1987 Incentive Stock Provided option incentives to employees, consultants,
Option Plan and advisors of USB 150,000
- --------------------------- --------------------------------------------------------- -----------------------------------
Options under all plans normally vest over a three to five year period and have
a maximum term of 10 years. The Company has reserved a total of 9,564,649 shares
of common stock for issuance under these plans as of December 31, 1999. Related
stock option activity, is as follows:
Options Granted Prior to
Establishment of the 1991 Non-Employee U. S. Bioscience
Plan 1991 and 1999 Plans Directors Plan Plans
-------------------------- --------------------------- -------------------------- ----------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise Exercise
Price Per Price Per Price Per Price Per
Shares Share Shares Share Shares Share Shares Share
- ----------------- ------------- ------------ -------------- ------------ ------------- ------------- ------------ ---------------
Balance,
Dec. 31,1996 1,110,722 $1.98 5,903,118 $6.40 170,000 $5.93 470,059 $57.39
Granted - - 1,577,500 8.86 40,000 9.31 157,542 93.58
Exercised (334,718) 1.46 (869,540) 4.48 (25,000) 7.26 (22,406) 32.71
Canceled (4,000) 8.94 (220,206) 8.38 - - (27,146) 85.90
------------- -------------- --------- -------
Balance,
Dec. 31, 1997 772,004 2.17 6,390,872 7.20 185,000 6.48 578,049 66.87
Granted - - 2,412,200 27.31 40,000 31.19 295,070 58.29
Exercised (466,800) 2.08 (1,731,732) 6.22 - - (23,239) 32.67
Canceled - - (119,124) 11.05 - - (48,399) 83.71
------------- -------------- ------------- ------------
68
Balance,
Dec. 31, 1998 305,204 2.29 6,952,216 14.36 225,000 10.87 801,481 63.69
Granted -- 2,157,700 67.05 40,000 72.13 78,447 66.98
Exercised (294,004) 2.36 (2,372,558) 9.73 (55,000) 8.47 (339,895) 60.22
Canceled - - (116,646) 36.13 - - (47,492) 66.25
------------- -------------- ------------- ------------
Balance
December 31,
1999 11,200 $0.40 6,620,712 $32.81 210,000 $23.17 492,541 $66.35
====== ========= ======= =======
Additional information related to the plans as of December 31, 1999 is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Wtd Avg
remaining Wtd Avg
Range of Options contractual Exercise Options Wtd Avg
exercise prices outstanding Life (yrs) Price Exercisable Exercise Price
- ------------------------- --------------- ------------------ ---------------- --------------------------- ------------------
$0.01-$40.00 4,762,077 7.1 $16.61 1,589,586 $12.72
$40.01-$80.00 2,199,028 9.2 $61.81 254,945 $61.72
$80.01-$120.00 345,623 8.7 $103.08 125,123 $94.03
$120.01-$160.00 20,750 7.3 $135.95 8,250 $140.45
$160.01-$200.00 3,600 10.0 $168.13 -- --
$200.01-$220.00 3,375 2.4 $201.33 3,375 $201.33
--------- --------
7,334,453 7.8 $34.74 1,981,279 $25.01
========= ========
There were 2,020,196 and 210,000 shares available for future option grants at
December 31, 1999 under the 1999 Plan and the Non-Employee Directors Plan,
respectively.
The Company has adopted the disclosure only provisions of SFAS No. 123 as they
pertain to financial statement recognition of compensation expense attributable
to option grants. As such, no compensation cost has been recognized for the
Company's option plans. If the Company had elected to recognize compensation
cost for all of its stock option plans consistent with SFAS No. 123, the
Company's net earnings (loss) and earnings (loss) per share on a pro forma basis
would be:
1999 1998 1997
---- ---- ----
Net earnings (loss) - as reported $93,371 $47,187 $(44,804)
Net earnings (loss) - pro forma $70,492 $39,740 $(50,266)
Basic earnings (loss) per share-as reported $1.47 $.83 $(.90)
-pro forma $1.11 $.70 $(1.01)
Diluted earnings (loss) per share-as reported $1.33 $.73 $(.90)
-pro forma $ 1.01 $.61 $(1.01)
The pro forma expense related to the stock options is recognized over the
vesting period, generally five years. The fair value of each option grant was
estimated using the Black-
69
Scholes option pricing model with the following weighted average assumptions for
each year:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.78% 5.28% 6.21%
Expected life of options - years 7 7 7
Expected stock price volatility 65% 75% 75%
Expected dividend yield N/A N/A N/A
The weighted average fair value of options granted during 1999, 1998 and 1997
was $54.56, $19.35, and $6.26, respectively.
14. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
Year ended December 31, 1999 1998 1997
---- ---- ----
Current:
Federal $ -- $ -- $ --
State -- -- --
------- ------- -------
Total current benefit -- -- --
======= ======= =======
Deferred:
Federal (10,502) (47,428) --
State 3,407 -- --
------- ------- -------
Total deferred benefit ($7,095) ($47,428) $ --
======= ======= =======
Deferred income taxes reflect the net tax effects of the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31, are as
follows:
1999 1998
------ --------
Deferred tax assets:
Net operating loss carryforwards $132,765 $109,578
General business credit carryforwards 14,399 10,878
Accrued expenses not currently deductible 12,941 8,734
Accounts receivable allowances and reserves 6,835 11,680
Other 4,974 4,965
----- -----
Total deferred tax assets 171,914 145,835
Valuation allowance (19,792) (68,317)
------- -------
Net deferred tax assets $152,122 $77,518
======== =======
70
The provision (benefit) for income taxes varies from the income taxes provided
based on the federal statutory rate (35%) as follows:
Year ended December 31, 1999 1998 1997
---- ---- ----
Tax at U.S. federal statutory rate $30,197 $(84) $(15,681)
State taxes, net of federal benefit 2,702 507 (1,479)
Change in valuation allowance (48,525) (55,994) 25,068
General business credits (2,921) (2,309) (1,879)
Foreign taxes, net - (174) 94
Other 11,452 10,626 (6,123)
------ ------ ------
$(7,095) $(47,428) $ --
======== ========= ======
Total
At December 31, 1999 the Company had consolidated net operating loss
carryforwards for federal tax reporting purposes of approximately $351 million
expiring between 2002 to 2019. The deferred tax asset attributable to the net
operating loss carryforwards includes tax benefits of $93.8 million related to
the exercise of employee stock options, which benefits were recorded directly to
paid-in capital. The Company also has general business credit carryforwards
comprised of federal research and experimentation and orphan drug credit
carryforwards of approximately $14.0 million at December 31, 1999 expiring
through 2019. The timing and manner in which the Company will utilize the net
operating loss and general business credit carryforwards in any year, or in
total, will be limited by provisions of the Internal Revenue Code Section 382,
regarding changes in ownership of the Company.
