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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2005
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______ to ________
Commission File Number: 0-19131
MEDIMMUNE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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52-1555759
(I.R.S. Employer
Identification No.) |
One MedImmune Way
Gaithersburg, Maryland 20878
(Address of principal executive office)
(Zip Code)
Registrant’s telephone number, including area code: (301) 398-0000
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large
accelerated filer” in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer
x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
Aggregate market value of the 206,045,901 shares of voting and non-voting common equity
held by non-affiliates of the registrant, based on the closing price on June 30, 2005, was $5.5
billion.* Common Stock outstanding as of March 3, 2006: 255,457,569 shares.
Documents Incorporated by Reference: Portions of the registrant’s definitive proxy statement
for the annual meeting of stockholders to be held May 25, 2006 (Part III).
* Excludes 40,600,440 shares of common stock held by directors, officers and any stockholder whose
ownership exceeds 5% of the shares outstanding as of June 30, 2005. Exclusion of shares held by any
person should not be construed to indicate that such person possesses the power, directly or
indirectly, to direct or cause the direction of the management or policies of the registrant, or
that such person is controlled by or under common control with the registrant.
MEDIMMUNE, INC.
FORM 10-K
TABLE OF CONTENTS
MedImmune, Synagis, CytoGam, Ethyol, FluMist, NeuTrexin, RespiGam and Vitaxin are registered
trademarks of the Company. Numax is a trademark of the Company. Accuspray is a trademark of Becton
Dickinson. BiTE is a trademark of Micromet AG. Cervarix is a trademark of GlaxoSmithKline. Gardasil
is a registered trademark of Merck & Co., Inc.
FORWARD-LOOKING STATEMENTS
The statements in this annual report that are not descriptions of historical facts may be
forward-looking statements. Those statements involve substantial risks and uncertainties. You can
identify those statements by the fact that they contain words such as “anticipate,” “believe,”
“estimate,” “expect,” “ intend,” “project” or other terms of similar meaning. Those statements
reflect management’s current beliefs, but are based on numerous assumptions, over which MedImmune may have little or no control and that may not
develop as MedImmune expects. Consequently, actual results may differ materially from those
projected in the forward-looking statements. Among the factors that could cause actual results to
differ materially are the risks, uncertainties and other matters discussed below under Item 1A.
Risk Factors, and elsewhere in this report. MedImmune cautions that RSV disease and influenza, two
diseases targeted by the Company’s products, occur primarily during the winter months; MedImmune
believes its operating results will reflect that seasonality for the foreseeable future. MedImmune
is also developing several products for potential future marketing. There can be no assurance that
such development efforts will succeed, that such products will receive required regulatory
clearance or that, even if such regulatory clearance is received, such products will ultimately
achieve commercial success. Unless otherwise indicated, the information in this annual report is as
of December 31, 2005. This annual report will not be updated as a result of new information or
future events.
PART I
ITEM 1. BUSINESS
MedImmune is committed to advancing science to develop better medicines that help people live
healthier, longer and more satisfying lives. We currently focus our efforts on the areas of
infectious disease, cancer and inflammatory disease. We market four products: Synagis (palivizumab)
and FluMist (Influenza Virus Vaccine Live, Intranasal) to help prevent two common respiratory
infectious diseases; Ethyol (amifostine) to help reduce undesired side effects of certain
anti-cancer chemo- and radiotherapies; and CytoGam (cytomegalovirus immune globulin intravenous
(human)) to help prevent cytomegalovirus (CMV) disease associated with solid organ transplantation.
Founded in 1988 and headquartered in Gaithersburg, Maryland, MedImmune operates facilities in
the United States and Europe to manufacture and distribute one or more components of each of its
products. We have a U.S.-based marketing team and sales force as well as clinical, research and
development staff, through which we are developing a pipeline of product candidates for potential
commercialization. In addition to our internal efforts, we have established clinical, research,
development, manufacturing and commercialization collaborations with other companies and
organizations.
Products
Synagis
Synagis is a humanized monoclonal antibody (“MAb”) approved for marketing in 1998 by the U.S.
Food and Drug Administration (the “FDA”) for the prevention of serious lower respiratory tract
disease caused by respiratory syncytial virus (“RSV”) in pediatric patients at high risk of
acquiring RSV disease. RSV is the most common cause of lower respiratory tract infections in
infants and children worldwide. Healthy children and individuals with adequate immune systems often catch a benign chest cold when infected
with RSV. In contrast, high-risk infants, including children born prematurely or with chronic lung
disease, also known as bronchopulmonary dysplasia (“BPD”), and children with certain heart diseases
present at birth (hemodynamically significant congenital heart disease (“CHD”)) are at increased
risk for acquiring severe RSV disease (pneumonia and bronchiolitis), often requiring
hospitalization.
Synagis is administered by intramuscular injection once per month during anticipated periods
of RSV prevalence in the community, which is typically during the winter months in the Northern
Hemisphere. As such, the sales of Synagis reflect this seasonality and occur primarily in the first
and fourth quarters of the calendar year. Since its launch in 1998, Synagis has been co-promoted by
MedImmune and the Ross Products Division of Abbott Laboratories (“Abbott”). In August 2005, we
amended this U.S. co-promotion agreement such that we will now take full responsibility for
promoting Synagis in the U.S. starting July 1, 2006.
Outside the U.S., Abbott International (“AI”), an affiliate of Abbott, exclusively distributes
Synagis. Synagis was originally approved by the European Medicines Agency (“EMEA”) in 1999 and the
Japanese Pharmaceutical and Medical Devices Agency (“PMDA”) in 2002 for the prevention of serious
lower respiratory tract disease caused by RSV. The indication for CHD infants was approved by the
EMEA in October 2003 and the PMDA in October 2005. As of December 31, 2005, 64 countries outside
the U.S. had approved Synagis for marketing.
In February 2005, MedImmune and AI amended the international distribution agreement for
Synagis to include the exclusive distribution of Numax, a second-generation, anti-RSV MAb, should
the product be approved for marketing by regulatory authorities outside of the United States. Under
the terms of the amended agreement, AI will be working to secure regulatory approval of Numax
outside of the U.S. and, upon receipt of such approval, will distribute and market Numax outside of
the United States. As a part of this amendment, we have the option to co-promote Numax with Abbott
in up to seven countries outside of the United States. In the U.S., we intend to market and sell
Numax on our own.
In the fourth quarter of 2005, we switched from the lyophilized (freeze-dried) formulation of
Synagis to the new liquid formulation of Synagis in the United States. The liquid formulation is a
product improvement over the lyophilized version that we believe enhances the convenience for
physicians in administering the drug and benefits patients by reducing waiting times.
In 2005, 2004 and 2003, we reported $1,063 million, $942 million, and $849 million,
respectively, in worldwide product sales from Synagis representing 87%, 84%, and 86%, respectively,
of our total product sales in each of these three years.
Ethyol
Ethyol is used to help prevent certain unwanted side effects of specific types of chemo- and
radiotherapies that are used to treat cancer.
In 1999, the FDA approved the use of Ethyol for the reduction of the incidence of
moderate-to-severe dry mouth (xerostomia) in patients undergoing post-operative
radiation treatment for head and neck cancer, where the radiation port includes a significant
portion of the parotid glands. Xerostomia, both acute and chronic, is a debilitating condition in
which saliva production is reduced due to damage caused to the salivary glands by therapeutic
radiation. Patients with xerostomia are at increased risk of oral infection, dental cavities and
loss of teeth, and often have difficulty chewing, swallowing and speaking.
Ethyol was initially approved by the FDA in 1995 to reduce the cumulative renal (kidney)
toxicity associated with repeated administration of cisplatin (a common chemotherapy agent) to
patients with advanced ovarian cancer. In 1996, our supplemental new drug application was also
approved under the FDA’s Accelerated Approval Regulations to include treatment of patients with
non-small cell lung cancer (“NSCLC”). Products approved under the Accelerated Approval Regulations
require further adequate and well-controlled studies to verify and describe clinical benefit.
Following completion of such a study, as well as discussions with the FDA on the results of the
trial and analysis of changes in the marketplace showing that the use of high-dose cisplatin in
this patient population had substantially diminished and is no longer a common treatment in the
U.S., we officially withdrew the filing for this indication and modified the label in 2005.
We are the sole marketer of Ethyol in the U.S., and outside the U.S. we have various
distribution and marketing arrangements for the drug, primarily with affiliates of Schering-Plough
Corporation (“Schering”). Ethyol has been approved for marketing in 67 countries worldwide,
including the United States.
In 2005, 2004 and 2003, we reported worldwide product sales for Ethyol of $95 million, $92
million, and $100 million, respectively, which represented 8%, 8%, and 10%, respectively, of our
total product sales in each of these three years.
FluMist
FluMist is a vaccine approved for marketing in 2003 by the FDA for the prevention of disease
caused by influenza A and B viruses in healthy children and adolescents, 5-17 years of age, and
healthy adults, 18-49 years of age. The vaccine is delivered as a nasal mist and is a live,
attenuated vaccine, meaning that it uses modified and weakened live viruses that stimulate the
immune system to help prevent the flu. Each year in the U.S., the influenza virus infects an
estimated 17 million to 50 million people, many of whom are otherwise healthy children and adults.
Vaccination against the influenza virus in the Northern Hemisphere typically commences in October
and may last through the peak of the season, which usually occurs in February.
During the 2005/2006 influenza season, the U.S. Centers for Disease Control and Prevention’s
(the “CDC”) Advisory Committee on Immunization Practices (the “ACIP”) included FluMist in the
federal government’s Vaccines for Children (the “VFC”) program as an alternative to the trivalent
injectable influenza vaccine (“TIV”). As a result, the federal government provides FluMist free of
charge to healthy children ages 5 to 18 years who meet the eligibility requirements of the VFC
program.
In 2005, we reported $21 million in total revenues for FluMist, or about 2% of our total
revenues. This amount consists of $18 million of product sales of FluMist during the
second half of 2005 for the 2005/2006 influenza season and $3 million of product sales in the
first quarter of 2005 for the 2004/2005 influenza season. In 2004, we reported $54 million in total
revenues for FluMist, or about 5% of our total revenues. This amount was composed of $21 million in
product sales of FluMist during the fourth quarter of 2004 for the 2004/2005 influenza season, and
$33 million in total revenues related to vaccine sold for the 2003/2004 influenza season that were
not reported as revenue until the first half of 2004, representing transfer price revenue for
product shipped to Wyeth, our former collaboration partner for FluMist, as well as royalties,
supply goal payments and corporate funding from Wyeth. In 2003, we reported $46 million in other
revenues for FluMist, or about 4% of our total revenues. This amount was derived solely from
milestone and reimbursement payments from Wyeth.
CAIV-T (cold adapted intranasal influenza vaccine—trivalent) is our next generation,
refrigerator-stable influenza vaccine being developed as a potential improved replacement for
FluMist. Toward that end, in December 2005 we announced preliminary results from our pivotal study
comparing CAIV-T with TIV, which included 8,475 children between the ages of 6 months through 59
months, and demonstrated that CAIV-T showed a statistically significant reduction (55 percent) in
influenza illness caused by any influenza strain compared to TIV. We expect to complete our
analysis of the safety and efficacy data from this trial and submit it, along with other supportive
data, to the FDA in the second quarter of 2006 requesting priority review for the use of CAIV-T as
an alternative to TIV in children between the ages of 6 months and 5 years.
In 2005 we announced a Cooperative Research and Development Agreement with the National
Institutes of Health to produce and test live, attenuated intranasal influenza vaccines against
pandemic influenza strains. This effort will use our proprietary reverse genetics technology, which
allows researchers to remove potentially pathogenic portions of a pandemic virus, thereby making
the vaccine and its production safer. MedImmune is offering licenses to its reverse genetics
technology to other manufacturers of both pandemic and seasonal influenza vaccines.
Other Products
We also sold two additional products (CytoGam and NeuTrexin (trimetrexate glucuronate for
injection)) in 2005, 2004 and 2003 and a third product (RespiGam) in 2004 and 2003 reporting $42
million, $41 million, and $43 million in combined worldwide product sales for each year,
respectively. These amounts represent less than 5% of our total reported product sales in 2005,
2004 and 2003.
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CytoGam —an intravenous immune globulin product enriched in
antibodies against CMV, a herpesvirus. It is indicated for the
prevention of CMV disease associated with solid organ transplantation. |
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NeuTrexin —a lipid-soluble analog of methotrexate, approved for use
with concurrent leucovorin administration as an alterative therapy for
the treatment of moderate-to-severe Pneumocystis carinii pneumonia in
immunocompromised patients, such as AIDS patients. |
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RespiGam —an intravenous immune globulin enriched in neutralizing
antibodies against RSV, indicated for the prevention of serious RSV
disease in children less than 24 month of age with bronchopulmonary
dysplasia (BPD) or a history of premature birth (i.e., born at 35
weeks or less gestation). RespiGam, our first anti-RSV product, has
been replaced in the marketplace by Synagis, and is no longer
manufactured or marketed. |
Product Candidates
A significant portion of our operating expenses are related to the research and development of
investigational-stage product candidates. Research and development expenses were $385 million in
2005, $327 million in 2004, and $156 million in 2003. During 2005 and 2004, we also incurred
charges for acquired in process research and development (“IPR&D”) of $48 million and $29 million,
respectively, in connection with the acquisition of research and development assets that expanded
our pipeline. We currently focus our research and development efforts in the therapeutic areas of
infectious disease, cancer and inflammatory diseases. Any of our programs in these disease areas
could become more significant to us in the future, but there can be no assurance that any program
in development or investigation will generate viable marketable products. As such, we continually
evaluate all product candidates and may, from time to time, discontinue the development of any
given program and focus our attention and resources elsewhere. For example, we discontinued our
preclinical research activities targeting TIRC 7 in 2005, and terminated preclinical research
relating to technology targeting the enzyme Human Aspartyl (Asparaginyl) Beta-Hydroxylase (HAAH)
and PC-cell-derived growth factor (PCDGF) in 2004. We may choose to address new opportunities for
future growth in a number of ways including, but not limited to, internal discovery and development
of new products, in-licensing of products and technologies, and/or acquisition of companies with
products and/or technologies. Any of these activities may require substantial research and
development efforts and expenditure of significant amounts of capital.
The following table summarizes our current product candidate programs and each is described in
greater detail on the following pages:
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| Infectious Disease |
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Immunology |
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Oncology |
CAIV-T vaccine
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Anti-IL-9 MAb
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Human papillomavirus vaccine |
Numax MAb
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Anti-IFN-alpha and Anti-IFNaR MAbs
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Vitaxin MAb |
Anti-staphylococcal MAb
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Anti-HMGB-1MAb |
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Siplizumab MAb |
Epstein-Barr Virus vaccine
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Anti-CD19, Anti-CD20, and Anti-CD22 MAbs
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MT-103 BiTE |
S. pneumoniae vaccine
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Anti-chitinase MAb |
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Anti-EphA2 MAb |
RSV/PIV-3/hMPV
combination vaccines
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Listeria-EphA2 vaccine |
Anti-hMPV MAb
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Anti-EphA4 MAb |
Anti-RSV small molecule compounds
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Anti-EphB4 and Anti-EphrinB2 MAbs |
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Anti-ALK MAb |
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cMET Avimers |
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Anti-Eph peptides |
Infectious Disease
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CAIV-T—CAIV-T is our next generation, refrigerator-stable influenza
vaccine being developed as a potential improved replacement of our currently
marketed frozen influenza vaccine, FluMist. Toward that end, we completed two
Phase 3 studies in 2005: a pivotal trial designed to compare CAIV-T with TIV,
and a bridging study designed to establish that CAIV-T and FluMist are
biologically equivalent. In December 2005, we announced preliminary results
from the pivotal study, which included 8,475 children between the ages of 6
months through 59 months, and demonstrated that CAIV-T showed a statistically
significant reduction (55%) in influenza illness caused by any influenza strain
compared to TIV. We expect to complete our analysis of the safety and efficacy
data from this trial and submit it, along with other supportive data, to the
FDA in the second quarter of 2006 requesting priority review for the use of
CAIV-T as an alternative to TIV in children between the ages of 6 months and 5
years. |
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Preliminary data from the bridging study, which included 980 healthy
participants between the ages of 5 and 49 years, indicated that CAIV-T and
FluMist produced similar immune responses. We announced this data in June
2005 and submitted our supplemental Biologics License Application (“sBLA”)
to the FDA in September 2005 for approval to use CAIV-T in preventing
influenza in healthy individuals 5 to 49 years of age. |
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Numax MAb— In 2005, we moved forward in a number of clinical trials with
Numax, which is being developed as a second-generation anti-RSV MAb that may
have greater therapeutic benefits than Synagis. In December 2005, we completed
enrolling 6,600 infants in a pivotal Phase 3 trial designed to evaluate Numax’s
potential to prevent serious RSV in high-risk infants as compared to Synagis.
In 2005, we also completed: a Phase 1/2 trial in high-risk infants; enrollment
in a late-stage clinical study in children with CHD; and dosing in a Southern
Hemisphere re-dosing trial. We also initiated enrollment for a second season in
a Phase 3 feasibility study in full-term Native American infants. Recently
accumulated epidemiological data indicate that the risks associated with RSV
disease for otherwise healthy, full-term Native American infants is similar to
those commonly associated with children considered to be at high-risk to the
virus. |
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Anti-staphylococcal MAb—During 2005, we licensed worldwide rights from
GlaxoSmithKline (“GSK”) to develop certain anti-staphylococcal MAbs. The
program includes the A110 molecule, which is in development for the prevention
of serious bloodstream infections caused by Staphylococcus in low-birthweight
infants. A110 is targeted against Staphylococcus, including coagulase negative
Staphylococcus, which is a leading cause of bloodstream infections among
infants in the neonatal intensive care unit. |
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Epstein-Barr virus (“EBV”) vaccine—We have rights to a vaccine against
certain subunits of EBV, a herpesvirus that is the leading cause of infectious
mononucleosis. This vaccine is based upon the major envelope glycoprotein that
mediates viral absorption and penetration, and is a major target for the
production of neutralizing antibodies stimulated by natural EBV infection. The
vaccine is being developed with GSK under a worldwide collaboration, excluding
North Korea and South Korea. Data from a 2002 GSK study in Europe showed that
the formulations were both well tolerated and highly immunogenic. A Phase 1
trial in patients with cystic fibrosis awaiting lung transplants and a Phase 1
trial in patients awaiting kidney or liver transplants continued in 2005. The
vaccine is currently in Phase 2 development. |
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Streptococcus pneumoniae vaccine—In 2000, we granted a worldwide
exclusive license to a Streptococcus pneumoniae vaccine to GSK. Streptococcus
pneumoniae is a major cause of pneumonia, middle-ear infections and meningitis
worldwide, especially in very young children and in the elderly. During 2005,
GSK continued the clinical development efforts with this vaccine in two Phase 1
studies that were started in 2003 and 2004. |
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Parainfluenza virus type 3 (“PIV-3”)/RSV/human metapneumovirus (“hMPV”)
combination vaccines—In 2005, we conducted additional preclinical research and
process development to further evaluate the safety and efficacy of live,
attenuated intranasal vaccine candidates targeting combinations of PIV-3 with
either RSV or hMPV. In January 2005, we filed an investigational new drug
(“IND”) application to begin clinical studies of our RSV/PIV-3 candidate
vaccine. During the year, we fully enrolled a Phase 1 trial to evaluate the
safety, tolerability and immunogenicity of our lead candidate vaccine in
healthy adults. We plan to further advance the RSV/PIV-3 vaccine program before
moving ahead with an hMPV/PIV-3 vaccine candidate. |
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Anti-hMPV MAb—hMPV is a respiratory virus with a high incidence of
infection in children under the age of five. Early epidemiological studies
indicate that outbreaks of hMPV occur on a seasonal basis, with clinical
symptoms that are similar to RSV, ranging from mild respiratory problems to
severe cough, bronchiolitis, and pneumonia. The very youngest children infected
with hMPV often require hospitalization and mechanical ventilation. During
2005, we continued our preclinical epidemiology study designed to evaluate the
prevalence of hMPV lower respiratory tract disease. Hospitalized children with
lower respiratory tract disease will be evaluated virologically for hMPV, as
well as for RSV and PIV. |
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Anti-RSV small molecule compounds—During 2005, we entered into a
licensing and collaboration agreement with Biota Holdings Limited to develop
and commercialize Biota’s small molecule compounds designed to prevent and
treat RSV infection. These compounds are orally available drug candidates, and
if successfully developed, could expand the RSV market to other susceptible
patient groups beyond those groups currently approved for Synagis, such as
older children, the elderly and individuals with compromised immune systems. |
Immunology
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Anti-interleukin-9 (“IL-9”) MAb—IL-9 is a naturally occurring cytokine
implicated in the pathogenesis of asthma and may contribute to other types of
chronic obstructive pulmonary disease and cystic fibrosis. Data from
preclinical studies in models of asthma suggest that IL-9 neutralizing
monoclonal antibodies may help reduce airway hyper-reactivity, mucous
production and inflammation. During 2005, we continued to enroll patients in a
Phase 1 study in which our lead anti-IL-9 antibody was administered
subcutaneously. In 2005, we also completed a Phase 1 safety and
pharmacokinetics study in which this antibody was administered intravenously to
healthy adult volunteers. We are evaluating this molecule as a potential new
treatment for symptomatic, moderate-to-severe persistent asthma. |
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Anti-interferon alpha and anti-type 1 interferon receptor MAbs—During
2004, we announced a collaboration with Medarex, Inc. to develop antibodies
targeting interferon-alpha and the type 1 interferon receptor. This
collaboration is expected to initially focus on two antibodies, one of which is
MEDI-545, for the treatment of autoimmune diseases. In October 2005, we filed
an IND application to begin clinical studies of MEDI-545, a MAb targeting
interferon-alpha. Preclinical data indicate that levels of interferon-alpha are
elevated in many patients with active systemic lupus erythematosus and other
autoimmune disorders, and may be associated with disease activity. The second
molecule, MEDI-546, is a MAb targeting the type 1 interferon receptor. It is
currently in preclinical development. |
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Anti-high mobility group box chromosomal protein 1 (“HMGB-1”) MAb—HMGB-1
is a late-acting cytokine believed to be involved in the tissue damage
associated with a range of inflammatory illnesses, such as rheumatoid
arthritis, sepsis and acute lung injury. Preclinical studies to date have
suggested that blocking HMGB-1 may help protect against injury associated with
many chronic and acute inflammatory diseases, and may reduce sepsis-related
deaths. In 2003, we entered into an agreement with Critical Therapeutics, Inc.
to co-develop biological products targeting HMGB-1 to treat severe inflammatory
diseases. In 2005, we continued to evaluate HMGB-1’s role in a various
inflammatory diseases and continued preclinical testing of anti-HMGB-1
antibodies. |
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Anti-CD19, Anti-CD20 and Anti-CD22 MAbs—During 2005, we acquired
Cellective Therapeutics, Inc., which provided us with three preclinical stage
programs developing MAbs that target the B-cell antigens CD19, CD20 and CD22.
