-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvhmH/COjZ9R4mVvGjWH2twwi8ve358Z2ahtSE5mWOLv2/vnGYYy+2erAVsZ60gf oNoX3UrOxAlXKI6evn/uAQ== 0000950135-99-001756.txt : 19990402 0000950135-99-001756.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950135-99-001756 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMULOGIC PHARMACEUTICAL CORP /DE CENTRAL INDEX KEY: 0000873731 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133397957 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19117 FILM NUMBER: 99582461 BUSINESS ADDRESS: STREET 1: 610 LINCOLN ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 7814666000 MAIL ADDRESS: STREET 1: 610 LINCOLN ST CITY: WALTHAM STATE: MA ZIP: 02154 10-K 1 IMMULOGIC PHARMACEUTICAL FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER: 0-19117 IMMULOGIC PHARMACEUTICAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3397957 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number)
610 LINCOLN STREET, WALTHAM, MASSACHUSETTS 02451 (781) 466-6000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PREFERRED STOCK PURCHASE RIGHTS PAR VALUE $.01 (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 a 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 the Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the last sale price of the Common Stock reported on the Nasdaq National Market on March 17, 1999 was $37,568,796. The number of shares of Common Stock outstanding as of March 17, 1999 was 20,376,296. DOCUMENTS INCORPORATED BY REFERENCE Portions of the ImmuLogic Pharmaceutical Corporation definitive Proxy Statement for the 1999 Annual Meeting of Stockholders incorporated by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL ImmuLogic Pharmaceutical Corporation ("ImmuLogic" or the "Company") is a biopharmaceutical company, incorporated under the laws of the State of Delaware on March 26, 1987. In 1998, the Company announced that it was considering various strategic alternatives with respect to its business, including further restructuring of operations, acquisition of additional technology, strategic alliances, sale or merger or dissolution of the Company. During 1998, the Company focused on licensing or selling its technology and downsizing its operations. The Company entered into license agreements with Heska Corporation ("Heska") and Sankyo Co., Ltd. ("Sankyo"). Pursuant to its agreement with Heska, the Company granted Heska an exclusive, worldwide license (except as to Japan) to develop and commercialize the Company's recombinant allergen technology for diagnosis, immunotherapy and gene therapy for both companion animals and humans. The Company may receive license fees, milestone payments and royalties for both veterinary and human applications. The license to Heska is non-exclusive in Japan, where ImmuLogic licensed its recombinant allergen technology for Japanese cedar on a non-exclusive basis to Sankyo. Total revenues under these agreements totaled $200,000 for the year ended December 31, 1998. In December 1998, the Company signed an agreement with Cantab Pharmaceuticals plc ("Cantab") for the sale of the Company's assets and the transfer of control over the programs related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction. The assets sold consisted primarily of patents and other intellectual property, as well as certain equipment and materials used in these programs and $6,000,000 in cash. In exchange for these assets, the Company received 2,566,845 new Cantab Ordinary Shares of 2p each having a fair market value at the time of the sale of approximately $9,000,000, which Ordinary Shares are represented by 855,615 American Depositary Receipts ("ADRs"). The sale of this stock is subject to certain restrictions through April 2000. In addition, Cantab may pay ImmuLogic up to a maximum of $11,000,000 in milestone payments contingent upon successful development of the two programs to the end of Phase II clinical trials. These payments may be made in cash or in additional ADRs or a combination thereof at Cantab's option. Finally, Cantab may also pay ImmuLogic a share of the net royalties it receives proportionate to the level of worldwide product sales achieved, if any. In February 1999, the Company announced that its Board of Directors had decided to conclude the business activities of the Company as soon as practicable. On March 23, 1999, the Company announced that its Board of Directors had approved a plan to liquidate and dissolve the Company. Implementation of this plan will require the approval of the stockholders of the Company, which approval the Company intends to seek at its 1999 Annual Meeting of Stockholders. Currently, the Company's business activities consist primarily of certain research and development activities on behalf of Cantab. The Company is reimbursed in full by Cantab for these research and development activities. The Board anticipates that, as part of the liquidation, the Company will return to its stockholders the sum of $36.7 million ($1.80 per share) based on 20,376,296 shares of Common Stock currently outstanding, plus the proceeds from the value realized from the disposition of the Cantab shares held by the Company, plus the value, if any, to be realized from the disposition of the 2 3 610 Lincoln Street lease, plus any residual cash held by the Company at the end of the liquidation period. ImmuLogic is a Delaware corporation and Delaware law requires that the Company stay in existence as a non-operating entity for three years from the date the Company files a certificate of dissolution in Delaware. During the dissolution period, the Company will attempt to convert its remaining assets to cash as expeditiously as possible. The Company will, as soon as possible, sell its shares of the stock of Cantab Pharmaceuticals plc, subject to the contractual limitations in place with respect to the disposition by the Company of such shares. The Company is currently unable to estimate with any certainty the amount of proceeds that it will realize upon the sale of the Cantab shares or any other assets of the Company, or the amounts of retained cash that will have to be used to satisfy contingent liabilities. Therefore, the Company cannot at this time predict the amount of any future distributions to be made to the Company's stockholders. The Company also will attempt to monetize the potential royalty streams from its agreements with Cantab, Sankyo, and Heska. Since these are potential revenues several years in the future, the Company does not anticipate that these will result in significant additional distributions for stockholders. PATENTS AND PROPRIETARY RIGHTS ImmuLogic's material proprietary rights consisted of patents and licenses to patents in the following areas: general immunotherapy and autoimmune, allergy and drug abuse therapy. The Company's rights relating to general immunotherapy were licensed from Washington University and the Massachusetts Institute of Technology ("MIT"). The license from Washington University was terminated in January 1999. The Company has provided MIT notice of its intention to terminate this license and the termination is expected to become effective on July 27, 1999. A license payment of $50,000 will be due under the license from MIT in April 1999. The Company's patents relating to autoimmune therapy have been discontinued. The Company's patents relating to allergy therapy have been sublicensed to Heska and Sankyo, with the exception of those patents which pertain to the ALLERVAX(R) programs. The licenses to Heska and Sankyo provide for up-front payments and potential royalties. The Company's agreement with Heska provides that Heska will maintain the underlying patents. The Company's patents relating to drug abuse therapy have been sold to Cantab. RISK FACTORS The Company and its future plans are subject to a number or risks and uncertainties, including those set forth below: The Company's plan to conclude the business activities of the Company and distribute the Company's assets to its stockholders is dependent upon the approval of such plan by the Company's stockholders. In addition, the success of this plan depends in large part upon the Company's ability to retain the services of certain of its current executives or to attract qualified replacements for them. The Company expects that the retention or attraction of qualified personnel will be difficult because the Company will be in liquidation. The Company cannot assure that it will be able to satisfy the requirements for continued listing of its common stock on the Nasdaq National Market. The rules of the Nasdaq Stock Market require that companies listed on the Nasdaq National Market satisfy certain requirements for listing, including that a listed company continue to have an operating business. If the Company completes its plans to conclude its business activities, it will no longer have an operating business. If Nasdaq 3 4 delists the Company's common stock from the Nasdaq National Market, the ability of stockholders to buy and sell shares may be materially impaired. Any future payments which the Company may receive under its agreements with Heska, Sankyo and Cantab and, therefore, any future value which may be returned to the Company's stockholders with respect to those agreements, are dependent upon the successful development and, in large part, commercialization of the products licensed or sold to such companies, as the case may be. The respective ability of Heska, Sankyo and Cantab to develop and commercialize their products is subject to all of the risks and uncertainties inherent in the biotechnology industry, including those associated with the early stage of development of such products, government regulation, competition, patents and proprietary rights, manufacturing and marketing, additional financing requirements and access to capital, product liability and third-party reimbursement. There can be no assurance that any of these products will be successfully developed or commercialized In February 1999, the sale of the Company's assets related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction to Cantab was completed, with an effective date of December 18, 1998. In exchange for these assets and cash totaling $6,000,000, the Company received 2,566,845 new Cantab Ordinary Shares of 2p each, which are represented by 855,615 American Depositary Receipts ("ADRs"). In addition, ImmuLogic is entitled to receive additional payments if Cantab achieves certain milestones in its cocaine and nicotine clinical development. These payments may at the option of Cantab be paid in ADRs. The ADRs held by the Company are subject to certain contractual limitations with respect to disposition of the shares. In addition, the ADRs currently held by the Company and which may be issued to the Company are subject to extreme price and volume fluctuations. Accordingly, neither the cash value which the Company receives upon disposition of such shares or the cash value to be distributed to the stockholders with respect thereto can be determined. The Company has announced that it intends to distribute to its stockholders the sum of $36.7 million plus proceeds from the liquidation of the Cantab ADRs plus the value, if any, to be realized from the disposition of its lease plus any residual cash held by the Company at the end of the liquidation period. Amounts expected to be distributed to the stockholders of the Company will be offset by amounts required to be paid by the Company in satisfaction of liabilities or claims that may arise. Accordingly, the total amount to be distributed to the stockholders cannot be determined. EMPLOYEES As of March 17, 1999, the Company had five full-time employees. The Company considers its relations with its employees to be good. No Company employee is covered by a collective bargaining agreement. ITEM 2. PROPERTIES The Company's 85,000 square foot headquarters and research and development facility is located in Waltham, Massachusetts under a lease agreement which expires in August 2002. The Company has sub-leased the entire facility effective July 1, 1999. The Company is currently in the process of locating new space proportionate to its current level of operations. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 4 5 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their respective ages and positions with the Company as of March 17, 1999 are as follows:
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- J. Joseph Marr, M.D.................... 60 President and Chief Executive Officer J. Richard Crowley..................... 43 Chief Financial Officer, Treasurer
Dr. J. Joseph Marr was appointed President and Chief Executive Officer in June 1998. He joined ImmuLogic in July 1996 as Executive Vice President Research and Development, Chief Scientific Officer. In addition, Dr. Marr served as the Company's Acting President and Acting Chief Executive Officer from December 1996 to March 1997 and as the Company's President and Chief Operating Officer from March 1997 to June 1998. From 1993 to 1996, Dr. Marr held the position of Vice President, Research and Development at Ribozyme Pharmaceuticals, a pharmaceutical company. From 1989 to 1993, Dr. Marr was Senior Vice President, Discovery Research at Monsanto/Searle Research and Development where he managed a group of 240 scientists. Dr. Marr also served as a consultant with the World Health Organization ("WHO") from 1982 to 1992 during which time he designed and implemented certain late stage clinical trials for WHO. Dr. Marr held academic positions from 1982 to 1990, including Professor, Department of Medicine and Department of Biochemistry and Director of Infectious Diseases and Clinical Laboratories at the University of Colorado Health Sciences Center. From 1970 to 1982 Dr. Marr served on the faculty of Washington University School of Medicine, where he was Associate Professor of Medicine and Director, Microbiology Laboratories, and at St. Louis University School of Medicine, where he was Vice Chairman, Department of Medicine, Professor of Medicine and Microbiology. Dr. Marr received his B.S. degree from Xavier University and M.D. degree from Johns Hopkins University School of Medicine. J. Richard Crowley, a consultant to ImmuLogic, holds the position of interim Chief Financial Officer. Mr. Crowley is President of Keystone Consulting, a contract financial and operational management services firm. Mr. Crowley's experience from 1983 to 1995 includes senior financial and operational positions with the LittlePoint Corporation, TransNational Financial Services and the Crosby Vandenburgh Group. From 1979 to 1983, Mr. Crowley was employed by Price Waterhouse, during which time he obtained his C.P.A. Mr. Crowley holds a B.A. in Economics from Providence College. Executive officers of the Company are elected by the Board of Directors on an annual basis and serve at the discretion of the Board of Directors. There is no family relationship among any of the officers or directors. 5 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market on the Nasdaq National Market under the symbol IMUL. The following table sets forth for the periods indicated the range of high and low closing sale prices per share of the Common Stock as reported by the Nasdaq National Market.
HIGH LOW ---- --- 1997 First Quarter.................................... $6 11/16 $3 9/16 Second Quarter................................... 4 3/8 3 1/8 Third Quarter.................................... 4 7/64 2 3/4 Fourth Quarter................................... 3 1/2 1 17/32 1998 First Quarter.................................... $2 1/4 $1 3/8 Second Quarter................................... 2 7/16 1 5/16 Third Quarter.................................... 2 1/16 1 5/16 Fourth Quarter................................... 1 3/4 1 1/8
On December 31, 1998, there were approximately 336 holders of record of the Company's Common Stock. The Company has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain all earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data of the Company as of and for the five years ended December 31, 1998 are derived from the financial statements of the Company. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included as Item 7 and the financial statements and related footnotes included as Item 8 in this Form 10-K.
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1998 1997 1996 1995 1994 ------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Consolidated Statement of Operations Data: Total revenues....................... $ 4,345 $ 2,049 $ 9,239 $ 7,758 $ 6,335 Research and development expenses.... 5,197 17,103 25,882 24,709 27,074 General and administrative expenses........................... 2,162 6,390 6,830 6,433 7,381 Net loss............................. (310) (18,119) (18,870) (19,151) (25,306) Basic and diluted net loss per share.............................. (0.02) (0.89) (0.93) (1.12) (1.70) Weighted average number of common shares outstanding................. 20,362 20,273 20,206 17,035 14,843
6 7
DECEMBER 31, --------------------------------------------------- 1998 1997 1996 1995 1994 ------- -------- -------- -------- -------- (IN THOUSANDS) Consolidated Balance Sheet Data: Cash and cash equivalents and short- and long-term investments.......... $48,628 $ 52,293 $ 70,047 $ 85,960 $ 55,912 Total assets......................... 56,195 59,588 79,654 97,579 70,026 Long-term obligations................ 275 325 375 425 475 Stockholders' equity................. 53,758 54,019 71,926 89,535 62,284 Dividends -- none.................... -- -- -- -- --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since inception, the Company had focused on the research and clinical development of products to treat allergies, autoimmune diseases, and vaccines for the management of drugs of abuse. In 1998, the Company announced that it was considering various strategic alternatives with respect to its business, including further restructuring of operations, acquisition of additional technology, strategic alliances, sale or merger or dissolution of the Company. During 1998, the Company focused on licensing or selling its technology and downsizing its operations. The Company entered into license agreements with Heska Corporation ("Heska") and Sankyo Co., Ltd. ("Sankyo"). Pursuant to its agreement with Heska, the Company granted Heska an exclusive, worldwide license (except as to Japan) to develop and commercialize the Company's recombinant allergen technology for diagnosis, immunotherapy and gene therapy for both companion animals and humans. The Company may receive license fees, milestone payments and royalties for both veterinary and human applications. The license to Heska is non-exclusive in Japan, where ImmuLogic licensed its recombinant allergen technology for Japanese cedar on a non-exclusive basis to Sankyo. In December 1998, the Company signed an agreement with Cantab Pharmaceuticals plc ("Cantab") for the sale of the Company's assets and the transfer of control over the programs related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction. The assets sold consisted primarily of patents and other intellectual property, as well as certain equipment and materials used in these programs and $6,000,000 in cash. In exchange for these assets, the Company received 2,566,845 new Cantab Ordinary Shares of 2p each having a fair market value at the time of the sale of approximately $9,000,000, which Ordinary Shares are represented by 855,615 American Depositary Receipts ("ADRs"). The sale of this stock is subject to certain restrictions through April 2000. In addition, Cantab may pay ImmuLogic up to a maximum of $11,000,000 in milestone payments contingent upon successful development of the two programs to the end of Phase II clinical trials. These payments may be made in cash or in additional ADRs or a combination thereof at Cantab's option. Finally, Cantab may also pay ImmuLogic a share of the net royalties it receives proportionate to the level of worldwide product sales achieved, if any. In February 1999, the Company announced that its Board of Directors had decided to conclude the business activities of the Company as soon as practicable. On March 23, 1999, the Company announced that its Board of Directors had approved a plan to liquidate and dissolve the Company. Implementation of this plan will require the approval of the stockholders of the Company, which approval the Company intends to seek at its 1999 Annual Meeting of Stockholders. Currently, the Company's business activities consist primarily of certain research and development activities on 7 8 behalf of Cantab. The Company is reimbursed in full by Cantab for these research and development activities. The Board anticipates that, as part of the liquidation, the Company will return to its stockholders the sum of $36.7 million ($1.80 per share) based on 20,376,296 shares of Common Stock currently outstanding, plus the proceeds from the value realized from the disposition of the Cantab shares held by the Company, plus the value, if any, to be realized from the disposition of the 610 Lincoln Street lease, plus any residual cash held by the Company at the end of the liquidation period. ImmuLogic is a Delaware corporation and Delaware law requires that the Company stay in existence as a non-operating entity for three years from the date the Company files a certificate of dissolution in Delaware. During the dissolution period, the Company will attempt to convert its remaining assets to cash as expeditiously as possible. The Company will, as soon as possible, sell its shares of the stock of Cantab Pharmaceuticals plc, subject to the contractual limitations in place with respect to the disposition by the Company of such shares. The Company is currently unable to estimate with any certainty the amount of proceeds that it will realize upon the sale of the Cantab shares or any other assets of the Company, or the amounts of retained cash that will have to be used to satisfy contingent liabilities. Therefore, the Company cannot at this time predict the amount of any future distributions to be made to the Company's stockholders. The Company also will attempt to monetize the potential royalty streams from its agreements with Cantab, Sankyo, and Heska. Since these are potential revenues several years in the future, the Company does not anticipate that these will result in significant additional distributions for stockholders. RESULTS OF OPERATIONS Years Ended December 31, 1998 and 1997 Total revenues