Based on all positive evidence, including its 1999 pre-tax income and its
estimates of future taxable income, the Company believes that it is more likely
than not that certain of its deferred tax assets acquired from U.S. Bioscience
(comprised mostly of federal net operating loss and general business credit
carryforwards) will be realized, and has therefore recorded the tax benefit
associated with those deferred tax assets for the year ended December 31, 1999.
Because management is uncertain of the realization of the tax benefit associated
with the deferred tax assets attributable to the state net operating losses and
the research and experimentation credits which were generated by U.S. Bioscience
prior to the current year, a full valuation allowance remains for these deferred
tax assets at December 31, 1999.
Based on its 1998 pre-tax profit and its estimates of future taxable income, the
Company concluded in 1998 that it was more likely than not that certain of its
deferred tax assets (comprised mostly of federal net operating loss
carryforwards and research and development credits) would be realized, and
therefore recorded a tax benefit of its deferred tax assets arising from federal
income taxes as of December 31, 1998.
71
15. Collaborative Arrangements
Abbott Laboratories
In December 1997, the Company signed two agreements with Abbott Laboratories
("Abbott"). The first agreement calls for Abbott to co-promote Synagis in the
United States. The second agreement allows Abbott to exclusively distribute
Synagis outside the United States. Under the terms of the U.S. co-promotion
agreement, Abbott receives a percentage of net United States sales based on
defined annual sales thresholds. Expenses associated with the co-promotion
agreement are included in selling, general and administrative expenses on the
accompanying statements of operations. Each company is responsible for its own
selling expenses. Under the terms of the distribution agreement, the Company
manufactures and sells Synagis to Abbott at a price based on end-user sales.
Pursuant to the distribution agreement, the Company received a $15 million
milestone payment in each of the years 1999, 1998 and 1997, which is included in
other revenue in the respective year. The Company could receive up to an
additional $15 million based on the achievement of certain other milestones.
ALZA Corporation
In December 1995, U.S. Bioscience, Inc. entered into an exclusive marketing and
distribution agreement with ALZA Corporation ("ALZA") for Ethyol in the United
States. Under the terms of the agreement, ALZA has exclusive rights to market
Ethyol in the United States until April 2001, subject to a one-year extension,
and is responsible for sales and marketing of the product. The Company's
oncology/immunology sales force co-promotes the product with ALZA in the United
States. The Company sells Ethyol to ALZA at a price based on a percentage of the
net sales price of Ethyol in the United States, and ALZA then sells Ethyol to
the distributors and wholesalers that supply Ethyol for prescription sales.
ALZA's rights expire on April 1, 2001, or on April 1, 2002, if ALZA chooses to
exercise a one-time option to extend the agreement. ALZA is required to notify
the Company of its intent with respect to the marketing extension by April of
2000. Following the expiration of the rights, marketing rights to Ethyol will
revert to the Company, and ALZA will receive a commission from the Company for
10 years (nine years if ALZA exercises the option), based on sales of Ethyol in
the United States.
ALZA was co-promoting NeuTrexin and Hexalen in the United States until mid-1999.
At that time, the Company regained sole responsibility for the distribution,
marketing and promotion of these products in the United States.
Schering-Plough Corporation
In May 1993, U.S. Bioscience, Inc. entered into an exclusive marketing and
distribution agreement with Scherico, Ltd. ("Scherico"), an affiliate of
Schering-Plough Corporation, for Ethyol in the countries comprising the EU and
European Free Trade Association. Under this agreement, Scherico purchases Ethyol
from the Company at a price based on a percentage of the net sales of Ethyol in
Germany, United Kingdom, Spain, Italy and France. Scherico's exclusive rights to
market the product will continue through December 31, 2003. At the end of the
exclusive period, the Company may co-promote Ethyol with Scherico for two years,
through December 31, 2005. Thereafter, the Company will reacquire sole marketing
rights, subject to an obligation to pay Scherico a royalty based on a percentage
of net sales, if any, from the European territories for a period of three years.
Scherico may terminate the agreement at any time by providing 180 days written
notice.
72
The Company also entered into licensing agreements for Ethyol and NeuTrexin with
affiliates of Schering for several territories outside the United States. The
licensees are required to pay the Company compensation based on their net sales
of the products, and the Company sells the products to the licensees at an
agreed upon price.
SmithKline Beecham
In December 1997, the Company and SmithKline Beecham ("SB") entered into a
strategic alliance to develop and commercialize human papillomavirus (HPV)
vaccines for the prevention of cervical cancer and genital warts. In exchange
for exclusive worldwide rights to the Company's HPV technology, SB agreed to
provide the Company with an up-front payment, future funding and potential
developmental and sales milestones which together could total over $85 million,
as well as royalties on any product sales. Under the terms of the agreement, the
companies will collaborate on research and development activities. The Company
conducts Phase 1 and Phase 2 clinical trials and manufactures clinical material
for those studies. SB is responsible for the final development of the product,
as well as regulatory, manufacturing, and marketing activities. In January 1998,
the Company received a $15 million payment from SB and completed the sale of
166,820 shares of common stock to SB resulting in net proceeds to the Company of
$5.0 million. Additionally $6.2 million and $5.7 million of research funding
associated with the agreement has been included in other revenues for the years
ended December 31, 1999 and 1998, respectively.
American Home Products
On November 8, 1993, the Company signed a definitive agreement with American
Cyanamid Company, now American Home Products, to co-promote and share profits or
losses on the Company's RSV product, RespiGam, which was licensed for marketing
by the FDA on January 18, 1996. Pursuant to an amendment to the agreement signed
in December 1999, AHP's obligation to co-promote RespiGam in the U.S. was
terminated. In addition, AHP no longer shares in any profits or losses of
RespiGam in the U.S. The Company recorded a credit to selling, general and
administrative expense in 1999 related to the signing of the amendment.
