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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number: 0-19311

IDEC PHARMACEUTICALS CORPORATION
(Exact name of registrant as specified in its charter)

        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 ý    No o

        As of October 31, 2002 the Registrant had 153,032,752 shares of its common stock, $.0005 par value, issued and outstanding.

IDEC PHARMACEUTICALS CORPORATION

FORM 10-Q—QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements.

IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

See accompanying notes to the condensed consolidated financial statements.

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IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

See accompanying notes to the condensed consolidated financial statements.

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IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

See accompanying notes to the condensed consolidated financial statements.

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IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data, percentages and unless as otherwise noted)

(Unaudited)

Note 1.    Summary of Significant Accounting Policies

        General:    The condensed consolidated financial statements as of September 30, 2002, and for the three and nine months ended September 30, 2002 and 2001 are unaudited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America. We believe the disclosures made are adequate to make the information presented not misleading. However, you should read these condensed consolidated financial statements in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2001.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. Interim results are not necessarily indicative of results for a full year or for any subsequent interim period.

        In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for the interim periods presented. Certain amounts in 2001 have been reclassified to conform to the 2002 presentation.

        Product Sales:    Product sales consist solely of sales of ZEVALIN®, our radioimmunotherapy product which was approved by the FDA for the treatment of certain B-cell non-Hodgkin's lymphomas, or NHLs, in February 2002. We have retained all United States marketing and distribution rights to ZEVALIN and have granted marketing and distribution rights outside the United States to Schering Aktiengesellschaft, or Schering AG. We recognize revenue from ZEVALIN product sales upon shipment. We record allowances for estimated uncollectible accounts receivable, product returns and Medicaid rebates at the time of sale.

Note 2.    Revenues from Unconsolidated Joint Business

        In March 1995, we entered into a collaborative agreement for the clinical development and commercialization of our anti-CD20 monoclonal antibody, Rituxan, for the treatment of certain B-cell NHLs with Genentech, Inc., or Genentech. Concurrent with the collaborative agreement we also entered into an expression technology license agreement with Genentech for a proprietary gene expression technology developed by us, and a preferred stock purchase agreement providing for certain equity investments in us by Genentech. Under the terms of these agreements, we will be reimbursed by Genentech for certain other development and regulatory approval expenses. Genentech may terminate this agreement for any reason, which would result in a loss of Genentech's Rituxan product rights.

        In addition, we are copromoting Rituxan in the United States with Genentech under a joint business arrangement whereby we receive a share of the pretax copromotion profits. In September 1999, we transferred all worldwide manufacturing responsibilities for bulk Rituxan to Genentech.

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        Under the terms of separate agreements with Genentech, commercialization of Rituxan outside the United States is the responsibility of F. Hoffman-La Roche Ltd., or Roche, except in Japan where Roche continues development and copromotes Rituxan in collaboration with Zenyaku Kogyo Co. Ltd. We receive royalties on Rituxan sales outside the United States.

        Revenues from unconsolidated joint business for the three and nine months ended September 30, 2002 and 2001 consist of the following:

        Amounts due from related parties, net at September 30, 2002 and December 31, 2001 primarily consist of amounts due from Genentech under our joint business arrangement.

Note 3.    Inventories

        Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market. Inventories consist of the following:

        Pre-launch production of ZEVALIN antibodies manufactured prior to FDA approval in February 2002 were recognized as research and development expenses.

Note 4.    Earnings Per Share

        Earnings per share is calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic earnings per share utilizes net income and excludes the dilutive effects of stock options and other convertible securities. Diluted earnings per share utilizes net income adjusted for the after-tax amount of interest associated with convertible debt, and includes the potential dilutive effects of stock options and other convertible securities that could share in our earnings.

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Calculations of basic and diluted earnings per share use the weighted-average number of shares outstanding during the period.

        Excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2002 were 8.7 million shares and 5.0 million shares, respectively, of common stock from the assumed conversion of our 30-year senior convertible promissory notes due 2032, and options to acquire 8.6 million shares and 5.3 million shares, respectively, of common stock because their effect would be antidilutive.

        Excluded from the calculation of diluted earnings per share for the three months ended September 30, 2001 were 13.9 million shares of common stock from the assumed conversion of our subordinated convertible promissory notes due 2019, and options to acquire 2.9 million shares of common stock because their effect would be antidilutive. Excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2001 were options to acquire 2.4 million shares of common stock because their effect would be antidilutive.