These antigens are believed to play important roles in regulating the immune
system. Preclinical studies indicate that antibodies targeting these antigens
may block B-cell activities that are associated with many tumors and autoimmune
diseases, including multiple myeloma, B-cell lymphomas, rheumatoid arthritis,
and systemic lupus erythematosus. |
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Anti-chitinase MAb—During 2004, we acquired the rights from Yale
University to a family of proteins known as chitinases that may be important
therapeutic targets in a number of cancers, as well as inflammatory and other
diseases. During 2005, we continued our preclinical development efforts
evaluating the role of chitinases in respiratory diseases. |
Oncology
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Human papillomavirus (“HPV”) vaccine—Since 1997, MedImmune and GSK have
been co-developing a vaccine against HPV to prevent cervical cancer under a
research collaboration. Final data from a Phase 2 clinical trial with this HPV
vaccine, Cervarix, were presented by GSK in February 2004 at The International
Papillomavirus Conference and were published in The Lancet in 2004. In 2005,
GSK continued a global Phase 3 clinical program, involving approximately 28,000
women, designed to evaluate the safety and efficacy of the vaccine in
preventing cervical cancer. Also in 2005, we amended our agreement with GSK,
permitting Merck & Co., Inc. (“Merck”), which also has an HPV vaccine,
Gardasil®, in Phase 3 development, to sublicense rights to our
patents. As a result, we may receive certain milestone payments and royalties
on future development and sales from both vaccines as they are developed and
should they be approved. Data from Merck’s Phase 3 clinical trial, which showed
100% prevention of high-grade cervical pre-cancers and non-invasive cervical
cancers associated with HPV types 16 and 18, were presented in October 2005 at
Infectious Diseases Society of America annual meeting. In December 2005, Merck
submitted a BLA to the FDA and a Marketing Authorisation Application to the
European Medicines Agency for its HPV vaccine. GSK submitted a Marketing
Authorisation Application to the European Medicines Agency for Cervarix in
March 2006 and is expected to file for regulatory approval in the U.S. by the
end of 2006. |
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Ethyol—During 2005, we continued to enroll and treat patients in a Phase
2 trial evaluating Ethyol’s ability to help reduce esophagitis in patients with
non-small cell lung cancer. In 2005, we discontinued a Phase 1/2 trial with
Ethyol in patients with acute myelogenous leukemia after it was assessed that
there was insufficient clinical effectiveness in reducing toxicities of certain
increased chemotherapy regimens on these patients at acceptable dose levels. |
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Vitaxin MAb—Vitaxin is our development-stage MAb currently being
evaluated in separate trials for advanced melanoma and prostate cancer. Vitaxin
has been shown in preclinical studies to block the function of alpha-v beta-3
integrin, which is frequently found on newly-forming blood vessels and certain
tumor cells (for example, melanoma, prostate cancer, and tumors with bone
metastases). In May 2005, we announced the preliminary data from our Phase 2
study involving 112 patients with stage IV metastatic melanoma, showing a
12.7-month median survival for patients treated with Vitaxin alone. During
2005, we also completed enrolling patients in our Phase 2 trial for hormone
refractory prostate cancer. We expect to complete the prostate study in 2006,
and assess the data from both Phase 2 trials as we continue to invest in this
molecule as a potential cancer therapeutic. |
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Siplizumab MAb—Siplizumab is a humanized MAb that targets CD2, a
molecule expressed on certain white blood cells, and appears to have the effect
of depleting T-cells and natural killer cells. These properties suggest that
siplizumab could provide a treatment for patients with T-cell
lymphoproliferative disorders. Animal studies of T-cell leukemia have indicated
that siplizumab can help increase survival. In May 2005, we presented
preliminary data from a Phase 1 trial run by the National Cancer Institute with
siplizumab indicating the antibody was well tolerated in patients with certain
T-cell lymphomas and leukemias. Partial disease remissions for some study
participants were among the data presented. As a result of the initial
observations from this Phase 1 trial, during 2005 we expedited enrollment of
patients in an additional Phase 1/2 study using similar dose escalation
criteria. |
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MT-103 BiTE—MT-103 is a bi-specific T-cell engager (BiTE™) molecule that
binds to B-cell lymphomas expressing the CD19 surface molecule. With its second
binding arm, MT-103 recruits and activates T-cells to kill the cancerous
B-cells. In 2005, a Phase 1 dose-escalation trial involving continuous infusion
of MT-103 in patients with non-Hodgkin’s lymphoma was ongoing in Europe. We
anticipate filing an IND for MT-103 in the U.S. in 2006. We are also evaluating
the broader application of Micromet’s BiTE technology to other targets of
interest, such as BiTEs against EphA2 and carcinoembryonic antigen (CEA). |
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• |
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Anti-EphA2 MAbs and vaccines—EphA2 is normally expressed at very low
levels on normal epithelial cells, but many different cancers over-express
EphA2, including metastatic melanoma, breast, prostate, colon, lung, ovarian
and esophageal carcinomas. Further, when over-expressed, EphA2 appears to
promote metastases. Based on preclinical studies to date, we believe that
targeting EphA2 in animal models may selectively inhibit the growth and
survival of malignant cells, without altering the function or survival of
corresponding normal cells. In 2004, we licensed the worldwide rights to the
Listeria vaccine technologies from Cerus Corporation to target EphA2-expressing
tumors. In 2005, we continued our preclinical testing in these areas, applying
monoclonal antibody and vaccine research against EphA2. A development plan to
initiate clinical trials with an anti-EphA2 MAb in the U.S. is under review. |
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• |
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Anti-EphA4 MAb—We have identified EphA4 as a potential new target on
certain cancer cells. Preclinical studies indicate that high levels of EphA4
are found on many different cancers, including breast and pancreatic
carcinomas, and that targeted intervention against EphA4 may decrease the
proliferation and metastatic behavior of these malignant cells. In 2005, we
continued our preclinical testing of EphA4 antibodies. |
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• |
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Anti-EphB4 and EphrinB2 MAbs—In 2005, we entered into a collaborative
agreement with VasGene Therapeutics to develop cancer-focused MAbs targeting a
novel member of a subfamily of receptor tyrosine kinases, EphB4, as well as its
ligand, EphrinB2. EphB4 is found at high levels on tumor cells and in
tumor-associated blood vessels. The binding of EphB4 to EphrinB2 has been
linked with the metastatic and angiogenic potential of many cancers. As such,
antibodies targeting EphB4 or EphrinB2 may selectively inhibit the growth and
survival of tumor cells and tumor-associated blood vessels. |
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• |
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Anti-ALK MAb—In 2005, we entered into a licensing and collaboration
agreement with Georgetown University for the development of MAbs targeting
anaplastic lymphoma kinase (ALK), a member of the insulin receptor family of
tyrosine kinases. ALK is found at high levels in cancer cells, where it is
believed to play an important role in tumor cell growth and survival.
Over-expression of ALK and its ligand, pleiotrophin (PTN), has been confirmed
in numerous cancer types, including prostate, breast, colon, lung , pancreatic
and ovarian cancers. Further, research has shown that high levels of PTN are
associated with lower survival rates, and results from in vivo studies suggest
that anti-ALK antibodies may potentially reduce tumor growth and increase
survival. |
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• |
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cMET Avimers—In 2005, we entered into a licensing and collaboration
agreement with Avidia, Inc. to develop anti-cancer products targeting cMET, a
receptor tyrosine kinase found in high levels in certain cancer cells. The
collaboration also promotes the development of additional targets using
Avidia’s Avimer technology. Avimers are small, stable proteins that can act
like antibodies and bind selectively to different receptors or ligands. They
may have several advantages over MAbs or small molecules as therapeutic
products in terms of biological activity, tissue distribution, reduced
immunogenicity, and improved manufacturing efficiencies. |
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• |
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Anti-Eph peptides—In 2005, we entered into a licensing agreement with
the Burnham Institute for Medical Research to develop peptides targeting the
EphA and EphB subfamilies of receptor tyrosine kinases. Certain Eph proteins
are believed to play an important role in uncontrolled tumor growth and
metastasis in many types of human cancers. |
Collaborations, Alliances and Investments
To build, advance and promote our product portfolio, we often seek to augment our own internal
programs and capabilities with collaborative projects with a number of outside partners. For our
marketed products, we have established certain license agreements, co-promotion arrangements,
manufacturing, supply and co-development alliances with pharmaceutical and other biotechnology
companies, academic institutions and government laboratories to which we currently pay royalties.
For more information on these collaborations, please see Note 16, “Collaborative Arrangements” to
our Consolidated Financial Statements. Similarly, for product candidates now in development, we
have secured licenses to certain intellectual property and entered into strategic alliances with
outside parties for various aspects of research, development, manufacturing and commercialization,
pursuant to which we will owe future royalties if the product candidates are licensed and
commercialized.
We also believe that investing in early stage biotechnology companies allows us to benefit
from other innovations in the industry. Accordingly, we established MedImmune Ventures, Inc. in
2002 as a wholly owned venture capital subsidiary that makes minority interest investments in
biotechnology companies we believe have promising technology. Occasionally, we will make these
investments in connection with strategic alliances as we have done with Critical Therapeutics, Inc.
and Micromet AG. As of February 25, 2006, MedImmune Ventures has invested approximately $95 million
of the $200 million that was allocated to it by MedImmune’s Board of Directors.
Sales and Marketing
We have developed a sales and marketing organization that focuses on targeting healthcare
providers, managed healthcare organizations, specialty distribution companies, chain pharmacies,
government purchasers and payers. Approximately 65 sales and managed care representatives cover
approximately 1,200 hospitals, managed care organizations,
and clinics in the U.S., which specialize in pediatric/neonatal care or transplantation for the
promotion of Synagis, FluMist and CytoGam. Approximately 225 sales representatives cover
approximately 16,000 pediatric practices in the U.S. for the promotion and detailing of Synagis and
FluMist. In addition, approximately 65 oncology/immunology specialists are devoted to the sales and
marketing of Ethyol to oncologists practicing in cancer treatment centers, large hospitals and
private medical practices. In total, we now employ approximately 460 sales and marketing personnel
in the United States.
Since 1998, we have had a co-promotion agreement with Abbott for the promotion of Synagis in
the United States. Under this agreement, Abbott details Synagis to approximately 27,000
office-based pediatricians and 6,000 birth hospitals through its 500 sales representatives. In
August 2005, we amended this co-promotion agreement whereby we will take full responsibility for
product promotion in the U.S. starting July 1, 2006. We plan to expand the pediatric sales
organization by approximately 125 professionals in advance of the 2006/2007 RSV season to replace
Abbott’s co-promotion efforts.
In the U.S., we also rely upon specialty distributors and wholesalers to deliver Synagis to
our customers, including physicians, hospitals and pharmacies. In 2003, we launched the Synagis
Distribution Network (“SDN”), which significantly reduced the number of distributors and
wholesalers involved in the distribution of Synagis with the intention of providing high-quality
and consistent services for patients. We reevaluate the distribution network membership every
season and make changes as needed to ensure our customers and patients receive the highest levels
of service and customer support. In addition to distribution services, there are a relatively small
number of specialty distributors who have demonstrated expertise in providing patient support
services. There can be no assurances that these distributors will adequately provide their services
to either the end users or to MedImmune, nor can there be any guarantee that these service
providers remain solvent.
As discussed in Note 4, “Segment, Geographic and Product Information,” of our Consolidated
Financial Statements, we have four major customers who each accounted for over 12% of our total
revenue during 2005. Note 4 also contains information concerning the geographic areas in which we
operate. We face risks related to foreign currency exchange rates, as discussed under the caption
“Risk Factors—Changes in foreign currency exchange rates or interest rates could result in
losses.”
Manufacturing and Supply
We operate commercial manufacturing facilities and distribution facilities in the U.S. and
Europe. In addition, we have entered into manufacturing, supply and purchase agreements with other
companies to provide certain portions of the production capacity for all of our marketed products
and to produce clinical supplies for our development-stage products. Certain materials necessary
for our commercial manufacturing of our products are proprietary products of other companies, and
in some cases, these proprietary products are specifically cited in our drug application with the
FDA such that they must be obtained from that specific, sole source. In addition, certain materials
necessary for our commercial manufacturing of our products are only available through
one approved single source supplier though the materials are available from more than one
supplier. We currently attempt to manage the risk associated with such sole-sourced and
single-sourced materials by active inventory management and, where feasible, alternate source
development. We monitor the financial condition of our suppliers, their ability to supply our needs
and the market conditions for these raw materials. Also, certain materials
required in the
commercial manufacturing of our products are derived from biological sources. We maintain screening
procedures with respect to certain biological sources, where appropriate, and we are investigating
alternatives to them.
Synagis— The primary manufacturing facility for Synagis bulk drug substance is our Frederick,
Maryland manufacturing center (“FMC”). The FMC is a biologics facility with cell culture production
and associated downstream processing equipment for recombinant products. Filling of Synagis bulk
produced at the FMC is performed by Sicor Pharmaceuticals, Inc. and packaging is performed by
Cardinal Health PTS, LLC.
Supplemental supply of Synagis for the U.S. market is manufactured by Boehringer Ingelheim
Pharma GmbH & Co. KG (“BI”) under a manufacturing and supply agreement. BI also fills and packages
Synagis produced at its German facility. As the sole supplier of Synagis for all territories
outside the U.S. and supplemental supplier for the U.S. market, BI is responsible for obtaining and
maintaining licensure and approval for making the product at its facility from all appropriate
regulatory authorities including the FDA. We plan to continue to rely upon BI for production of
additional quantities of Synagis to meet expected worldwide demand for the product.
Ethyol— All bulk drug substance for Ethyol is produced by a contract manufacturer. In 2005,
filling and finishing of all product was completed at our manufacturing facility in Nijmegen, the
Netherlands. To backup our own filling and finishing capabilities, we have an agreement with Ben
Venue Laboratories, Inc., a subsidiary of BI, to fill and finish Ethyol for sale in the United
States.
FluMist— FluMist is produced at several facilities either owned or leased by MedImmune. The
master virus seeds are prepared at our Mountain View, California facility. In 2005, the bulk
monovalents and diluent were produced at leased facilities in Speke, the United Kingdom. In
December 2005, the FDA approved our recently constructed bulk manufacturing facility, which is also
located in the United Kingdom. We plan to begin manufacturing FluMist at this site in 2006.
Blending of FluMist into its trivalent formulation and filling of the final vaccine into the
Accuspray™ applicators, the non-invasive nasal spray delivery system developed and supplied by
Becton, Dickinson and Company, takes place at our Philadelphia, Pennsylvania facilities. In
addition to these manufacturing facilities, we own a distribution facility in Louisville, Kentucky
from which FluMist is distributed to physicians, pharmacies and government agencies.
CytoGam —We are in the process of transferring CytoGam manufacturing responsibilities to a
different contract manufacturer, a process which is expected to be completed during the second half
of 2006. Until the transfer is complete and the new manufacturing sites are approved by the FDA, we
expect supply to be limited and sales to be adversely affected.
Patents, Licenses and Proprietary Rights
The products and product candidates currently being developed or considered for development by
MedImmune are in the area of biotechnology, an area in which there are extensive patent filings. We
rely on patent protection against use of our proprietary products and technologies by competitors.
The patent positions of biotechnology firms generally are highly uncertain and involve complex
legal and factual questions. To date, no consistent policy has emerged regarding the breadth of
claims allowed in biotechnology patents. Accordingly, there can be no assurance that patent
applications owned or licensed by us will result in patents being issued or that, if issued, such
patents will afford meaningful protection against competitors with similar technology. We currently
own or in-license significant intellectual property related to our products or product candidates
and own or in-license additional applications for patents currently pending. A list of the U.S.
patents we own or exclusively in-license as of February 2006 is filed as Exhibit 99.1 hereto and is
incorporated by reference into this annual report on Form 10-K.
Government Regulation
The research, development, manufacture and sale of our products are subject to numerous
complex laws and statutes as well as regulations promulgated by the applicable governmental
authorities, principally the FDA in the U.S. and similar authorities in other countries. While
there is considerable time and expense associated with complying with these requirements, knowledge
of and experience with these matters also yields benefits to MedImmune. For example, the more
knowledgeable we are about these matters, the more we are able to design our research, development
and manufacturing strategies in a manner that is calculated to obtain regulatory approval to market
our products in the applicable countries. Moreover, the complexity of these matters can have the
effect of delaying or limiting the number of competing products that can successfully be brought to
market. In addition, certain regulatory approval pathways, for example, orphan drug designation in
the U.S. for marketing products applicable to rare diseases or small populations, can also have the
effect of limiting the number of competing products available in the market.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly evolving
technology and intense competition. Our competitors include pharmaceutical, chemical and
biotechnology
companies, many of which have financial, technical and marketing resources
significantly greater than those of MedImmune. In addition, many specialized biotechnology
companies have formed collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with those of MedImmune.
Academic institutions, governmental agencies and other public and private research organizations
are also conducting research activities and seeking patent protection and may commercialize
products on their own or through joint venture arrangements.
We expect our products to compete primarily on the basis of product efficacy, safety, patient
convenience, reliability and patent position. In addition, the first product to reach the market in
a therapeutic or preventive area is often at a significant competitive advantage relative to later
entrants to the market. Our competitive position will also
depend on our ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, implement product and marketing plans, obtain patent protection and
secure adequate capital resources.
We believe that Synagis is the only product currently available for the prevention of RSV
disease. However, we are aware of one product, ribavirin, which is indicated for the treatment of
RSV disease in the United States. The existence of this product, or other products or treatments of
which we are not aware, or products or treatments that may be developed in the future, may
adversely affect the marketability of products developed by MedImmune.
In relation to influenza vaccines, in the past, we have been aware of two main manufacturers
of TIV sold in the United States. From these two manufacturers, approximately 80 million doses of
these inactivated vaccines have traditionally been sold annually in the United States. In August
2005 the FDA also approved an inactivated influenza vaccine manufactured by GSK for distribution in
the United States. We are also aware that Merck has licensed a live virus intranasal vaccine,
currently available in Russia, and that GSK is developing an intranasal, inactivated influenza
vaccine that we understand is in the early stages of clinical testing. If the FDA decides to allow
additional manufacturers into the market, it will create additional competition in the influenza
vaccine market. Any of the products described here, as well as other products of which we are not
aware, may adversely affect the marketability of FluMist.
Many companies, including well-known pharmaceutical companies, are marketing anti-cancer drugs
and drugs to ameliorate or treat the side effects of cancer therapies. These companies, and many
others, are seeking to develop new drugs and technologies for various cancer applications. Many of
these drugs, products and technologies are, or in the future may be, competitive with our oncology
products. In the U.S., we believe that Sanofi-Aventis holds the largest share of the chemotherapy
market in terms of both approved products and annual sales. To our knowledge, other companies
maintaining a significant active oncology marketing and sales presence include Amgen, Inc.,
AstraZeneca Pharmaceuticals, LP, Bristol-Myers Squibb Company, Chiron Corporation, Eli Lilly and
Company, Genentech, Inc., GSK, Hoffmann-La Roche, Inc., Johnson & Johnson, Pfizer, Inc., and
Schering. These companies have greater financial, technical, manufacturing, marketing and other
resources than us and may be better equipped than us to develop, market and manufacture these
therapies.
In June 2004, we received a notification from Sun Pharmaceutical Industries, Ltd. that it had
submitted an abbreviated new drug application to the FDA seeking approval for a generic version of
Ethyol (amifostine). We evaluated all options available to us and in August, 2004, we filed a
patent infringement case against Sun Pharmaceutical in the U.S. District Court for the District of
Maryland. During 2005 there were no material developments in the proceedings between MedImmune and
Sun Pharmaceutical Industries Limited. For additional information see Note 18, “Legal Proceedings,”
of our Consolidated Financial Statements.
Officers and Key Employees of the Company
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| Name |
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Age |
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Position |
|
Joined MedImmune |
Wayne T. Hockmeyer,
Ph.D.
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61 |
|
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Chairman of the Board and Founder;
President, MedImmune Ventures, Inc.
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1988 |
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David M. Mott
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40 |
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Chief Executive Officer, President and
Vice Chairman of the Board
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1992 |
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James F. Young,
Ph.D.
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53 |
|
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President, Research and Development
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1989 |
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Edward M. Connor,
M.D.
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53 |
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Executive Vice President and Chief
Medical Officer
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1994 |
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William C.
Bertrand, Jr., J.D.
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41 |
|
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Senior Vice President, General Counsel,
Secretary and Corporate Compliance
Officer
|
|
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2001 |
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Peter A. Kiener,
D.Phil.
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53 |
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Senior Vice President, Research
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2001 |
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Pamela J. Lupien
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46 |
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Senior Vice President, Human Resources
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2002 |
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Bernardus N.
Machielse, Drs.
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45 |
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Senior Vice President, Operations
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1999 |
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Edward T. Mathers
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45 |
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Senior Vice President, Corporate
Development
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2002 |
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Linda J. Peters
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40 |
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Senior Vice President, Regulatory
Affairs
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2005 |
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R. Michael Smullen
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51 |
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Senior Vice President, Sales
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1994 |
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Gail
Folena-Wasserman,
Ph.D.
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51 |
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Senior Vice President, Development
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1991 |
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Lota S. Zoth, C.P.A.
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46 |
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Senior Vice President and Chief
Financial Officer
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2002 |
|
Wayne T. Hockmeyer, Ph.D.— Dr. Hockmeyer founded MedImmune, Inc. in April 1988 as President
and Chief Executive Officer and was elected to serve on the Board of Directors in May 1988. Dr.
Hockmeyer became Chairman of the Board of Directors in May 1993. He relinquished his position as
Chief Executive Officer in October 2000 and now serves as the Chairman of the Board of Directors
and President of MedImmune Ventures, Inc. Dr. Hockmeyer earned his bachelor’s degree from Purdue
University and his Ph.D. from the University of Florida in 1972. Dr. Hockmeyer was recognized in
1998 by the University of Florida as a Distinguished Alumnus and in 2002, Dr. Hockmeyer was awarded
a Doctor of Science honoris causa from Purdue University. Dr. Hockmeyer is a member of the Maryland
Economic Development Commission and the Maryland Governor’s Workforce Investment Board (GWIB). He
is also a member of the Maryland Governor’s Scientific Advisory Board. He is a member of the Board of Directors of the
publicly traded biotechnology companies, Advancis Pharmaceutical Corp., GenVec, Inc. and Idenix
Pharmaceuticals, Inc. and serves on the boards of several educational and philanthropic
organizations.
David M. Mott— Mr. Mott was appointed Chief Executive Officer and Vice Chairman in October
2000 and was also appointed President in February 2004. He joined MedImmune in April 1992 as Vice
President with responsibility for business development, strategic planning and investor relations.
In 1994, Mr. Mott assumed additional responsibility for the medical and regulatory groups, and in
March 1995 was appointed Executive Vice President and Chief Financial Officer. In November 1995,
Mr. Mott was appointed to the position of President and Chief Operating Officer and was elected to
the Board of Directors. In October 1998, Mr. Mott was appointed Vice Chairman. Mr. Mott is a member
of the board of the Biotechnology Industry Organization (BIO), and also serves on the Board of
Trustees of St. James School and on the Board of Governors of Beauvoir, the National Cathedral
Elementary School. He holds a bachelor of arts degree from Dartmouth College.
James F. Young, Ph.D.— Dr. Young has over 20 years of experience in the fields of molecular
genetics, microbiology, immunology and pharmaceutical development. In December 2000, Dr. Young was
promoted to the position of President, Research and Development. He joined MedImmune in 1989 as
Vice President, Research and Development. In 1995, he was promoted to Senior Vice President and in
1999 he was promoted to Executive Vice President, Research and Development. Dr. Young received his
doctorate in microbiology and immunology from Baylor College of Medicine in Houston, Texas and
bachelor of science degrees in biology and general science from Villanova University in Villanova,
Pennsylvania. Dr. Young is a member of the Board of Directors of Arriva Pharmaceuticals, Inc. and
Iomai Corporation.
Edward M. Connor, M.D.— Dr. Connor was promoted to executive vice president and chief medical
officer in September 2004. He joined MedImmune as Director of Clinical Studies in 1994 and was
promoted to Vice President, Clinical Development in 1995. In his current post, he is responsible
for directing all medical activities for MedImmune, which include clinical development, medical
affairs and product safety. Dr. Connor holds a bachelor’s degree in biology from Villanova
University and a medical degree from University of Pennsylvania School of Medicine. He is board
certified in pediatrics and is a consultant in pediatric infectious diseases.
William C. Bertrand, Jr., J.D. — Mr. Bertrand was promoted to Senior Vice President in
November 2005, and he serves as our General Counsel, Secretary and Corporate Compliance Officer. He
was appointed our first General Counsel in September 2003. He joined MedImmune in 2001 as Vice
President, Legal Affairs, and Corporate Compliance Officer. Prior to joining MedImmune, Mr.
Bertrand served in various legal positions at Pharmacia Corporation from 1997-2001, including
Litigation Counsel, Senior Corporate Counsel and Associate General Counsel. He had also been
Associate General Counsel for a life insurance company; a partner at Dickinson, Wright, Moon, Van
Dusen & Freeman of Lansing, MI; and taught courses at various institutions, including Seton Hall
University School of Law. Mr. Bertrand holds a bachelor of science
degree in biology from Wayne State University and a juris doctorate (cum laude) from
University of Wisconsin — Madison.
Peter A. Kiener, D.Phil.— Dr. Kiener was promoted to Senior Vice President, Research, in
February 2005 with oversight of our global research activities. He joined MedImmune in 2001 and was
named Vice President, Research, in 2003. Prior to joining MedImmune, Dr. Kiener spent 18 years with
Bristol-Myers Squibb’s (“BMS”) Pharmaceutical Research Division, finally holding the position of
director, immunology, inflammation, pulmonary and oncology drug discovery at the BMS facility in
Princeton, New Jersey. Before his employment at BMS, Dr. Kiener previously served as assistant
professor at the University of North Texas/Texas College of Osteopathic Medicine’s Department of
Anatomy; as a research associate at the Department of Biochemistry, University of Massachusetts
(Amherst); and, as a postdoctoral research assistant, Medical Research Council, Sir William Dunn
School of Pathology, University of Oxford. Dr. Kiener holds a bachelor of science degree with
honors in chemistry from Lancaster University, Lancaster, the United Kingdom, and a doctorate of
philosophy in biochemistry from the Sir William Dunn School of Pathology, Oxford University,
Oxford, the United Kingdom.
Pamela J. Lupien— Ms. Lupien was promoted to Senior Vice President of Human Resources in
November 2005. She joined MedImmune as Vice President of Human Resources in April 2002. Prior to
joining MedImmune, Ms. Lupien was Senior Vice President of Human Resources at Orbital Sciences
Corporation from 2000 until 2002. Previously she held a variety of positions of increasing
responsibility at James Martin & Company, Betzdearborn, Inc., Freuhauf Trailer Corporation and IBM
Corporation. Ms. Lupien has a bachelor’s degree in social sciences from the University of South
Florida and a master’s degree in business administration from Jacksonville University.
