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IMGN > SEC Filings for IMGN > Form 10-Q on 31-Oct-2012All Recent SEC Filings

Show all filings for IMMUNOGEN INC

Form 10-Q for IMMUNOGEN INC


31-Oct-2012

Quarterly Report


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

OVERVIEW

Since our inception, we have been principally engaged in the development of novel, targeted antibody-based therapeutics for the treatment of cancer using our expertise in cancer biology, monoclonal antibodies, highly potent cytotoxic, or cell-killing, agents, and the design of linkers that enable these agents to remain stably attached to the antibodies while in the blood stream and released in their fully active form after delivery to a cancer cell. An anticancer compound made using our Targeted Antibody Payload, or TAP, technology consists of a monoclonal antibody that binds specifically to an antigen target found on cancer cells with multiple copies of one of our proprietary cell-killing agents attached to the antibody using one of our engineered linkers. Its antibody component enables a TAP compound to bind specifically to cancer cells that express its target antigen, the highly potent cytotoxic agent serves to kill the cancer cell, and the engineered linker controls the release and activation of the cytotoxic agent inside the cancer cell. With some TAP compounds, the antibody component also has anticancer activity of its own. Our TAP technology is designed to enable the creation of highly effective, well-tolerated anticancer product candidates. All of the TAP compounds currently in clinical testing contain either


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DM1 or DM4 as the cytotoxic agent. Both DM1 and DM4, collectively DMx, are our proprietary derivatives of a cytotoxic agent called maytansine. We also have expertise in antibodies and cancer biology to develop "naked," or non-conjugated, antibody anticancer product candidates.

We have used our proprietary TAP technology in conjunction with our in-house antibody expertise to develop our own anticancer product candidates. We have also entered into collaborative agreements that enable companies to use our TAP technology to develop commercial product candidates to specified targets. Under the terms of our collaborative agreements, we are generally entitled to upfront fees, milestone payments and royalties on any commercial product sales. In addition, under certain agreements we are compensated for research and development activities performed at our collaborative partner's request at negotiated prices which are generally consistent with what other third parties would charge. We are compensated to manufacture preclinical and clinical materials and deliver cytotoxic agent at negotiated prices which are generally consistent with what other third parties would charge. Currently, our collaborative partners are Amgen, Bayer HealthCare, Biotest, Lilly, Novartis, Roche and Sanofi. We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements. Details for our significant agreements can be found in our 2012 Annual Report on Form 10-K

To date, we have not generated revenues from commercial product sales and we expect to incur significant operating losses for the foreseeable future. As of September 30, 2012, we had approximately $233.6 million in cash and cash equivalents compared to $160.9 million in cash and cash equivalents as of June 30, 2012.

We anticipate that future cash expenditures will be partially offset by collaboration-derived proceeds, including milestone payments, royalties and upfront fees. Accordingly, period-to-period operating results may fluctuate dramatically based upon the timing of receipt of the proceeds. We believe that our established collaboration agreements, while subject to specified milestone achievements, will provide funding to assist us in meeting obligations under our collaborative agreements while also providing funding for the development of internal product candidates and technologies. However, we can give no assurances that such collaborative agreement funding will, in fact, be realized in the time frames we expect, or at all. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects. However, we cannot provide assurance that any such opportunities presented by additional strategic partners or alternative financing arrangements will be entirely available to us, if at all.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our collaborative agreements, inventory and stock-based compensation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

There were no significant changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

RESULTS OF OPERATIONS

Comparison of Three Months ended September 30, 2012 and 2011

Revenues

Our total revenues for the three months ended September 30, 2012 and 2011 were $4.1 million and $2.5 million, respectively. The $1.6 million increase in revenues in the three months ended September 30, 2012 from the same period in the prior year is attributable to an increase in research and development support revenue and clinical materials revenue, partially offset by a decrease in license and milestone fees, all of which are discussed below.

Research and development support revenue was $1.4 million for the three months ended September 30, 2012 compared with $1.1 million for the three months ended September 30, 2011. These amounts primarily represent research funding earned based on actual resources utilized under our agreements with our collaborators shown in the table below. Also included in research and development support revenue are fees for developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The amount of research and development support revenue we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators' product candidates and the resources our collaborators allocate to the development effort. As such,


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the amount of research and development support revenue may vary widely from quarter to quarter and year to year. Total revenue recognized from research and development support from each of our collaborative partners in the three-month periods ended September 30, 2012 and 2011 is included in the following table (in thousands):

                                      Three Months Ended September 30,
Research and Development Support         2012                  2011
Collaborative Partner:
Amgen                              $              85     $             340
Bayer HealthCare                                   -                     6
Biotest                                          115                   144
Lilly                                            223                     -
Novartis                                         947                   568
Sanofi                                             7                    10
Total                              $           1,377     $           1,068