Other Agreements
The Company has entered into research, development and license agreements with
various federal and academic laboratories and other institutions to further
develop its products and technology and to perform clinical trials. Under these
agreements, the Company is obligated to provide funding of approximately $14.0
million and $4.6 million in 2000 and 2001, respectively. The Company has also
agreed to make milestone payments in the aggregate amount of $19.6 million on
the occurrence of certain events such as the granting by the FDA of a license
for product marketing in the U.S. for some of the product candidates covered by
these agreements. In exchange for the licensing rights for commercial
development of proprietary technology, the Company has agreed to pay royalties
on sales using such licensed technologies.
73
16. FORWARD EXCHANGE CONTRACTS
Beginning in 1997, the Company entered into foreign forward exchange contracts
to hedge against foreign exchange rate fluctuations that may occur on certain of
the Company's foreign currency denominated obligations. As of December 31, 1999
the Company had outstanding forward Deutsche mark and Euro contracts in the
amount of $17.2 million, all expiring within one year. Fair value of the
outstanding contracts at December 31, 1999 was $16.0 million, resulting in an
unrealized loss of $1.2 million. Unrealized gains and losses on foreign forward
exchange contracts that are designated and effective as hedges are deferred and
recognized in the same period that the hedged obligation is recognized. The
notional principal amounts for off-balance sheet instruments provide one measure
of the transaction volume outstanding as of year end, and does not represent the
amount of the Company's exposure to credit or market loss. The Company's
exposure to market risk will vary over time as a function of currency rates.
17. COMMITMENTS AND CONTINGENCIES
Manufacturing, Supply and Purchase Agreements
The Company has entered into manufacturing, supply and purchase agreements in
order to provide production capability for CytoGam and RespiGam, and to provide
a supply of human plasma for production of both products. No assurance can be
given that an adequate supply of plasma will be available from the Company's
suppliers. Human plasma for CytoGam and RespiGam is converted to an intermediate
raw material (Fraction II+III paste) under supply agreements with two vendors.
The supply agreements expired in 1999. The intermediate material is then
supplied to the manufacturer of the bulk product, the State Lab. Pursuant to the
agreements with the State Lab, the Company paid $8.3 million in 1999, $12.9
million in 1998 and $10.2 million in 1997 for production and process
development. The Company has an informal arrangement with the State Lab for
planned production of CytoGam through June 2000 for $4.0 million, subject to
production level adjustments. Currently, limited production of RespiGam is
planned for the foreseeable future due to minimal demand for RespiGam and the
market acceptance of Synagis. If the State Lab, which holds the sole product and
establishment licenses from the FDA for the manufacture of CytoGam and RespiGam,
is unable to satisfy the Company's requirements for CytoGam on a timely basis or
is prevented for any reason from manufacturing CytoGam, the Company may be
unable to secure an alternative manufacturer without undue and materially
adverse operational disruption and increased cost. The Company also has an
agreement with Connaught Laboratories to fill and package CytoGam through 2000.
In December 1997, the Company entered into an agreement with Boehringer
Ingelheim Pharma KG ("BI"), to provide supplemental manufacturing of the
Company's second generation RSV product, Synagis. The Company paid $21.1 million
in 1999 and $16.0 million in 1998 related to production and scale-up of
production as part of this agreement. The Company has firm commitments with BI
for planned production through 2002 for approximately 72.9 million Deutsche
marks. Should the manufacturer be unable to supply Synagis to the Company for
any reason, there can be no assurance that the Company will be able to secure an
alternate manufacturer in a timely basis or without increased cost.
74
18. OTHER OPERATING EXPENSES
Other operating expenses in 1999 and 1998 include the costs of start-up of
production at the Frederick manufacturing facility. Expenses in 1999 also
include $1.4 million for the write-off of certain equipment purchased for use in
the Frederick facility as it was determined that the equipment ultimately would
not be used in the facility. Other operating expenses in 1998 also include
scale-up of production of Synagis at the Gaithersburg pilot plant and at a
third-party manufacturer, BI, and $10.5 million for the buy down of certain
Synagis royalty obligations prior to the licensure of Synagis by the FDA.
19. PENSION PLAN
The Company has defined contribution 401(k) pension plans and other defined
contribution plans available to all full-time employees. Employee contributions
are voluntary and are determined on an individual basis subject to the maximum
allowable under federal tax regulations. Participants are always fully vested in
their contributions. The Company also makes employer contributions. During 1999,
1998 and 1997 the Company contributed $1,104, $1,134 and $920, respectively, in
cash to the plans. Prior to the merger with U.S. Bioscience, a deferred
compensation program was provided for certain executives of U.S. Bioscience. The
program was terminated in December 1999 and all vested balances were paid in
full. Expense related to the deferred compensation plan was $97, $348, and $428
in 1999, 1998 and 1997, respectively.
20. LEGAL PROCEEDINGS
On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co. ("Ichthyol
Gesellschaft") filed a complaint for refrain, information and damages with the
Regional Court of Hamburg against U.S. Bioscience, Inc. on the grounds of
trademark infringement in respect of the use of the trademark "Ethyol" in
Germany. The suit was dismissed on January 29, 1997 by the Regional Court of
Hamburg at which time Ichthyol Gesellschaft was given leave to appeal against
the judgment rendered in favor of U.S. Bioscience. Ichthyol Gesellschaft filed
an appeal, and a judgment was rendered in favor of U.S. Bioscience in the
appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on
points of law with the Federal Court of Justice, and in June 1999, Ichthyol
Gesellschaft filed the grounds for the appeal on points of law. In October 1999,
the Federal Court of Justice accepted Ichthyol Gelleschaft's appeal. U.S.
Bioscience was advised that it usually takes a year and one-half from the
acceptance of such an appeal until a hearing is held, and it is not possible to
predict the decision of the Federal Court of Justice with respect to the matter.
In 1996, the Company entered into a Material Transfer Agreement and a
Confidentiality Agreement with MediGene AG ("MediGene") relating to human
papillomavirus vaccine ("HPV") technology in which the Company had a potential
interest. In 1997, the Company learned information that caused it to believe
that such technology had been developed by employees of Loyola University of
Chicago ("Loyola"). As a result, the Company acquired from Loyola a license to
patent applications directed to such technology. The Company granted to
SmithKline Beecham a sublicense under the Loyola license.
75
In 1998, MediGene initiated a legal action against Loyola in the U.S. District
Court for the Northern District of Illinois alleging that the patent
applications licensed by Loyola to the Company are, in fact, owned and/or
licensed to MediGene. Also in 1998, MediGene amended the complaint to add the
Company as a defendant.