Bernardus N. Machielse, Drs.— Drs. Machielse was appointed Senior Vice President, Operations,
in January 2005. Drs. Machielse joined MedImmune in May 1999 as Vice President, Quality and was
named Senior Vice President, Quality, in September 2003. Prior to joining MedImmune, Drs. Machielse
was vice president of quality control and quality assurance for Xoma Corporation of Berkeley,
California. He also spent several years in various manufacturing and quality positions at Centocor
BV of the Netherlands. Drs. Machielse holds a bachelor of science degree in medical biology and a
master of science degree in biochemistry from the University of Utrecht, The Netherlands.
Edward T. Mathers— Mr. Mathers was named Senior Vice President, Corporate Development, in
February 2005. He joined MedImmune as Vice President, Corporate Development, in 2002. Prior to
joining MedImmune, Mr. Mathers was Vice President of Marketing and Corporate Licensing and
Acquisitions at Inhale Therapeutic Systems. Previously, he enjoyed a successful 15-year career at
Glaxo Wellcome, Inc. (now GlaxoSmithKline), holding a number of positions of increasing
responsibility in sales and marketing. Mr. Mathers started his career at Ortho Pharmaceuticals
Corporation (a division of Johnson & Johnson) as a researcher. He holds a bachelor’s degree in
chemistry from North Carolina State University.
Linda J. Peters— Ms. Peters joined MedImmune as Senior Vice President, Regulatory Affairs, in
February 2005. Prior to joining MedImmune, Ms. Peters was Vice President of Global Regulatory
Affairs for Baxter Healthcare’s BioScience and Renal businesses. Before that, she served as
Director of Regulatory Affairs at Takeda Pharmaceuticals North America and held positions of
increasing responsibility at TAP Pharmaceuticals. Ms. Peters earned her bachelor of science and
master of science
degrees in animal science from Southern Illinois University, and a master of
business administration degree from the J.L. Kellogg School of Management at Northwestern
University.
R. Michael Smullen — Mr. Smullen was promoted to Senior Vice President, Sales, in February
2006. He joined MedImmune in 1994 as Vice President, Sales. Prior to joining MedImmune, Mr. Smullen
served as national sales director for Synergen, Inc., a biopharmaceutical company, where he was
responsible for developing the strategic plan and design for Synergen’s first U.S.-based sales
force. Prior to Synergen, Mr. Smullen held the position of national sales director for Fujisawa
U.S.A. He was responsible for building Fujisawa’s first U.S.-based sales force, and also helped to
establish its first managed care group. Mr. Smullen started his professional career in 1976 as a
sales representative at Boehringer Ingelheim, and spent several years at SmithKline Beecham in
sales, sales training and sales management. Mr. Smullen holds a bachelor’s degree from Norwich
University.
Gail Folena-Wasserman, Ph.D.— Dr. Folena-Wasserman was promoted to Senior Vice President,
Development in February 2002. Dr. Folena-Wasserman joined MedImmune in 1991 as Director,
Development and was promoted to Vice President, Development in October 1995. Prior to joining
MedImmune, she spent nine years at SmithKline Beecham Pharmaceuticals (now GlaxoSmithKline). Dr.
Folena-Wasserman holds a bachelor’s degree in biology and chemistry from Montclair State College in
New Jersey, and has a master’s degree in biochemistry and a doctorate in chemistry from the
Pennsylvania State University.
Lota S. Zoth, C.P.A.—Ms. Zoth was appointed MedImmune’s Senior Vice President and Chief
Financial Officer in April 2004. Ms. Zoth joined MedImmune in August 2002 as Vice President and
Controller. Prior to joining MedImmune, Ms. Zoth was Senior Vice President and Corporate Controller
for PSINet, Inc. During her tenure at PSINet, Ms. Zoth led many of the efforts associated with
compliance with the bankruptcy court and participated in the due diligence efforts as parts of the
company were disposed. Between 1998 and 2000, Ms. Zoth was Vice President, Corporate Controller and
Chief Accounting Officer of Sodexho Marriott Services, Inc. Prior to Sodexho Marriott, Ms. Zoth was
Vice President, Financial Analysis, for Marriott International, Inc.’s food and management services
division. Ms. Zoth is a CPA, and holds a bachelor of business administration (summa cum laude) in
accounting from Texas Tech University.
Employees
We consider relations with our employees to be good. As of December 31, 2005, we had 2,059
full-time permanent employees and 156 full-time temporary employees.
Approximately 80 of our employees in the U.K. are members of a labor union, with which we
renegotiated two-year employment terms in 2005. There can be no guarantee
that future negotiations will lead to an outcome that is favorable to MedImmune. If
negotiations were to break down between MedImmune and the union, there can be no guarantee that we
would be able to manufacture an adequate supply of influenza vaccines.
Investor Information
MedImmune files annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission (“SEC”). You can inspect, read and copy these reports,
proxy statements and other information at the SEC’s Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549.
You can also obtain copies of these materials at prescribed rates by writing to the Public
Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549. You can obtain
information on the operation of the public reference facilities by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site (www.sec.gov) that makes available reports, proxy
statements and other information regarding issuers that file electronically with it.
MedImmune makes available free of charge on or through its internet website its annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to
those reports as soon as reasonable practicable after such material is electronically filed with or
furnished to the SEC. MedImmune’s internet address is www.medimmune.com. The information on
MedImmune’s website is not incorporated by reference into this report.
Our business faces many risks. The risks described below may not be the only risks we face.
Additional risks we do not yet know of or we currently believe are immaterial may also impair our
business operations. If any of the events or circumstances described in the following risks
actually occur, our business, financial condition or results of operations could suffer, and the
trading price of our common stock could decline. You should consider the following risks, together
with all of the other information in this Annual Report on Form 10-K, before deciding to invest in
our securities.
Our revenues are largely dependent on sales of Synagis.
Sales of Synagis accounted for approximately 87% of our total product sales in 2005 and our
revenues will continue to be largely dependent on sales of Synagis for the foreseeable future. Any
perceived or actual event or series of events that have a negative effect on sales of Synagis will
have a detrimental affect on our financial condition and results of operations. Events which would
affect sales of Synagis include, but are not limited to, any product liability claims (whether
supported or not), any manufacturing or supply delays, any sudden loss of inventory, any inability
to satisfy product demand, any unsuccessful sales, marketing or distribution strategies and any
changes in the authorization, policies, or reimbursement rates for Synagis by private or public insurance carriers
or programs.
In
addition, Synagis is a biological product regulated and approved for
marketing in the U.S. by the FDA and any adverse change in the marketing approval or label for Synagis required by the FDA will
have a detrimental affect on our business. We have also created an exclusive network for
distribution of Synagis in the U.S., which will have the effect of preventing certain entities from
obtaining Synagis and may have the effect of limiting patient access to the product, changing the
authorization, policies or reimbursement rates for Synagis by private or public insurance carriers
or programs, any of which could result in reduced sales.
Outside of the U.S., AI is responsible for the distribution and commercialization of Synagis
as well as obtaining and maintaining regulatory approval for commercialization. Accordingly, sales
of Synagis outside of the U.S. are not within our direct control and any negative effect on AI’s
sales of Synagis could affect our revenues related to those sales. In addition, actions of AI
related to the regulatory approval or commercialization of Synagis outside of the U.S. could
negatively affect our sales of Synagis in the United States.
The seasonal nature of a significant portion of our business causes significant fluctuations in our quarterly operating results.
Sales of two of our products, Synagis and FluMist, are seasonal in nature. Synagis sales occur
primarily in the first and fourth quarters of the calendar year and FluMist sales occur primarily
in the second half of the calendar year. This high concentration of product sales in a portion of
the year causes quarter-to-quarter operating results to vary widely and would exaggerate the
adverse consequences on our revenues of any manufacturing or supply delays, any sudden loss of
inventory, any inability to satisfy product demand, the inability to estimate the effect of returns
and rebates, or of any unsuccessful sales or marketing strategies during the applicable sales
season. Furthermore, our current product base limits our ability to offset in the second and third
quarters any lower-than-expected sales of Synagis during the first and fourth quarters or FluMist
during the second half of the year.
The approval of CAIV-T is critical to the future of our influenza vaccine business.
FluMist, in its current frozen formulation, has not been commercially successful. We do not
expect our influenza vaccine business to contribute meaningfully to our revenues, income or
earnings until and unless we are able to obtain regulatory approval of CAIV-T, the next-generation,
refrigerator-stable formulation of FluMist, with a broader approved indication. The timing and
outcome of obtaining approval from the U.S. Food and Drug Administration and other similar
regulatory agencies in other parts of the world is uncertain. There can be no assurance that any
such regulatory agency will approve CAIV-T without the need for additional costly and
time-intensive measures; without restrictions as to its marketability; on a timely basis consistent
with our expectations; or at all.
Even if CAIV-T is approved, the commercial success of our influenza vaccine business is uncertain
and we may not be able to recover the value of our investment.
Even if CAIV-T is approved, the market for influenza vaccines is competitive and complex. The
commercial success of the product will be limited if we cannot successfully manufacture, distribute
and sell it in jurisdictions in which it is approved. The marketplace may view our influenza
vaccines as competing against the injectable vaccine. FluMist and CAIV-T have a higher cost of
manufacturing at their historic and current volumes relative to injectable vaccines. There can be
no assurance that demand for our vaccines will support a volume and price that will achieve a
profit in accordance with our expectations, or that our revenues for these products will exceed our
cost of goods.
The manufacturing process for FluMist and CAIV-T is complex and product supply will be
adversely affected if we are unable to perform the annual update of the formulations for new
influenza strains, if we encounter contamination or other problems or difficulties in the process,
if we are unable to obtain eggs or other materials necessary for their manufacture, if the
regulatory authorities do not approve the product for release, if there is a sudden loss of
inventory or for other reasons.
Our distribution experience relates primarily to sales to wholesalers and specialty
pharmaceutical distributors. We have limited experience in distributing and selling products like
influenza vaccines that are generally sold in greater volume and smaller order quantities, so there
can be no assurance that our distribution and sales systems have been optimally designed to yield
the greatest return.
We have made significant investments in the development and commercialization of live,
attenuated intranasal influenza vaccines. In addition to our internal research, development and
commercialization activities, these investments also include the research and development conducted
by Aviron before our acquisition of that company; the cost of our acquisition of Aviron; the cost
of the activities conducted by Wyeth, our former collaboration partner for development, promotion
and distribution of these vaccines; the cost of dissolving the collaboration and reacquiring
Wyeth’s rights to this franchise; and losses incurred in manufacturing and selling FluMist after
its launch. Our results of operations would be negatively affected by impairment charges for the
write-down of manufacturing and intangible assets related to FluMist and CAIV-T. For various
reasons, primarily those set forth above, there can be no assurance that we will be able to recover
the value of our investment in the influenza vaccine business.
Government involvement may limit the commercial success of our influenza vaccine business.
If an influenza outbreak occurs and is classified as a pandemic or large epidemic by public
health authorities, it is possible that one or more government entities may take actions that
directly or indirectly have the effect of abrogating some of our rights or
opportunities. We have not manufactured a pandemic vaccine to date, but even if we were to do
so, the economic value of such a vaccine to the company could be limited. Our primary manufacturing
facility for influenza vaccines is in the U.K. and, in an influenza pandemic, the U.K. government
may limit our ability to export product outside the United Kingdom.
Various government entities, including the U.S. government, are offering incentives, grants
and contracts to encourage additional investment by commercial organizations into preventative and
therapeutic agents against influenza, which may have the effect of increasing the number of
competitors and/or providing advantages to known competitors. Accordingly, there can be no
assurance that we will be able to successfully establish competitive market share for our influenza
vaccines.
In addition, current influenza vaccines are trivalent (contain three strains) and are derived
from or analogous to two circulating influenza A viral strains and one circulating influenza B
viral strain. If the World Health Organization, the U.S. Centers for Disease Control and Prevention
or other similar agencies require or recommend changes in influenza vaccines, for example for a
monovalent or quadravalent vaccine or for use of a strain that is not currently circulating in the
human population, it is uncertain whether we will be able to manufacture such a product at
commercially reasonable rates.
We may not be able to bring our product candidates to market.
Research and development activities are costly and may not be successful, and there can be no
assurance that any of our product candidates, even if they are in or approved to enter Phase 3
clinical trials, will be approved for marketing by the FDA or the equivalent regulatory agency of
any other country. A significant portion of our annual operating budget is spent on research,
development and clinical activities. Currently, numerous products are being developed that may
never reach clinical trials, achieve success in the clinic, be submitted to the appropriate
regulatory authorities for approval, or be approved for marketing or manufacturing by the
appropriate regulatory authorities. There can also be no assurance that we will be able to generate
additional product candidates for our pipeline, either through internal research and development,
or through the in-licensing or acquisition of products or technology. Even if a product candidate
is approved for marketing by the applicable regulatory agency, there can be no assurance that we
will be able to successfully manufacture the product on a commercial scale or effectively
commercialize the product.
A significant portion of our business is dependent on third parties.
We license a significant portion of the technology necessary for our business from third
parties and rely on third parties for a significant portion of the clinical development, supply of
components, manufacturing, distribution, and promotion of our products. The actions of these third
parties are outside of our control and the failure of these third parties to act in accordance with
their obligations to us would
have a material adverse effect on our business. Even if we are
legally entitled to damages for a failure of a third party to fulfill its obligations to us, there
can be no assurance that such damages will adequately compensate us for indirect or consequential
losses such as the damage to a
product brand or our reputation. If a third party does not fulfill its obligations to us, we
may have to incur substantial additional costs, which could have a material adverse effect on our
business.
Defending product liability claims could be costly and divert focus from our business operations
and product recalls may be necessary.
Our products contain biologically active agents that can alter the physiology of the person
using the product. Accordingly, as a developer, tester, manufacturer, marketer and seller of
biological products, we may be subject to product liability claims that may be costly to defend,
regardless of whether the claims have merit, and may require removal of an approved product from
the market. If a claim were to be successful, there is no guarantee that the amount of the claim
would not exceed the limit of our insurance coverage and available cash or cash equivalents.
Further, a successful claim could reduce revenues related to the product, result in the FDA taking
regulatory action (including suspension of product sales for an indefinite period) or result in
significant negative publicity for us or damage to our product brand. Any of these occurrences
could have a material adverse effect on our business and could result in a clinical trial
interruption or cancellation. Additionally, product recalls may be necessary either in connection
with product liability claims or for other reasons. Any such recall would adversely affect sales of
that product.
We may not be able to meet the market demand for our products.
We generally do not have or contract for redundant supply, production, packaging or other
resources to manufacture our products. As a result, we are at risk for business interruption if
there is any disruption in the manufacturing chain. Difficulties or delays in our or our
contractors’ manufacturing of existing or new products could increase our costs, cause us to lose
revenue or market share and damage our reputation. In addition, because our various manufacturing
processes and those of our contractors are highly complex and are subject to a lengthy FDA approval
process, alternative qualified production capacity may not be available on a timely basis or at
all. In particular, the supply of our products is affected by several manufacturing variables,
including the number of production runs, production success rate, product yield and the outcome of
quality testing. If we are unable to provide an uninterrupted supply of our products to patients
our reputation may be negatively affected, which could have a material and adverse effect on our
results of operations.
We may lose product due to difficulties in the manufacturing process.
Our manufacturing operations expose us to a variety of significant risks, including: product
defects; contamination of product or product loss; environmental problems resulting from our
production process; sudden loss of inventory and the inability to manufacture products at a cost
that is competitive with third party manufacturing operations. Furthermore, we collaborate and have
arrangements with other companies related to the manufacture of our products and, accordingly,
certain aspects of the manufacturing process are not within our direct control. In addition, we
have not produced FluMist for commercial use at higher volumes and may encounter additional
unforeseeable risks as we develop additional commercial manufacturing experience with this
product.
Certain developments in the United Kingdom could have an adverse effect on our ability to
manufacture our products.
Our operations in the U.K. expose us to additional business risks, and failure to manage those
risks could have a material adverse effect on our ability to manufacture influenza vaccines. In
particular, in the event of a regional or global influenza pandemic, our facilities in the U.K. may
be subject to government nationalization. In addition, the facilities are unionized and
manufacturing may therefore be interrupted due to labor action.
Contamination of our raw materials could have a material adverse effect on our product sales,
financial condition and results of operations.
As with other biotechnology companies, the manufacture of our products requires raw materials
obtained from a variety of sources including but not limited to animal products or by-products. If
these raw materials contain contaminants that are not removed by our approved purification
processes, it could result in a material adverse effect on our product sales, financial condition
and results of operations and might negatively affect our ability to manufacture those products for
an indefinite period of time, regardless of whether such contamination has any proven effect on the
safety or efficacy of the product.
Reimbursement by government and third-party payers is critical for the success of our products.
The cost to individual consumers for purchase of our products can be significant. Accordingly,
sales of our products are dependent to a large extent on the insurance reimbursement available for
our
products. Actions by government and third-party payers to contain or reduce the costs of health
care by limiting reimbursement, changing reimbursement calculation methodologies, increasing
procedural hurdles to obtain reimbursement or by other means may have a material adverse effect on
sales of our products. We fund and accrue for rebates due to government entities subject to
reimbursement, primarily Medicaid payments to state governments. State governments have the ability
to collect rebates for prior periods’ activity without restriction by statute and accordingly, we
may be subject to future rebate claims by entities for product use in the past for which
reimbursement was not sought. In addition, there have been numerous proposals in the U.S., both at
the state and federal level, as well as in other countries that would, if adopted, affect the
reimbursement of our products and could have a material adverse effect on our product sales,
results of operations and financial condition.
We rely upon a limited number of pharmaceutical wholesalers and distributors that could affect the
ability to sell our products.
We rely largely upon specialty pharmaceutical distributors and wholesalers to deliver our
currently marketed products to the end users, including physicians, hospitals, and pharmacies.
There can be no assurance that these distributors and wholesalers will adequately fulfill the
market demand for our products, nor can there be any guarantee that
these service providers will remain solvent. Given the high concentration of sales to certain
pharmaceutical distributors and wholesalers, we could experience a significant loss if one of our
top customers were to declare bankruptcy or otherwise become unable to fulfill its obligations to
us.
Obtaining and maintaining regulatory approvals to develop, manufacture and market our products is
costly and time consuming.
The development, manufacturing and marketing of all of our products are subject to regulatory
approval by the FDA in the U.S., as well as similar authorities in other countries. The approval
process for each product is lengthy and potentially subject to numerous delays, which generally
would not be in our control. There can be no assurance that any product candidate will be approved
for marketing and, if approved, such approval may be limited in scope in such a manner that would
harm the product’s potential for market success. Even after a product is approved for marketing, it
is still subject to continuing regulation. For example, if new adverse event information about a
product becomes available from broader use in the market or from additional testing, we may be
required by applicable authorities to recall the product or notify health care providers of
additional risks associated with use of the product. In addition, our product labeling and
marketing activities may be found to be inconsistent with applicable laws and regulations. Even if
we have substantially complied with all applicable laws and regulations, the applicable regulatory
authorities have the authority to and may revoke or limit approvals or licenses without consulting
or obtaining our consent. If we fail to comply with applicable requirements, we may be subject to:
fines; seizure of products; total or partial suspension of production; refusal by the applicable
authority to approve product license applications; restrictions on our ability to enter into supply
contracts; and criminal prosecution. If we are unable to obtain approvals on a timely basis or at
all, if the scope of approval is more limited than expected by us or if we are unable to maintain
approvals, our ability to successfully market products and to generate revenues will be impaired.
Patent protection for our products may be inadequate or costly to enforce.
We may not be able to obtain effective patent protection for our products in development.
There are extensive patent filings in the biotechnology industry and the patent position of
biotechnology companies generally is highly uncertain and involves complex legal and factual
questions. There can be no assurance that our patent applications will result in patents being
issued or that, if issued, such patents will afford protection against competitors with similar
technology. Litigation may be necessary to enforce our intellectual property rights. Any such
litigation will involve substantial cost and significant diversion of our attention and resources
and there can be no assurance that any of our litigation matters will result in an outcome that is
beneficial to us. We are also aware that regulatory authorities, including the FDA, are considering
whether an abbreviated approval process for so-called “generic” or “follow-on” biological products
is appropriate. We are uncertain as to when, or if, any such process may be adopted or how such a
process would relate to our intellectual property rights, but any such process could have a
material effect on the prospects of our products.
If we fail to obtain and maintain any required intellectual property licenses from third parties, our product development and marketing efforts will be limited.
Patents have been and will be issued to third parties, and patent applications have been filed
by third parties, that claim one or more inventions used in the development, manufacture or use of
our products or product candidates. These patents (including any patents issuing from pending
patent applications), if valid and enforceable, would preclude our ability to manufacture, use or
sell these products unless we obtain a license from the applicable third party. These third parties
are not generally required to provide
us with a license and, as such, obtaining any such licenses
may not be possible or could be costly and impose significant ongoing financial burdens on us.
There can be no assurance that a license will be available on terms acceptable to us or at all,
which could have a material adverse effect on our business. In addition, there can be no assurance
that we will be able to obtain an exclusive license to any such patent, and as a result, the third
parties or their sublicencees may be able to produce products that compete with ours. Litigation
may be necessary to challenge the intellectual property rights of third parties and would involve
significant cost and significant diversion of management’s time and resources. There can be no
assurance that any such litigation will result in an outcome that is beneficial to us.
Technological developments by competitors may render our products obsolete.
If competitors were to develop superior products or technologies, our products or technologies
could be rendered noncompetitive or obsolete. Developments in the biotechnology and pharmaceutical
industries are expected to continue at a rapid pace. Success depends upon achieving and maintaining
a competitive position in the development of products and technologies. Competition from other
biotechnology and pharmaceutical companies can be intense. Many competitors have substantially
greater research and development capabilities, marketing, financial and managerial resources and
experience in the industry. If a competitor develops a better product or technology, our products
or technologies could be rendered obsolete, resulting in decreased product sales and a material
adverse effect to our business. Even if a competitor creates a product that is not technologically
superior, our products may not be able to compete with such products, decreasing our sales.
We are subject to numerous complex laws and regulations and compliance with these laws and regulations is costly and time consuming.
U.S. federal government entities, most significantly the FDA, the U.S. Securities and Exchange
Commission, the Internal Revenue Service, the Occupational Safety and Health Administration, the
Environmental Protection Agency, the Centers for Medicare and Medicaid Services and the U.S.
Department of Veteran’s Affairs, as well as regulatory authorities in each state and other
countries, have each been empowered to administer certain laws and regulations applicable to us.
Many of the laws and regulations administered by these agencies are complex and compliance requires
substantial time, effort and consultation with our outside advisors. Because of this complexity,
there can be no assurance that our efforts will be sufficient to ensure
compliance or to ensure that we are in technical compliance with all such laws and regulations
at any given time. In addition, we are subject to audit, investigation and litigation by each of
these entities to ensure compliance, each of which can also be time consuming, costly, divert the
attention of senior management and have a significant effect on our business, even if we are found
to have been in compliance or the extent of our non-compliance is deemed immaterial. If we are
found to not be in compliance with any of these laws and regulations, we and, in some cases, our
officers may be subject to fines, penalties, criminal sanctions and other liability, any of which
could have a material adverse effect on our business.
We cannot control the use of our products.
The product labeling for each of our products is approved by the FDA and other similar
regulatory authorities in other countries and marketed only for certain medical indications, but
treating health care practitioners, particularly in the oncology field, are not generally required
to restrict prescriptions to the approved label. These practices make it likely that our products
are being used for unapproved uses and may subject us to regulatory scrutiny, sanctions or product
liability, any of which could have a material adverse effect on our business.
We may not be able to hire or retain highly qualified personnel or maintain key relationships.
The success of our business depends, in large part, on our continued ability to attract and
retain highly qualified scientific, manufacturing and sales and marketing personnel, as well as
senior management such as Mr. David M. Mott, our Chief Executive Officer, President and Vice
Chairman, and Dr. James F. Young, our President, Research and Development. In addition, we rely on
our ability to develop and maintain important relationships with leading research institutions and
key distributors. Competition for these types of personnel and relationships is intense among
pharmaceutical, biopharmaceutical and biotechnology companies, and any obstacles hindering our
ability to attract or retain such employees and relationships could have a material effect on our
business. We do not maintain or intend to purchase “key man” life insurance on any of our personnel
and, accordingly, our business may be subject to disruption upon the sudden or unexpected loss of a
key employee.
If we fail to manage our growth properly, the business will suffer.
We have expanded significantly in recent years due to both acquisition and internal growth. To
accommodate our rapid growth and compete effectively, we will need to continue to improve our
management, operational and financial information systems and controls, generate more revenue to
cover a higher level of operating expenses, continue to attract and retain new employees,
accurately
anticipate demand for products manufactured and expand our manufacturing capacity. This
rapid growth and increased scope of operations present risks not previously encountered and could
result in substantial unanticipated costs and time delays in product manufacture and development,
which could materially and adversely affect the business.
Fluctuations in our common stock price over time could cause stockholders to lose investment value.