in 1998 were $4,345,000 compared to $2,049,000 in 1997. The increase in total revenues from 1997 was primarily due to revenues recorded by the Company totaling $3,000,000 in December 1998 due from Cantab Pharmaceuticals plc ("Cantab") for the sale of the Company's assets related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction. In addition , the Company received a total of $200,000 in license payments during 1998 from Heska Corporation ("Heska") and Sankyo Co., Ltd. ("Sankyo"). Sponsored research funding from Schering AG totaled $312,500 in 1998 as compared to $1,250,000 in 1997 due to the completion of the research funding under the agreement as of March 31, 1998. Revenue received from the National Institute of Health ("NIH") under the Company's grants was $832,000 and $615,000 in 1998 and 1997, respectively. The Company will not receive revenue under these grants going forward. Total operating expenses were $7,359,000 in 1998 compared to $23,492,000 in 1997. Research and development expenses were $5,197,000 in 1998 compared to $17,103,000 in 1997, a decrease of $11,906,000 or 69.6%. The decrease in operating and research and development expenses was primarily due to reduced headcount and related costs due to the discontinuation of all of the Company's research and development programs with the exception of the Company's drugs of addiction programs, which were both sold in December 1998. Severance costs related to the Company's downsizing totaled $150,000 and $1,211,000 in 1998 and 1997 respectively, and non-cash charges of $187,000 and $355,000 were recorded in 1998 and 1997 respectively for the writedown of the Company's leasehold improvements to their currently estimated net realizable value. 8 9 General and administrative expenses were $2,162,000 in 1998 compared to $6,390,000 in 1997, a decrease of $4,228,000 or 66.2%. The decrease in general and administrative costs was due primarily to reduced headcount and related costs resulting from the Company's downsizing. Severance paid to the former chairman of the board of the Company during 1997 totaled $1,054,000 and additional severance costs related to the Company's downsizing totaling $43,000 and $882,000 in 1998 and 1997 respectively. Net interest income was $2,705,000 in 1998 compared to $3,325,000 in 1997, a decrease of $620,000 or 18.6%. The decrease resulted primarily from a lower average investable cash and investment balance resulting from cash used in operations during 1998. Years Ended December 31, 1997 and 1996 Total revenues in 1997 were $2,049,000 compared to $9,239,000 in 1996. The decrease in total revenues from 1996 was primarily due to the receipt by the Company in 1996 of a one-time $7,000,000 payment from Hoechst Marion Roussel, Inc. (HMR) resolving all obligations related to the collaboration agreement between the Company and HMR, which was terminated by HMR on September 7, 1996. Sponsored research funding from Schering AG was $1,250,000 and $1,875,000 in 1997 and 1996, respectively. Revenue received from the NIH under the Company's grants was $615,000 and $364,000 in 1997 and 1996, respectively. Total operating expenses were $23,492,000 in 1997 compared to $32,712,000 in 1996. Research and development expenses were $17,103,000 in 1997 compared to $25,882,000 in 1996, a decrease of $8,779,000 or 33.9%. The decrease in operating and research and development expenses was primarily due to reduced headcount and related costs due to the discontinuation of the clinical development of the ALLERVAX(R) CAT and ALLERVAX(R) RAGWEED products. Offsetting this decrease was increased severance costs related to the Company's downsizing totaling $1,211,000 and a non- cash charge of $355,000 for the writedown of all of the Company's leasehold improvements to net realizable value. General and administrative expenses were $6,390,000 in 1997 compared to $6,830,000 in 1996, a decrease of $440,000 or 6.4%. The decrease in general and administrative costs was due primarily to reduced headcount and related costs resulting from the Company's downsizing, offset by severance paid to the former chairman of the board of the Company during 1997 totaling $1,054,000 and additional severance costs related to the Company's downsizing totaling $882,000. Net interest income was $3,325,000 in 1997 compared to $4,603,000 in 1996, a decrease of $1,278,000 or 27.8%. The decrease resulted primarily from a lower average investable cash and investment balance resulting from cash used in operations during 1997. In addition, the Company received interest payments from HMR during 1996 related to capital expenditures made by the Company with respect to the joint manufacture of the ALLERVAX(R) family of allergy therapeutics. LIQUIDITY AND CAPITAL RESOURCES Since inception, ImmuLogic has financed its operations through the sale of equity securities, sponsored research revenues, license and milestone payments, and interest earned on invested capital. The Company's total cash and investments balance at December 31, 1998 was $48,628,000, which included cash and cash equivalents of $18,856,000, short-term investments of $8,219,000 and long-term investments of $21,553,000. The Company has raised $134,100,000 from public equity offerings, received $24,000,000 from HMR in payments related to the joint collaboration agreement for its ALLERVAX(R) products, $7,000,000 from HMR for a final settlement payment upon the termination of the collaboration agreement between the Company and HMR, and $19,163,000 from 9 10 HMR related to a Common Stock and a stock option purchase. In addition, the Company has received research support payments of $5,938,000 from Schering AG under a joint collaboration agreement for its multiple sclerosis peptide therapeutic product and $8,000,000 in equity financing from Schering Berlin Venture Corporation. The Company also received a SBIR grant during 1996 from NIDA totaling approximately $700,000 to complete the preclinical development of the Company's therapy to treat cocaine addiction. In addition, the Company received a SPIRCAP grant during 1997 totaling approximately $2,200,000 to partially fund the clinical development of the Company's therapy to treat cocaine addiction which was to be received over four years beginning May 1, 1997. Net cash used in operating activities was $4,893,000 in 1998 compared to $17,194,000 and $16,156,000 in 1996 and 1995, respectively. As of December 31, 1998, the Company had invested $11,137,000 in property and equipment primarily in facility renovations, laboratory equipment, and the buildout of a GMP-grade manufacturing facility at the Company's Waltham, Massachusetts headquarters, the majority of which represents leasehold improvements which have been subleased to a third party. The Board of Directors has determined, subject to stockholder approval, to conclude the Company's business activities as soon as practicable. Therefore, the Company does not anticipate requiring any further funds and believes that the funds it has on hand will be sufficient to finance its activities during such period of time as is required to complete its business activities. FUTURE RESULTS This Annual Report on Form 10K contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. Such factors include those set forth below. The Company's plan to conclude the business activities of the Company and distribute the Company's assets to its stockholders is dependent upon the approval of such plan by the Company's stockholders. In addition, the success of this plan depends in large part upon the Company's ability to retain the services of certain of its current executives or to attract qualified replacements for them. The Company expects that the retention and attraction of qualified personnel will be difficult because the Company will be in liquidation. The Company cannot assure that it will be able to satisfy the requirements for continued listing of its common stock on the Nasdaq National Market. The rules of the Nasdaq Stock Market require that companies listed on the Nasdaq National Market satisfy certain requirements for listing, including that a listed company continue to have an operating business. If the Company completes its plans to conclude its business activities, it will no longer have an operating business. If Nasdaq delists the Company's common stock from the Nasdaq National Market, the ability of stockholders to buy and sell shares may be materially impaired. Any future payments which the Company may receive under its agreements with Heska, Sankyo and Cantab and, therefore, any future value which may be returned to the Company's stockholders with respect to those agreements, are dependent upon the successful development and in large part, commercialization of the products licensed or sold to such companies, as the case may be. The respective ability of Heska, Sankyo and Cantab to develop and commercialize their products is subject to all of the risks and uncertainties inherent in the biotechnology industry, 10 11 including those associated with the early stage of development of such products, government regulation, competition, patents and proprietary rights, manufacturing and marketing, additional financing requirements and access to capital, product liability and third-party reimbursement. There can be no assurance that any of these products will be successfully developed or commercialized. In February 1999, the sale of the Company's assets related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction to Cantab was completed, with an effective date of December 31, 1998. In exchange for these assets, and cash totaling $6,000,000 the Company received 2,566,845 new Cantab Ordinary Shares of 2p each, which are represented by 855,615 American Depositary Receipts ("ADRs"). In addition, ImmuLogic is entitled to receive additional payments if Cantab achieves certain milestones in its cocaine and nicotine clinical development. These payments may at the option of Cantab be paid in ADRs. The ADRs held by the Company are subject to certain contractual limitations with respect to disposition of the shares. In addition, the ADRs currently held by the Company and which may be issued to the Company are subject to extreme price and volume fluctuations. Accordingly, neither the cash value which the Company receives upon disposition of such shares or the cash value to be distributed to the stockholders with respect thereto can be determined. The Company has announced that it intends to distribute to its stockholders the sum of $36.5 million plus proceeds from the liquidation of the Cantab ADRs plus the value, if any, to be realized from the disposition of its lease plus any residual cash held by the Company at the end of the liquidation period. Amounts expected to be distributed to the stockholders of the Company will be offset by amounts required to be paid by the Company in satisfaction of liabilities or claims that may arise. Accordingly, the total amount to be distributed to the stockholders cannot be determined. YEAR 2000 Certain companies may face problems if the computer processors and software upon which they directly or indirectly rely are unable to process date values correctly upon the turn of the millennium ("Year 2000"). Such a system failure and corruption of data of the Company or its customers or suppliers could disrupt the Company's operations, including, among other things, a temporary inability to process transactions or engage in other business activities or to receive information or service from suppliers. The Company presently believes that its computer systems, software and other equipment will be Year 2000 compliant by the end of the first quarter of 1999. The Company has initiated communications with third party suppliers and requested that they represent that their products and services will be Year 2000 compliant and that they have a program to test for compliance. Costs incurred to date related to Year 2000 have not been material and future costs are not expected to be material. Because the Company currently anticipates that it will achieve Year 2000 compliance, it has not formulated a contingency plan. However, should the Company determine that there is significant risk that it may be unable to adhere to its compliance timetable, it will assess reasonably likely scenarios resulting from noncompliance and establish a contingency plan to address such scenarios. NEW ACCOUNTING PRONOUNCEMENTS SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" was issued in June 1997 and is effective for fiscal years beginning after December 31, 1997. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim 11 12 financial reports. The Company has adopted SFAS 131 in 1998 and the adoption of SFAS 131 did not have any impact on its financial statement disclosures. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 (SFAS 132) "Employers' Disclosures About Pensions and Other Post Retirement Benefits". SFAS 132 is effective for fiscal years beginning after December 31, 1997. The Company has adopted SFAS 132 in 1998 and the adoption of SFAS 132 did not have any impact on its financial statement disclosures. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP 98-5), "Accounting for the Cost of Start-Up Activities". SOP 98-5 requires all costs of start-up activities (as defined by the SOP) to be expensed as incurred. The Company has determined that the adoption of SOP 98-5 will have no impact on its consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company has determined that the adoption of SFAS 133, which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, will have no impact on its consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ImmuLogic maintains an investment portfolio the primary objectives of which are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The Company's investment policy specifies credit quality standards for the Company's investments and limits the amount of credit exposure to any single issue, issuer or type of investment. The Company does not believe that it has any material exposure to market risk with respect to derivative or other financial instruments which would require disclosure under this item. 12 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF IMMULOGIC PHARMACEUTICAL CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows and changes in stockholder's equity present fairly, in all material respects, the financial position of ImmuLogic Pharmaceutical Corporation as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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. We conducted our audits of these statements in accordance with generally accepted auditing standards, 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 provide a reasonable basis for the opinion expressed above. As discussed in Notes A and D to the consolidated financial statements, on March 23, 1999, the Company's Board of Directors approved a plan to liquidate and dissolve the Company, which plan is subject to stockholder approval. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts February 3, 1999, except as to the information in Notes A and D for which the date is March 23, 1999 13 14 IMMULOGIC PHARMACEUTICAL CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------ 1998 1997 ------------- ------------- ASSETS Current assets: Cash and cash equivalents (Note F)................. $ 18,855,527 $ 8,436,836 Short-term investments............................. 8,218,939 19,068,242 Receivable from sale of programs................... 3,000,000 -- Prepaid expenses and other current assets.......... 351,106 561,132 ------------- ------------- Total current assets...................... 30,425,572 28,066,210 Property and equipment, net.......................... 4,167,079 6,684,801 Long-term investments................................ 21,553,126 24,788,175 Other assets......................................... 48,790 48,790 ------------- ------------- Total assets.............................. $ 56,194,567 $ 59,587,976 ============= ============= LIABILITIES Current liabilities: Accounts payable................................... $ 185,096 $ 539,243 Accrued expenses (Note E).......................... 1,926,468 4,654,593 Other current liabilities.......................... 50,000 50,000 ------------- ------------- Total current liabilities................. 2,161,564 5,243,836 Long-term liabilities................................ 275,000 325,000 ------------- ------------- Total liabilities......................... $ 2,436,564 $ 5,568,836 ============= ============= Commitments (Notes D, J, K) STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding........ -- -- Common stock, $.01 par value; 40,000,000 shares authorized; 20,367,672 and 20,340,727 shares issued and outstanding at December 31, 1998 and 1997, respectively....................................... $ 203,677 $ 203,407 Additional paid-in-capital........................... 185,298,513 185,250,346 Accumulated deficit.................................. (131,744,187) (131,434,613) ------------- ------------- Total stockholders' equity................ 53,758,003 54,019,140 ------------- ------------- Total liabilities and stockholders' equity.................................. $ 56,194,567 $ 59,587,976 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 14 15 IMMULOGIC PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------------- 1998 1997 1996 ----------- ------------ ------------ Revenues: Sponsored research revenues............ $ 1,144,929 $ 2,048,672 $ 2,239,340 Sale of programs (Note F).............. 3,000,000 -- -- License revenues....................... 200,000 -- -- Other revenues......................... -- -- 7,000,000 ----------- ------------ ------------ Total revenues................ 4,344,929 2,048,672 9,239,340 ----------- ------------ ------------ Operating expenses: Proprietary research and development... 4,052,646 14,615,582 24,061,291 Sponsored research and development..... 1,144,929 2,486,984 1,820,929 General administrative................. 2,161,594 6,389,593 6,829,889 ----------- ------------ ------------ Total operating expenses...... 7,359,169 23,492,159 32,712,109 ----------- ------------ ------------ Operating loss........................... (3,014,240) (21,443,487) (23,472,769) Interest income.......................... 2,704,666 3,324,924 4,602,884 ----------- ------------ ------------ Net loss................................. $ (309,574) $(18,118,563) $(18,869,885) =========== ============ ============ Basic and diluted net loss per common share.................................. $ (0.02) $ (0.89) $ (0.93) =========== ============ ============ Weighted average number of common shares outstanding............................ 20,362,157 20,273,315 20,206,004 =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 15 16 IMMULOGIC PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 ------------ ------------ ------------ Cash flows for operating activities: Net loss.................................. $ (309,574) $(18,118,563) $(18,869,885) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......... 680,042 2,447,378 2,786,851 Write-off of leasehold improvements.... 200,544 443,881 -- Leasehold improvement sublease payments............................ 480,461 -- -- Shares issued for 401(k) employer match............................... 48,437 134,515 150,963 Compensation expense................... -- 7,557 -- Gain on sale of equipment.............. (70,396) (13,765) (18,828) Changes in assets and liabilities: Prepaid expenses and other assets......... (2,789,974) 63,996 111,174 Accounts payable and accrued expenses..... (3,082,272) (2,108,886) (266,438) Other current and long-term liabilities... (50,000) (50,000) (50,000) ------------ ------------ ------------ Total adjustments................ (4,583,158) 924,676 2,713,722 ------------ ------------ ------------ Net cash used in operating activities....... (4,892,732) (17,193,887) (16,156,163) Cash flows from investing activities: Purchase of equipment..................... -- (629,104) (653,613) Purchase of leasehold improvements........ -- (15,661) (27,368) Proceeds from sale of equipment........... 1,227,071 15,130 18,828 Purchase of short-term investments........ (23,933,789) (39,206,494) (59,995,778) Redemption of short-term investments...... 34,783,092 51,019,076 71,036,259 Purchase of long-term investments......... (2,871,538) (24,294,056) (5,965,026) Redemption of long-term investments....... 6,106,587 14,929,862 15,513,339 ------------ ------------ ------------ Net cash provided by investing activities... 15,311,423 1,818,753 19,926,641 Cash flows from financing activities: Proceeds from exercise of stock options... -- 69,830 904,869 ------------ ------------ ------------ Net cash provided by financing activities... -- 69,830 904,869 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents............................... 10,418,691 (15,305,304) 4,675,347 Cash and cash equivalents at beginning of period.................................... 8,436,836 23,742,140 19,066,793 ------------ ------------ ------------ Cash and cash equivalents at end of period.................................... $ 18,855,527 $ 8,436,836 $ 23,742,140 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 16 17 IMMULOGIC PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NO. OF SHARES OF ADDITIONAL TOTAL STOCK- COMMON COMMON PAID-IN DEFERRED ACCUMULATED HOLDERS' STOCK STOCK CAPITAL COMPENSATION DEFICIT EQUITY ---------- -------- ------------ ------------ ------------- ------------ BALANCE AT DECEMBER 31, 1995.............. 19,924,471 $199,245 $183,796,108 $(14,000) $ (94,446,165) $ 89,535,188 ---------- -------- ------------ -------- ------------- ------------ Exercise of common stock options.......... 287,599 2,876 901,993 904,869 401(k) employer match..................... 12,446 124 150,839 150,963 Acceleration of stock options............. 190,666 (190,666) -- Amortization of deferred compensation..... 204,666 204,666 Net loss.................................. (18,869,885) (18,869,885) ---------- -------- ------------ -------- ------------- ------------ BALANCE AT DECEMBER 31, 1996.............. 20,224,516 202,245 185,039,606 -- (113,316,050) 71,925,801 ---------- -------- ------------ -------- ------------- ------------ Exercise of common stock options.......... 85,947 859 68,971 69,830 401(k) employer match..................... 30,264 303 134,212 134,515 Compensation expense...................... 7,557 7,557 Net loss.................................. (18,118,563) (18,118,563) ---------- -------- ------------ -------- ------------- ------------ BALANCE AT DECEMBER 31, 1997.............. 20,340,727 $203,407 $185,250,346 -- $(131,434,613) $ 54,019,140 ---------- -------- ------------ -------- ------------- ------------ 401(k) employer match..................... 26,945 270 48,167 48,437 Net loss.................................. (309,574) (309,574) ---------- -------- ------------ -------- ------------- ------------ BALANCE AT DECEMBER 31, 1998.............. 20,367,672 $203,677 $185,298,513 -- $(131,744,187) $ 53,758,003 ========== ======== ============ ======== ============= ============