In the amended complaint, MediGene alleges that the Company breached the
Confidentiality Agreement and the Material Transfer Agreement and tortiously
interfered with an alleged prospective business relationship and an alleged
contract between MediGene and Loyola involving the HPV technology. MediGene
claims monetary damages from the Company and ownership of the patents in
question, as well as rescission of the license granted to the Company by Loyola
or rights as a third party beneficiary thereof.
After consultation with its patent counsel, the Company believes that, while the
matter is not free from doubt, it is unlikely that MediGene can successfully
assert it's claims against the Company. The Company also believes that the
outcome of such dispute is unlikely to have a material adverse effect on its
financial position.
21. SUBSEQUENT EVENT
On February 17, 2000, the Company's Board of Directors declared a three-for-one
stock split of the Company's common stock payable in the form of a 200 percent
stock dividend. The stock split is contingent upon shareholder approval to
increase the number of authorized shares of common stock from 120 million to 320
million, an action that will be voted on at the Annual Meeting of Shareholders
on May 18, 2000. If approved, shareholders will receive, on or about June 2,
2000, two additional shares for each share of stock owned as of the close of
business on May 18, 2000.
76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of MedImmune, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of MedImmune, Inc. and its
subsidiaries at December 31, 1999 and December 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. The consolidated financial
statements give retroactive effect to the merger of U.S. Bioscience, Inc. on
November 23, 1999 in a transaction accounted for as a pooling of interests, as
described in Note 3 to the consolidated financial statements. We did not audit
the financial statements of U.S. Bioscience, Inc, which statements reflect total
assets of $52,721,900 as of December 31, 1998, and total revenues of $26,513,000
and $24,784,000 for each of the two years in the period ended December 31, 1998.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included in U.S. Bioscience, Inc. is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
January 26, 2000, except for Note 21, for which the date is February 17, 2000
77
Report of Management
The management of the Company is responsible for the preparation of the
financial statements and related financial information included in this annual
report. The statements were prepared in conformity with generally accepted
accounting principles, and accordingly, include amounts that are based on
informed estimates and judgments.
Management maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and that transactions are properly
authorized and accurately recorded. The concept of reasonable assurance is based
on the recognition that there are inherent limitations in all systems of
internal accounting control and that the costs of such systems should not exceed
the benefits expected to be derived. The Company continually reviews and
modifies these systems, where appropriate, to maintain such assurance. The
system of internal controls includes careful selection, training and development
of operating and financial personnel, well-defined organizational
responsibilities and communication of Company policies and procedures throughout
the organization.
The selection of the Company's independent accountants, PricewaterhouseCoopers
LLP, has been approved by the Board of Directors and ratified by the
shareholders. The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with the Company's independent accountants
and management to review the financial statements and related information and to
confirm that they are properly discharging their responsibilities. In addition,
the independent accountants and the Company's legal counsel meet with the Audit
Committee, without the presence of management, to discuss their findings and
their observations on other relevant matters. Recommendations made by
PricewaterhouseCoopers LLP are considered and appropriate action is taken to
respond to these recommendations.
/s/ Wayne T. Hockmeyer, Ph.D. /s/ David M. Mott
- ------------------------------------- -----------------------------------------
Chairman and Chief Executive Officer Vice Chairman and Chief Financial Officer
/s/ Lawrence C. Hoff
- ------------------------------------
Chairman of the Audit Committee
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
78
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MEDIMMUNE, INC.
Information with respect to directors is included in the Company's Proxy
Statement to be filed pursuant to Regulation 14A (the "Proxy Statement") under
the caption "Election of Directors," and such information is incorporated herein
by reference. Set forth in Part I, Item 1, are the names and ages (as of
February 6, 2000), the positions and offices held by, and a brief account of the
business experience during the past five years of each executive officer.
All directors hold office until the next annual meeting of shareholders and
until their successors are elected and qualified. Officers are elected to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" and the information set forth
under the caption "Election of Directors-Director Compensation" included in the
Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The common stock information in the section entitled "Principal Shareholders" of
the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" of the Proxy Statement is
incorporated herein by reference.
79
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following documents or the portions thereof indicated are filed as a part of
this report.
a) Documents filed as part of the Report
1. Financial Statements and Supplemental Data
a. Consolidated Balance Sheets at December 31, 1999 and
1998
b. Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997
c Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
d. Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1999, 1998 and 1997
e Notes to Consolidated Financial Statements=
f Report of Independent Accountant
g. Report of Management
2. Supplemental Financial Statement Schedule
Schedule I - Valuation and Qualifying Accounts Page S-1
b) Reports on Form 8-K
DATE FILED EVENT REPORTED
---------- --------------
10/21/99 Third Quarter Earnings Release - MedImmune Revenues Double in 1999
Third Quarter
11/8/99 Safety and Efficacy of Synagis Reaffirmed After First Season's Use;
MedImmune Presents Data at Second World Congress of
Pediatric Infectious Diseases
11/19/99 MedImmune to Exchange 0.15 Shares for Each U.S.
Bioscience Share in Proposed Acquisiton
11/24/99 MedImmune Completes Acquisition of U.S. Bioscience
12/20/99 MedImmune Announces Licensure of Manufacturing Facility
C) ITEM 601 EXHIBITS
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in
the Exhibit Index immediately preceding the exhibits filed herewith and such
listing is incorporated by reference.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDIMMUNE, INC.
/s/ Wayne T. Hockmeyer
------------------------------
Date: March 13, 2000 By: Wayne T. Hockmeyer, Ph.D.
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ Wayne T. Hockmeyer
------------------------------
Date: March 13, 2000 Wayne T. Hockmeyer, Ph.D.
Chairman and
Chief Executive Officer
(Principal executive officer)
/s/ David M. Mott
------------------------------
Date: March 13, 2000 David M. Mott
Vice Chairman and Chief
Financial Officer (Principal
financial and accounting officer)
/s/ M. James Barrett
------------------------------
Date: March 13, 2000 M. James Barrett, Director
/s/ Melvin D. Booth
------------------------------
Date: March 13, 2000 Melvin D. Booth, Director
81
/s/ James H. Cavanaugh
------------------------------
Date: March 13, 2000 James H. Cavanaugh, Director
/s/ Barbara Hackman Franklin
------------------------------
Date: March 13, 2000 Barbara Hackman Franklin, Director
/s/ Lawrence C. Hoff
------------------------------
Date: March 13, 2000 Lawrence C. Hoff, Director
/s/ Gordon S. Macklin
------------------------------
Date: March 13, 2000 Gordon S. Macklin, Director
/s/ Franklin H. Top, Jr.