The market price of our common stock has fluctuated significantly over time, and it is likely
that the price will fluctuate in the future. During 2005, the daily closing price of our common
stock on the NASDAQ National Market ranged from a high of $37.06 to a low of $23.32. Investors and
analysts have been, and will continue to be, interested in our reported earnings, as well as how we
perform compared to our expectations. Announcements by us or others regarding operating results,
existing and future collaborations, results of clinical trials, scientific discoveries, commercial
products, patents or proprietary rights or regulatory actions may have a significant effect on the
market price of our common stock. In addition, the stock market has experienced price and volume
fluctuations that have affected the market price for many biotechnology companies and that have
often been unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of our common stock.
Changes in foreign currency exchange rates or interest rates could result in losses.
We have entered into a supplemental manufacturing contract denominated in Euros. Fluctuations
in the Euro-U.S. Dollar exchange rate would lead to changes in the U.S. Dollar cost of
manufacturing. To reduce the risk of unpredictable changes in these costs, we may, from time to
time, enter into forward foreign exchange contracts. However, due to the variability of timing and
amount of payments under this contract, the forward foreign exchange contracts may not mitigate the
potential adverse effect on our financial results. In addition, expenditures relating to our
manufacturing operations in the U.K. and the Netherlands are paid in local currency. We have not
hedged our expenditures relating to these manufacturing operations, and therefore foreign currency
exchange rate fluctuations may result in increases or decreases in the amount of expenditures
recorded. Additionally, certain of our distribution agreements outside the U.S. provide for us to
be paid based upon sales in local currency. As a result, changes in foreign currency exchange rates
could adversely affect the amount we expect to collect under these agreements. A substantial
portion of our current assets is invested in marketable securities, particularly bonds and other
fixed income securities, which are subject to fluctuations in value based on interest rates and
other factors.
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| ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
As of December 31, 2005, there are no unresolved comments from the
staff of the Securities and Exchange Commission.
Our principal executive and administrative offices and research and development facilities are
located in Gaithersburg, Maryland. In 2004, we took occupancy of our new headquarters facility, an
owned complex totaling 219,000 square feet consisting of a research and development facility and
administrative offices on approximately 23 acres of land. This complex also serves as the site for our pilot lab, which totals 90,000 square
feet, including 50,000 square feet of administrative and laboratory space, and is currently under
construction. The pilot lab is expected to be substantially complete by April 2006 and fully
operational by November 2006. We broke ground at the Gaithersburg headquarters site in 2005 on
142,000 square feet of additional administrative space which is scheduled to be completed by
September 2006. We continue to occupy facilities consisting of approximately 113,000 square feet in
Gaithersburg, of which approximately 61,000 square feet is leased until the end of 2006 and 52,000
square feet has been extended through April 2007.
We also own 56,000 square feet of administrative and warehouse space and a 91,000 square foot
biologics facility in Frederick, Maryland. The biologics facility includes a cell culture
production area used to manufacture Synagis and development-stage projects. In November 2005, we
announced the decision to expand our biologics and manufacturing capacity by building a new
facility adjacent to the current site in Frederick, Maryland. The first phase of this expansion,
originally estimated to be approximately 331,000 square feet, is currently expected to include
approximately 493,000 square feet of office, laboratory and manufacturing space. Construction is
expected to commence in March 2006, with licensure expected in late 2009. In addition, in Nijmegen,
the Netherlands, we own a 21,000 square foot manufacturing facility on 36,000 square feet of land
and lease approximately 12,600 square feet of warehouse space. This lease runs through December
2010.
We operate a number of facilities related to research and development, manufacture and
distribution of FluMist and CAIV-T, including: 104,000 square feet of office and laboratory space
in Mountain View, California, which is leased through October 2008 with two options to extend for
successive three-year periods; approximately 55,000 square feet of space in Philadelphia,
Pennsylvania, pursuant to a lease agreement through December 2007, with an option to extend for two
terms of three years; approximately 72,000 square feet of office, laboratory and warehouse space in
Bensalem, Pennsylvania, pursuant to a lease agreement through June 2008; approximately 72,000
square feet of office, laboratory and manufacturing space in Santa Clara, California, pursuant to a
lease agreement through January 2019, with an option to renew for seven years; a fully owned 86,000
square foot distribution facility in Louisville, Kentucky on 19 acres; an 8,900 square foot
manufacturing facility in Speke, the U.K., pursuant to a sublease expiring in June 2006; and 94,000
square feet of manufacturing and laboratory space on approximately eight acres of land in Speke
pursuant to a lease agreement through 2024.
We believe that our current facilities and anticipated additions are adequate to meet our
research and development, commercial production, and administrative needs for the near term.
Additional, long-term laboratory and administrative office space needs at the Gaithersburg
headquarters are being evaluated.
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| ITEM 3. |
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LEGAL PROCEEDINGS |
Information with respect to legal proceedings is included in Note 18 of Item 8 Consolidated
Financial Statements and Supplementary Data and is incorporated herein by reference.
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| ITEM 4. |
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
PART II
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| ITEM 5. |
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MARKET FOR MEDIMMUNE’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock trades on the Nasdaq National Market under the symbol “MEDI.” As of March 3,
2006, we had 1,895 common stockholders of record. This figure does not represent the actual number
of beneficial owners of common stock because shares are generally held in “street name” by
securities dealers and others for the benefit of individual owners who may vote the shares.
The following table shows the range of high and low prices and year-end closing prices for the
common stock for the two most recent fiscal years.
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2005 |
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2004 |
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High |
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|
Low |
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|
High |
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|
Low |
|
First Quarter |
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$ |
27.45 |
|
|
$ |
23.20 |
|
|
$ |
26.41 |
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|
$ |
20.77 |
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Second Quarter |
|
|
27.55 |
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|
|
23.60 |
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|
|
25.95 |
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|
|
22.91 |
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Third Quarter |
|
|
33.83 |
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|
|
26.48 |
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|
|
25.15 |
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|
|
21.70 |
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Fourth Quarter |
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|
37.58 |
|
|
|
31.82 |
|
|
|
28.70 |
|
|
|
23.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End Close |
|
$ |
35.02 |
|
|
|
|
|
|
$ |
27.11 |
|
|
|
|
|
We have never declared or paid any cash dividends on our common stock and do not anticipate
declaring or paying any cash dividends in the foreseeable future. We currently intend to retain any
earnings to fund future growth, product development, investments, collaborations and operations.
|
|
|
| ITEM 6. |
|
SELECTED CONSOLIDATED FINANCIAL DATA |
(in millions, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005(1)(2) |
|
|
2004(2) |
|
|
2003 |
|
|
2002(3)(4) |
|
|
2001(4) |
|
RESULTS FOR THE YEAR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,243.9 |
|
|
$ |
1,141.1 |
|
|
$ |
1,054.4 |
|
|
$ |
852.7 |
|
|
$ |
620.7 |
|
Gross profit |
|
|
884.3 |
|
|
|
757.6 |
|
|
|
702.8 |
|
|
|
589.1 |
|
|
|
442.8 |
|
Net earnings (loss) |
|
|
(16.6 |
) |
|
|
(3.8 |
) |
|
|
183.2 |
|
|
|
(1,098.0 |
) |
|
|
149.0 |
|
Basic earnings (loss) per share |
|
|
(0.07 |
) |
|
|
(0.02 |
) |
|
|
0.73 |
|
|
|
(4.40 |
) |
|
|
0.70 |
|
Diluted earnings (loss) per share |
|
|
(0.07 |
) |
|
|
(0.02 |
) |
|
|
0.72 |
|
|
|
(4.40 |
) |
|
|
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR END POSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities |
|
$ |
1,471.9 |
|
|
$ |
1,706.1 |
|
|
$ |
1,900.1 |
|
|
$ |
1,423.1 |
|
|
$ |
777.7 |
|
Total assets |
|
|
2,780.0 |
|
|
|
2,564.4 |
|
|
|
2,794.6 |
|
|
|
2,188.3 |
|
|
|
1,236.9 |
|
Long-term debt, including
current portion (5) |
|
|
506.2 |
|
|
|
507.1 |
|
|
|
682.1 |
|
|
|
218.4 |
|
|
|
9.5 |
|
Shareholders’ equity |
|
|
1,570.5 |
|
|
|
1,674.6 |
|
|
|
1,699.2 |
|
|
|
1,677.2 |
|
|
|
1,044.3 |
|
|
|
|
| (1) |
|
Includes charges for acquired in-process research and development
(IPR&D) in connection with our acquisition of Cellective on October
14, 2005. |
| |
| (2) |
|
Includes charges related to the dissolution of the collaboration with
Wyeth and reacquisition of full rights to the influenza vaccines
franchise. |
| |
| (3) |
|
Includes a charge for acquired IPR&D in connection with our
acquisition of Aviron on January 10, 2002. |
| |
| (4) |
|
Certain prior year amounts have been reclassified to conform to the
current year presentation. |
| |
| (5) |
|
The 1% convertible senior notes, which have an aggregate principal
amount of $500 million, have been classified as current liabilities in
our consolidated balance sheet as of December 31, 2005 as we
anticipate that the holders will require us to redeem the notes on
July 15, 2006, as permitted by the senior notes indenture. |
QUARTERLY FINANCIAL DATA (UNAUDITED)
(in millions, except per share data)
2005 Quarter Ended
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. 31 |
|
|
Sept. 30 |
|
|
June 30 |
|
|
Mar. 31 |
|
Net product sales |
|
$ |
481.6 |
|
|
$ |
146.0 |
|
|
$ |
84.7 |
|
|
$ |
508.7 |
|
Gross profit |
|
|
341.4 |
|
|
|
97.3 |
|
|
|
56.7 |
|
|
|
388.9 |
|
Net earnings (loss) |
|
|
(22.4 |
) |
|
|
(64.1 |
) |
|
|
(44.2 |
) |
|
|
114.1 |
|
Net earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.09 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.18 |
) |
|
$ |
0.46 |
|
Diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.18 |
) |
|
$ |
0.45 |
|
2004 Quarter Ended
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. 31 |
|
|
Sept. 30 |
|
|
June 30 |
|
|
Mar. 31 |
|
Net product sales |
|
$ |
457.8 |
|
|
$ |
92.3 |
|
|
$ |
90.7 |
|
|
$ |
483.2 |
|
Gross profit |
|
|
327.3 |
|
|
|
51.9 |
|
|
|
53.4 |
|
|
|
325.0 |
|
Net earnings (loss) |
|
|
50.5 |
|
|
|
(65.0 |
) |
|
|
(100.3 |
) |
|
|
111.0 |
|
Net earnings (loss)
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.20 |
|
|
$ |
(0.26 |
) |
|
$ |
(0.40 |
) |
|
$ |
0.45 |
|
Diluted(1) |
|
$ |
0.20 |
|
|
$ |
(0.26 |
) |
|
$ |
(0.40 |
) |
|
$ |
0.43 |
|
|
|
|
| (1) |
|
In accordance with EITF No. 04-8, “The Effect of Contingently
Convertible Debt on Diluted Earnings per Share,” which became
effective during 2004, our 1% convertible senior notes are now
included in diluted earnings per share using the if-converted
method, regardless if the market price trigger has been met, unless
the effect is anti-dilutive. As required, prior period diluted
earnings per share have been restated for comparative purposes. The
table below presents a reconciliation of historical and restated
diluted earnings per share for the 2004 quarter in which the 1%
convertible senior notes were dilutive: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
Net Income |
|
|
Average Shares |
|
|
Per Share |
|
| |
|
(numerator) |
|
|
(denominator) |
|
|
Amount |
|
Quarter ended March 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Historical diluted earnings |
|
$ |
111.0 |
|
|
$ |
250.9 |
|
|
$ |
0.44 |
|
Assuming conversion of 1% Notes |
|
|
1.2 |
|
|
|
7.3 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Restated diluted earnings |
|
$ |
112.2 |
|
|
$ |
258.2 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ITEM 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Management’s Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements regarding future events and our future results that are based
on current expectations, estimates, forecasts, and the beliefs, assumptions and judgments of our
management. Readers are cautioned that these forward-looking statements are only predictions and
are subject to risks and uncertainties that are difficult to predict. Readers are referred to the
“Forward-Looking Statements” and “Risk Factors” sections in Part I, Item 1 and Part I, Item 1A,
respectively, of this document.
INTRODUCTION
MedImmune is committed to advancing science to develop better medicines that help people live
healthier, longer and more satisfying lives. MedImmune currently focuses its efforts on using
biotechnology to produce innovative products for prevention and treatment in the therapeutic areas
of infectious disease, cancer and inflammatory disease. MedImmune’s scientific expertise is
primarily in the areas of monoclonal antibodies and vaccines. MedImmune markets four products,
Synagis, FluMist, Ethyol and CytoGam and has a diverse pipeline of development-stage products.
OVERVIEW
Total revenues for 2005 were $1.2 billion, an increase of 9% over $1.1 billion in 2004,
primarily reflecting 13% growth in sales of Synagis to $1.1 billion. We reported a net loss for
2005 of $17 million, or $0.07 per share, compared to a net loss of $4 million, or $0.02 per share,
in 2004. Both periods included significant charges associated with the acquisition of research and
development (R&D) assets that expanded our pipeline. The 2005 results reflect the impact of $48 million of charges for acquired in-process research and
development (“IPR&D”), and 2004 results include acquired IPR&D and impairment charges totaling $102
million for the reacquisition of Wyeth’s interest in the influenza vaccines franchise. We continued
to invest aggressively in building our future with R&D expenditures excluding acquired IPR&D
increasing to 31% of product sales in 2005, compared to 29% in 2004, as we successfully completed
multiple Phase 3 trials, filed three Investigational New Drug applications, and added 11 new
targets to our portfolio.
During 2005, we amended our distribution arrangement with Abbott International (“AI”) to
include Numax, which provides us with a larger portion of the economics from our respiratory
syncytial virus (“RSV”) franchise outside the U.S. and provides us with the opportunity in seven
countries to participate directly in the commercialization of Numax outside the United States. We
also amended our co-promotion agreement with Abbott Laboratories (“Abbott”) to take full
responsibility for the sales and marketing of Synagis in the U.S. starting in the 2006-2007 RSV
season. This will provide us with strategic and operational advantages as we prepare for the
continued growth of the pediatric infectious disease component of our business. During the fourth
quarter 2005, we successfully transitioned to the liquid formulation of Synagis in the U.S. from
the lyophilized (or freeze-dried) form. The liquid formulation is a product improvement over the
freeze-dried formulation that we believe enhances the convenience for physicians in administering
the drug and has the potential to reduce the waiting time for patients in doctors’ offices and
reduce their exposure to sick children. In October 2005, we received regulatory approval in Japan
for the use of Synagis as a prevention in pediatric patients with hemodynamically significant
congenital heart disease.
We also made substantial progress in our influenza vaccines franchise with the completion of
our Phase 3 study to demonstrate clinical efficacy of CAIV-T over the flu shot. Preliminary data
indicates that CAIV-T is 55% more effective than the flu shot in preventing influenza disease
caused by any influenza strain in children under 5 years of age. We also completed the Phase 3
study to bridge refrigerator-stable CAIV-T to frozen FluMist, which successfully demonstrated
equivalent immunogenicity, and filed a supplemental Biologics License Application with the FDA for
approval to use CAIV-T in preventing influenza in healthy individuals 5 to 49 years of age. In
addition, we received approval by the U.S. Food and Drug Administration (“FDA”) of our new bulk
vaccine manufacturing facility in the United Kingdom. We are also actively pursuing government
funding that may be available to U.S. based manufacturers to develop the technology to manufacture
influenza vaccines using cell-culture. Although we do not expect frozen FluMist to contribute
meaningfully to our revenues until we introduce CAIV-T, we continue to focus on building awareness,
support and usage of our live, attenuated intranasal influenza vaccine technology in anticipation
of launching CAIV-T in 2007.
We continued to advance the development of our third-generation antibody product targeting RSV
during 2005 with the completion of patient enrollment in two late-stage trials with Numax, in
addition to several other supportive studies. We completed enrollment in our pivotal Phase 3 study
in which we are comparing the safety and efficacy of Numax to Synagis in reducing RSV
hospitalizations in high-risk
infants. We expect to have results from this trial in the second half
of 2006. We also completed enrollment in a separate, late-stage clinical safety study in the Northern Hemisphere in which
Numax will be compared to Synagis for the first time in children with congenital heart disease.
Research and development activities during 2005 also included the completion of a Phase 2
melanoma study with Vitaxin and completion of patient enrollment in our Phase 2 prostate cancer
study with Vitaxin. Data from both of these trials will be evaluated in 2006 as we continue to
invest in this molecule as a potential cancer therapeutic. Additionally, we filed three
Investigational New Drug applications to begin clinical studies with our antibody candidate
targeting lupus; our combination RSV and parainfluenza virus type-3 (“PIV-3”) vaccine candidate;
and our H5N1 pandemic vaccine under our research agreement with the National Institutes of Health.
During the year, we expanded our pipeline of potential product candidates through the
in-licensing and acquisition of new product candidates and technologies. We licensed worldwide
rights from GlaxoSmithKline (“GSK”) to develop certain anti-Staphylococcal monoclonal antibodies
for the prevention of serious bloodstream infections caused by Staphylococcus in low-birthweight
infants. We also expanded our oncology pipeline through new collaborations with VasGene
Therapeutics, Inc. (“VasGene”), Seattle Genetics, Inc., and Avidia, Inc., in-licensing agreements
with Georgetown University, BioWa, Inc, Xencor, Inc., and the Burnham Institute for Medical
Research, and the acquisition of Cellective Therapeutics, Inc. (“Cellective”). We also amended our
licensing agreement for cervical cancer vaccines with GSK to receive milestone payments and
royalties for both GSK and Merck & Co, Inc. (“Merck”) products. In addition, we entered into a
collaboration with Avalon Pharmaceuticals, Inc. (“Avalon”) to discover and develop small molecule
therapeutic compounds in the area of inflammatory disease. We expanded our RSV research programs by
entering into a license and collaboration agreement with Biota Holdings Limited (“Biota”) to
develop and commercialize small molecule compounds designed to prevent and treat RSV infection. We
also acquired the exclusive worldwide rights to certain intellectual property owned by Mount Sinai
School of Medicine of New York University for reverse genetics in the production of influenza
vaccines; we now own or have exclusive licenses to all of the key intellectual property for this
technology.
During June 2005, we settled the dispute with Celltech R&D Ltd. related to the Adair 927
Patent, resulting in the dismissal of all pending litigation related to the patent. Under the terms
of the settlement, we have no royalty obligation for sales of Synagis before July 1, 2005, which
was estimated to range up to $35 million under the original license terms. We agreed to pay
Celltech a royalty (which is lower than the royalty rate called for in the original license
agreement) based on Synagis sold or manufactured in the U.S. after July 1, 2005. Our overall
royalty obligation with respect to sales of Synagis will not materially change as a result of the
settlement due to the ability to offset the payments to Celltech against our royalty obligations to
certain other licensors.
Our cash and marketable securities at December 31, 2005 totaled $1.5 billion as compared to
$1.7 billion as of December 31, 2004, reflecting the upfront payment of $70
million to Abbott in conjunction with the reacquisition of full promotion rights for Synagis
in the U.S., $44 million paid to acquire the outstanding equity interests in Cellective, net of
cash acquired, as well as repurchases of approximately 4.0 million shares of our common stock at a
total cost of $106 million.
As we look to the future, we intend to continue to focus on our long-term strategic
objectives, including: supporting the continued growth of Synagis and Ethyol; developing FluMist
into a better influenza vaccine; developing Numax as a differentiated successor to Synagis;
developing our pipeline through our own internal discovery and development efforts and by gaining
access to new technologies through acquisition and in-licensing arrangements, resulting in the
introduction of two additional products by 2010; elevating science and evolving our R&D governance;
and continuing to develop our people, processes and culture.
We have the following expectations for 2006:
Total Revenue — Total revenues for 2005 reflected the strong finish for Synagis for the
2004/2005 RSV season that was moderated by the slower than expected start for the 2005/2006 RSV
season and the modest sales of frozen FluMist for the 2005/2006 influenza season. We plan to take
actions to address and, to the extent possible, mitigate the underlying issues for the slower than
expected start to the 2005/2006 RSV season. For 2006, we expect total revenues to grow by about 10
percent to approximately $1.4 billion. Synagis is expected to continue to comprise a majority of
our product sales; accordingly, we believe our revenues and operating results will reflect the
seasonality of that product’s use to prevent RSV disease, which occurs primarily during the winter
months. We do not expect FluMist to be a meaningful contributor to revenue growth before 2007, when
we expect to launch CAIV-T, an improved formulation of this influenza vaccine with a label
including a broader age indication, in the United States. Accordingly, our 2006 FluMist sales
target is approximately three million doses and our marketing efforts are focused on building
awareness, support and usage, particularly among pediatricians.
Gross margin— We expect that our gross margins, excluding stock compensation expense, will be
approximately 74 percent of product sales for the full-year 2006. We anticipate that FluMist will
continue to exert downward pressure on gross margins until we successfully launch an improved
formulation with a broader label. We expect that gross margins may vary significantly from quarter
to quarter, based on the product mix and reflecting the seasonality of Synagis and FluMist.
Research and development expense— We expect research and development expenses, excluding
stock compensation expense, to be approximately $400 million, or approximately 30 percent of
product sales. We expect that slightly more than half of our current 2006 estimate will occur in
the first half of the year.
Selling, general and administrative expense (“SG&A”)— We expect SG&A, excluding stock
compensation expense, as a percentage of product sales to decrease to approximately 38 percent of
product sales. Co-promotion expenses will cease mid-year 2006 when we take full responsibility for
sales of Synagis in the United States. The savings from reduced co-promotion expenses will be
partially offset by approximately $25 million in annualized selling expense related to the addition of 125 new sales
representatives to our pediatric sales organization, bringing the total to about 425 by the middle
of this year. The additional sales representatives will help us prepare for the anticipated
continued growth of the pediatric infectious disease component of our business. Key opportunities
in this area include the potential launch of CAIV-T in the fall of 2007; the potential fall 2008
launch of Numax; and the future potential of the anti-Staphylococcal antibody program we licensed
from GSK.
Stock-based Compensation Expense —On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), which requires us to begin
recognizing expense associated with share-based compensation arrangements, including stock options.
The compensation expense will be based on the fair value of the share-based compensation award at
the date of grant and allocated over the period in which the employee is required to render service
in order to vest in the award. The expense will be classified in cost of sales, research and
development expense and SG&A expense in the same manner as wages are recorded. We anticipate that
our pre-tax stock-based compensation expense will approximate $40 million in 2006. Stock
compensation expense for certain stock options is not deductible until the employee exercises those
options. This will cause our overall effective tax rate to be approximately 42.5%. For a further
discussion of the impact of this standard, refer to the section entitled “New Accounting Standards”
below and in Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial
statements.
Liquidity —We believe that the holders of our 1% convertible senior notes will require us to
redeem the notes on or about July 15, 2006, as provided for under the senior notes indenture. We
anticipate using cash and investments on hand, a line of credit and/or another type of financing
instrument to repay these notes.
AMENDMENT OF INTERNATIONAL DISTRIBUTION AGREEMENT WITH ABBOTT INTERNATIONAL
In February 2005, we amended our international distribution agreement with AI to include the
exclusive distribution of Numax, our third-generation anti-RSV antibody that is currently in Phase
3 development, outside of the U.S., if and to the extent approved for marketing by the appropriate
regulatory authorities. Under the amended terms of the agreement, AI pays us additional
compensation as compared to the previous agreement, and such amounts in excess of estimated fair
value for product sales of Synagis are recognized as other revenue in the consolidated statement of
operations.
AMENDMENT OF CO-PROMOTION AGREEMENT WITH ABBOTT
In August 2005, we amended our co-promotion agreement with Abbott for sales of Synagis in the
United States. Under the terms of the amended agreement, Abbott will continue to provide
promotional activities with respect to Synagis until June 30, 2006, at which time we will take full
responsibility for Synagis sales and marketing in the United States. We will continue to pay Abbott
for their co-promotion services during the 2005/2006 RSV season as provided for under the original
agreement. We have agreed to make certain incremental payments, as compared to the original
agreement, to Abbott, including milestone-based payments and increased incentive payments contingent upon the
achievement of certain sales thresholds during 2005 and 2006. In addition, if Numax is not approved
by the FDA before September 1, 2008, we would pay Abbott a portion of the proceeds from the sales
of Synagis in the U.S. for up to a two-year period beginning at such time. The present value of the
incremental payments that we deem probable have been recorded as liabilities in the consolidated
balance sheet and are as follows as of December 31, 2005: Other Current Liabilities, $236.7
million; Other Liabilities, $54.8 million.
In connection with this transaction, we recorded an intangible asset of $360.4 million which
represents the estimated fair value of the exclusive promotion rights, determined as the aggregate
present value of the probable incremental payments to be made as a result of the amended terms of the
agreement in excess of the value of the co-promotion services to be rendered, as determined
under the previous agreement. The intangible asset will be amortized ratably over future sales of
Synagis over the expected period of active sales and marketing in the U.S., which are projected to
continue through the first half of 2009, as we expect to launch Numax during the 2008/2009 RSV
season.
ACQUISITION OF CELLECTIVE THERAPEUTICS, INC.