The accompanying notes are an integral part of the consolidated financial statements. 17 18 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. NATURE OF BUSINESS ImmuLogic Pharmaceutical Corporation (ImmuLogic or the Company) is a biopharmaceutical company, which was developing novel products with a primary emphasis on the immunological treatment of addiction and the diagnosis and treatment of allergies. Since inception, the Company has not derived any revenues from product sales and has incurred significant operating losses. On March 23, 1999, the Company announced that its Board of Directors had approved a plan to liquidate and dissolve the Company. Implementation of this plan will require the approval of the stockholders of the Company, which approval the Company intends to seek at its 1999 Annual Meeting of Stockholders. The Board anticipates that, as part of the liquidation, the Company will return to its stockholders the sum of $36.7 million ($1.80 per share, based on 20,376,296 shares of Common Stock currently outstanding), plus the proceeds from the value realized from the disposition of shares of Cantab Pharmaceuticals plc held by the Company, plus the value, if any, to be realized from the disposition of the 610 Lincoln Street lease, plus any residual cash held by the Company at the end of the liquidation period. Currently, the Company's business activities consist primarily of certain research and development activities on behalf of Cantab. The Company is reimbursed in full by Cantab for these research and development activities. The consolidated financial statements of the Company as of December 31, 1998 were prepared under generally accepted accounting policies for a going concern entity and do not reflect changes in the carrying amounts of assets and liabilities which may be affected should the shareholders approve a plan of liquidation of the Company's assets. Amounts that may be affected include those related to the lease and sublease of the Company's Waltham, MA facility and amounts related to the carrying value of property, plant and equipment of the Company as well as possible adjustments of amounts related to other assets and liabilities of the Company including costs for severance, any future realization of royalties and the value upon the sale of Cantab stock. B. ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, ImmuLogic Securities Corporation. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of short-term interest-bearing instruments, primarily U.S. government sponsored agency notes, commercial paper, and money market accounts with original maturities of three months or less at the date of purchase. These investments are carried at cost plus accrued interest, which approximates market value. 18 19 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Short-term Investments Short-term investments, with a maturity of more than three months but less than twelve months when purchased, consisted of U.S. government sponsored agency notes ($8,219,000) at December 31, 1998, and high-grade commercial paper ($12,649,000) and U.S. government sponsored agency notes ($6,419,000) at December 31, 1997. Short-term investments are stated at amortized cost plus accrued interest, which approximates market value. Long-term Investments Long-term investments, with a maturity of more than twelve months when purchased, consisted of high-grade commercial paper ($17,228,000) and highly-liquid bank certificates of deposit ($4,325,000) at December 31, 1998 and high-grade commercial paper ($20,415,000) and highly-liquid bank certificates of deposit ($4,373,000) at December 31, 1997. Long-term investments are stated at amortized cost plus accrued interest, which approximates market value. The amortized cost plus accrued interest, which approximates market value, of securities "held-to-maturity" by contractual maturity at December 31, 1998 is as follows:
HELD-TO-MATURITY ---------------- Due within one year............................... $48,628,000 Due after one year through five years............. -- ----------- Total cash and cash equivalents and investments... $48,628,000 ===========
Actual maturities may differ from contractual maturities because the issuers of these securities may have the right to prepay obligations without prepayment penalties. Revenue Recognition Payments associated with rights to license or sublicense the Company's technology are recognized as revenue when payments are received and no future obligations exists under the terms of the agreement. Payments in connection with sponsored research and the sale of programs are recognized as revenue is earned under the terms of the agreements. Property and Equipment Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally three years for office equipment and five years for laboratory equipment, furniture, and fixtures. Leasehold improvements are stated at cost and are amortized over the lesser of the life of the lease or their estimated useful lives. Maintenance and repairs are charged to expense as incurred, while major betterments are capitalized. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in income. Long-Lived Assets Management evaluates the recoverability of its long-lived assets when circumstances suggest there has been a permanent impairment in the value of these assets. Management makes this 19 20 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) evaluation by assessing the carrying values of the asset against the anticipated future cash flows from related operating activities. Factors which management considers in performing this assessment include current operating results, trends and prospects, changes in management strategic direction and other economic factors. Research and Development All research and development costs are expensed as incurred. Income Taxes The Company follows the liability method of accounting for income taxes whereby a deferred tax liability is measured by the enacted tax rates which will be in effect when any differences between the financial statements and tax basis of assets reverse. The deferred tax liability can be reduced by net operating losses being carried forward for tax purposes. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Net Loss per Common Share The basic loss per common share is computed based upon the weighted average number of common shares outstanding. The Company had 1,532,018, 1,993,218 and 2,750,223 options outstanding at December 31, 1998, 1997 and 1996, respectively. These options have not been included in the calculation of dilutive common equivalent shares however, since the effect of their inclusion would be anti-dilutive. Reclassifications Certain amounts in 1997 and 1996 have been reclassified to conform to the 1998 presentation. New Accounting Pronouncements SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" was issued in June 1997 and is effective for fiscal years beginning after December 31, 1997. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. The Company has adopted SFAS 131 in 1998 and the adoption of SFAS 131 did not have any impact on its financial statement disclosures. In February 1998, the Financial Accounting Standards Board issued Statement of financial Accounting Standards No. 132 (SFAS 132) "Employers' Disclosures About Pensions and Other Post Retirement Benefits". SFAS 132 is effective for fiscal years beginning after December 31, 1997. The Company has adopted SFAS 132 in 1998 and the adoption of SFAS 132 did not have any impact on its financial statement disclosures. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP 98-5), "Accounting for the Cost of Start-Up Activities". SOP 98-5 requires all costs of start-up activities (as defined by the SOP) to be 20 21 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expensed as incurred. The Company has determined that the adoption of SOP 98-5 will have no impact on its consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company has determined that the adoption of SFAS 133, which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, will have no impact on its consolidated financial statements. C. PROPERTY AND EQUIPMENT At December 31, 1998 and 1997, property and equipment consisted of:
1998 1997 ----------- ------------ Leasehold improvements..................................... $ 9,649,198 $ 9,650,314 Laboratory equipment....................................... 1,304,204 8,585,267 Furniture and fixtures..................................... -- 719,310 Office equipment........................................... 184,072 944,063 ----------- ------------ $11,137,474 $ 19,898,954 Less accumulated depreciation and amortization............. (6,970,395) (13,214,153) ----------- ------------ Property and equipment, net................................ $ 4,167,079 $ 6,684,801 =========== ============
During 1998, a majority of the Company's equipment and furniture was sold (see note D). Depreciation and amortization expense associated with property and equipment was approximately $680,000, $2,447,000, and $2,582,000 in 1998, 1997, and 1996, respectively. D. RESTRUCTURING AND DISCONTINUATION OF OPERATIONS During 1997, the Company downsized its operations, discontinuing further clinical trials of its ALLERVAX(R) CAT and RAGWEED programs during 1997. As a result of this action, the Company reduced its workforce during 1997 and incurred $3,147,000 in severance costs for the termination of 66 employees, including $1,054,000 paid in accordance with the severance agreement entered into with the Former Chairman of the Board and scientific founder of the Company. Total employees of the Company decreased from 151 at December 31, 1996 to 27 as of March 1, 1998 as a result of the above mentioned 66 terminations and an additional 58 voluntary terminations. At December 31, 1997, remaining accrued expenses related to unpaid severance liabilities totaled $1,725,000, the majority of which was paid out in 1998. At December 31, 1998, approximately $260,000 remained in accrued expenses for severance costs. In 1998, the Company focused on licensing or selling its technology and downsizing its operations. During 1998, the Company entered into license agreements with Heska Corporation ("Heska") and Sankyo Co., Ltd. ("Sankyo"). In December 1998, the Company signed an agreement with Cantab Pharmaceuticals plc ("Cantab") for the sale of the Company's assets related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction. 21 22 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition, the Company entered into a sub-lease agreement for its Waltham, Massachusetts facility effective February 27, 1998, with the entire facility being subleased effective July 1, 1999. The sublease agreement covers the Company's future obligations due after June 30, 1999 under this lease. Non-cash charges of $201,000 and $444,000 were incurred during 1998 and 1997 respectively for the writedown of the Company's leasehold improvements to net realizable value based on an analysis performed in accordance with the provisions of SFAS 121 "Impairment of Long-Lived Assets". During 1998, the Company sold a majority of the equipment and furniture contained in the Waltham, Massachusetts facility with a net book value of $1,130,000, netting proceeds of approximately $1,200,000 resulting in a gain of $70,000. The Company also is planning for the sale of the Company's remaining equipment and furniture during 1999. In February 1999, the Company announced that its Board of Directors had decided to conclude the business activities of the Company as soon as practicable. On March 23, 1999, the Company announced that its Board of Directors had approved a plan to liquidate and dissolve the Company. Implementation of this plan will require the approval of the stockholders of the Company, which approval the Company intends to seek at its 1999 Annual Meeting of Stockholders. E. ACCRUED EXPENSES At December 31, 1998 and 1997, accrued expenses consisted of:
1998 1997 ---------- ---------- Rent............................................... $ 615,932 $1,015,756 Sublease deposit................................... 500,000 -- Payroll taxes...................................... 288,036 1,796,047 Drug supply........................................ 150,000 72,117 Professional fees.................................. 113,640 481,411 Clinical trials.................................... 77,500 535,524 Other.............................................. 181,360 753,738 ---------- ---------- Total accrued expenses............................. $1,926,468 $4,654,593 ========== ==========
F. SALE OF PROGRAMS In December 1998, the Company signed an agreement with Cantab Pharmaceuticals plc ("Cantab") for the sale of the Company's assets and the transfer of control over the programs related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction. The assets sold consisted primarily of patents and other intellectual property, as well as certain equipment and materials used in these programs and $6,000,000 in cash which was remitted to Cantab in 1999. In exchange for these assets, the Company received 2,566,845 new Cantab Ordinary Shares of 2p each having a fair market value at the time of the sale of approximately $9,000,000, which Ordinary Shares are represented by 855,615 American Depositary Receipts ("ADRs"). The sale of this stock is subject to certain restrictions through April 2000. In addition, Cantab may pay ImmuLogic up to a maximum of $11,000,000 in milestone payments contingent upon successful development of the two programs to the end of Phase II clinical trials. These payments may be made in cash or in additional ADRs or a combination thereof at Cantab's option. Finally, Cantab may also pay ImmuLogic a share of the net royalties it receives proportionate to the 22 23 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) level of worldwide product sales achieved, if any. The future value of the ADRs of Cantab which the Company currently holds and may hold in the future will be dependent not only upon the successful development and commercialization of the nicotine and cocaine vaccine programs sold to Cantab but Cantab's other products as well. In addition, general market conditions could also effect the value of the ADR's of Cantab. Accordingly, as of December 31, 1998 the Company had recorded net revenues of $3,000,000 under the sale of these programs which is included in the statement of operations and as a receivable under the heading "Receivable from sale of programs" in the Company's balance sheet as of December 31, 1998 as the closing of the transaction occurred in 1999. The Company has no further obligation to Cantab under the terms of this agreement. G. AGREEMENT WITH HOECHST MARION ROUSSEL In February 1992, the Company entered into a collaboration agreement with Hoechst Marion Roussel, Inc. (HMR) (formerly Marion Merrell Dow, Inc.) relating to the worldwide development and commercialization of the Company's family of five injectable ALLERVAX(R) allergy therapeutic products (the Collaboration Agreement). In March 1995, the Company and HMR signed a letter agreement for the joint manufacture of ALLERVAX(R) products. On March 7, 1996, HMR notified the Company that it was withdrawing from the Collaboration Agreement, effective September 7, 1996. The Company and HMR worked together to effect an orderly transition of responsibilities as the ALLERVAX(R) program shifted entirely to the Company. On October 30, 1996, the Company received a payment in the amount of $7,000,000, resolving all obligations relating to the program in a manner agreeable to both the Company and HMR. In addition, HMR transferred ALLERVAX(R) CEDAR and MITE peptide inventories to the Company to be used in future product development activities. No value has been attributed to these peptides as the Company will not further develop these programs. Under the terms of the Collaboration Agreement, upon termination of the collaboration, the Company regained all rights to the Company's ALLERVAX(R) allergy program including all injectable and oral therapeutics and complimentary recombinant allergy diagnostics. At the time of execution of the Collaboration Agreement, HMR made a $7,000,000 payment to the Company and through December 31, 1996 had made license and milestone payments of $17,000,000 and a final settlement payment of $7,000,000 which is recorded as other revenues in the Company's 1996 statement of operations. In addition, HMR purchased, in December 1991, 1,000,000 shares of the Company's Common Stock for $18,000,000. As of March 22, 1996, HMR had sold these shares on the open market. H. AGREEMENT WITH SCHERING AG In March 1995, the Company signed a collaboration agreement with Schering AG for the joint development and commercialization of the Company's peptide therapeutic to treat multiple sclerosis. Under this agreement, the Company would have received up to $7,500,000 in research support ($5,938,000 of which had been received through December 31, 1998) and up to $20,000,000 in milestone payments. The Company would pay one-third of the costs associated with clinical development and would receive a royalty on net sales, if any. During 1996, the parties agreed in concept to changes in the collaboration agreement under which milestone payments were restructured to payments made after successful product demonstration and research support funding 23 24 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) from Schering AG during 1997 was reduced from $2,500,000 to $1,250,000. This funding was dedicated exclusively to the development of a nonparenterally administered therapeutic product for multiple sclerosis. If the Company were to move forward, the Company would fund all clinical development costs for the injectable therapeutic product for multiple sclerosis. During 1998, the Company received $312,500 in research funding from Schering AG. The research funding due under the collaboration agreement between the Company and Schering AG ended on March 31, 1998. Schering AG had the right, at its election, to participate in the development and commercialization of the injectable dosage form of this therapeutic should such development and commercialization occur. The Company has no plans to develop this product in the future. If Schering AG elected to develop this product, it would be required to reimburse the Company for a significant portion of development costs incurred to date and would be obligated to make certain milestone payments to the Company upon achievement of development milestones. Schering AG terminated the collaboration agreement with the Company as of November 1998. In addition, Schering Berlin Venture Corporation purchased 1,042,345 shares of the Company's Common Stock for $8,000,000 at the time of entering into the agreement. In April 1996, ImmuLogic registered these shares under the Securities Act of 1933 pursuant to the registration rights granted to Schering Berlin Venture Corporation in the stock purchase agreement. Upon registration, Schering Berlin Venture Corporation sold these shares on the open market. I. STOCKHOLDERS' EQUITY Common Stock At December 31, there were 20,367,672 and 20,340,727 common shares outstanding for the years 1998 and 1997, respectively. Preferred Stock The Company has authorized a single class of preferred stock, par value $.01, consisting of 1,000,000 shares. This preferred stock may be issued in series with such rights, preferences and privileges as the Board of Directors may determine. Shareholder Rights Plan On July 11, 1995, the Board of the Company declared a dividend of one preferred stock purchase right (a Right) for each outstanding share of the Company's Common Stock to stockholders of record at the close of business on August 1, 1995. The Company adopted the plan to protect shareholders against unsolicited attempts to acquire control of the Company that do not offer what the Company believes to be an adequate price to all shareholders. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, $.01 par value (the Preferred Stock), at a purchase price of $75 in cash per unit subject to adjustment. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock, or (ii) 10 business days following the commencement of a 24 25 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) tender offer or exchange offer that would result in a person or group beneficially owning 30% or more of such outstanding shares of Common Stock. The Rights are not exercisable until the Distribution Date and will expire at the close of business on August 1, 2005, unless earlier redeemed or exchanged by the Company as described below. In the event that any stockholder becomes an Acquiring Person, except pursuant to a Permitted Offer, each Right will thereafter entitle the holder thereof to receive, upon exercise, that number of shares of Common Stock which equals the exercise price of the Right divided by one-half of the current market price (as defined in the Rights Agreement) of the Common Stock at the date of the occurrence of the event. Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $10 per share and will be entitled to an aggregate dividend of 1,000 times the dividend declared per share on Common Stock. In the event of liquidation, the holders of the Preferred Stock will be entitled to a minimum preferential liquidation payment of $1,000 per share and will be entitled to an aggregate payment of 1,000 times the payment made per share of Common Stock. Each share of Preferred Stock will have 1,000 votes, voting together with the Common Stock. Finally, in the event of any merger, consolidation, or other transaction in which Common Stock is exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount received per share of Common Stock. These rights are subject to adjustment for any stock split, stock dividend, recapitalization, or similar event. At December 31, 1998, 20,367,672 preferred stock purchase rights were outstanding. Stock Options The Company has several stock option plans under which incentive and nonqualified stock options to purchase a total of 3,064,219 shares (net of expirations) of Common Stock may be granted to employees, outside directors and consultants. The options are generally granted at fair market value on the date of the grant, generally vest ratably over a three, four or five year period and expire ten years from the date of grant. At December 31, 1998, there were 1,582,518 shares of Common Stock reserved for issuance under all the Company's stock option plans. SFAS 123, "Accounting for Stock-Based Compensation" requires that companies either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value, or provide pro forma disclosure of net income and earnings per share in the notes to the financial statements. The Company follows the disclosure provisions of SFAS 123 and has applied APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its employee and outside director stock options. Had compensation costs for the Company's employee and director stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123, 25 26 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Company's net loss and basic and diluted net loss per share for the years ended December 31, 1998, 1997 and 1996 would have been as follows:
1998 1997 1996 ---------------------- ---------------------- ---------------------- NET LOSS NET LOSS NET LOSS NET LOSS PER SHARE NET LOSS PER SHARE NET LOSS PER SHARE ---------- --------- ---------- --------- ---------- --------- (IN 000'S) (IN 000'S) (IN 000'S) As Reported.............. $ (310) $(0.02) $(18,119) $(0.89) $(18,870) $(0.93) ======= ====== ======== ====== ======== ====== Proforma................. $(1,566) $(0.08) $(19,227) $(0.95) $(20,740) $(1.03) ======= ====== ======== ====== ======== ======
The effects of applying SFAS 123 in this proforma disclosure are not likely to be representative of the effects on reported net income for future years. SFAS 123 does not apply to awards granted prior to 1995 and no additional awards are anticipated in future years. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: an expected life of approximately 4 years, expected volatility of 66%, 63% and 63% for the years ended December 31, 1998, 1997 and 1996 respectively, a dividend yield of 0% and a risk-free interest rate of 4.6%, 6.5% and 6.3% for the years ended December 31, 1998, 1997 and 1996 respectively. From inception through December 31, 1998, the Company has granted options for 3,013,719 shares (net of cancellations) under all its stock option plans, of which options for 1,481,701 shares have been exercised. In 1996, 247,500 shares under the employee stock option plans were accelerated in connection with the resignation of three executive officers of the Company. Accordingly, an increase in deferred compensation and additional paid-in-capital in the amount of $190,666 in total for all officers to recognize the acceleration was recorded as of the resignation date of each officer. The Company's stock option plan activity is summarized as follows:
NUMBER WEIGHTED AVERAGE OF OPTIONS EXERCISE PRICE ---------- ---------------- OUTSTANDING AT DECEMBER 31, 1995............... 2,852,472 $ 8.21 Granted during 1996............................ 596,250 10.07 Exercised during 1996.......................... (287,599) 3.72 Canceled during 1996........................... (410,900) 8.26 ---------- ------ OUTSTANDING AT DECEMBER 31, 1996............... 2,750,223 9.12 ---------- ------ Granted during 1997............................ 549,650 4.09 Exercised during 1997.......................... (85,947) .81 Canceled during 1997........................... (1,220,708) 8.87 ---------- ------ OUTSTANDING AT DECEMBER 31, 1997............... 1,993,218 8.25 Granted during 1998............................ 313,000 1.44 Exercised during 1998.......................... -- --
26 27 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NUMBER WEIGHTED AVERAGE OF OPTIONS EXERCISE PRICE ---------- ---------------- Canceled during 1998........................... (774,200) 9.17 ---------- ------ OUTSTANDING AT DECEMBER 31, 1998............... 1,532,018 $ 7.98 ========== ======
There were 1,059,819, 1,524,870, and 1,342,401 options exercisable for the years ended December 31, 1998, 1997, and 1996, respectively. The weighted average fair value of the options granted during 1998, 1997 and 1996, as calculated using the Black-Scholes option pricing model, were estimated at $0.77, $2.20 and $5.47, respectively. The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------- ---------------------------- WEIGHTED- AVERAGE RANGE OF REMAINING WEIGHTED- WEIGHTED- EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------- ----------- ------------ -------------- ----------- -------------- $ 0.80-$ 5.00 680,743 8.87 $2.79 258,508 $3.87 5.01- 10.00 606,150 5.56 7.69 559,799 7.62 10.01- 15.00 201,375 6.27 11.85 197,762 11.85 15.01- 20.25 43,750 7.09 19.25 43,750 19.25 --------- ---- ----- --------- ----- $ 0.25-$20.25 1,532,018 7.17 $6.39 1,059,819 $7.98 ========= ==== ===== ========= =====
Although the majority of the Company's stock options outstanding have an exercise price in excess of the fair market value of the Company's stock at December 31, 1998, total proceeds to the Company if all stock options were exercised would be $9,791,000. J. LICENSE AGREEMENT In May 1987, the Company entered into an agreement with the Massachusetts Institute of Technology (MIT) under which the Company was granted a worldwide, exclusive license under certain patent applications. In connection with the license grant, the Company issued 185,000 shares of its Common Stock at a price of $.01 per share and made a payment of $250,000 to MIT. The license agreement, as amended, calls for royalties to be paid on the sale of products using the technology covered by the patents and for an additional payment of $750,000, $125,000 of which was paid in April 1992 and the remainder to be paid in annual installments of $50,000, beginning in April 1993 and ending in April 2005, subject to an acceleration provision tied to the allowance of certain pending patent claims. At December 31, 1998, the financial statements included $50,000 in other current liabilities and $275,000 in long-term liabilities related to the license agreement. The Company has provided MIT notice of its intention to terminate this license and the termination is expected to become effective on July 27, 1999. As a result of the termination, the total due under the agreement will be reduced to $50,000 in 1999 and which is payable in April 1999. No further amounts are due under this agreement. 27 28 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) K. LEASE COMMITMENTS In September 1992, the Company entered into an operating lease agreement for a headquarters and research and development facility in Waltham, Massachusetts. This lease agreement expires in August 2002 and is renewable at the Company's option for up to three additional five-year periods. Under the terms of this lease, the Company is obligated to pay its prorated share of common operating expenses and real estate taxes as well as base rent (see note D). With respect to the Company's operating lease for its Palo Alto, California research facility, which expires in March 1999, the Palo Alto research facility was sub-leased under two agreements, which cover the Company's future obligations under this lease. Rental expense incurred under all of the Company's operating lease agreements was $911,000, $1,704,000 and $1,595,000 in 1998, 1997, and 1996, respectively. Future minimum lease payments for the respective years ended December 31 are as follows:
OPERATING LEASES ---------------- 1999.............................................. $ 1,439,217 2000.............................................. 1,282,876 2001.............................................. 1,311,348 2002.............................................. 874,232 After 2002........................................ -- ----------- Minimum lease payments............................ $ 4,907,673 Sub-leases for the Waltham facility............... (4,591,895) Sub-leases for the Palo Alto facility............. (171,600) ----------- Net minimum lease payments........................ $ 144,178 ===========
L. EMPLOYEE BENEFITS The Company has a 401(k) savings plan (the Plan) which is available to all of its qualified permanent employees. Participants may contribute up to 15 percent of their annual compensation to the Plan, subject to certain limitations. The employer match to the Plan is in the form of Company Common Stock and is calculated as the lesser of up to one-half of six percent of a participant's total compensation or $2,000 annually in value of Common Stock. The fair market value on the date of issuance of the Common Stock pursuant to the matching contributions totaled approximately $25,000, $90,000 and $158,000 in 1998, 1997 and 1996, respectively. M. INCOME TAXES At December 31, 1998 the Company had available for federal income tax purposes net operating loss carryforwards of approximately $129,000,000 expiring in the years 2002 through 2012, which are available to reduce future federal taxable income. The Company also has available research and experimentation tax credits of approximately $3,700,000 at December 31, 1998, expiring in the years 2002 through 2018. The net operating loss carryforwards are subject to limitation in any given year in the event of significant changes in ownership. The Company has established a valuation reserve against the entire deferred tax asset arising from these carryforwards 28 29 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) due to the uncertainty of earning sufficient taxable income and accordingly, has not given recognition to these tax benefits in the accompanying financial statements. The Company does not believe these operating loss carryforwards have significant value. Significant components of the Company's deferred tax assets are as follows:
DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Deferred tax assets: Net operating loss and tax credit carryforwards..................... $ 56,988,972 $ 51,879,838 Depreciation......................... 2,630,050 2,412,207 Accrued expenses..................... 326,764 324,653 MIT license agreement................ 130,000 150,000 Other................................ 31,380 31,132 ------------ ------------ Total deferred tax assets:................ 60,107,166 54,797,830 Valuation allowance....................... (60,107,166) (54,797,830) ------------ ------------ Net deferred tax assets................... $ -- $ -- ============ ============