------------------------------
Date: March 13, 2000 Franklin H. Top, Jr., Director
82
SCHEDULE I
MEDIMMUNE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------- --------- --------- ---------- ------
For the year ended
December 31, 1999
Trade and Contract Receivables
Allowance $29,589 $43,779 $(57,265) $16,103
Trade Receivables
Bad Debt Reserve 368 1,390 (454) 1,304
Inventory Reserve 9,747 803 (2,546) 8,004
Physical Asset Reserve -- 1,682 (854) 828
------- ------- --------- -------
$39,704 $47,654 $(61,119) $26,239
======= ======= ========= =======
For the year ended
December 31, 1998
Trade and Contract
Receivables Allowance $3,538 $54,597 $(28,546) $29,589
Trade Receivables Bad
Debt Reserve 204 402 (238) 368
Inventory Reserve 75 12,374 (2,702) 9,747
Physical Asset Reserve 175 -- (175) --
------- ------- --------- -------
$3,992 $67,373 $(31,661) $39,704
======= ======= ========= =======
For the year ended
December 31, 1997
Trade and Contract
Receivables Allowance $1,605 $4,166 $(2,233) $3,538
Trade Receivables Bad
Debt Reserve 895 20 (711) 204
Inventory Reserve 8 75 (8) 75
Physical Asset Reserve -- 175 -- 175
------- ------- --------- -------
$2,508 $4,436 $(2,952) $3,992
======= ======= ========= =======
S-1
c) Item 601 Exhibits
3.1(4) Restated Certificate of Incorporation, dated May 14, 1991
3.2(3) By-Laws, as amended
4.1(19) Amended and Restated Rights Agreement, dated as of October 31,
1998, between MedImmune, Inc., and American Stock Transfer and
Trust Company, as Rights Agent
10.1(1)(3) License Agreement dated November 15, 1990 between the Company
and Merck & Co., Inc. ("Merck")
10.2(3) Plasma Supply Agreement dated May 31, 1990 between the Company
and Plasma Alliance, Inc.
10.3(3) Termination Agreement dated June 29, 1990 between the Company
and Pediatric Pharmaceuticals, Inc. ("PPI") (formerly
MedImmune, Inc.)
10.4(3) RSV Research Agreement dated August 1, 1989 between the
Company, PPI and the Massachusetts Health Research Institute,
Inc. ("MHRI")
10.5(3) RSV License Agreement dated August 1, 1989 between the
Company, PPI and MHRI
10.6(3) RSV Supply Agreement dated August 1, 1989 between the Company,
PPI, MHRI and the Massachusetts Public Health Biologic
Laboratory ("MPHBL")
10.7(3) CMV License Agreement dated April 23, 1990 between the Company
and MHRI
10.8(3) First Amendment to CMV License Agreement dated May 3, 1991
between the Company and MHRI
10.9(3) CMV Research Agreement dated April 23, 1990 between the
Company, MHRI and MPHBL
10.10(3) License Agreement dated November 8, 1989 between the Company,
PPI, and the Henry M. Jackson Foundation for the Advancement
of Military Medicine ("HMJ")
10.11(1)(3) License Agreement dated November 15, 1990 between Company and
Merek & Co., Inc.
10.11(3) Research Agreement dated November 8, 1989 between the Company,
PPI and HMJ
10.12(1)(3) Research and License Agreement dated April 1, 1990 between the
Company and New York University
10.13(1)(3) Research and License Agreement dated January 2, 1991 between
the Company and the University of Pittsburgh
10.14(3) Patent License Agreement between the Company and the National
Institutes of Health regarding parvovirus
10.15(3) License Agreement dated September 1, 1988 between the Company
and Albany Medical College of Union College
E1
10.16(3) License Agreement dated July 5, 1989 between the Company,
Albert Einstein College of Medicine of Yeshiva University, The
Whitehead Institute and Stanford University
10.17(3) License Agreement dated July 1, 1989 between the Company and
the National Technical Information Service ("NTIS")
10.18(3) License Agreement dated September 1, 1989 between the Company
and NTIS
10.19(5) Form of Stock Option Agreement, as amended
10.20(3) Convertible Preferred Stock and Warrant Purchase Agreement
between HCV, Everest Trust and the Company dated January 12,
1990 with form of Warrant
10.21(3) Restated Stockholders' Agreement dated May 15, 1991
10.22(3) Lease Agreement between Clopper Road Associates and the
Company dated February 14, 1991
10.23(7) 1991 Stock Option Plan
10.24(3) Sublease between the Company and Pharmavene, Inc.
10.25(4) Agreement between New England Deaconess Hospital Corporation
and the Company, dated as of August 1, 1991
10.26(1)(4) Research Collaboration Agreement between Merck and the Company
effective as of November 27, 1991
10.27(1)(4) Co-promotion Agreement between Merck and the Company effective
as of November 27, 1991
10.28(1)(4) License Agreement between Merck and the Company effective as
of November 27, 1991
10.29(1)(5) Letter Agreement between Merck and the Company, dated January
26, 1993
10.30(1)(5) Termination, Purchase and Royalty Agreement between CLI and
the Company, dated December 24, 1992
10.30.1(1)(12) Amendment to Termination, Purchase and Royalty Agreement
between Connaught Technology Corporation and MedImmune, Inc.