On October 14, 2005, we acquired the outstanding equity interests of Cellective, a
privately-held development-stage biopharmaceutical company, for approximately $44.0 million in
cash, net of cash acquired of approximately $8.9 million. Cellective has three preclinical stage
programs developing monoclonal antibodies that target the B-cell antigens CD19, CD20 and CD22,
which are believed to play important roles in regulating the immune system and offer potential
treatments for cancer and autoimmune diseases. Under the terms of the agreement, we could pay
Cellective’s shareholders future contingent payments of up to approximately $105 million should the
antibody programs achieve certain product development and sales milestones. Our wholly owned
venture capital subsidiary, MedImmune Ventures, Inc., owned approximately 10% of the outstanding
equity interests of Cellective prior to the acquisition. The transaction was accounted for as a
purchase of assets, and the purchase price was allocated to the assets acquired and liabilities
assumed based on their relative fair values. In connection with the transaction, we recorded a
charge for acquired IPR&D of $43.7 million during the fourth quarter of 2005. The charge for
acquired IPR&D is not deductible for tax purposes.
LICENSING AND COLLABORATIVE AGREEMENTS
In February 2005, we amended our agreement with GSK for the development of HPV vaccines. Under
the amended agreement, we may, in addition to receiving milestone payments and royalties from GSK,
also receive certain milestone payments and royalties on future development and sales of an
investigational HPV vaccine now in Phase 3 development by Merck. The FDA is currently reviewing the
Biologics License Application for Merck’s HPV vaccine under priority review, with a review goal
date of mid-2006. Merck has also submitted applications for regulatory approval in the European
Union, Australia, Mexico, Brazil, Argentina, Taiwan and Singapore. GSK filed its
application for regulatory approval for their HPV vaccine in the European Union in March 2006
and expects to file in the U.S. by the end of 2006.
In August 2005, we licensed worldwide rights from GSK to develop certain anti-Staphylococcal
monoclonal antibodies. We will be responsible for future research and development and any resulting
second-generation monoclonal antibodies as well as all future sales and marketing activities
worldwide. Under the terms of the agreement, we agreed to an upfront fee, and potential milestone
payments and royalties on any resulting marketed products. We are also obligated to make future
milestone and royalty payments to Biosynexus, Inc., from which GSK originally licensed the
BSYX-A110 antibody and related rights in 2002, on behalf of GSK. MedImmune and GSK have been sued
by Biosynexus in connection with this transaction. See Note 18, “Legal Proceedings,” to our
consolidated financial statements for additional detail.
In September 2005, we entered into a collaborative agreement with VasGene to develop
monoclonal antibodies targeting cancer. Under the terms of the agreement, we will be responsible
for the clinical development and commercialization of any resulting products. VasGene received an
upfront fee, and could receive development and regulatory milestone payments, as well as royalties
on any resulting marketed products. Vasgene will provide research and development support.
In December 2005, we entered into a licensing and collaborative agreement with Biota to
develop and commercialize Biota’s small molecule compounds designed to prevent and treat RSV. Under
the terms of the agreement, Biota received an upfront fee, and could receive clinical and
regulatory milestone payments and royalties on any resulting marketed products.
Also in December 2005, we acquired the exclusive worldwide rights to certain intellectual
property owned by Mount Sinai School of Medicine of New York University for the use of reverse
genetics in the production of influenza vaccine; we now own or have exclusive licenses to all of
the key intellectual property for this technology. Under the terms of the agreement, we paid Mount
Sinai an upfront fee and agreed to potential milestone payments and royalties on any resulting
future product sales.
We recorded charges totaling $54 million during 2005 and $19 million during 2004 associated
with upfront fees and milestone payments under licensing agreements and research collaborations,
which are included as a component of research and development expense in the consolidated
statements of operations.
NEW ACCOUNTING STANDARDS
On January 1, 2006, we adopted SFAS 123R, which requires public companies to recognize expense
associated with share-based compensation arrangements, including employee stock options, using a
fair value-based option pricing model. Adoption of the expense provisions of the statement will
have a material impact on our results of operations going forward. Using the modified prospective
transition method of adoption, we will reflect compensation expense in our financial statements
beginning January 1, 2006 with no restatement of prior periods. As such, compensation expense will be recognized
for awards that are granted, modified, repurchased or cancelled on or after January 1, 2006 as well
as for the portion of awards previously granted that have not vested as of January 1, 2006. Upon
the adoption, we implemented the straight-line expense attribution method, whereas our previous
expense attribution method was the graded-vesting method, an accelerated method, described by FIN
28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.”
In December 2004, the FASB issued SFAS 151, “Inventory Costs—An Amendment of ARB No. 43,
Chapter 4.” SFAS 151 amends the guidance in ARB No. 43, Chapter 4 to require that idle facility
expense, freight, handling costs and wasted material (spoilage) be recognized as current-period
charges regardless of whether they meet the criterion of “so abnormal.” In addition, the Statement
requires that allocation of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. We adopted SFAS 151 for inventory costs on January 1,
2006, with an immaterial impact to our consolidated financial position and results of operations.
In December 2005, the SEC issued an interpretive release entitled “Commission Guidance
Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government
for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile.” This
release addresses the timing of revenue recognition for the sale of vaccines related to Federal
governmental stockpile programs and allows revenue earned under these programs to be recognized
when all of the revenue recognition criteria specified under accounting principles generally
accepted in the United States (“GAAP”) and SEC rules and regulations are met, with the exception of
those criteria that require a fixed schedule for delivery of goods and that the ordered goods must
be segregated from the seller’s inventory. The alternative accounting method described in this
release is effective on January 1, 2006. The new interpretive release does not have any impact on
our consolidated financial position or results of operations as of and for the year ended December
31, 2005. However, the interpretive release may ease revenue recognition criteria for sales to the
federal government under certain stockpile programs, and we may participate at a more significant
level in such federal government stockpile programs in the future.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements requires management to make estimates and
judgments with respect to the selection and application of accounting policies that affect the
reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent
assets and liabilities. We consider an accounting estimate to be critical if the accounting
estimate requires us to make assumptions about matters that were highly uncertain at the time the
accounting estimate was made, and if changes in the estimate that are reasonably likely to occur
from period to period, or use of different estimates that we reasonably could have used in the
current period, would have a material impact on our financial condition or results of operations.
We believe the following critical accounting estimates have the greatest impact on the preparation
of our consolidated financial statements. Management has discussed the development of and selection
of these critical accounting estimates with the Audit Committee of our Board of
Directors. In addition, there are other items within our financial statements that require
estimation, but are not deemed critical as defined above. Changes in estimates used in these and
other items could have a material impact on our financial statements.
In-Process Research and Development — When we enter into agreements to acquire early to
late-stage technology or product candidates, we assign value to acquired in-process technologies by
identifying those acquired specific in-process research and development projects that will be
continued and for which, as of the acquisition date, technological feasibility has not been
established, there is no alternative future use, and the fair value is estimable with reasonable
reliability. During 2005, we recorded a charge of $43.7 million for acquired IPR&D in conjunction
with the acquisition of the outstanding equity interests in Cellective. The charge represents the
estimated relative fair value, as of the purchase date, of the acquired in-process technologies and
certain IPR&D projects. Cellective has three preclinical stage programs developing monoclonal
antibodies that target the B-cell antigens CD19, CD20 and CD22, which are believed to play
important roles in regulating the immune system and offer potential treatments for cancer and
autoimmune diseases. We have valued the three preclinical stage programs equally. Significant
efforts will be required to complete the projects and we do not anticipate material cash inflows
until 8 to 10 years from the acquisition date, if ever. The nature, timing and projected costs
associated with the remaining efforts for completion are not reasonably estimable at this time.
As with all biotechnology products, the probability of commercial success for any one research
and development project is highly uncertain. The risks and uncertainties associated with completing
development within the projected completion dates and realization of the anticipated return on our
investment include the inability to obtain and maintain access to intellectual property, failure in
clinical trials, the inability to obtain required regulatory approvals, and the availability of
competitive products. If we fail to successfully advance Cellective’s antibody programs, we may not
achieve the currently anticipated return on any investment we have made or will make.
During 2005 and 2004, we recorded charges of $4.7 million and $29.2 million, respectively, for
acquired IPR&D in conjunction with our reacquisition of influenza vaccine franchise rights from
Wyeth in May 2004. The charges represent the estimated relative fair value, as of the purchase
date, of the acquired in-process technologies and certain IPR&D projects, primarily CAIV-T,
calculated utilizing the sum of probability-adjusted commercial scenarios, or income approach. The
valuation was based upon management’s estimates of the probability of FDA and/or other regulatory
body approval and commercial success, including the estimated impact of the size of the indicated
population, price, volume, timing of regulatory approval and any potential failure to commercialize
the product.
CAIV-T is not expected to have the logistical and distribution issues associated with the
frozen formulation and is expected to have an expanded label. We did not believe that there will be
any alternative future use for the in-process technologies that were expensed as of the
reacquisition date. In valuing the purchased in-process technologies, we estimated cash inflows
based on extensive market research performed on the U.S. marketplace and cash outflows for product
costs, milestones and royalties to be paid over a 10-year period assuming approval and U.S. launch in the 2007/2008 timeframe using
probability-of-success-adjusted scenarios and a discount rate of 11.3%. Based on current
information, management believes that the projections underlying the analysis are reasonable;
however, the actual cash inflows or outflows cannot be predicted with certainty.
As with all biotechnology products, the probability of commercial success for any one research
and development project is highly uncertain. If we fail to successfully complete the clinical
trials or if CAIV-T is not approved by the FDA as a safe and effective vaccine for our targeted
populations, the launch may be delayed or terminated, resulting in a diminished or no return on the
purchase price and development costs incurred to date. In addition, as of December 31, 2005, CAIV-T
has not been manufactured on a sustained commercial scale. There can be no assurance that
commercial scale production could be achieved or sustained. If we fail to obtain FDA approval for
the marketing and manufacture of CAIV-T, we will not achieve the currently anticipated return on
any investment we have made or will make in CAIV-T.
Revenue Recognition— We recognize revenue from product sales when there is persuasive
evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and
collectibility is reasonably assured.
We receive royalties from licensees, based on third-party sales of licensed products or
technologies. Royalties are recorded as earned in accordance with the contract terms when
third-party results can be reliably measured and collectibility is reasonably assured.
Revenue from certain guaranteed payments where we continue involvement through a development
collaboration or an obligation to supply product is recognized ratably over the development or
supply period.
We may record deferred revenues related to milestone payments and other upfront payments.
Deferred revenue for manufacturing obligations is recognized as product is delivered. Deferred
revenue associated with performance milestones is recognized based upon the achievement of the
milestones, as defined in the respective agreements, as long as the milestones are substantive and
at risk. Revenue under research and development cost reimbursement contracts is recognized as the
related costs are incurred.
Inventory— We capitalize inventory costs associated with certain products prior to regulatory
approval and product launch, based on management’s judgment of probable future commercial use and
net realizable value. We could be required to permanently write down previously capitalized costs
related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or
delay of approval by regulatory bodies, a delay in commercialization, or other potential factors.
Conversely, our gross margins may be favorably impacted if some or all of the inventory previously
written down becomes available and is used for commercial sale.
We capitalize inventory costs associated with marketed products based on management’s judgment
of probable future commercial use and net realizable value. We could be required to permanently
write down previously capitalized costs related to commercial inventory due to quality issues or
other potential factors. Conversely, our gross margins may be favorably impacted if some or all of
the inventory previously written down is recovered through further processing or receipt of specification waiver from
regulatory agencies, and becomes available and is used for commercial sale.
We are required to state all inventory at the lower of cost or market. In assessing the
ultimate realization of inventories, we are required to make judgments as to multiple factors
affecting our inventories and compare these with current or committed inventory levels. In the
highly regulated industry in which we operate, raw materials, work-in-process and finished goods
inventories have
expiration dates that must be factored into our judgments about the recoverability
of inventory costs. Additionally, if our estimate of a product’s pricing is such that we may not
fully recover the cost of inventory, we must consider that in our judgments as well. In order to
reflect inventory at the lower of cost or market, we will record permanent inventory write-downs as
soon as determined; such write-downs are permanent in nature and will not be reversed in future
periods.
The valuation of FluMist inventories requires a significant amount of judgment for multiple
reasons. Specifically, the manufacturing process is complex, in part due to the required annual
update of the formulation for recommended influenza strains, and there can be no guarantee that we
will be able to continue to successfully manufacture the product.
The annual FluMist production cycle begins in October of the year prior to the influenza
season in which the product will be available for consumption. For example, the production cycle
for the 2006/2007 season began in October 2005. The production cycle begins by preparing the master
viral working seeds and preparing the manufacturing facilities for the bulk monovalent production.
The next part of the process includes blending three monovalent strains into a trivalent vaccine,
filling into intranasal sprayers, packaging sprayers into multi-dose packs and distributing the
frozen product. Our raw materials have expiration dates (dates by which they must be used in the
production process) that range from 24 months to 60 months. Our semi-processed raw materials and
work-in-process inventory have multiple components, each having different expiration dates that
range from nine to 24 months. Raw materials, semi-processed raw materials, work-in-process
inventory and semi-finished goods may be carried over to succeeding production seasons under
certain conditions. Each season’s finished FluMist product has an approved shelf life up to six
months and therefore may not be sold in a subsequent season. Thus, if our actual sales fall below
our projections, we will be required to write off any remaining inventory balance at the end of the
flu season.
For all FluMist inventory components on hand as of December 31, 2005, we reviewed the
following assumptions to determine the amount of any necessary reserves: expected production levels
and estimated cost per dose; sales volume projections that are subject to variability; the expected
price to be received for the product and anticipated distribution costs; utilization of
semi-finished goods inventory for the succeeding production season; and current information about
the influenza strains recommended by the Centers for Disease Control and Prevention for the
upcoming season’s vaccine. The methodology used to calculate adjustments required to value our
FluMist inventories as of December 31, 2005 at net realizable value was consistent with the
methodology used for the valuations since product approval in June 2003. The valuation of FluMist
inventory as of December 31, 2005 is based on our sales volume estimate of approximately 3
million doses for the 2006/2007 season.
After completion of the fourth quarter of 2005, we determined that our FluMist sales for the
2005/2006 season would fall short of our previous projections by approximately 1.6 million doses.
As such, we recorded additional reserves of approximately $19.1 million to reflect total finished
goods inventories for the 2005/2006 season at estimated realizable value. Also during the fourth
quarter of 2005, we recorded permanent inventory writedowns totaling $3.8 million to reflect
certain semi-finished goods FluMist inventory at net realizable value that we believe will not be
useable for the 2006/2007 production season.
The table below summarizes the activity within the components of FluMist inventories (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross |
|
|
|
|
|
|
Net |
|
| |
|
Inventory |
|
|
Reserves |
|
|
Inventory |
|
FluMist Details |
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004 |
|
$ |
50.7 |
|
|
$ |
(35.7 |
) |
|
$ |
15.0 |
|
Raw materials, net |
|
|
(4.6 |
) |
|
|
0.9 |
|
|
|
(3.7 |
) |
Cost of goods sold
recognized on
2004/2005 inventory |
|
|
(3.2 |
) |
|
|
3.1 |
|
|
|
(0.1 |
) |
Cost of goods sold
recognized on
2005/2006 inventory |
|
|
(22.9 |
) |
|
|
6.0 |
|
|
|
(16.9 |
) |
Production, net |
|
|
60.0 |
|
|
|
(14.3 |
) |
|
|
45.7 |
|
Disposals and scrap |
|
|
(23.6 |
) |
|
|
2.2 |
|
|
|
(21.4 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 |
|
$ |
56.4 |
|
|
$ |
(37.8 |
) |
|
$ |
18.6 |
|
|
|
|
|
|
|
|
|
|
|
For our other products, we periodically assess our inventory balances to determine whether
estimated net realizable value is below recorded cost. Factors we consider include expected sales
volume, production capacity, quality standards and expiration dates. During 2005, we recorded
permanent inventory write-downs of $3.3 million for certain Synagis lots that were determined to be
nonsaleable as they were outside of normal specifications and not recoverable. No other significant
inventory adjustments were recorded during 2005.
Sales Allowances and Other Sales Related Estimates—
Reductions to Gross Product Sales
We record allowances for discounts, returns, chargebacks and rebates to commercial entities as
well as rebates due to government entities as reductions to gross product sales. The timing of
actual discounts, returns, and chargebacks taken, and rebates paid can lag the sale of the product
by a number of months. As such, a significant amount of judgment is required when estimating the
impact of sales allowances on gross sales for a reporting period. The assumptions used in
developing our estimates of sales allowances include the following key factors:
| |
• |
|
historical trends for discounts, returns, rebate claims, or other claims; |
| |
| |
• |
|
our contracts with customers and discount programs; |
| |
| |
• |
|
actual performance of customers against contractual discounts tied to
volume and compliance targets; |
| |
| |
• |
|
proportion of gross sales ultimately used by Medicaid patients; |
| |
| |
• |
|
state Medicaid policies and reimbursement practices; and |
| |
| |
• |
|
accuracy of reporting by our customers of end-user product sales by state. |
We update these factors for any material changes in facts or circumstances as soon as the
changes are known.
We estimate the amount of rebates due to government entities quarterly based on historical
experience, along with updates, and based on our best estimate of the proportion of sales that will
be subject to this reimbursement, largely comprised of Medicaid payments to state governments.
During the fourth quarter of 2005, we successfully transitioned to the liquid formulation of
Synagis in the U.S. from the lyophilized form. The liquid formulation is treated as a new product
for purposes of Medicaid rebates. Accordingly, we expect the unit rebate amount for liquid Synagis
to be lower than the unit rebate amount for the lyophilized formulation, resulting in a reduction
in allowances for government rebates and an increase in net realized price. During the fourth
quarter of 2003, we became aware of efforts by several states to collect rebates for product
administered in certain settings for which reimbursement was not sought in the past. After
analyzing the situation, we determined that the new facts and circumstances warranted an increase
in our estimate of rebates due to government purchasers. As such, we recorded additional reserves
for past rebates due to government purchasers and increased our estimate of the proportion of
current sales that will be subject to reimbursement, given the change in circumstance. Estimation
of the probable amount that will be owed to such states requires considerable judgment, and it is
possible that the amount ultimately paid could differ significantly from amounts accrued. As of
December 31, 2005 and 2004, allowances for government rebates in those states for which
reimbursement has not been sought in the past totaled $26.1 million and $20.3 million,
respectively. The Company will continue to assess the probability of such rebate assessments, based
upon current facts and circumstances.
For the years ended December 31, 2005, 2004 and 2003, allowances for discounts, returns,
chargebacks and rebates due to government purchasers resulted in a net reduction to gross product
sales of approximately 10%, 10%, and 9%, respectively. The increase in 2005 and 2004 is
attributable to higher levels of Medicaid reporting compliance for reimbursement and increased
discounting, as well as the the impact of FluMist sales, which experience higher discount and
return rates than our other products.
Allowances for discounts, returns, and chargebacks, which are netted against accounts
receivable, totaled $20.6 million and $14.5 million at December 31, 2005 and 2004, respectively.
Allowances for government reimbursements were $52.5 million as of December 31, 2005 and 2004 and
are included in accrued expenses in the accompanying balance sheets.
If our historical trends are not indicative of the future, or our actual sales are materially
different from the projected amounts, or if our assessments prove to be
materially different than actual occurrence, our results could be affected. The estimation
process for determining reserves for sales allowances inherently results in adjustments each year.
Additionally, because of the varying lags and the seasonal nature of our largest product, Synagis,
our sales discounts, returns, chargebacks and rebates fluctuate throughout the year. If our
estimate of the percentage of gross sales to be recorded for sales allowances for Synagis were to
increase by 1%, our net product sales for the 2004/2005 Synagis sales season (which runs from July
2004 to June 2005) would have been reduced by approximately $11 million. A decrease of 1% in the
sales allowances for Synagis during the same period would have increased our revenues by
approximately $11 million.
Selling, General and Administrative Expenses
We estimate our co-promotion expense and sales commissions by applying an estimated rate that
is based upon an estimate of projected sales for the season to our actual sales for the period. As
discussed earlier, in August 2005, we amended our co-promotion agreement with Abbott for sales of
Synagis in the United States. The value of the co-promotion services to be rendered by Abbott
through June 2006 (the remaining co-promotion period), as determined under the previous agreement,
will be recorded as co-promotion expense within selling, general and administrative expense. The
incremental payments to be made as a result of the amended terms of the agreement in excess of the
value of the co-promotion services to be rendered have been recorded as an intangible asset.
We estimate the level of bad debts by applying a percentage to gross trade accounts receivable
balances outstanding at the end of the period, based upon our assessment of the concentration of
credit risk, the financial condition and environment of our customers, and any specifically
identified doubtful accounts. Because of the seasonal nature of our largest product, Synagis, our
accounts receivable balances fluctuate significantly. Accordingly, our allowance for doubtful
accounts also fluctuates. Our accounts receivable balances tend to be highest at the end of
December and March, while the September balances are somewhat lower as our selling season is just
beginning, and the June balances are significantly lower, reflecting the close-out of the prior
season. For the years ended December 31, 2004 and 2003, we recorded $2.0 million and $3.8 million,
respectively, in reductions to the allowance, largely based on changes in our assessment of credit
risk. No significant adjustments to the allowance were recorded during 2005. Bad debt expense is
classified as selling, general and administrative expense in our consolidated statements of
operations.
Income
Taxes — We record valuation allowances to reduce our deferred tax assets to the amounts
that are anticipated to be realized. We consider future taxable income and ongoing tax planning
strategies in assessing the need for valuation allowances. In general, should we determine that we
are able to realize more than the recorded amounts of net deferred tax assets in the future, our
net income will increase in the period such determination was made. Likewise, should we determine
that we would not be able to realize all or part of the net deferred tax asset in the future, our
net income would decrease in the period such determination was made. Reversals of valuation
allowance related to acquired deferred tax assets, however, would first be applied against goodwill
and other intangibles before impacting net income. A tax reserve is recorded when we
cannot assert that it is probable that a tax position claimed on a return will be sustained
upon challenge by the tax authority. Any change in the balance of a tax reserve during the year is
treated as an adjustment to current year tax expense.
The recognition of income by our U.K. subsidiary and certain prior year true-ups of deferred
tax assets of this subsidiary enabled us to release valuation allowances in 2005 and 2004 of $6.5
million and $2.4 million, respectively, resulting in a favorable impact to the consolidated
statement of operations. In addition, in 2005 and 2004 we increased valuation allowances by $4.9
million and $14.3 million, respectively, related predominantly to state net operating losses and
state research and development credits generated during those periods, as management does not
believe that it is more likely than not that wewill generate sufficient taxable income in these
jurisdictions to utilize the attributes.
During 2005, we established additional tax contingency reserves of $1.8 million related to
various state matters resulting in additional tax expense. During 2004, we reached a state tax
settlement that enabled us to release a tax contingency reserve of $1.5 million, resulting in a
benefit to our consolidated statement of operations.
During the third and fourth quarters of 2005, we made corrections to the previous accounting
for deferred tax assets, goodwill, paid -in-capital and tax expense. The corrections related to
reporting periods dating back to the acquisition of Aviron, a California-based vaccine company, in
January 2002 (“the Acquisition”). The corrections resulted in additional tax expense of
approximately $3.2 million for the full year 2005.
Goodwill and Intangible Assets— We have recorded and valued significant acquired intangible
assets. As of December 31, 2005, the unamortized carrying amount of our intangible assets is $323.5
million. We review intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
During 2005, we recorded an intangible asset in connection with our reacquisition of the
co-promotion rights for Synagis in the United States. The value assigned to the intangible asset of
$360.4 million represents the estimated fair value of the exclusive promotion rights, determined as
the aggregate present value of the probable incremental payments to be made as a result of the
amended terms of the agreement in excess of the value of the co-promotion services to be rendered,
as determined under the previous agreement. The intangible asset will be amortized ratably over
future sales of Synagis over the expected period of active sales and marketing in the U.S., which
are projected to continue through the first half of 2009, as we expect to launch Numax during the
2008/2009 RSV season.
In connection with the Acquisition, we recorded $129.4 million of acquired intangible assets.
We engaged independent valuation experts who reviewed our critical assumptions and assisted us in
determining a value for the identifiable intangibles. Of the $129.4 million of acquired intangible
assets, $90.0 million was assigned to the worldwide collaborative agreement with Wyeth for the
development, manufacture, distribution, marketing, promotion, and sale of FluMist. We estimated the
fair value of the Wyeth agreement using the sum of the probability-adjusted scenarios under the
income approach. In applying this method, we relied on revenue assumptions, profitability assumptions
and anticipated approval dates. The remaining $39.0 million was assigned to a contract
manufacturing agreement with Evans Vaccines Limited. We estimated the fair value of the Evans
agreement using the cost approach, which is based on the theory that a prudent investor would pay
no more for an asset than the amount for
which the asset could be replaced. In our analysis, we
reduced replacement cost for such factors as physical deterioration and functional or economic
obsolescence. As a result of the dissolution of the collaboration with Wyeth during 2004, we
recorded a permanent impairment loss of $73.0 million that represented the remaining unamortized
cost of the related intangible asset.