Note 5.    Comprehensive Income

        Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes certain changes in stockholders' equity that are excluded from net income, specifically, unrealized holding gains and losses on securities available-for-sale, net of tax. Total comprehensive income for the three months ended September 30, 2002 and 2001 was $40.2 million and $28.0 million, respectively. Total comprehensive income for the nine months ended September 30, 2002 and 2001 was $105.8 million and $74.3 million, respectively.

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Note 6.    Segment Information

        We operate in one segment, which is the research, development, manufacture and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases. The chief operating decision-makers review our operating results on an aggregate basis and manage our operations as a single operating segment.

Note 7.    Notes Payable

        In April and May 2002, we issued 30-year senior convertible promissory notes, or senior notes, for gross proceeds of approximately $714.4 million, or $696.0 million net of underwriting commissions and expenses of $18.4 million. Simultaneously with the issuance of the senior notes, we used a portion of the proceeds to fund the repurchase of $135.0 million of our outstanding common stock. The senior notes are zero coupon and were priced with a yield to maturity of 1.75% annually. We will pay contingent cash interest to the holders of these senior notes during any six-month period commencing on or after April 30, 2007 if the average market price of the senior notes for a five-trading-day measurement period preceding such six-month period equals 120% or more of the sum of the issue price and accrued original issue discount for such senior note. The contingent interest payable per senior note in respect of any quarterly period within such six-month period where contingent interest is determined to be payable will equal the greater of (1) the amount of regular cash dividends paid by us per share on our common stock during that quarterly period multiplied by the then applicable conversion rate or (2) 0.0625% of the average market price of a senior note for the five-trading-day measurement period preceding such six-month period, provided that if we do not pay regular cash dividends during a semiannual period, we will pay contingent interest semiannually at a rate of 0.125% of the average market price of a senior note for the five-trading-day measurement period immediately preceding such six-month period.

        Upon maturity, the senior notes will have an aggregate principal face value of $1.2 billion. Each $1,000 aggregate principal face value senior note is convertible at the holder's option at any time through maturity into 7.1881 shares of our common stock at an initial conversion price of $82.49. In addition, holders of the senior notes may require us to purchase all or a portion of the senior notes on April 29, 2005, 2007, 2012 and 2017 at a price equal to the issue price plus the accrued original issue discount to the date of purchase, payable at our option in cash, our common stock or a combination thereof. In addition, if a change in control in our company occurs on or before April 29, 2007, holders may require us to purchase all or a portion of their senior notes for cash. We have the right to redeem all or a portion of the senior notes for cash at any time on or after April 29, 2007 at set prices.

Note 8.    Contingencies

        On September 10, 2001, we filed a complaint against GlaxoSmithKline, plc, or Glaxo, and another complaint against Corixa Corporation, or Corixa, Coulter Pharmaceutical, Inc., or Coulter, and the Regents of the University of Michigan, in federal court for the Southern District of California. We are seeking declaratory judgment that ZEVALIN does not infringe patents held by the defendants and/or that the patents are invalid. On September 12, 2001, Corixa, Coulter and Glaxo filed a lawsuit against us in federal court in the district of Delaware alleging that ZEVALIN infringes their patents. This action has been transferred to the federal court for the Southern District of California and has been

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consolidated with our lawsuit. Corixa's lawsuit against us seeks damages and to permanently enjoin us from selling ZEVALIN.

        In addition, we are involved in certain other legal proceedings generally incidental to our normal business activities, which we believe will not have a material adverse effect on our business or financial condition.

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

        We are primarily engaged in the research, development, manufacture and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases.

        In February 2002, ZEVALIN became the first radioimmunotherapy approved by the Food and Drug Administration, or FDA, for the treatment of certain B-cell NHLs. We have retained all United States marketing and distribution rights to ZEVALIN and have granted marketing and distribution rights outside the United States to Schering AG. In July 2002, we announced that marketing approval in Europe and European launch of ZEVALIN would be delayed. In October 2002, the Centers for Medicare and Medicaid Services, or CMS, informed us that the previously assigned C-codes and billing rate for the ZEVALIN therapeutic regimen became effective on October 1, 2002. In November 2002, CMS assigned a fixed reimbursement rate under which they will reimburse hospitals for the ZEVALIN therapeutic regimen for 2003.