dated December 31, 1995
10.31(1)(5) Research and License Agreement between Cell Genesys, Inc. and
the Company, dated April 29, 1992
10.31(a)(5) Unredacted pages 2-5 of Exhibit 10.31
10.32(5) Form of 1993 Non-Employee Director Stock Option Plan
10.33(1)(8) Sponsored Research and License Agreement between Georgetown
University and the Company dated February 25, 1993
10.34(1)(8) License Agreement between Roche Diagnostic Systems,
Inc. and the Company dated March 8, 1993
10.35(1)(8) Pip/Tazo Co-Promotion Agreement between American Cyanamid
Company and the Company dated November 8, 1993
10.35.1(12) Agreement dated October 26, 1995 between American Cyanamid
Company and the Company
E2
10.36(1)(8) RSVIG Co-Development and Co-Promotion Agreement between
American Cyanamid Company and the Company dated November 8,
1993
10.36.1(12) Agreement dated October 26, 1995 between American Cyanamid
Company and the Company
10.37(1)(8) RSV MAB Co-Development and Co-Promotion Agreement between
American Cyanamid Company and the Company dated November 8,
1993
10.37.1(12) Agreement dated October 26, 1995 between American Cyanamid
Company and the Company
10.38(1)(8) RSV Vaccine Co-Development and Co-Promotion Agreement between
American Cyanamid Company and the Company dated November 8,
1993
10.38.1(12) Agreement dated October 26, 1995 between American Cyanamid
Company and the Company
10.39(1)(10) Fraction II + III Paste Supply Agreement between Baxter
Healthcare Corporation and the Company dated September 1, 1994
10.40(11) Employment Agreement between David P. Wright and the Company
dated January 2, 1995
10.41(11) Employment Agreement between Bogdan Dziurzynski and the
Company dated February 1, 1995
10.42(11) Employment Agreement between Wayne T. Hockmeyer and the
Company dated February 1, 1995
10.43(11) Employment Agreement between David M. Mott and the Company
dated February 1, 1995
10.44(11) Employment Agreement between Franklin H. Top, Jr. and the
Company dated February 1, 1995
10.45(11) Employment Agreement between James F. Young and the Company
dated February 1, 1995
10.46(1)(11) License Agreement between Symbicom AB and the Company dated
May 20, 1994
10.47(1)(11) License Agreement between the University of Kentucky Research
Foundation and the Company effective June 10, 1994
10.48(1)(11) Research and Development Agreement between the University of
Kentucky Research Foundation and the Company effective June
10, 1994
10.49(1)(11) Research and License Agreement between Washington University
and the Company effective July 1, 1994
10.50(1)(11) Research and License Agreement between Washington University
and the Company effective March 1, 1995
10.51(1)(9) License Agreement between Baxter Healthcare Corporation and
MedImmune, Inc. effective June 2, 1995
E3
10.52(1)(9) Stock Purchase Agreement between Baxter Healthcare Corporation
and MedImmune, Inc. dated June 22, 1995
10.53(2)(10) Alliance Agreement between BioTransplant, Inc. and MedImmune,
Inc. dated October 2, 1995
10.54(12) Stock Purchase Agreement dated October 25, 1995 between
MedImmune, Inc. And American Home Products
10.55(2)(12) Collaboration and License Agreement dated as of July 27, 1995
between MedImmune, Inc. And Human Genome Sciences, Inc.
10.56(12) Stipulation of Settlement in reference to MedImmune, Inc.
Securities Litigation, Civil Action No. PJM93-3980
10.57(2)(13) Plasma Supply Agreement dated effective as of February 8,
1996, by and between DCI Management Group, Inc. and MedImmune,
Inc.
10.58(2)(13) License and Research Support Agreement dated as of April 16,
1996, between The Rockefeller University and MedImmune, Inc.
10.59(14) First Amendment of Lease Between Clopper Road Associates and
MedImmune, Inc. dated June 8, 1993.
10.60(14) Second Amendment of Lease Between Clopper Road Associates and
MedImmune, Inc. dated June 30, 1993.
10.61(14) Third Amendment of Lease between Clopper Road Associates and
MedImmune, Inc. effective as of January 1, 1995.
10.62(14) Fourth Amendment of Lease between Clopper Road Associates and
MedImmune, Inc. dated October 3, 1996.
10.63(14) Fifth Amendment of Lease between Clopper Road Associates and
MedImmune, Inc. dated October 3, 1996.
10.64(1)(14) Engineering, Procurement, Construction and Validation Services
Agreement between MedImmune, Inc. and Fluor Daniel, Inc.
effective as of July 31, 1996.
10.65(2)(14) Research and License Agreement between OraVax Merieux Co. and
MedImmune, Inc. effective as of November 1, 1996.
10.66(15) Employment Agreement between Wayne T. Hockmeyer and MedImmune,
Inc. effective April 1, 1997.
10.67(15) Employment Agreement between David M. Mott and MedImmune, Inc.
effective April 1, 1997.
10.68(15) Employment Agreement between Franklin H. Top and MedImmune,
Inc. effective April 1, 1997.
10.69(15) Employment Agreement between David P. Wright and MedImmune,
Inc. effective April 1, 1997.
10.70(15) Employment Agreement between James F. Young and MedImmune,
Inc.effective April 1, 1997.
10.71(15) Employment Agreement between Bogdan Dziurzynski and MedImmune,
Inc. effective April 1, 1997.
10.72(16) Master Loan & Security Agreement, dated June 16, 1997 by and
between Transamerica and MedImmune, Inc.
E4
10.73(1)(16) Patent License Agreement, (MEDI-493) dated July 17, 1997 by
and between Protein Design Labs and MedImmune, Inc.
10.74(1) Patent License Agreement, (MEDI-507) dated July 17, 1997 by
and between Protein Design Labs and MedImmune, Inc.
10.75(17) Sixth Amendment of Lease between ARE-QRS Corp. and MedImmune,
Inc. dated September 10, 1997.
10.76(1)(17) Co-Promotion Agreement between Abbott Laboratories and
MedImmune, Inc. dated November 26, 1997
10.77(1)(17) Contract Research and Development Agreement between MedImmune,
Inc. and Dr. Karl Thomae GmbH dated November 27, 1997.
10.78(1)(17) Manufacturing Agreement between MedImmune, Inc. and Dr. Karl
Thomae GmbH dated November 27, 1997.
10.79(1)(17) Distribution Agreement between MedImmune, Inc. and Abbott
International, Ltd. dated November 26, 1997.
10.80(1)(17) License Agreement between Loyola University of Chicago and
MedImmune, Inc. dated December 3, 1997.
10.81(1)(17) Research Collaboration and License Agreement between
SmithKline Beecham and MedImmune, Inc. dated December 10,
1997.
10.82(18) Termination of MEDI-SB Letter Agreement of October 10, 1996.
10.83(18) Second Amendment between MedImmune, Inc. and Lonza Biologics
PLC of 228 Bath Road, Slough, Berkshire SL1 4DY England
10.84(22) Employment Agreement between Wayne T. Hockmeyer and MedImmune,
Inc. effective November 1, 1998.
10.85(22) Employment Agreement between Melvin Boolth and MedImmune, Inc.
effective November 1, 1998.
10.86(22) Employment Agreement between David M. Mott and MedImmune, Inc.
effective November 1, 1998.
10.87(22) Employment Agreement between Franklin H. Top and MedImmune,
Inc. effective November 1, 1998.
10.88(22) Employment Agreement between David P. Wright and MedImmune,
Inc. effective November 1, 1998.
10.89(22) Employment Agreement between James F. Young and MedImmune,
Inc.effective November 1, 1998.