During 2005, we made adjustments to goodwill totaling $13.8 million, of which $10.0 million
resulted from the correction to certain prior period purchase accounting adjustments related to the
Acquisition, and $3.8 million resulted from current year purchase accounting adjustments, as
discussed in the income tax section above and more fully detailed in Note 15, “Income Taxes,” to
our consolidated financial statements. During 2004 and 2003, we made adjustments to goodwill
recorded in the Acquisition of $11.2 million and ($2.4) million, respectively, reflecting
adjustments to deferred tax assets relating to the resolution of income tax related uncertainties.
We review goodwill for impairment at least annually (during the fourth quarter) and during interim
periods if an event that could result in an impairment occurs. As of December 31, 2005, we have not
identified any impairment of goodwill; $11.0 million of goodwill remains on the consolidated
balance sheet.
Investments in Debt and Equity Securities— Our short-term and long-term investments are
subject to adjustment for other-than-temporary impairments. Impairment charges are recognized in
the consolidated statements of operations when a decline in the fair value of an investment falls
below its cost value and is judged to be other than temporary. We consider various factors in
determining whether an impairment charge is required, including: the length of time and extent to
which the fair value has been less than the cost basis; the financial condition and near-term
prospects of the issuer; fundamental changes to the business prospects of the issuer; share prices
of subsequent offerings; and our intent and ability to hold the investment for a period of time
sufficient to allow for any anticipated recovery in market value. During 2005, 2004 and 2003, we
recorded impairment losses of $8.6 million, $13.7 million and $1.7 million, respectively, based on
the duration and magnitude of the declines in the fair value of certain of our investments, as well
as the financial condition and near-term prospects of the investee companies.
RESULTS OF OPERATIONS
Comparison of 2005 to 2004
Revenues — Product Sales
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
2005 |
|
|
2004 |
|
|
Change |
|
Synagis |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
905.2 |
|
|
$ |
833.6 |
|
|
|
9 |
% |
International |
|
|
157.7 |
|
|
|
108.7 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,062.9 |
|
|
|
942.3 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethyol |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
89.6 |
|
|
|
88.4 |
|
|
|
1 |
% |
International |
|
|
5.4 |
|
|
|
4.0 |
|
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
95.0 |
|
|
|
92.4 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
FluMist |
|
|
21.3 |
|
|
|
48.0 |
|
|
|
(56) |
% |
Other Products |
|
|
41.8 |
|
|
|
41.3 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Sales |
|
$ |
1,221.0 |
|
|
$ |
1,124.0 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
Synagis
— Synagis accounted for approximately 87% and 84% of our product sales for 2005 and
2004, respectively. We achieved a 9% increase in domestic Synagis sales to $905.2 million for 2005,
up from $833.6 million in 2004. The growth over the prior year period resulted from a 5.5% increase
in the domestic sales price along with a 4% increase in unit sales volume. While sales of Synagis
finished strong for the last half of the 2004/2005 RSV season, the 2005/2006 RSV season started
slower than expected due primarily to changes in payer guidelines that led to delays of when many
patients received their first dose of Synagis, the effects of Hurricanes Katrina and Rita on
certain sales territories, and an early disruption in the product’s distribution network caused by
the departure of a large distributor prior to the 2005/2006 season. In addition, sales patterns in
the fourth quarter of 2005 were affected by conversion of the U.S. supply from the lyophilized
formulation to the new liquid formulation of Synagis, which primarily occurred during the month of
November.
Our reported international sales of Synagis increased to $157.7 million in 2005 compared to
$108.7 million in 2004, primarily due to continued demand growth in several key international
markets and the timing of stocking patterns for the 2005/2006 season, partially offset by the
unfavorable currency translation impact of a strengthened U.S. dollar. During 2005, the label for
Synagis was expanded in Japan to include children with congenital heart disease.
Ethyol
— Ethyol accounted for approximately 8% of our product sales for 2005 and 2004.
Worldwide Ethyol sales increased slightly to $95.0 million in 2005, as compared to $92.4 million in
2004, primarily due to an increase in the domestic sales price along with modest growth in
international sales volumes for 2005.
FluMist — FluMist accounted for approximately 2% and 4% of our product sales for 2005 and
2004, respectively. Sales of FluMist were $21.3 million in 2005, as compared to $48.0 million in
2004, a decrease primarily due to lower unit sales volumes and the timing of revenue recognition
for product shipped during 2003. Our 2005 sales of FluMist are comprised of 0.3 million doses sold
during the first quarter of 2005 as the 2004/2005 influenza season came to an end and 1.3 million
doses sold during the second half of 2005 related to the 2005/2006 influenza season. Our 2004 sales
of FluMist of $48.0 million consisted of product sales for the 2004/2005 flu season of $20.9
million, representing estimated net doses of approximately 1.7 million, as well as $27.1 million of
transfer price for product shipped to Wyeth during 2003 for the 2003/2004 influenza season. At
December 31, 2003, the variables associated with FluMist product revenues were not determinable,
largely due to low sales volume and the lack of returns history and comparable rebate redemption
rates for the new product. As a result, product revenues associated with the doses that were
shipped to Wyeth in 2003 were not recognized until the first quarter of 2004.
Other
Products — Sales of other products include sales of CytoGam, NeuTrexin, and by-products
that result from the CytoGam manufacturing process, as well as sales of RespiGam in 2004, and
amounted to $41.8 million in 2005 as compared to $41.3 million for 2004. The increase is primarily
due to a 3% increase in sales of CytoGam. We are in the process of transferring CytoGam
manufacturing responsibilities to different contract manufacturers, a process which is expected to
be completed during the second half of 2006. Until the transfer is complete and the new
manufacturing sites are approved by the FDA, we expect supply to be limited and that sales will be
adversely affected.
Revenues — Other Revenues
Other revenues increased to $22.9 million for 2005 compared to $17.1 million for 2004. Other
revenues in 2005 include $17.1 million of revenue related to the amended terms of our international
distribution agreement with AI, which represents amounts received in excess of the estimated fair
value for product sales of Synagis, as explained in Note 16, “Collaborative Arrangements,” to our
consolidated financial statements. Other revenues in 2004 are largely comprised of contractual
payments received from Wyeth prior to dissolution of our collaboration, including royalties related
to the 2003/2004 influenza season and corporate funding for clinical development and sales and
marketing programs. Other revenues in 2004 also include $7.5 million of milestone revenue
recognized under our international distribution agreement with AI upon the achievement of end-user
sales of Synagis outside the U.S. in excess of $150 million in a single RSV season.
Cost of Sales
Cost of sales for 2005 decreased 8% to $336.7 million from $366.4 million for 2004. Gross
margins on product sales were 72% for 2005, up five percentage points from gross margins of 67% for
2004. Gross margins for all products, excluding FluMist, improved to 76% in 2005 from 75% in 2004,
primarily due to manufacturing efficiencies and the $4.9 million recoupment of past royalty
overpayments that was recognized as a reduction to cost of sales during the third quarter of 2005.
The impact of FluMist reduced overall gross margins in 2005 and 2004 by four percentage points and
eight percentage points,respectively . FluMist exerted less of a negative impact on gross margins
for 2005 due primarily to focused efforts to gain manufacturing efficiencies and improved net
revenue estimates for the 2006/2007 influenza season (see further discussion of inventory in the
Critical Accounting Estimates section of this Management’s Discussion and Analysis).
Research and Development Expenses
Research and development expenses of $384.6 million in 2005 increased 18% from $327.3 million
in 2004. Research and development expenses, as reported in the accompanying statements of
operations, included both our ongoing expenses of drug discovery and development efforts, as well
as costs related to the technology transfer and transition activities associated with reacquisition
of the influenza vaccines franchise from Wyeth during 2004. The increase is due largely to direct
costs associated with ongoing and additional clinical and preclinical trials for product
candidates, increases in headcount and related expenses in support of increased research and
development activities and upfront licensing fees and milestone payments related to in-licensing
agreements and research collaborations. Upfront fees and milestones incurred in connection with
research collaborations and in-licensing agreements were $54 million in 2005 versus $19 million in
2004. Also included in research and development expenses in 2005 and 2004 are $2.0 million and
$27.8 million, respectively, in costs for technology transfer and transition activities associated
with our assumption of research and development activities related to the
influenza vaccines franchise. Research and development expenses in 2005 were 31% of product sales versus 29% of
product sales in 2004, reflecting the continuing investment to bring new products to market as part
of our long-range plan.
We have several programs in clinical and pre clinical development, and a summary of our more
significant current internal research and development efforts is as follows:
| |
|
|
|
|
| Product |
|
|
|
Stage of |
| Candidates |
|
Description |
|
Development |
CAIV-T
|
|
Refrigerator-stable version of intranasal influenza vaccine, live
|
|
Phase 3 |
Numax
|
|
Second-generation monoclonal antibody for prevention of RSV
|
|
Phase 3 |
Vitaxin
|
|
Monoclonal antibody for the
treatment of melanoma and prostate cancer
|
|
Phase 2 |
Ethyol
|
|
Subcutaneous administration in non-small cell lung cancer
patients-reduction of esophogitis and pneumonitis
|
|
Phase 2 |
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) expenses increased 25% to $498.4 million
in 2005 compared to $400.2 million in 2004. The increase is largely attributable to increased
co-promotion expense, corresponding to the increase in domestic Synagis sales, and the continued
expansion of the pediatric commercial organization. Co-promotion expense was $192.2 million in 2005
and $168.3 million in 2004. Also included in SG&A expense in 2005 is amortization expense of $41.3
million associated with the intangible asset for U.S. co-promotion rights for Synagis that was
acquired and recorded during the third quarter of 2005. As a percentage of product sales, SG&A
expense increased to 41% of product sales for 2005 compared to 36% of product sales in 2004.
Impairment of Intangible Asset
As a result of entering into agreements to dissolve the collaboration with Wyeth during April
2004, we recorded a permanent impairment loss of $73.0 million that represented the remaining
unamortized cost originally recorded for the collaboration with Wyeth.
Acquired IPR&D
We recorded charges for acquired IPR&D of $43.7 million in 2005 in conjunction with the
acquisition of the outstanding equity interests in Cellective. The transaction was accounted for as
a purchase of assets, and the purchase price was allocated to the assets acquired and liabilities
assumed based on their relative fair values, with a portion allocated to the estimated value of
acquired IPR&D.
During 2005 and 2004, we also recorded charges for acquired IPR&D of $4.7 million and $29.2
million, respectively, in conjunction with our reacquisition of the influenza vaccines franchise
from Wyeth. The charges represent the estimated relative fair value of purchased in-process
technologies and research and development projects, primarily CAIV-T at the acquisition date,
including the impact of subsequent milestone payments, calculated utilizing the income approach.
See further discussion of IPR&D in the Critical Accounting Estimates section of this Management’s
Discussion and Analysis.
Loss on Investment Activities
We recorded a net loss on investment activities of $8.6 million during 2005, compared to a net
loss of $2.7 million during 2004. The 2005 net loss consists primarily of impairment write-downs
due to the decline in fair value of certain of our investments in private companies below their
cost basis that were determined to be other-than-temporary. The 2004 net loss consists of
impairment write-downs of $13.7 million which are partially offset by realized gains on sales of
common stock and other investments totaling $11.0 million.
Income Taxes
We recorded income tax expense of $24.1 million for 2005 compared to an income tax benefit of
$5.4 million for 2004. Income tax expense in 2005 was affected by the non-deductible acquired IPR&D
charge of $43.7 million related to the acquisition of Cellective as well as by $3.2 million
relating to corrections made in the second half of 2005 to the prior accounting for income taxes,
as more fully discussed in Note 15, “Income Taxes,” to our consolidated financial statements. The
corrections were
comprised of amounts related to reporting periods dating back to the acquisition
of Aviron in January 2002. Excluding both the acquired IPR&D charge and the effect of the
corrections, the effective tax rate for 2005 was approximately 41%. Comparatively, the
effective tax rate for 2004 was 33%, excluding the impact of the termination of the Wyeth
agreements, including approximately $6.9 million of non-deductible charges for acquired IPR&D
incurred during the second quarter of 2004. The increase in the effective rate, excluding
non-deductible charges, in 2005 is attributed to the lower level of pre-tax book income that
amplifies the impact of certain nondeductible items, a decrease in the R&D tax credits available
and higher state taxes.
Net Earnings
We reported a net loss for 2005 of $16.6 million, or $0.07 per share compared to a net loss
for 2004 of $3.8 million, or $0.02 per share. Shares used in computing losses per share for 2005
and 2004 were 246.9 million and 248.6 million, respectively.
We do not believe inflation had a material effect on our financial statements.
Comparison of 2004 to 2003
Revenues—Product Sales
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
2004 |
|
|
2003 |
|
|
Change |
|
Synagis |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
833.6 |
|
|
$ |
777.1 |
|
|
|
7 |
% |
International |
|
|
108.7 |
|
|
|
72.2 |
|
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
942.3 |
|
|
|
849.3 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethyol |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
88.4 |
|
|
|
94.4 |
|
|
|
(6) |
% |
International |
|
|
4.0 |
|
|
|
5.8 |
|
|
|
(30) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
92.4 |
|
|
|
100.2 |
|
|
|
(8) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
FluMist |
|
|
48.0 |
|
|
|
— |
|
|
|
N/A |
|
Other Products |
|
|
41.3 |
|
|
|
43.1 |
|
|
|
(4) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Sales |
|
$ |
1,124.0 |
|
|
$ |
992.6 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
During 2004, product sales grew 13% to $1.1 billion as compared to $1.0 billion during 2003,
primarily due to an 11% increase in sales of Synagis to $942.3 million. Of the overall 13% increase
in product sales, approximately five percentage points were due to the recognition of FluMist
product sales for the first time in 2004. Domestic price increases accounted for five growth
points, and an additional two percentage points were due to increases in domestic sales volume, but
were largely negated by higher sales allowances that reduced sales by two percentage points.
International sales added three points of growth.
Synagis— Synagis accounted for approximately 84% and 86% of our product sales for 2004 and
2003, respectively. We achieved a 7% increase in domestic Synagis sales to
$833.6 million for 2004, up from $777.1 million in 2003. Of the 7% growth year over year, five
percentage points resulted from price increases and four percentage points were due to higher sales
volumes, which were partially offset by higher sales allowances that caused a reduction of two
percentage points. Our reported international sales of Synagis increased to $108.7 million in 2004
compared to $72.2 million in 2003, largely due to a 33% increase in units sold to Abbott
International (“AI”), our exclusive distributor of Synagis outside of the United States. We believe
this growth was primarily due to increased product demand by our end users, including physicians,
hospitals, and pharmacies. Also contributing to international sales growth was an increase in the
sales price caused by a change in the mix of countries to which we sell Synagis internationally
that favorably impacted the average sales price, and the favorable currency translation impact of a
weakened U.S. dollar.
Ethyol— Ethyol accounted for approximately 8% and 10% of our product sales for 2004 and 2003,
respectively. Worldwide Ethyol sales declined 8% to $92.4 million in 2004, as compared to $100.2
million in 2003. Domestic sales of Ethyol declined 6% from prior year, driven by an eight
percentage point decline due to volume and an additional four points due to an increase in sales
allowances, offset by six growth points due to price increases. We believe that the lower domestic
sales volumes for 2004 were largely due to the depletion of wholesaler inventories from December
31, 2003 levels to accommodate end-user demand and the impact, which we believe was temporary, of
the adoption of a relatively new form of radiation treatment in the head and neck cancer market.
International sales of Ethyol declined over the prior year, primarily due to a 58% decrease in unit
volume to our international distribution partner, Schering.
FluMist— Our 2004 product sales of FluMist amounted to $48.0 million, including product sales
for the 2004/2005 flu season of $20.9 million, representing estimated net doses of approximately
1.7 million. 2004 sales also included transfer price revenues of $27.1 million for product shipped
to Wyeth, our former partner, during 2003 related to the 2003/2004 season. At December 31, 2003, we
concluded that the variables associated with FluMist product revenues were not determinable,
largely due to low sales volume and the lack of returns history and comparable rebate redemption
rates for the new product. As a result, no product revenues were recognized during 2003 associated
with the 4.1 million doses that were shipped to Wyeth during 2003.
Other Products— Sales of other products included sales of CytoGam, RespiGam, NeuTrexin and
by-products that result from the CytoGam manufacturing process and amounted to $41.3 million in
2004 as compared to $43.1 million in 2003. The slight decrease was primarily due to the decline in
sales of RespiGam, which has been replaced in the marketplace by our second-generation RSV product,
Synagis, and is no longer manufactured.
Revenues—Other Revenues
Other revenues of $17.1 million for 2004 were lower than 2003 other revenues of $61.8 million
largely due to decreased revenues under collaborative agreements. During 2004, we recognized $7.5
million of milestone revenue under our international distribution agreement with AI upon the
achievement of end-user sales of Synagis outside the U.S. in excess of $150 million in a single RSV
season. Other revenues in 2004 also included contractual payments received from Wyeth prior to dissolution of our collaboration,
including royalties related to the 2003/2004 influenza season, supply goal payments, and corporate
funding for clinical development and sales and marketing programs. During 2003, we recognized $45.9
million of revenues under the collaboration with Wyeth related to milestone payments, supply goal
payments, and funding for clinical development and marketing programs. Also during 2003, we
recognized $7.5 million of milestone revenue for achieving in excess of $100 million in end-user
sales of Synagis outside the U.S. during a single RSV season.
Cost of Sales
Cost of sales for 2004 increased 26% to $366.4 million from $289.8 million for 2003. Gross
margins on product sales were 67% for 2004, down four percentage points from gross margins of 71%
for 2003. Gross margins for all products, excluding FluMist, aggregated to 75% of product sales for
both 2004 and 2003. The negative impact of FluMist on gross margins was less in 2003 than 2004
largely due to the shift in costs of FluMist manufacturing that were included in inventory and cost
of goods sold during 2004, but were expensed as other operating costs during the first quarter of
2003, prior to FDA approval of the product.
Research and Development Expenses
Total research and development expenses more than doubled during 2004 to $327.3 million from
$156.3 million in 2003. Research and development expenses, as reported in the accompanying
statements of operations, included both our ongoing expenses of drug discovery and development
efforts, as well as costs related to the technology transfer and transition activities associated
with reacquisition of the influenza vaccines franchise from Wyeth during 2004. The technology
transfer and transition costs, totaling approximately $27.8 million, were largely amounts paid to
Wyeth for collection and analysis of data from five late-stage CAIV-T studies conducted by Wyeth
over the last several years, including assistance in documenting study reports, closing and locking
databases for clinical trials, and transition of clinical study results to our clinical databases.
The costs also included payments for the maintenance of the CAIV-T development facility and
production of CAIV-T clinical trial material, as well as assistance with internal technology
transfer of manufacturing operations for CAIV-T.
The increase in our ongoing expenses of drug discovery and development efforts was related to
a large number of new and ongoing clinical and preclinical studies, particularly for Numax, CAIV-T
and Vitaxin, as well as costs associated with the expansion of infrastructure to support these
studies. During November 2004, we advanced the Numax program into Phase 3 clinical trials, with a
pivotal head-to-head trial with Synagis, and a second trial designed to assess whether Numax can
reduce the incidence of RSV hospitalization in Native American infants. We were also completing a
Phase 1/2 trial with Numax. During October, we initiated a Phase 3 trial to compare CAIV-T to the
traditional injectible flu vaccine in children from 6 months to 59 months of age, and a Phase 3
bridging study designed to compare CAIV-T with frozen FluMist. We also progressed with two ongoing
Phase 2 trials for Vitaxin targeting melanoma and prostate cancer, while we discontinued two trials
for Vitaxin targeting rheumatoid arthritis and psoriasis based on preliminary data suggesting lack of clinical benefit in these inflammatory
diseases. Also during 2004, we began a Phase 1 clinical trial with an anti-interleukin-9 (IL-9)
monoclonal antibody to evaluate the molecule as a potential treatment for symptomatic, moderate to
severe persistent asthma. During 2004, we also made a $15.0 million payment to Medarex, Inc. as
part of a new collaboration to co-develop antibodies targeting interferon-alpha and the type 1
interferon receptor for the treatment of autoimmune diseases.
Selling, General and Administrative Expenses
SG&A expenses increased 17% to $400.2 million in 2004 compared to $340.9 million in 2003. The
increase was largely attributable to costs associated with expanding the pediatric commercial
organization, increased co-promotion expense, and increased marketing activities and professional
services. Co-promotion expense was $168.3 million in 2004 and $155.1 million in 2003. Excluding the
amounts incurred during 2004 for Wyeth-related transition activities and the favorable impact in
both years of adjustments to the bad debt provision based upon changes in our assessment of credit
risk, SG&A expense as a percentage of product sales was 36% and 35% in 2004 and 2003, respectively.
Other Operating Expenses
Other operating expenses, which reflect manufacturing start-up costs and other manufacturing
related costs, decreased to $8.6 million in 2004 from $26.1 million in 2003. The decrease was due
to the shift in the costs of FluMist manufacturing that were in inventory and cost of goods sold in
2004, but were expensed as other operating costs in 2003 prior to the June 2003 approval of
FluMist. Other operating expenses in both periods also included excess capacity charges associated
with the plasma production portion of the Frederick Manufacturing Center.
Impairment of Intangible Asset
As a result of entering into agreements to dissolve the collaboration with Wyeth during April
2004, we recorded a permanent impairment loss of $73.0 million that represented the remaining
unamortized cost originally recorded for the original collaboration with Wyeth.
Acquired IPR&D
We recorded a charge of $29.2 million for acquired IPR&D for 2004 in conjunction with our
reacquisition of the influenza vaccines franchise from Wyeth. The charge represented the relative
fair value of purchased in-process technologies at the acquisition date, calculated utilizing the
income approach, of certain IPR&D projects, primarily CAIV-T. See further discussion of IPR&D in
the Critical Accounting Estimates section of this Management’s Discussion and Analysis.
Interest Income and Expense
We earned interest income of $65.5 million for 2004, compared to $56.8 million in 2003,
reflecting higher average investment balances and higher average rates. Interest
expense for 2004, net of amounts capitalized, was $8.4 million, down from $10.3 million in
2003. The decline was due to the retirement of the 51/4% convertible subordinated notes in March
2004, partially offset by a decrease in the amount of interest cost capitalized in 2004 versus the
prior period, due to the completion of several large construction projects in 2004, including the
new R&D facility and corporate headquarters in Maryland.
Gain (Loss) on Investment Activities
We incurred a $2.7 million loss on investment activities for 2004, compared to a gain of $3.4
million in 2003. The 2004 loss consisted of impairment write-downs of $13.7 million due to the
decline in fair value of certain of our investments in private companies below their cost basis
that were determined to be other-than-temporary, partially offset by net realized gains on sales of
common stock and other investments totaling $11.0 million. During 2003, we recognized gains on the
sale of common stock and other investments of $5.9 million, partially offset by impairment
write-downs and charges to record our portion of our minority investees’ operating results as
required by the equity method of accounting.
Income Taxes
We recorded an income tax benefit of $5.4 million for 2004, resulting in an effective tax rate
of 59%. Comparatively, we recorded income tax expense of $108.0 million for 2003, which resulted in
an effective tax rate of 37%.
The year-over-year change in our estimated effective tax rate was due in part to $6.9 million
of non-deductible charges for acquired IPR&D during the second quarter of 2004. Our effective tax
rate in 2004 was also favorably impacted by the increase in credits available for research and
development activities, including credits earned for orphan drug status of certain research and
experimentation activities, corresponding to the overall growth in research and experimentation
activity over 2003. These credits will vary from year to year depending on our activities and the
enactment of tax legislation. Also during 2004, we reached a state tax settlement and our U.K.
subsidiary recognized income for U.K. tax purposes, enabling us to release valuation allowance and
tax contingency reserves, resulting in a favorable impact to the consolidated statement of
operations.
Net Earnings (Loss)
We reported a net loss for 2004 of $3.8 million, or $0.02 per share compared to net earnings
for 2003 of $183.2 million or $0.72 per diluted share.
Shares used in computing loss per share for 2004 were 248.6 million, while shares used for
computing basic and diluted earnings per share for 2003 were 250.1 million and 257.2 million,
respectively. The decrease in the share count was primarily attributable to our stock repurchase
program that we implemented in July 2003.
We do not believe inflation had a material effect on our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our capital requirements have been funded from cash provided by operations, cash and
investments on hand, proceeds from the issuance of common stock and the issuance of convertible
debt. Cash and marketable securities were $1.5 billion at December 31, 2005 as compared to $1.7
billion at December 31, 2004, a decrease of $234.2 million. This decrease in cash and marketable
securities is primarily due to the payment made to acquire the outstanding equity interests in
Cellective, payments made to Abbott in conjunction with the reacquisition of the co-promotion
rights for Synagis in the U.S., upfront fees and milestone payments under licensing agreements and
research collaborations as well as share repurchases. Working capital decreased to $(111.2) million
at December 31, 2005 from $330.0 million at December 31, 2004, primarily due to the
reclassification of our convertible senior notes to current liabilities, as the holders may require
us to purchase the notes for cash in July 2006, as provided for in the indenture. As of December
31, 2005, our accounts receivable balance was approximately 38% higher than the prior year
primarily due to timing of the conversion from the lyophilized formulation of Synagis to the new
liquid formulation.