        Our other product, Rituxan, is being copromoted in the United States under a joint business arrangement with Genentech, where we receive a share of the pretax copromotion profits. Under the copromotion arrangement we share responsibility with Genentech for selling and continued development of Rituxan in the United States. Continued development of Rituxan includes conducting supportive research on Rituxan, post-approval clinical studies and obtaining approval of Rituxan for potential additional indications. Genentech provides the support functions for the commercialization of Rituxan in the United States including marketing, customer service, order entry, distribution, shipping and billing. Since September 1999, Genentech has been responsible for all worldwide manufacturing. Under the terms of separate agreements with Genentech, commercialization of Rituxan outside the United States is the responsibility of Roche, except in Japan where Roche continues development and copromotes Rituxan in collaboration with Zenyaku. We receive royalties on Rituxan sales outside the United States.

        Our revenues include revenues from product sales of ZEVALIN, unconsolidated joint business revenues and corporate partner revenues. Until the commercialization of Rituxan, a substantial portion of our revenues had been derived from corporate partner revenues. However, since the commercialization of Rituxan in November 1997, our revenues have depended primarily upon the sale of Rituxan.

        We have incurred increasing annual operating expenses and with the commercialization of Rituxan and ZEVALIN, we expect these trends to continue. From our inception in 1985, through 1997, we incurred annual operating losses. Our ongoing profitability will be dependent upon the continued commercial success of Rituxan, the commercial success of ZEVALIN, product development and

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revenues from the achievement of product development objectives and licensing transactions. As of September 30, 2002, we had retained earnings of $218.6 million.

CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES

        The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On a periodic basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory allowances, accounting for income taxes including the related valuation allowance, accruals for compensation and related benefits, and contingencies and litigation. These estimates are based on the information that is currently available and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

        We have identified the following critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

        Revenue recognition:    Revenues from unconsolidated joint business include our share of the pretax copromotion profits generated from our copromotion arrangement with Genentech, reimbursement from Genentech of our Rituxan-related sales force and development expenses and royalty revenue from Roche and Zenyaku on sales of Rituxan outside the United States. We record our royalty revenue from Roche and Zenyaku with a one-quarter lag. Under the copromotion arrangement, all U.S. sales of Rituxan and associated costs and expenses are recognized by Genentech and we record our share of the pretax copromotion profits on a quarterly basis, as defined in our collaborative agreement with Genentech. Pretax copromotion profits under the copromotion arrangement are derived by taking United States net sales of Rituxan to third-party customers less cost of sales, third-party royalty expenses, distribution, selling and marketing expenses and joint development expenses incurred by Genentech and us. Our profit-sharing formula with Genentech has two tiers; we earn a higher percentage of the pretax copromotion profits at the upper tier once a fixed pretax copromotion profit level is met. The profit-sharing formula resets annually at the beginning of each year to the lower tier. We began recording our profit share at the higher percentage during the first quarter of 2002 and 2001.

        Corporate partner revenues consist of contract revenues and license fees. Contract revenues include nonrefundable research and development funding under collaborative agreements with our corporate partners and other funding under contractual arrangements with other parties. Contract research and development funding generally compensates us for discovery, preclinical and clinical expenses related to our collaborative development programs for our products and is recognized as research and development activities are performed under the terms of the collaborative agreements.

        License fees includes nonrefundable fees from the sale of product rights and nonrefundable fees from product development milestone payments under collaborative development and license agreements with our corporate partners. Nonrefundable up-front fees from the sale of product rights are recorded as deferred revenue upon receipt and recognized as revenue over future periods as required by Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB No. 101. Nonrefundable product development milestone

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payments are recognized upon the achievement of product development milestone objectives as stipulated in agreements with our corporate partners. Product development milestone objectives vary in each of our agreements. The achievement of product development milestone objectives that may lead to the recognition of license fee revenues include:

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the achievement of preclinical research and development objectives;



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the initiation of various phases of clinical trials;



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the filing of an Investigational New Drug application, or IND, Biological License Application, or BLA, or New Drug Application, or NDA;



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the filing of drug license applications in foreign territories; and



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obtaining United States or foreign regulatory product approvals.