10.90(22) Employment Agreement between Bogdan Dziurzynski and MedImmune,
Inc. effective November 1, 1998.
10.91(2)(22) License Agreement between Connaught Laboratories, Inc. and
MedImmune, Inc. effective November 20,1998.
10.92(2)(22) Termination of Purchase and Royalty Agreement Second Amendment
between Connaught Technology Corporation and MedImmune, Inc.
effective September 30, 1998.
10.93(22) Purchase Contract Agreement between Aid Association and
MedImmune, Inc. effective November 25, 1998.
E5
10.94 Seventh Amendment of Lease between ARE-QRS CORP. and
MedImmune, Inc. effective August 1, 1998.
10.95(20)(2) Research and Assignment and License Agreement, dated as of
February 24, 1999 by and between IXSYS, Inc. and MedImmune,
Inc.
10.96(20)(2) License Agreement, dated as of February 24, 1999 by and
between IXSYS, Inc. and MedImmune, Inc.
10.97(20)(2) Selection Agreement, dated as of February 24, 1999 by and
between IXSYS, Inc. and MedImmune, Inc.
10.98(20)(2) Stock Purchase Agreement, dated as of February 24, 1999 by and
between IXSYS, Inc. and MedImmune, Inc.
10.99(21) Employment Agreement between Armando Anido and MedImmune, Inc.
effective August 30, 1999
10.100(21) Amendment to Lease Agreement for MOR Bennington LLLP and
MedImmune, Inc.
10.101(2) RSVIG Termination Agreement dated December 17, 1999 between
MedImmune, Inc. and Wyeth-Ayerst Pharmaceuticals, Inc.
("Wyeth")
10.102 Agreement dated August 9, 1991, between U.S. Bioscience, Inc.
and Warner-Lambert Company, as amended by Amendment No. 1
dated December 12, 1991, Amendment No. 2 dated March 10, 1994
and Amendment No. 3 dated March 11, 1994 (incorporated by
reference to Exhibit 10.01 to the U.S. Bioscience, Inc. Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1994)
10.103 Office Lease Agreement, dated September 1990, between U.S.
Bioscience, Inc. and Tower Bridge Associates (incorporated by
reference to Exhibit 10(k) to the U.S. Bioscience, Inc.
Registration Statement on Form S-1 (File No. 33-39576) filed
with the Securities and Exchange Commission on March 22, 1991)
10.103(a) Amendment No. 1, dated August 31, 1991, to Office Lease
Agreement between U.S. Bioscience, Inc. and Tower Bridge
Associates (incorporated by reference to Exhibit 10(I)(ii) to
the U.S. Bioscience, Inc. Annual Report on form 10-K filed
with the Securities and Exchange Commission on March 27, 1992)
10.103(b) Addendum, dated April 8, 1992, to Amendment No. 1 of Office
Lease Agreement between U.S. Bioscience and Tower Bridge
Associates (incorporated by reference to Exhibit 10.2.2 to the
U.S. Bioscience, Inc. Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1993)
10.103(c) Amendment No. 2, dated June 30, 1995, to Office Lease
Agreement between U.S. Bioscience, Inc. and Tower Bridge
Associates (incorporated by reference to Exhibit 10.2.3 to the
U.S. Bioscience, Inc. Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 20, 1996)
E6
10.103(d) Amendment No. 3, dated May 12, 1998, to Office Lease Agreement
between U.S. Bioscience and Tower Bridge Associates
(incorporated by reference to Exhibit 10.2.3.1 to the U.S.
Bioscience, Inc. Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on July 31, 1998)
10.104 Lease Agreement, dated June 15, 1992, between U.S. Bioscience,
Inc. and Pickering Acquisition Associates (incorporated by
reference to Exhibit 10.3 to the U.S. Bioscience, Inc. Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on March 31, 1993)
10.104(a) Amendment No. 1, dated March 17, 1993, to Lease Agreement
between the U.S. Bioscience, Inc. and Pickering Acquisition
Associates (incorporated by reference to Exhibit 10.3.1 to the
U.S. Bioscience, Inc. Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1993)
10.104(b) Second Amendment to Lease Agreement between U.S. Bioscience
and Pickering Acquisition Associates dated February 8, 1995
(incorporated by reference to Exhibit 10.3.2 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.104(c) Third Amendment to Lease Agreement between U.S. Bioscience,
Inc. and Pickering Associates dated October 12, 1995
(incorporated by reference to Exhibit 10.3.3 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 20, 1998)
10.104(d) Fourth Amendment to Lease Agreement between U.S. Bioscience,
Inc. and Pickering Acquisition Associates dated January 20,
1998 (incorporated by reference to Exhibit 10.3.4 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 20, 1998)
10.105 License Agreement Dated January 30, 1995 between Registrant
and National Institutes of Health (incorporated by reference
to Exhibit 10.6 to the U.S. Bioscience, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 28, 1995)
10.106 Agreement for Assignment of Rights, dated January 8, 1988,
between U.S. Bioscience, Inc. and Wyeth Laboratories, Inc.
(incorporated by reference to Exhibit 10.18 to the U.S.
Bioscience, Inc. Registration Statement on Form 10 filed with
the Securities and Exchange Commission on September 21, 1989)
10.107 Amended and Restated License Agreement, effective as of May 1,
1993, between U.S. Bioscience, Inc. and Southern Research
Institute (incorporated by reference to Exhibit 10.8 to the
U.S. Bioscience, Inc. Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 28, 1994)
E7
10.108 Agreement, dated as of November 25, 1988, between U.S.
Bioscience, Inc. and Warner-Lambert Company (incorporated by
reference to Exhibit 10.23 to the U.S. Bioscience, Inc.
Registration Statement on Form 10 filed with the Securities
and Exchange Commission on September 21, 1989)
10.108(a) Amendment No. 1, dated March 13, 1992 to Agreement dated as of
November 25, 1988, between U.S. Bioscience, Inc. and
Warner-Lambert Company (incorporated by reference to Exhibit
10(o)(ii) to the U.S. Bioscience, Inc. Annual Report on Form
10-K filed with the Securities and Exchange Commission on
March 27, 1992)
10.109 Agreement, dated as of January 1, 1995, between U.S.
Bioscience, Inc. and Applied Analytical Industries, Inc.
(incorporated by reference to Exhibit 10.11 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange commission on March 28, 1995)
10.109(a) Amendment, dated April 12, 1995, to Agreement dated January
1995 between U.S. Bioscience, Inc. and Applied Analytical
Industries, Inc. (incorporated by reference to Exhibit 10.11
to the U.S. Bioscience, Inc. Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 21,
1997).