Revenues from license and milestone fees for the three months ended September 30, 2012 decreased $254,000 to $933,000 million from $1.2 million in the same period ended September 30, 2011. The amount of license and milestone fees we earn is directly related to the number of our collaborators and potential collaborators, the resources our collaborators allocate to the advancement of the product candidates, the number of clinical trials our collaborators conduct and the speed of enrollment and overall success in those trials. As such, the amount of license and milestone fees may vary widely from quarter to quarter and year to year. Total revenue from license and milestone fees recognized from each of our collaborative partners in the three-month periods ended September 30, 2012 and 2011 is included in the following table (in thousands):

                               Three Months Ended September 30,
License and Milestone Fees       2012                 2011
Collaborative Partner:
Amgen                        $         239     $               300
Bayer HealthCare                       521                     276
Biogen Idec                              -                     270
Biotest                                  6                      32
Centocor                                 -                      14
Sanofi                                 167                     295
Total                        $         933     $             1,187

Deferred revenue of $71.1 million as of September 30, 2012 primarily represents payments received from our collaborators pursuant to our license agreements, including a $20 million upfront payment received from Lilly during fiscal 2012 and a $45 million upfront payment received from Novartis during fiscal 2011, both of which we have yet to earn pursuant to our revenue recognition policy.

Clinical materials revenue increased $1.5 million in the three months ended September 30, 2012, to $1.8 million from $281,000 in the three months ended September 30, 2011. We are compensated at negotiated prices which are generally consistent with what other third-parties would charge. The amount of clinical materials revenue we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the supply of clinical-grade material to our collaborators for process development and analytical purposes. As such, the amount of clinical materials revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

Research and Development Expenses

Our research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators' product candidates, and the cost of our own clinical trials,
(iii) development related to clinical and commercial manufacturing processes and
(iv) manufacturing operations which also includes raw materials.

Research and development expense for the three months ended September 30, 2012 increased $6.5 million to $23.7 million from $17.2 million for the three months ended September 30, 2011. The increase was primarily due to (i) increased antibody development and supply expenses; (ii) increased fill/finish costs;
(iii) increased clinical trial costs; (iv) increased cost of clinical materials revenue related to increased orders of such clinical materials from our partners due to timing of supply requirements; and (v) increased salaries and related expenses due primarily to higher stock compensation cost and additional headcount. The number of our research and development personnel increased to 216 as of September 30, 2012 compared to 206 at September 30, 2011. The higher


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stock compensation costs in the current period are driven primarily by higher stock prices resulting in higher fair values. A more detailed discussion of research and development expense in the period follows.

We are unable to accurately estimate which potential product candidates, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop these products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery stage product candidates will advance from preclinical testing and move into our internal clinical development program. The clinical trial and regulatory approval processes for our product candidates that have advanced or that we intend to advance to clinical testing are lengthy, expensive and uncertain in both timing and outcome. As a result, the pace and timing of the clinical development of our product candidates is highly uncertain and may not ever result in approved products. Completion dates and development costs will vary significantly for each product candidate and are difficult to predict. A variety of factors, many of which are outside our control, could cause or contribute to the prevention or delay of the successful completion of our clinical trials, or delay or prevent our obtaining necessary regulatory approvals. The costs to take a product through clinical trials are dependent upon, among other factors, the clinical indications, the timing, size and design of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. Product candidates may be found to be ineffective or to cause unacceptable side effects during clinical trials, may take longer to progress through clinical trials than anticipated may fail to receive necessary regulatory approvals or may prove impractical to manufacture in commercial quantities at reasonable cost or with acceptable quality.

The lengthy process of securing FDA approvals for new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining regulatory approvals would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate, with any degree of certainty, the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of our clinical trials, we are currently unable to estimate when, if ever, our product candidates that have advanced into clinical testing will generate revenues and cash flows.

We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):

                                            Three Months Ended September 30,
Research and Development Expense               2012                  2011
Research                                 $           4,309     $           4,185
Preclinical and Clinical Testing                     6,851                 4,881
Process and Product Development                      1,962                 1,798
Manufacturing Operations                            10,578                 6,297
Total Research and Development Expense   $          23,700     $          17,161

Research: Research includes expenses associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, facilities and lab supplies. Research expenses for the three months ended September 30, 2012 increased $124,000 compared to the three months ended September 30, 2011. This increase is primarily the result of an increase in salaries and related expenses, particularly higher stock compensation cost. We expect research expenses for fiscal 2013 to be slightly higher than fiscal 2012.

Preclinical and Clinical Testing: Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators' product candidates, regulatory activities, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the three months ended September 30, 2012 increased $2.0 million to $6.9 million compared to $4.9 million for the three months ended September 30, 2011. This increase is primarily the result of an increase in clinical trial costs due primarily to site expansion and higher patient enrollment for the IMGN901 007 study and increased costs incurred for the IMGN853 trial which was initiated during the second half of fiscal 2012, as well as an increase in salaries and related expenses, including higher stock compensation cost. We expect preclinical and clinical testing expenses for fiscal 2013 to be significantly higher than fiscal 2012 due to increased activities to advance our wholly owned product candidates.

Process and Product Development: Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the three months ended September 30, 2012, total development expenses increased $164,000 compared to the three months ended September 30, 2011. This increase is primarily the result of an increase in salaries and related expenses, particularly higher stock compensation cost. We expect process and product development expenses for fiscal 2013 to be slightly higher than fiscal 2012.