Operating Activities— Net cash provided by operating activities decreased to $110.7 million
during 2005 as compared to $144.7 million in 2004, primarily the result of the decrease in 2005 in
net earnings, excluding the charges for acquired IPR&D and the impairment of an intangible asset,
reflecting higher levels of spending for research and development and selling, general and
administrative expenses in 2005 versus 2004.
Investing Activities— Cash used for investing activities during 2005 was $59.9 million, as
compared to $300.9 million in 2004. Cash used for investing activities in 2005 included net
reductions to our investment portfolio of $165.1 million; the payment of $44.0 million to acquire
the outstanding equity interests in Cellective, net of cash acquired; incremental payments to
Abbott of $70.0 million in conjunction with the amendment of the U.S. co-promotion agreement for
Synagis; capital expenditures totaling $91.5 million, primarily for the construction of our new
pilot lab in Gaithersburg, Maryland, and the expansion of our influenza vaccine manufacturing
facilities in the United Kingdom; and minority interest investments in portfolio companies totaling
$14.5 million through our venture capital subsidiary.
Financing Activities— Financing activities in 2005 used $68.8 million in cash, as compared to
$187.9 million in 2004. During 2005, we used $105.9 million to repurchase shares of our common
stock as authorized under our share repurchase program compared to $30.0 million in 2004 and $229.8
million in 2003. Approximately $41.9 million was received upon the issuance of common stock
relating primarily to the exercise of employee stock options in 2005 compared to $19.5 million
received in 2004 and $44.4 million received in 2003. During 2004, we used $172.7 million in cash to
repurchase and retire the balance of the 51/4% Notes. During 2003, we received net cash proceeds of
$489.4 million in connection with the issuance of the 1% Notes.
Our primary source of liquidity is operating cash flow. Management believes that such
internally generated cash flow as well as existing funds and financing available to us will be
adequate to service our existing debt and other cash requirements. We expend cash to finance our
research and development and clinical trial programs; to obtain access to new technologies through
collaborative research and development agreements with strategic partners, through our venture
capital subsidiary, or through other means; to fund capital projects; and to finance the production of inventories. We currently anticipate that
the holders of our 1% convertible senior notes will require us to redeem the notes for cash in July
2006 as provided for under the indenture. We believe that our cash and marketable securities on
hand will be adequate to service the cash requirements. However, we anticipate using a line of
credit or other type of credit instrument to repay at least a portion of these notes. The BBB
rating on our outstanding indebtedness, considered to be investment grade, will contribute to our
ability to access capital markets, should we desire or need to do so. In February 2005, our Board
of Directors approved an additional $100 million in funding for our venture capital subsidiary,
bringing the total amount allocated to $200 million. We may raise additional capital in the future
to take advantage of favorable conditions in the market or in connection with our development
activities.
During the second quarter of 2005, we recouped approximately $12.1 million from licensors
related to overpayments under various royalty agreements. During the third quarter of 2005, we
recognized $4.9 million of this royalty recoupment as a reduction to cost of goods sold after
determining that related
contingencies had been resolved. The remaining amount of $7.2 million has
been deferred until fully realizable and therefore is recorded in Other Current Liabilities within
the consolidated balance sheet.
Our Board of Directors has authorized the repurchase of up to $500 million of our common stock
during the period from July 2003 through June 2006 in the open market or in privately negotiated
transactions, pursuant to terms management deems appropriate and at such times it may designate.
During 2005, we repurchased 4.0 million shares of our common stock under the stock repurchase
program at a total cost of $105.9 million, or an average cost of $26.18 per share. During 2004, we
repurchased 1.2 million shares at a total cost of $30.0 million, or an average cost of $24.33 per
share. As of February 28, 2006, approximately $134.3 million remained available under the
authorization for additional repurchases of stock. We are holding repurchased shares as treasury
shares and are using them for general corporate purposes, including but not limited to
acquisition-related transactions and for issuance upon exercise of outstanding stock options.
In 2006, we will continue construction of the pilot plant located at the headquarters site in
Gaithersburg, Maryland, which is expected to be fully operational by November 2006, as well as
additional administrative offices, which are expected to be completed in September 2006. We also
expect to break ground on a new cell culture manufacturing facility in March 2006, located adjacent
to our existing biologics facility in Frederick, Maryland, which we plan to use as a manufacturing
site for potential new monoclonal antibody products that emerge from our pipeline, including Numax.
We expect our capital expenditures to approximate $175 million in 2006. We anticipate these
projects will be funded from cash generated from operations, investments on hand, and the proceeds
from a line of credit or other type of credit instrument.
Contractual Obligations and Commitments— The following table summarizes our contractual
obligations and commitments as of December 31, 2005 that we anticipate will require significant
cash outlays in the future (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contractual Obligations |
|
Total |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Beyond |
|
Long-term debt (1) |
|
$ |
506.2 |
|
|
$ |
501.0 |
|
|
$ |
1.1 |
|
|
$ |
0.6 |
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
$ |
2.7 |
|
Facilities leases |
|
|
48.6 |
|
|
|
7.8 |
|
|
|
6.2 |
|
|
|
3.9 |
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
25.5 |
|
Purchase
obligations (2) |
|
|
159.9 |
|
|
|
37.9 |
|
|
|
24.6 |
|
|
|
25.5 |
|
|
|
26.7 |
|
|
|
15.1 |
|
|
|
30.1 |
|
Obligations to
Abbott (3) |
|
|
291.5 |
|
|
|
236.7 |
|
|
|
54.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Obligations to
Evans (4) |
|
|
18.4 |
|
|
|
18.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual
obligations |
|
$ |
1,024.6 |
|
|
$ |
801.8 |
|
|
$ |
86.7 |
|
|
$ |
30.0 |
|
|
$ |
29.7 |
|
|
$ |
18.1 |
|
|
$ |
58.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Commercial Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
letters of credit
(5) |
|
$ |
1.7 |
|
|
$ |
1.7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Other contractual
commitments (6) |
|
|
31.6 |
|
|
|
14.2 |
|
|
|
8.9 |
|
|
|
2.6 |
|
|
|
2.0 |
|
|
|
0.2 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
commercial
commitments |
|
$ |
33.3 |
|
|
$ |
15.9 |
|
|
$ |
8.9 |
|
|
$ |
2.6 |
|
|
$ |
2.0 |
|
|
$ |
0.2 |
|
|
$ |
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
We currently anticipate that the holders of our 1% convertible senior
notes will require us to redeem the notes for cash in July 2006 as
provided for under the indenture. Accordingly, the notes have been
classified as current liabilities in our consolidated balance sheet. |
| |
| (2) |
|
The Company is contingently committed to Precision Pharma Services for
fractionation services and bulk production through 2009, pending FDA
approval of the manufacture of bulk product by Precision Pharma. The
amounts exclude this contingent commitment of approximately $11.0
million. |
| |
| (3) |
|
Represents the present value of the probable incremental payments to
be made to Abbott as a result of the amended terms of the co-promotion
agreement in excess of the value of the co-promotion services to be
rendered, as determined under the original agreement. |
| |
| (4) |
|
Represents amounts due to Evans Vaccines Limited pursuant to a
manufacturing arrangement. |
| |
| (5) |
|
We have guaranteed performance under certain agreements related to our
construction projects. The undiscounted maximum potential amount of
future payments that we could be required to make under such
guarantees, in the aggregate, is approximately $1.7 million. |
| |
| (6) |
|
We have entered into a number of research and development
collaborations, in-licensing agreements and other contractual
arrangements to gain access to new product candidates and
technologies, to further develop our products and technology, and to
perform clinical trials. The amounts indicated as commitments under
these agreements represent committed funding obligations under these
agreements. The amounts exclude contingent commitments for development
milestone payments as well as sales-related milestone payments and
royalties relating to potential future product sales under these
agreements. These potential payments have been excluded since the
amount, timing and likelihood of these payments is unknown as they are
dependent on the occurrence of future events that may or may not
occur, such as the granting by the FDA of a license for product
marketing in the United States. If all contractual development
milestones were to be achieved under these agreements, which we do not
consider probable, the total development milestone payments would
approximate $1.1 billion. |
Off-Balance Sheet Arrangements— We have not entered into any transactions, agreements or other
contractual arrangements that meet the definition of off-balance sheet arrangements.
|
|
|
| ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The following discussion about our risk-management activities includes “forward-looking
statements” that involve risks and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements.
Our primary market risks as of December 31, 2005 are our exposures to loss resulting from
changes in interest rates, equity prices and foreign currency exchange rates.
Marketable securities — As of December 31, 2005, our excess cash balances are primarily
invested in marketable debt securities with investment grade credit ratings. Substantially all of
our cash and cash equivalents and short-term and long-term investments are held in custody by three
major U.S. financial institutions. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore,
bear minimal risk. Our investments consist principally of U.S. government and agency securities and
corporate notes and bonds. The maturities range from one month to seven years. Our investment
guidelines are intended to limit the amount of investment exposure as to issuer, maturity, and
investment type. The fair value of these investments is sensitive to changes in interest rates.
Further, interest income earned on variable rate debt securities is exposed to changes in the
general level of interest rates.
The following table presents principal cash flows and weighted average interest rates by
expected maturity dates for each class of debt security with similar characteristics (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
| |
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Total |
|
|
Value |
|
U.S. Gov’t and
Agencies |
|
$ |
181.7 |
|
|
$ |
15.0 |
|
|
$ |
26.9 |
|
|
$ |
35.5 |
|
|
$ |
15.0 |
|
|
$ |
30.0 |
|
|
$ |
— |
|
|
$ |
304.1 |
|
|
$ |
302.0 |
|
Interest Rate |
|
|
3.7 |
% |
|
|
4.8 |
% |
|
|
4.5 |
% |
|
|
4.3 |
% |
|
|
4.3 |
% |
|
|
4.5 |
% |
|
|
— |
% |
|
|
|
|
|
|
|
|
Corp. Notes and
Bonds |
|
$ |
166.8 |
|
|
$ |
177.1 |
|
|
$ |
274.9 |
|
|
$ |
215.4 |
|
|
$ |
19.8 |
|
|
$ |
49.1 |
|
|
$ |
2.0 |
|
|
$ |
905.1 |
|
|
$ |
923.1 |
|
Interest Rate |
|
|
5.8 |
% |
|
|
5.7 |
% |
|
|
3.9 |
% |
|
|
5.5 |
% |
|
|
4.9 |
% |
|
|
5.7 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
Minority interest investments — We are exposed to equity price risks and risk of impairment
related to our minority interest investments. MedImmune Ventures, Inc., our wholly owned venture
capital subsidiary, manages our current portfolio of minority interest investments and endeavors to
make investments in public or private biotechnology companies focused on discovering and developing
human therapeutics. Our Board of Directors has approved funding to MedImmune Ventures for up to
$200 million in investments, of which $95 million has been invested as of February 25, 2006.
MedImmune Ventures will invest primarily in areas of strategic interest to MedImmune, including
infectious disease, immunology and oncology. The cost basis of MedImmune Ventures’ investment
holdings, net of impairment writedowns, was $70.5 million as of December 31, 2005.
Our minority interest investments are subject to adjustment for other-than-temporary
impairments. We recognize impairment charges in the consolidated statements of operations when a
decline in the fair value of an investment falls below its cost value and is judged to be other
than temporary. We consider various factors in determining whether we should recognize an
impairment charge, including: the length of time and extent to which the fair value has been less
than our cost basis; the financial condition and near-term prospects of the issuer; fundamental
changes to the business prospects of the investee; share prices of subsequent offerings; and our
intent and ability to hold the investment for a period of time sufficient to allow for any
anticipated recovery in market value. During 2005, 2004 and 2003, we recorded impairment losses of
$8.6 million, $13.7 million and $1.7 million, respectively, based on the duration and magnitude of
the declines in fair value, as well as the financial condition and near-term prospects of the
investee companies. We expect the volatility in the fair value of our minority investments to
continue and, thus, the value assigned to the investments could change significantly from period to
period.
As of December 31, 2005, MedImmune Ventures’ portfolio included approximately 5.9 million
shares of common stock of two publicly traded companies with a cost basis of $36.0 million and fair
value of $42.0 million. The remainder of MedImmune Ventures’ portfolio as of December 31, 2005
consists primarily of minority interest investments in privately-held biotechnology companies. The
investments are maintained on the cost or equity method of accounting, according to the facts and
circumstances of the individual investment. For investments carried on the equity method, we record
our proportionate share of the investees’ gains or losses on a quarterly basis, which was
immaterial during 2005, 2004 and 2003. As of December 31, 2005, the investments in privately-held
companies had a cost basis of $34.5 million, net of permanent writedowns.
Long-term Debt — In July 2003, we issued $500 million of convertible notes due 2023. These
notes bear interest at 1.0% per annum payable semi-annually in arrears. Beginning with the
six-month interest period commencing July 15, 2006, if the average trading price of these notes
during specified periods equals or exceeds 120% of the principal amount of such notes, we will pay contingent interest equal to 0.175% per six-month
period of the average trading price per $1,000 of the principal amount during such periods. As a
result, if the market value of these notes appreciates significantly in the future, we could be
obligated to pay amounts of contingent interest beginning in 2006. The note indenture contains a
provision that would allow the holders to require us to redeem the notes for cash in July 2006 and
we anticipate that the holders will elect to exercise this option. The estimated fair value of the
notes at December 31, 2005, based on quoted market prices, was $488.9 million.
Our outstanding indebtedness of $506.2 million at December 31, 2005 is in the form of notes
that bear interest primarily at fixed rates. The estimated fair value of the remaining long-term
debt at December 31, 2005, based on quoted market prices or discounted cash flows at currently
available borrowing rates, was $6.2 million. Maturities for all long-term debt for the next five
years are as follows: 2006, $501.0 million; 2007, $1.1 million; 2008, $0.6 million; 2009, $0.4
million; and 2010, $0.4 million.
Foreign Currency — Expenditures relating to our manufacturing operations in the U.K. and the
Netherlands are paid in local currency. We have not hedged our expenditures relating to these
manufacturing operations; therefore, foreign currency exchange rate fluctuations may result in
increases or decreases in the amount of expenditures recorded. Additionally, certain of our
distribution agreements outside the U.S. provide for us to be paid based upon sales in local
currency. As a result, changes in foreign currency exchange rates could affect the amount we expect
to collect under these agreements.
We have entered into a Euro-denominated supplemental manufacturing contract with Boehringer
Ingelheim Pharma GmbH & Co. KG (“BI”) for the supplemental manufacturing of Synagis. Fluctuations
in the Euro to U.S. Dollar exchange rate may lead to changes in our U.S. Dollar cost of
manufacturing. To reduce the risk of unpredictable changes in these costs, we may, from time to
time, enter into forward foreign exchange contracts. As of December 31, 2005, we did not have any
open foreign exchange forward contracts. Currently, we have firm commitments with BI for planned
production and fill/finish through 2012 for approximately 99 million Euros ($117.3 million as of
December 31, 2005).
|
|
|
| ITEM 8. |
|
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of MedImmune, Inc.:
We have completed integrated audits of MedImmune Inc.’s 2005 and 2004 consolidated financial
statements and of its internal control over financial reporting as of December 31, 2005, and an
audit of its 2003 consolidated financial statements in
accordance with the standards of the Public Company Accounting Oversight Board (United
States). Our opinions based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under Item
15(a)( 1) present fairly, in all material respects, the financial position of MedImmune, Inc. and
its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2005 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit of financial statements 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 our
opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal
Control over Financial Reporting appearing under Item 9A, that the Company maintained effective
internal control over financial reporting as of December 31, 2005 based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, based on criteria established in Internal
Control — Integrated Framework issued by the COSO. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the effectiveness of the Company’s internal control over
financial reporting based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes obtaining an understanding
of internal control over financial reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we consider necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
McLean, Virginia
March 9, 2006
MedImmune, Inc.
Consolidated Balance Sheets
(in millions)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
153.4 |
|
|
$ |
171.3 |
|
Marketable securities |
|
|
457.1 |
|
|
|
172.6 |
|
Trade receivables, net |
|
|
281.0 |
|
|
|
203.3 |
|
Inventory, net |
|
|
69.4 |
|
|
|
64.1 |
|
Deferred tax assets, net |
|
|
58.0 |
|
|
|
50.6 |
|
Other current assets |
|
|
18.4 |
|
|
|
31.9 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
1,037.3 |
|
|
|
693.8 |
|
Marketable securities |
|
|
861.4 |
|
|
|
1,362.2 |
|
Property and equipment, net |
|
|
381.4 |
|
|
|
310.9 |
|
Deferred tax assets, net |
|
|
128.6 |
|
|
|
127.3 |
|
Intangible assets, net |
|
|
323.5 |
|
|
|
13.1 |
|
Other assets |
|
|
47.8 |
|
|
|
57.1 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,780.0 |
|
|
$ |
2,564.4 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
37.0 |
|
|
$ |
34.7 |
|
Accrued expenses |
|
|
242.1 |
|
|
|
231.8 |
|
Product royalties payable |
|
|
93.0 |
|
|
|
85.9 |
|
Convertible senior notes |
|
|
500.0 |
|
|
|
— |
|
Other current liabilities |
|
|
276.4 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,148.5 |
|
|
|
363.8 |
|
Convertible senior notes |
|
|
— |
|
|
|
500.0 |
|
Other liabilities |
|
|
61.0 |
|
|
|
26.0 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,209.5 |
|
|
|
889.8 |
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 5.5 million
shares authorized; none issued or
outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $.01 par value; 420.0 million
shares authorized; 255.5 million shares
issued at
December 31, 2005 and 255.4 million
shares issued at December 31, 2004 |
|
|
2.6 |
|
|
|
2.6 |
|
Paid-in capital |
|
|
2,688.5 |
|
|
|
2,690.0 |
|
Deferred compensation |
|
|
— |
|
|
|
(0.1 |
) |
Accumulated deficit |
|
|
(842.5 |
) |
|
|
(788.5 |
) |
Accumulated other comprehensive income |
|
|
(11.0 |
) |
|
|
11.1 |
|
|
|
|
|
|
|
|
|
|
|
1,837.6 |
|
|
|
1,915.1 |
|
Less: Treasury stock at cost; 8.5 million
shares as of December 31, 2005 and 6.9
million shares at December 31, 2004 |
|
|
(267.1 |
) |
|
|
(240.5 |
) |
|
|
|
|
|
|
|
Total Shareholders’ Equity |
|
|
1,570.5 |
|
|
|
1,674.6 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
|
$ |
2,780.0 |
|
|
$ |
2,564.4 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
MedImmune, Inc.
Consolidated Statements of Operations
(in millions, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
1,221.0 |
|
|
$ |
1,124.0 |
|
|
$ |
992.6 |
|
Other revenue |
|
|
22.9 |
|
|
|
17.1 |
|
|
|
61.8 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,243.9 |
|
|
|
1,141.1 |
|
|
|
1,054.4 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
336.7 |
|
|
|
366.4 |
|
|
|
289.8 |
|
Research and development |
|
|
384.6 |
|
|
|
327.3 |
|
|
|
156.3 |
|
Selling, general and administrative |
|
|
498.4 |
|
|
|
400.2 |
|
|
|
340.9 |
|
Other operating expenses |
|
|
12.5 |
|
|
|
8.6 |
|
|
|
26.1 |
|
Impairment of intangible asset |
|
|
— |
|
|
|
73.0 |
|
|
|
— |
|
Acquired in-process research and
development |
|
|
48.4 |
|
|
|
29.2 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,280.6 |
|
|
|
1,204.7 |
|
|
|
813.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(36.7 |
) |
|
|
(63.6 |
) |
|
|
241.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
62.0 |
|
|
|
65.5 |
|
|
|
56.8 |
|
Interest expense |
|
|
(9.2 |
) |
|
|
(8.4 |
) |
|
|
(10.3 |
) |
Gain (loss) on investment activities |
|
|
(8.6 |
) |
|
|
(2.7 |
) |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
7.5 |
|
|
|
(9.2 |
) |
|
|
291.2 |
|
Income tax provision (benefit) |
|
|
24.1 |
|
|
|
(5.4 |
) |
|
|
108.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(16.6 |
) |
|
$ |
(3.8 |
) |
|
$ |
183.2 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of basic
earnings (loss) per share |
|
|
246.9 |
|
|
|
248.6 |
|
|
|
250.1 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of
diluted earnings (loss) per share |
|
|
246.9 |
|
|
|
248.6 |
|
|
|
257.2 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
MedImmune, Inc.
Consolidated Statements of Cash Flows
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(16.6 |
) |
|
$ |
(3.8 |
) |
|
$ |
183.2 |
|
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of intangible
asset |
|
|
— |
|
|
|
73.0 |
|
|
|
— |
|
Charges for acquired
in-process research and
development |
|
|
48.4 |
|
|
|
29.2 |
|
|
|
— |
|
Deferred taxes |
|
|
17.7 |
|
|
|
9.6 |
|
|
|
87.0 |
|
Depreciation and
amortization |
|
|
78.6 |
|
|
|
41.1 |
|
|
|
37.7 |
|
Deferred revenue |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(6.0 |
) |
Advances from Wyeth |
|
|
— |
|
|
|
(51.9 |
) |
|
|
51.9 |
|
Amortization of premium
on marketable securities |
|
|
14.8 |
|
|
|
14.2 |
|
|
|
14.8 |
|
Amortization of deferred
compensation |
|
|
0.1 |
|
|
|
1.1 |
|
|
|
4.0 |
|
Realized (gain) loss on
investments |
|
|
8.6 |
|
|
|
2.7 |
|
|
|
(3.4 |
) |
Increase in sales
allowances |
|
|
6.2 |
|
|
|
13.5 |
|
|
|
10.9 |
|
Losses on write-downs of
inventory |
|
|
41.9 |
|
|
|
70.9 |
|
|
|
59.0 |
|
Other |
|
|
5.1 |
|
|
|
1.3 |
|
|
|
(0.1 |
) |
Increase (decrease) in
cash due to changes in
assets and
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
(84.8 |
) |
|
|
(45.6 |
) |
|
|
(36.7 |
) |
Inventory |
|
|
(44.7 |
) |
|
|
(43.1 |
) |
|
|
(86.6 |
) |
Other assets |
|
|
16.7 |
|
|
|
(2.9 |
) |
|
|
(14.7 |
) |
Accounts payable and
accrued expenses |
|
|
(1.9 |
) |
|
|
33.3 |
|
|
|
45.3 |
|
Product royalties payable |
|
|
7.2 |
|
|
|
4.1 |
|
|
|
7.8 |
|
Other liabilities |
|
|
13.8 |
|
|
|
(1.6 |
) |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities |
|
|
110.7 |
|
|
|
144.7 |
|
|
|
357.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities
available for sale |
|
|
(218.5 |
) |
|
|
(652.9 |
) |
|
|
(659.9 |
) |
Maturities of securities
available for sale |
|
|
160.0 |
|
|
|
182.9 |
|
|
|
345.6 |
|
Proceeds from sales of
securities available for
sale |
|
|
223.6 |
|
|
|
308.0 |
|
|
|
219.3 |
|
Capital expenditures |
|
|
(91.5 |
) |
|
|
(79.8 |
) |
|
|
(112.9 |
) |
Purchase of assets from
Cellective, net of cash
acquired |
|
|
(44.0 |
) |
|
|
— |
|
|
|
— |
|
Purchase of promotion
rights from Abbott |
|
|
(70.0 |
) |
|
|
— |
|
|
|
— |
|
Purchase of assets from
Wyeth |
|
|
(5.0 |
) |
|
|
(34.8 |
) |
|
|
— |
|
Minority interest
investments |
|
|
(14.5 |
) |
|
|
(24.3 |
) |
|
|
(30.4 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in
investing activities |
|
|
(59.9 |
) |
|
|
(300.9 |
) |
|
|
(238.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
common stock |
|
|
41.9 |
|
|
|
19.5 |
|
|
|
44.4 |
|
Share repurchases |
|
|
(105.9 |
) |
|
|
(30.0 |
) |
|
|
(229.8 |
) |
Proceeds of 1% Notes, net
of issuance costs |
|
|
— |
|
|
|
— |
|
|
|
489.4 |
|
Debt prepayments |
|
|
— |
|
|
|
(172.7 |
) |
|
|
(33.1 |
) |
Repayments on long-term
obligations |
|
|
(4.8 |
) |
|
|
(4.7 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by
(used in) financing
activities |
|
|
(68.8 |
) |
|
|
(187.9 |
) |
|
|
266.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on
cash |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
in cash and cash
equivalents |
|
|
(17.9 |
) |
|
|
(344.2 |
) |
|
|
385.4 |
|
Cash and cash equivalents
at beginning of year |
|
|
171.3 |
|
|
|
515.5 |
|
|
|
130.1 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
at end of year |
|
$ |
153.4 |
|
|
$ |
171.3 |
|
|
$ |
515.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow data: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year
for interest, net of
amounts
capitalized |
|
$ |
4.2 |
|
|
$ |
9.7 |
|
|
$ |
8.4 |
|
Cash paid (received)
during the year for
income tax
payments (refunds) |
|
$ |
(3.5 |
) |
|
$ |
3.1 |
|
|
$ |
32.7 |
|
The accompanying notes are an integral part of these financial statements.