        We recognize revenue from ZEVALIN product sales upon shipment. We record allowances for estimated uncollectible accounts receivable, product returns and Medicaid rebates at the time of sale.

        Accounting for income taxes:    As part of the process of preparing our condensed consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our condensed consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we may include an expense within the income tax provision in the statement of operations.

        Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $66.5 million and $70.7 million, respectively, as of September 30, 2002 and December 31, 2002 due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss carryforwards, before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. Our estimates of taxable income are derived from, among other items, our estimates of deductions related to stock options. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance which could materially impact our financial position and results of operations. Our net deferred tax asset as of September 30, 2002 and December 31, 2001 was $60.5 million and $67.0 million, respectively, net of the valuation allowance.

RECENT DEVELOPMENTS

        On September 5, 2002, we announced the completion of a preliminary review of the clinical results of our two Phase II clinical trials of IDEC-114 for patients with moderate-to-severe psoriasis, and that the data did not support further development in this indication. We continue to develop IDEC-114 in non-Hodgkin's lymphoma.

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        On September 30, 2002, we announced the retirement of Phillip M. Schneider, Senior Vice Presdient and Chief Financial Officer, to pursue personal and community interests.

RESULTS OF OPERATIONS

        Revenues from unconsolidated joint business for the three and nine months ended September 30, 2002 and 2001, consist of the following:

        Under our agreement with Genentech, our pretax copromotion profit-sharing formula has two tiers. We earn a higher percentage of the pretax copromotion profits at the upper tier once a fixed pretax copromotion profit level is met. The profit-sharing formula resets annually at the beginning of each year to the lower tier. We began recording our profit share at the higher percentage during the first quarter of 2002 and 2001.

        Rituxan net sales to third-party customers in the United States recorded by Genentech for the three and nine months ended September 30, 2002 amounted to $269.6 million and $762.0 million, respectively, compared to $205.0 million and $553.0 million for the comparable periods in 2001. This increase was primarily due to increased market penetration in treatments of B-cell non-Hodgkin's lymphoma and an increase in the wholesale price of Rituxan effective on March 1, 2002.

        Our royalty revenue on sales of Rituxan outside the United States is based on Roche and Zenyaku's end-user sales and is recorded with a one-quarter lag. For the three and nine months ended September 30, 2002, we recognized $11.8 million and $31.9 million, respectively, in royalties from Roche and Zenyaku's end-users sales compared to $3.7 million and $9.7 million for the comparable periods in 2001. The increase in royalty revenue for the three months and nine months ended September 30, 2002 is primarily due to higher sales of Rituxan outside the United States resulting from increased penetration of foreign markets, including initial sales of Rituxan in Canada and Japan.

        Corporate partner revenues for the three months ended September 30, 2002 totaled $0.1 million compared to $1.1 million for the comparable period in 2001. The decrease in corporate partner revenues for the three months ended September 30, 2002 is primarily the result of decreased funding under our collaborative agreements with Eisai Co., Ltd. and Schering AG and termination of our collaborative agreement with Taisho Pharmaceuticals Co. Ltd. of Tokyo. Corporate partner revenues for the nine months ended September 30, 2002 totaled $3.1 million compared to $15.8 million for the comparable period in 2001. The decrease in corporate partner revenues for the nine months ended September 30, 2002 is primarily the result of decreased funding under our collaborative agreements

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with Taisho, Eisai and Schering AG, and, during the nine months ended September 30, 2001, the recognition of a $5.0 million milestone payment from Schering AG when the European Medicines Evaluation Agency accepted for filing the submission of a Marketing Authorization, or MAA, for the approval of ZEVALIN in Europe, and $1.6 million in upfront license fees received from Schering AG in 1999 resulting from our adoption of SAB No. 101.

        Corporate partner revenues may vary from period to period and are, in part, dependent upon achievement of certain research and development objectives or the consummation of new corporate alliances. The magnitude and timing of corporate partner revenues may influence our level of profitability. For example, the delay in ZEVALIN approval in Europe will result in a delay in the payment and recognition of a $10.0 million product approval milestone from Schering AG.

        Product sales were $5.0 million and $8.3 million, respectively, for the three and nine months ended September 30, 2002 and consist solely of net sales of ZEVALIN in the Unite