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Manufacturing Operations: Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator's product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators' preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the three months ended September 30, 2012, manufacturing operations expense increased $4.3 million to $10.6 million compared to $6.3 million in the same period last year. The increase in the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 is primarily the result of (i) an increase in antibody development and supply expense driven primarily by our IMGN901 program and an earlier-stage program;
(ii) an increase in cost of clinical materials revenue due to increased orders of such clinical materials from our partners due to timing of supply requirements; (iii) an increase in fill/finish costs driven by increased activities performed for our internal programs; (iv) a decrease in overhead utilization absorbed by the manufacture of clinical materials on behalf of our collaborators; and (v) an increase in salaries and related expenses, including higher stock compensation cost. We expect manufacturing operations expense for fiscal 2013 to be significantly higher than fiscal 2012 due primarily to increased third-party costs to produce finished drug product for clinical use.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2012 increased $798,000 to $5.6 million compared to $4.8 million for the three months ended September 30, 2011. This increase is primarily due to an increase in salaries and related expenses, particularly stock compensation cost. The higher stock compensation cost in the current period is driven primarily by higher stock prices resulting in higher fair values. We expect general and administrative expenses for fiscal 2013 to be slightly higher than fiscal 2012.

Other Income (Expense), net



Other income (expense), net for the three months ended September 30, 2012 and
2011 is included in the following table (in thousands):



                                      Three Months Ended September 30,
Other Income (Expense), net             2012                 2011
Interest Income                     $          46      $              13
Other Income (Expense), net                    10                    (30 )
Total Other Income (Expense), net   $          56      $             (17 )

LIQUIDITY AND CAPITAL RESOURCES



                             September 30,    June 30,
                                 2012           2012
                                  (In thousands)
Cash and cash equivalents   $       233,614   $ 160,938
Working capital                     223,393     150,016
Shareholders' equity                157,312      83,890




                                           Three Months Ended September 30,
                                              2012                 2011
                                                    (In thousands)
Cash used for operating activities      $         (21,006 )  $         (11,565 )
Cash used for investing activities                 (1,012 )               (592 )
Cash provided by financing activities              94,694                  716

Cash Flows

We require cash to fund our operating expenses, including the advancement of our own clinical programs, and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity financings in public markets and payments from our collaborators, including equity investments, license fees, milestones and research funding. As of September 30, 2012, we had approximately $233.6 million in cash and cash equivalents. Net cash used for operations was $21.0 million and $11.6 million for the three months ended September 30, 2012 and 2011, respectively. The principal use of cash in operating activities for all periods presented was to fund our net loss.


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Net cash used for investing activities was $1.0 million and $592,000 for the three months ended September 30, 2012 and 2011, respectively, and primarily represents cash outflows for capital expenditures. Capital expenditures, primarily for the purchase of new equipment and leasehold improvements, were $966,000 and $554,000 for the three-month periods ended September 30, 2012 and 2011, respectively.

Net cash provided by financing activities was $94.7 million and $716,000 for the three months ended September 30, 2012 and 2011, respectively, which represents proceeds from the exercise of approximately 108,000 and 141,000 stock options, respectively. Also, pursuant to a public offering in the current period, we issued and sold 6,250,000 shares of our common stock resulting in net proceeds of $94.0 million.

We anticipate that our current capital resources and expected future collaborator payments under existing collaborations will enable us to meet our operational expenses and capital expenditures through fiscal year 2015. However, we cannot provide assurance that such future collaborative agreement funding will, in fact, be received. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

Contractual Obligations

We are contractually obligated to make potential future success-based regulatory milestone payments in conjunction with certain collaborative agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, we may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. During the current period, our license agreement with Janssen Biotech was terminated and, accordingly, we are no longer obligated to make $41.0 million of potential future success-based milestone and third-party payments under such agreement. As of September 30, 2012, the maximum amount that may be payable in the future under our current collaborative agreements is approximately $2.0 million.

There have been no other material changes to our contractual obligations during the current period from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Forward-Looking Statements

This quarterly report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts that are not yet determinable. There are a number of factors that could cause actual events or results to be significantly different from those described in the forward-looking statements. Forward-looking statements might include, but are not limited to, one or more of the following subjects:

          future products revenues, expenses, liquidity and cash needs;

          anticipated agreements with collaboration partners;

          anticipated clinical trial timelines or results;

          anticipated research and product development results;

          projected regulatory timelines;

          descriptions of plans or objectives of management for future
operations, products or services;

          forecasts of future economic performance; and

          descriptions or assumptions underlying or relating to any of the
above items.

Forward-looking statements can be identified by the fact that they do not relate to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "opportunity," "plan," "potential," "believe" or words of similar meaning. They may also use words such as "will," "would," "should," "could" or "may". Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should review carefully the risks and uncertainties identified in this Quarterly Report on Form 10-Q, including the cautionary information set forth under Part II, Item 1A., Risk Factors, and our Annual Report on Form 10-K for the year ended June 30, 2012. We may not revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OFF-BALANCE SHEET ARRANGEMENTS

None.

. . .

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