29 30 ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the section titled "Election of Directors" in the definitive proxy statement for the Company's 1999 Annual Meeting of Stockholders ("1999 Proxy Statement"), which the Company intends to file with the Securities and Exchange Commission (the "Commission") no later than April 30, 1999. Information relating to the Company's executive officers as of March 17, 1999 is furnished in Part I hereof under a separate unnumbered caption titled "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the section titled "Executive Compensation" in the Company's 1999 Proxy Statement, which the Company intends to file with the Commission no later than April 30, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the section titled "Security Ownership of Certain Beneficial Owners and Management" and " Election of Directors" in the Company's 1999 Proxy Statement, which the Company intends to file with the Commission no later than April 30, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the section titled "Certain Transactions" in the Company's 1999 Proxy Statement, which the Company intends to file with the Commission no later than April 30, 1999. 30 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) Documents filed as part of this report: 1. FINANCIAL STATEMENTS The following financial statements are included in Part II Item 8 filed as part of this Form 10-K: Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES The Financial Statement Schedules have been omitted because they are either not applicable or the required information is included in the Consolidated Financial Statements or Notes thereto. 3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K The Exhibit Index is set forth on page XX of this Form 10-K immediately preceding the exhibits filed as part of this annual report on Form 10-K and is incorporated by reference herein. (B) Reports filed on Form 8-K for the quarter ended December 31, 1998. Current Report on Form 8-K dated December 18, 1998. 31 32 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. IMMULOGIC PHARMACEUTICAL CORPORATION By: /s/ J. JOSEPH MARR ---------------------------------- J. Joseph Marr President, Chief Executive Officer Date: March 23, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE DATE TITLE --------- ---- ----- /s/ J. JOSEPH MARR March 23, 1999 President, Chief Executive - ------------------------------------------------ Officer (Principal Executive J. Joseph Marr Officer) /s/ J. RICHARD CROWLEY March 23, 1999 Chief Financial Officer - ------------------------------------------------ (Principal Financial Officer) J. Richard Crowley /s/ C. GARRISON FATHMAN March 23, 1999 Director - ------------------------------------------------ C. Garrison Fathman /s/ SAMUEL C. FLEMING March 23, 1999 Director - ------------------------------------------------ Samuel C. Fleming /s/ PAUL A. FRIEDMAN March 23, 1999 Director - ------------------------------------------------ Paul A. Friedman /s/ CARL S. GOLDFISCHER March 23, 1999 Director - ------------------------------------------------ Carl S. Goldfischer /s/ RICHARD F. POPS March 23, 1999 Director - ------------------------------------------------ Richard F. Pops
32 33 EXHIBIT INDEX IMMULOGIC PHARMACEUTICAL CORPORATION ANNUAL REPORT FORM 10-K -- 1998
EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.01(16) Restated Certificate of Incorporation of the Registrant, as amended. 3.02(1) Amended and Restated By-laws of the Registrant. 4.01(1) Specimen certificate for shares of the Registrant's Common Stock. 4.02(1) Description of capital stock (contained in the Restated Certificate of Incorporation the Registrant, as amended, filed as Exhibit 3.01). +10.01(1) License Agreement between the Registrant and Massachusetts Institute of Technology, dated as of April 3, 1987 (the "MIT Agreement"). 10.02(3) Amendment, dated November 1, 1991, to MIT Agreement. 10.03(5) Amendment, dated October 1, 1992, to MIT Agreement. +10.04(7) Amendment, dated April 1, 1994, to the MIT Agreement. 10.05(1) Research Collaboration and License Agreement between the Registrant and Merck & Co., Inc., dated September 29, 1989 (the "Merck Agreement"). 10.06(5) Amendment, dated June 29, 1992, to the Merck Agreement. 10.07(1) Agreement between the Registrant and the University of North Carolina, dated July 27, 1989. +10.08(1) License Agreement and Sponsored Research Agreement between the Registrant and the University of Melbourne, dated December 15, 1989. 10.09(9) Agreement to Vary Licensed and Sponsored Research Agreement, dated December 15, 1992, between the Registrant and The University of Melbourne. +10.10(1) Agreement between the Registrant and Princess Margaret Children's Medical Research Foundation (Inc.) ("Princess Margaret"), dated June 1, 1990. 10.11(1) Series C Convertible Preferred Stock Purchase Agreement between the Registrant and certain Series C Preferred Stock Purchasers, dated October 4, 1989. *10.12(1) Amended and Restated 1987 Stock Option Plan, as amended. *10.13(15) 1993 Director's Stock Option Plan. 10.14(1) Lease Agreement between the Registrant and 855 Cal Associates for the lease of premises at 855 California Avenue, Palo Alto, California, dated December 12, 1988. 10.15(5) Lease Agreement, dated March 12, 1992, between the Registrant and 855 Cal Associates for the lease of premises at 855 California Avenue, Palo Alto, California. 10.16(3) Office Lease, dated November 13, 1991, between the Registrant and Lincoln Street Trust. 10.17(2) Stock Purchase Agreement, dated November 20, 1991, between Registrant and Marion Merrell Dow, Inc.
33 34
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.18(10) Amendment effective December 12, 1994 to the Stock Purchase Agreement, dated November 20, 1991, between the Registrant and Marion Merrell Dow, Inc. +10.19(4) Research Collaboration Agreement, dated February 14, 1992, between the Registrant and Marion Merrell Dow, Inc. +10.20(10) Letter Agreement, dated March 2, 1995 between the Registrant and Marion Merrell Dow, Inc. effective October 3, 1994. 10.21(11) Amendment to the Collaboration Agreement between the Registrant and Marion Merrell Dow, Inc. effective October 3, 1994. +10.22(5) Agreement to Vary License Agreement, dated as of December 18, 1991, among the Registrant, Princess Margaret and Western Australian Research Institute for Child Health Ltd. ("WARICH"). 10.23(9) Amendment to License Agreement effective December 18, 1991 among the Registrant, Princess Margaret and WARICH. 10.24(6) Amendment to License Agreement effective December 18, 1991 among the Registrant, Princess Margaret and WARICH. 10.25(11) License and Collaboration Agreement dated as of March 17, 1995 between the Registrant and Schering AG, Germany. 10.26(11) Stock Purchase Agreement dated as of March 17, 1995 between the Registrant and Schering Berlin Venture Corporation. 10.27(14) Rights Agreement dated as of August 1, 1995, between the Registrant and the First National Bank of Boston. *10.28(13) Severance Plan for Executive Officers adopted July 11, 1995. *10.29(15) Form of Employment Agreement, dated November 16, 1995 between the Registrant and Executive Officers. *10.30(16) Amendment to Registrant's 1993 Directors' Stock option Plan. *10.31(17) Severance and Settlement Agreement and Release dated as of December 4, 1996 between the Registrant and Robert J. Gerety. *10.32(17) Severance and Settlement Agreement dated as of March 4, 1997 between the Registrant and Malcolm L. Gefter. 10.33(17) Agreement dated October 25, 1996 between the Registrant and Hoechst Marion Roussel, Inc. 10.34(17) Amendment No. 1 to Rights Agreement dated as of April 3, 1996. *10.35(17) Consultation Agreement dated as of January 1, 1992 between the Registrant and C. Garrison Fathman. *10.36(7) Amendment dated April 11, 1994 to the Consultation Agreement between the Registrant and C. Garrison Fathman. *10.37(10) Amendment dated January 16, 1995 to the Consultation Agreement between the Registrant and C. Garrison Fathman. *10.38(17) Letter Agreement dated December 8, 1995 extending the Consultation Agreement between the Registrant and C. Garrison Fathman.
34 35
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.39(18) Consultation Agreement dated May 13, 1997 between the Registrant and J. Richard Crowley. 10.40(19) Sublease dated January 22, 1998 between the Registrant as sublandlord and Scriptgen Pharmaceuticals, Inc. as subtenant for the facility at 610 Lincoln Street, Waltham, Massachusetts. 10.41(20) License Agreement, dated June 16, 1998, by and between the Registrant and Heska Corporation. 10.42(21) Purchase Agreement, dated December 18, 1998, by and between the Registrant and Cantab Pharmaceuticals plc. 21.01(1) Subsidiaries of the Registrant. 23.01 Consent of PricewaterhouseCoopers LLP. 27.01 Financial Data Schedule.
- --------------- + Confidential treatment requested as to certain portions. * Management contract or compensatory plan or arrangement filed as an exhibit to this Form 10-K pursuant to Items 14(a) and 14(c) of Form 10-K - --------------- (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-39592). (2) Incorporated by reference to the Company's Current Report on Form 8-K, dated December 13, 1991, as amended on Form 8, dated January 16, 1992. (3) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-44642). (4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (5) Incorporated by reference to the Company's Registration Statement on Form S-3 (File No. 33- 57138). (6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994. (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994. (8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994. (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. (10) Incorporated by reference to the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1994. (11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995. (12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1995. (13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1995. 35 36 (14) Incorporated by reference to the Company's Form 8-K filed on July 27, 1995, as amended by Form 8-K/A on August 2, 1995, with respect to the adoption of the Rights Agreement. (15) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (16) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996. (17) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (18) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997. (19) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (20) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (21) Incorporated by reference to the Company's Current Report on Form 8-K dated February 2, 1999. The Company will furnish copies of any of the above exhibits at reasonable cost to its shareholders and upon written request to Investor Relations, 610 Lincoln Street, Waltham, MA 02451. 36 EX-23.01 2 CONSENT OF PRICEWATERHOUSE 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of ImmuLogic Pharmaceutical Corporation on Form S-8 (File Nos. 33-89024, 33-89020, 33-89022, 33-50858, 33-42489, 33-42552, 33-41921, 333-08423 and 333-08425) of our report dated February 3, 1999 except as to the information in Notes A and D for which the date is March 23, 1999, on our audits of the consolidated financial statements of ImmuLogic Pharmaceutical Corporation as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Boston, Massachusetts March 31, 1999 EX-27.01 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998 BALANCE SHEET AND STATEMENT OF OPERATIONS AND RELATE FOOTNOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998. 1,000 U.S. YEAR DEC-13-1998 JAN-01-1998 DEC-31-1998 1 18,856 29,772 0 0 0 30,426 0 0 56,195 2,162 0 0 0 204 53,554 56,195 0 4,345 0 0 7,359 0 0 (310) 0 (310) 0 0 0 (310) (0.02) (0.02) SECURITIES INCLUDES $21,553 IN LONG-TERM INVESTMENTS.
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