10.109(b) Second Amendment, dated May 6, 1996 to Agreement dated January
1, 1995 between U.S. Bioscience, Inc. and Applied Analytical
Industries, Inc. (incorporated by reference to Exhibit 10.11.2
to the U.S. Bioscience, Inc. Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 21, 1997)
10.110 Agreement, dated as of September 23, 1993, between U.S.
Bioscience, Inc. and Ben Venue Laboratories, Inc.
(incorporated by reference to Exhibit 10.12 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.110(a) Amendment, dated April 11, 1995, to Agreement dated September
23, 1993 between U.S. Bioscience, Inc. and Ben Venue
Laboratories, Inc. (incorporated by reference to Exhibit
10.12.1 to the U.S. Bioscience, Inc. Annual Report on Form
10-K filed with the Securities and Exchange Commission on
March 21, 1997)
10.110(b) Amendment, dated December 12, 1995, to Agreement dated
September 23, 1993 between U.S. Bioscience, Inc. and Ben Venue
Laboratories, Inc. (incorporated by reference to Exhibit
10.12.2 to the U.S. Bioscience, Inc. Annual Report on Form
10-K filed with the Securities and Exchange Commission on
March 21, 1997)
E8
10.111 License Agreement, dated February 14, 1992, between U.S.
Bioscience, Inc. and Schering Overseas Limited (incorporated
by reference to Exhibit 10.14 to the U.S. Bioscience, Inc.
Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 31, 1993)
10.111(a) Amendment dated October 15, 1993 to License Agreement between
U.S. Bioscience, Inc. and Schering Overseas Limited
(incorporated by reference to Exhibit 10.14.1 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.112 Amended and restated License Agreement dated May 10, 1994
between U.S. Bioscience, Inc. and Scherico, Ltd. (incorporated
by reference to Exhibit 10.15 to the U.S. Bioscience, Inc.
Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 20, 1998)
10.113(1) Distribution and Supply Agreement, dated as of May 10, 1993
between U.S. Bioscience, Inc. and Scherico, Ltd.
(incorporated by reference to Exhibit 10.16 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.113(a)(1) Amendment to Distribution and Supply Agreement, dated as
of August 31, 1996 between U.S. Bioscience, Inc. and
Scherico, Ltd. (incorporated by reference to
Exhibit 10.16.1 to the U.S. Bioscience, Inc. Current Report
on Form 8-K/A dated September 19, 1996 filed with the
Securities and Exchange Commission on December 19, 1996)
10.114 Agreement, dated as of March 10, 1994 between U.S. Bioscience,
Inc. and Sipsy S.A. (incorporated by reference to Exhibit
10.17 to the U.S. Bioscience, Inc. Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28,
1994)
10.115 License Agreement, effective November 28, 1990 between U.S.
Bioscience, Inc. and National Technical Information Service
(incorporated by reference to Exhibit 10.18 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.116 (1) Ethyol (Amifostine) Distribution and Marketing Collaboration
Agreement between U.S. Bioscience, Inc. and ALZA Corporation
dated December 12, 1995 (incorporated by reference to Exhibit
5 to the U.S. Bioscience, Inc. Current Report on Form 8-K
dated December 22, 1995)
E9
10.116(a) Amendment No. 2 to distribution and Marketing Collaboration
Agreement between U.S. Bioscience, Inc. and ALZA Corporation
dated as of February 3, 1997 (incorporated by reference to
Exhibit 10.25.2 to the U.S. Bioscience, Inc. Current Report on
Form 8-K dated February 3, 1997)
10.117 License Agreement between U.S. Bioscience, Inc. and Scherico,
Ltd. dated as of November 6, 1997 (incorporated by reference
to Exhibit 10.27 to the U.S. Bioscience, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 20, 1998)
10.117(a) Amendment No. 1 to License Agreement dated as of November 6,
1997 between U.S. Bioscience, Inc. and Scherico, Ltd.
(incorporated by reference to Exhibit 10.27.1 to the U.S.
Bioscience, Inc. Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 20, 1998)
10.118 Agreement between U.S. Bioscience, Inc. and Philip S. Schein,
M.D. dated as of March 10, 1998 (incorporated by reference to
Exhibit 10.28.1 to the U.S. Bioscience, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 20, 1998)
10.119(23) Agreement and Plan of Merger dated as of September 21, 1999
among MedImmune, Inc. and Marlin Merger Sub Inc. and U. S.
BioScience, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Opinion of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
(1) Confidential treatment has been granted by the SEC. The copy
filed as an exhibit omits the information subject to the
confidentiality grant.
(2) Confidential treatment has been requested. The copy filed as
an exhibit omits the information subject to the
confidentiality request.
(3) Incorporated by reference to exhibit filed in connection
with the Company's Registration Statement No. 33-39579.
(4) Incorporated by reference to exhibit filed in connection
with the Company's Registration Statement No. 33-43816.
(5) Incorporated by reference to exhibit filed in connection
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
(6) Incorporated by reference to exhibit filed in connection
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.
(7) Incorporated by reference to exhibit filed in connection
with the Company's Registration Statement No. 33-46165.
(8) Incorporated by reference to exhibit filed in connection
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
E10
(9) Incorporated by reference to exhibit filed in connection
with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(10) Incorporated by reference to exhibit filed in connection
September 30, 1995.
(11) Incorporated by reference to exhibit filed with the
Company's Annual Report on Form 10-K for December 31, 1994.
(12) Incorporated by reference to exhibit filed with the
Company's Annual Report on Form 10-K for December 31,1995.
(13) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1996.
(14) Incorporated by reference to exhibit filed with the
Company's Annual Report on Form 10-K for December 31, 1996.
(15) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1997.
(16) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1997.
(17) Incorporated by reference to exhibit filed with the
Company's annual Report on Form 10K for December 31, 1997.
(18) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1998.
(19) Incorporated by reference to Exhibit 99.2 filed with the
Company's Registration Statement on Form 8A/A, filed with
the Securities and Exchange Commission on December 1, 1998.
(20) Incorporated by reference to exhibit filed in connection
with the Company'sQuarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
(21) Incorporated by reference to exhibit filed in connection
with the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.
(22) Incorporated by reference to exhibit filed with the
Company's annual Report on Form 10K for December 31, 1998.
(23) Incorporated by reference to exhibit filed on Form S-4
filed on October 12, 1999.
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