MedImmune, Inc.
Consolidated Statements of Cash Flows (Continued)
(in millions)
Supplemental schedule of noncash investing activities:
In August 2005, the Company amended its co-promotion agreement with Abbott Laboratories
(“Abbott”) for sales of Synagis in the U.S. to, among other things, assume full selling and
marketing responsibilities for Synagis beginning in July 2006. In connection with this transaction,
the Company recorded an intangible asset of $360.4 million which represents the estimated fair
value of the exclusive promotion rights, determined as the aggregate value of the incremental
payments to be made to Abbott as a result of the amended terms of the agreement in excess of the
value of the co-promotion services to be rendered, as determined under the previous agreement. Of
the $360.4 million recorded as an intangible asset, $70.0 million represents cash payments made
during the third quarter of 2005 and the remaining balance of $290.4 million represents the present
value as of the acquisition date of the future incremental payments that the Company deems
probable, which were recorded as liabilities in the consolidated balance sheet (see Note 16).
The accompanying notes are an integral part of these financial statements.
MedImmune, Inc.
Consolidated Statements of Shareholders’ Equity
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
Common Stock, |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Other |
|
|
|
|
|
|
|
| |
|
$0.01 par |
|
|
Paid-in |
|
|
Deferred |
|
|
Earnings |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
Balance, December 31, 2002 |
|
|
251.3 |
|
|
$ |
2.5 |
|
|
$ |
2,613.0 |
|
|
$ |
(6.8 |
) |
|
$ |
(956.1 |
) |
|
$ |
24.6 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
1,677.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
183.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
183.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency
translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss
on investments, net of tax of $3.0 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.7 |
|
|
|
— |
|
|
|
— |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss
on cash flow hedges, net of tax of $1.4
million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options exercised |
|
|
2.8 |
|
|
|
— |
|
|
|
39.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
the employee stock
purchase plan |
|
|
0.2 |
|
|
|
— |
|
|
|
4.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.2 |
) |
|
|
(229.8 |
) |
|
|
(229.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit associated with the
exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
16.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation for the
vesting of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of deferred
compensation for cancellation
of stock options |
|
|
— |
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
0.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Balance, December 31, 2003 |
|
|
254.3 |
|
|
|
2.5 |
|
|
|
2,673.1 |
|
|
|
(1.4 |
) |
|
|
(772.9 |
) |
|
|
27.7 |
|
|
|
(6.2 |
) |
|
|
(229.8 |
) |
|
|
1,699.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency
translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss
on investments, net of tax of $9.9 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(19.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss
on cash flow hedges, net of tax of $1.4
million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options and
warrants exercised |
|
|
0.9 |
|
|
|
0.1 |
|
|
|
7.3 |
|
|
|
— |
|
|
|
(11.8 |
) |
|
|
— |
|
|
|
0.5 |
|
|
|
19.3 |
|
|
|
14.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
the employee stock
purchase plan |
|
|
0.2 |
|
|
|
— |
|
|
|
4.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.2 |
) |
|
|
(30.0 |
) |
|
|
(30.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit associated with the
exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
5.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation for the
vesting of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of deferred
compensation for cancellation
of stock options |
|
|
— |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
MedImmune, Inc.
Consolidated Statements of Shareholders’ Equity (Continued)
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
Common Stock, |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Other |
|
|
|
|
|
|
|
| |
|
$0.01 par |
|
|
Paid-in |
|
|
Deferred |
|
|
Earnings |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
Balance, December 31, 2004 |
|
|
255.4 |
|
|
$ |
2.6 |
|
|
$ |
2,690.0 |
|
|
$ |
(0.1 |
) |
|
$ |
(788.5 |
) |
|
$ |
11.1 |
|
|
|
(6.9 |
) |
|
$ |
(240.5 |
) |
|
$ |
1,674.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency
translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized
gain/loss
on investments, net of
tax of $12.0 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(21.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(21.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options and
warrants exercised |
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(34.6 |
) |
|
|
— |
|
|
|
2.1 |
|
|
|
70.9 |
|
|
|
36.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
under
the employee stock
purchase plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.8 |
) |
|
|
— |
|
|
|
0.3 |
|
|
|
8.4 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.0 |
) |
|
|
(105.9 |
) |
|
|
(105.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit associated
with the
exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
7.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation for the
vesting of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax reversal of paid-in
capital
related to the
expiration of
Aviron stock options |
|
|
— |
|
|
|
— |
|
|
|
(9.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
255.5 |
|
|
$ |
2.6 |
|
|
$ |
2,688.5 |
|
|
$ |
— |
|
|
$ |
(842.5 |
) |
|
$ |
(11.0 |
) |
|
|
(8.5 |
) |
|
$ |
(267.1 |
) |
|
$ |
1,570.5 |
|
| |
|
|
The accompanying notes are an integral part of these financial statements.
MedImmune,
Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION
MedImmune, Inc., a Delaware corporation (together with its subsidiaries, the “Company”), is a
biotechnology company headquartered in Gaithersburg, Maryland. The Company is committed to
advancing science to develop better medicines that help people live healthier, longer and more
satisfying lives. The Company currently focuses its efforts on using biotechnology to produce
innovative products for prevention and treatment in the therapeutic areas of infectious disease,
cancer and inflammatory disease. The Company’s scientific expertise is largely in the areas of
monoclonal antibodies and vaccines. The Company markets four products, Synagis, FluMist, Ethyol and
CytoGam, and has a diverse pipeline of development-stage products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies applied in the preparation of these financial statements are
as follows:
Basis of Presentation— The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Seasonality— The Company’s largest revenue-generating product, Synagis, is used to prevent
RSV disease in high-risk infants. RSV is most prevalent in the winter months in the Northern
Hemisphere. Because of the seasonal nature of RSV, limited sales, if any, of Synagis are expected
during the second and third quarters of any calendar year, causing results to vary significantly
from quarter to quarter. Sales of Synagis comprised approximately 87%, 84% and 86% of total product
sales for the years ended December 31, 2005, 2004 and 2003, respectively.
FluMist is a nasally delivered live, attenuated vaccine used to help prevent influenza in
healthy individuals age 5 to 49, which is most prevalent in the fall and winter months in the
Northern Hemisphere. The majority of FluMist sales are expected to occur during the second half of
any calendar year because of the seasonal nature of influenza, causing results to vary
significantly from quarter to quarter.
Cash, Cash Equivalents and Marketable Securities— The Company considers all highly liquid
instruments purchased with a maturity of three months or less at date of purchase to be cash
equivalents. The majority of the Company’s cash equivalents consist of money market mutual funds,
commercial paper, and U.S. government and agency securities. Investments in marketable securities
consist principally of U.S. government and agency securities and corporate notes and bonds.
Investments with maturities of three to twelve months from the balance sheet date are considered
current assets, while those with maturities in excess of one year are considered non-current
assets. The securities are held for an unspecified period of time and may be sold to meet liquidity
needs and, therefore, are classified as available-for-sale. Accordingly, the Company records these
investments at fair value, with unrealized gains and losses on investments reported as a component
of other comprehensive income, net of tax.
Substantially all of the Company’s cash and cash equivalents, and short-term and long-term
investments are held in custody by three major U.S. financial institutions. Deposits held with
banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may
be redeemed upon demand and, therefore, bear minimal risk. The Company’s short-term and long-term
investments generally consist of marketable securities with investment grade credit ratings and
deposits with major banks. The Company’s investment guidelines are intended to limit the amount of
investment exposure as to issuer, maturity, and investment type. Maturities generally range from
one month to seven years. The fair values of these investments are sensitive to changes in interest
rates and the credit-worthiness of the security issuers. Further, interest income earned on
variable rate debt securities is exposed to changes in the general level of interest rates.
The Company’s short-term and long-term investments are subject to adjustment for
other-than-temporary impairments. Impairment charges are recognized in the consolidated statements
of operations when a decline in the fair value of an investment falls below its cost value and is
judged to be other than temporary. Various factors are considered in determining whether an
impairment charge is required, including: the length of time and extent to which the fair value has
been less than the cost basis; the financial condition and near-term prospects of the issuer;
fundamental changes to the business prospects of the issuer; share prices of subsequent offerings;
and the Company’s intent and ability to hold the investment for a period of time sufficient to
allow for any anticipated recovery in market value.
Minority Interest Investments— The Company’s wholly owned venture capital subsidiary,
MedImmune Ventures, Inc., manages the Company’s portfolio of minority interest investments and
makes investments in public or private biotechnology companies focused on discovering and
developing
human therapeutics. The Company’s minority interest investments are accounted for under
the risk and rewards model or the voting interest model, depending on the facts and circumstances
of the individual investments. Currently, the Company does not have investments that are subject to
consolidation under the risks and rewards model.
The Company’s minority interest investments in publicly traded companies are categorized as
available-for-sale securities. Due to the highly volatile share prices of these investments, the
investments are subject to unrealized holding gains or losses. The Company’s minority interest
investments in private companies are maintained on the cost or equity method of accounting,
depending upon the facts and circumstances of the individual investments. For investments carried
on the equity method, the Company’s proportionate share of the investees’ gains or losses is
recorded on a quarterly basis.
The Company’s minority interest investments are subject to adjustment for other-than-temporary
impairments.
Fair Value of Financial Instruments— The carrying amount of financial instruments, including
cash and cash equivalents, trade receivables, contracts receivable, other current assets, accounts payable and accrued expenses, approximate fair value as of
December 31, 2005 and 2004 due to the short maturities of these instruments.
Concentration of Credit Risk— The Company sells its products primarily to a limited number of
pharmaceutical wholesalers and distributors without requiring collateral. The Company periodically
assesses the financial strength of these customers and establishes allowances for anticipated
losses when necessary. As of December 31, 2005, trade accounts receivable included four customers
that each accounted for 39%, 15%, 12% and 10% of gross trade accounts receivable, respectively. As
of December 31, 2004, trade accounts receivable included four customers that each accounted for
23%, 18%, 13% and 13% of gross trade accounts receivable, respectively.
Inventory— Inventories are stated at the lower of cost or market, determined using the
first-in, first-out method. The Company evaluates inventories available for commercial sale
separately from inventories related to product candidates (“pre-approval inventories”) that have
not yet been approved.
The Company currently outsources the manufacturing of certain of its marketed products for
select territories under manufacturing and supply agreements. The products manufactured under these
agreements are included in inventory when the Company obtains title to the product and assumes the
risk of loss.
In the lower of cost or market evaluation for inventories available for commercial sale,
market value is defined as the lower of replacement cost or estimated net realizable value, based
upon management’s estimates about future demand and market conditions. When the Company determines
that inventories for commercial sale have expired, exist in excessive quantities, do not meet
required quality standards, or will not generate sufficient revenues to cover costs of production
and distribution, the Company measures the amount of the permanent write down as the difference
between the historical cost of the inventory and its estimated market value.
The Company may capitalize pre-approval inventories if management believes that 1) commercial
approval by the FDA is probable, such as would be evidenced by a favorable recommendation for
approval regarding the safety and efficacy of the product candidate by the FDA or one of its
advisory bodies (or other regulatory body with authority to grant marketing approval for drugs and
biological products for international sale), and 2) it is probable that its manufacturing
facilities will be approved by the FDA (or other regulatory body) for the production of inventory
as determined by the nature and scope of any unresolved issues and the remediation required.
In the lower of cost or market evaluation for pre-approval inventories, market value is
defined as the lower of replacement cost or estimated net realizable value, based upon management’s
estimates about future demand and market conditions, including probability of market acceptance of
the product. When the Company determines that pre-approval inventories will not have a sufficient
shelf life to be sold commercially, or if sold, will not generate sufficient revenues to cover
costs of production and distribution, the Company measures the amount of permanent write down as
the difference between the historical cost and its estimated probable future market value.
As of December 31, 2005 and 2004, the Company did not have pre-approval inventories on the
consolidated balance sheets.
Product Sales— The Company recognizes revenue on product sales when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed or determinable, and
collectibility is probable. These criteria are generally met upon shipment of product or receipt of
product by customers, depending on the contractual terms of the arrangement.
In certain of the Company’s international distribution agreements, a portion of the
compensation received by the Company from its partner is variable based, in part, on the end-user
sales price. When all of the other revenue criteria have been met, the Company recognizes revenue
to the extent that the customer has an obligation to pay, the customer has limited or no control
over the end-user sales price and, accordingly, any subsequent adjustments to the recorded revenue
are not expected to be significant.
Subsequent adjustments to recorded revenue that result from variances between amounts previously invoiced and the total sales price received are recorded as an
adjustment to product sales in the quarter in which they become known.
Sales Allowances —Product sales are recorded net of allowances for estimated chargebacks,
returns, discounts, and government rebates. Both in the U.S. and elsewhere, sales of pharmaceutical
products depend on the availability of reimbursement to the consumer from third-party payers, such
as government and private insurance plans. The Company estimates the portion of its sales that will
be covered by government insurance and records allowances at a level that management believes is
sufficient to cover estimated requirements for reimbursements. Allowances for discounts, returns,
and chargebacks, which are netted against accounts receivable, totaled $20.6 million and $14.5
million at December 31, 2005 and 2004, respectively. Allowances for government reimbursements were
$52.5 million as of December 31, 2005 and 2004 and are included in accrued expenses in the
accompanying balance sheets.
Other Revenues-
Contract Revenues— The Company uses the milestone payment method of accounting for contract
revenues, recognizing revenue when all milestones to be received under contractual arrangements are
determined to be substantive, at-risk and the culmination of an earnings process. Substantive
milestones are payments that are conditioned upon an event requiring substantive effort, when the
amount of the milestone is reasonable relative to the time, effort and risk involved in achieving
the milestone and when the milestones are reasonable relative to each other and the amount of any
upfront payment. If all of these criteria are not met, then the Company will use the
contingency-adjusted performance model.
Incremental revenue recognized under the amended terms of the Company’s international
distribution agreement with Abbott International (“AI”), which represents amounts received in
excess of the estimated fair value for product sales of Synagis, are recorded as other revenues in
the Company’s consolidated statement of operations.
Miscellaneous Revenues— Other revenues may also include licensing fees, grant income, royalty
income, corporate funding, and reimbursement of expenses under research and other collaborative agreements. These revenues are recognized when the payments
are received or when collection is assured, and only when no further performance obligations exist.
Royalty Expense— Product royalty expense is recognized as a cost of sales concurrently with
the recognition of product revenue, net of allowances for estimated chargebacks, returns,
discounts, and government rebates, based on a contractually stipulated royalty percentage. Any
adjustments to royalty expense that result from adjustments to contractually defined net sales are
recorded as an adjustment to expense in the quarter they become known. During 2005, the Company
recouped approximately $12.1 million from licensors related to overpayments under various royalty
agreements. The Company recognized $4.9 million of this royalty recoupment as a reduction to cost
of goods sold during 2005 after determining that related contingencies had been resolved. The
remaining amount of $7.2 million has been deferred until fully realizable and is recorded in Other
Current Liabilities.
Research and Development Expenses—
Research and development expenses include salaries, benefits and other headcount related costs
for personnel performing research and development activities, clinical trial and related clinical
materials manufacturing costs, contract and other outside service fees, and facilities and overhead
costs.
Licensing Fees— In the normal course of business, the Company enters into collaborative
research and development and in-licensing agreements to acquire access to technology. These
collaborative agreements usually require the Company to pay upfront fees and milestone payments,
some of which are significant. Upfront payments and milestones related to early stage technology
are expensed as incurred. Milestone payments are accrued when it is deemed probable that the
milestone event will be achieved. The agreements may also require that the Company provide funding
to its partners for research programs; such costs are expensed as incurred.
Other— The Company accrues estimated costs for clinical and preclinical studies performed
worldwide by contract research organizations or by internal staff based on the total of the costs
incurred through the balance sheet date. The Company monitors the progress of the trials and their
related activities, and adjusts the accruals accordingly.
Selling, General and Administrative Expenses—
Co-promotion Expenses — Co-promotion expense in connection with the Company’s agreement, as
amended, with the Ross Products Division of Abbott to co-promote Synagis in the U.S. is recognized
as general and administrative expense concurrently with the recognition of product revenue and is
calculated based on a contractual co-promotion percentage.
Allowances for Doubtful Accounts — The Company recognizes bad debt expense as a component of
selling, general, and administrative expense. The Company estimates the allowances for doubtful
accounts based on specific identification of estimated uncollectible amounts and a percentage of
other gross trade accounts receivable balances outstanding at the end of the period, based upon an assessment of the concentration of credit
risk and the financial condition and environment of its customers. Because of the seasonal nature
of the Company’s largest product, Synagis, the accounts receivable balances fluctuate
significantly. Accordingly, the allowance for doubtful accounts also fluctuates. Allowances for
doubtful accounts, which are netted against accounts receivable, totaled $2.9 million and $1.8
million at December 31, 2005 and 2004, respectively.
Advertising Expense — The Company expenses production costs of advertising as incurred.
Advertising costs for television time and space in publications are deferred until the first
advertisement occurs. Advertising expense for the years ended December 31, 2005, 2004 and 2003 was
$11.0 million, $8.0 million and $8.1 million, respectively.
Property and Equipment— Property and equipment are stated at cost. Interest cost incurred
during the period of construction of plant and equipment is capitalized until the asset is placed
in service, after FDA licensure of the facility is obtained. Depreciation and amortization expense
commence when the asset is placed in service for its intended purpose. Depreciation and
amortization is computed using the straight-line method based upon the following estimated useful
lives:
| |
|
|
|
|
| |
|
Years |
|
Building and improvements |
|
|
15-30 |
|
Manufacturing, laboratory, and facility equipment |
|
|
5-15 |
|
Office furniture and equipment |
|
|
3-7 |
|
Amortization of leasehold improvements is computed on the straight-line method based on the
shorter of the estimated useful life of the improvement or the term of the lease. Upon the
disposition of assets, the costs and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the statements of operations. Repairs and maintenance
costs are expensed as incurred and were $9.2 million, $8.5 million and $6.8 million for the years
ended December 31, 2005, 2004 and 2003, respectively.
FDA validation costs are capitalized as part of the effort required to acquire and construct
long-lived assets, including readying them for their initial intended use, and are amortized over
the estimated useful life of the asset.
The Company evaluates property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The Company considers
historical performance and anticipated future results in its evaluation of the potential
impairment. Accordingly, when the indicators of impairment are present, the Company evaluates the
carrying value of these assets in relation to the operating performance of the business and future
undiscounted cash flows expected to result from the use of these assets. Impairment losses are
recognized when both the fair value and the sum of the expected future cash flows are less than the
assets’ carrying value.
Intangible Assets— The Company’s intangible assets are definite-lived assets stated at
amortized cost. Amortization of the intangible assets reflects the pattern in which the assets’
economic benefits are consumed or otherwise used up, unless such a pattern cannot be reasonably
determined, in which case the straight-line method of amortization is used. The Company reviews its
intangible assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and continually evaluates the reasonableness of
the remaining useful lives of these assets.
Goodwill— Goodwill represents the excess cost of the acquisition of Aviron, a
California-based vaccine company, which occurred during 2002 (the “Acquisition”), over the net of
the amounts assigned to assets acquired and liabilities assumed. Goodwill is not amortized, but is
evaluated for impairment annually or whenever events or changes in circumstances suggest that the
carrying amount may not be recoverable. As of December 31, 2005 and 2004, goodwill totaled $11.0
million and $24.8 million, respectively, and is included in other long-term assets on the
accompanying consolidated balance sheets.
During 2005, the Company recorded net adjustments to reduce goodwill by $13.8 million, of
which $10.0 million resulted from the correction to certain prior period purchase accounting
adjustments related to the Acquisition, and $3.8 million resulted from current year purchase
accounting adjustments (see Note 15). During 2004 and 2003, the Company recorded adjustments to
goodwill totaling $11.2 million and ($2.4) million, respectively, reflecting adjustments to
deferred tax assets relating to the resolution of income tax related uncertainties.
Derivative Instruments— Derivative instruments are recorded on the balance sheet at fair
value. Changes in fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of a hedge
transaction and, if so,
depending on the type of hedge transaction. For foreign currency cash-flow hedge transactions in which the Company is hedging the variability of cash flows related to
inventory purchases, changes in the fair value of the derivative instruments are reported in other
comprehensive income. The gains and losses on these derivatives that are reported in other
comprehensive income are reclassified as earnings or losses in the periods in which the related
inventory is sold. The ineffective portion, if any, of all hedges or gains or losses on cash-flow
hedges related to inventory transactions that subsequently become not probable of occurring are
recognized in the current period.
The Company is obligated to make certain payments to foreign suppliers in local currency. To
hedge the effect of fluctuating foreign currencies in its financial statements, the Company may
enter into foreign forward exchange contracts. Gains or losses associated with the forward
contracts are computed as the difference between the foreign currency contract amount at the spot
rate on the balance sheet date and the forward rate on the contract date. As of December 31, 2005
and December 31, 2004, the Company had no outstanding forward contracts.
During 2003, the Company made plans to liquidate its holdings in certain equity securities in
its portfolio, over a period of approximately one year. To hedge the risk of market fluctuations,
the Company entered into equity derivative contracts which were designated as cash flow hedges. These contracts were settled during 2004, and the Company
recognized a net gain of $9.7 million on the sale of the equity securities, which is included in
gain on investment activities in the accompanying statement of operations.
Income Taxes— The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under
SFAS No. 109, deferred income taxes are recognized for tax attributes and for differences between
the tax bases of assets and liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are established to reduce
net deferred tax assets to the amount management determines is more likely than not to be realized.
Future reversals of valuation allowances related to deferred tax assets established in acquisition
purchase accounting will first be applied against goodwill and other intangibles when appropriate
before recognition of a benefit in the consolidated statement of operations. Tax contingency
reserves are established for income tax and contingent interest where the potential for loss is
probable and reasonably estimable in accordance with SFAS No. 5, “Accounting for Contingencies.”
Income tax expense includes the taxes payable for the period and changes during the period in
deferred tax assets and liabilities. Income tax expense excludes the tax effects of (1) the
exercise of stock options for which benefit is recognized directly as an increase in shareholders’
equity, (2) adjustments related to purchase accounting which are recorded to goodwill, and (3)
adjustments recorded to accumulated other comprehensive income.
Earnings Per Share— Basic earnings per share is computed based on the weighted average number
of common shares outstanding during the period. Diluted earnings per share is computed based on the
weighted average shares outstanding adjusted for all dilutive potential common shares. The dilutive
impact, if any, of common stock equivalents outstanding during the period, including outstanding
stock options and warrants, is measured by the treasury stock method. The dilutive impact, if any,
of the Company’s 1% convertible senior notes is measured using the if-converted method, regardless
of whether the market price trigger has been met. Potential common shares are not included in the
computation of diluted earnings per share if they are dilutive.
Comprehensive Income— Comprehensive income is comprised of net earnings and other
comprehensive income, which includes certain changes in equity that are excluded from net earnings,
such as translation adjustments, unrealized holding gains and losses on available-for-sale
marketable securities, and unrealized gains and losses on hedging instruments. Reclassification
adjustments occur when we realize gains or losses on sales of investments. During 2004 and 2003,
reclassification adjustments for realized gains on available-for-sale marketable securities, net of
tax, were $6.7 million and $3.6 million, respectively. Reclassification adjustments during 2005
were immaterial.
Stock-based Compensation— Compensation costs attributable to stock option and similar plans
have been recognized based on any excess of the quoted market price of the stock on the date of
grant over the amount the employee is required to pay to acquire the stock, in accordance with the
intrinsic-value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Such amount, if any,
was recognized over the related vesting period.
The Company adopted SFAS 123R, “Share-Based Payment” (“SFAS 123R”) on January 1, 2006, and
will recognize the expense associated with its stock option and similar plans using a fair
value-based method beginning on January 1, 2006 (see discussion of New Accounting Standards below).
The following table illustrates the effect on net earnings (loss) and earnings (loss) per
share if the Company had applied the fair value recognition provisions to stock-based employee
compensation (in millions, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2005 |
|
|
2004(1) |
|
|
2003(1) |
|
| Net earnings (loss), as reported |
|
$ |
(16.6 |
) |
|
$ |
(3.8 |
) |
|
$ |
183.2 |
|
|
|
Add:
|
|
Stock-based employee
compensation expense
included in historical
results for the
vesting of stock
options assumed in
conjunction with the
Aviron acquisition,
calculated in
accordance with FIN
44, “Accounting for
Certain Transactions
Involving Stock
Compensation-an
Interpretation of APB
25,” net of related
tax effect
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
2.5 |
|
|
|
Deduct:
|
|
Stock-based employee
compensation expense
determined under the
fair value based
method for all awards,
net of related tax
effect
|
|
|
(43.3 |
) |
|
|
(55.3 |
) |
|
|
(71.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pro forma net earnings (loss) |
|
$ |
(59.8 |
) |
|
$ |
(58.4 |
) |
|
$ |
114.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings (loss) per share, as reported |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.73 |
|
| Basic earnings (loss) per share, pro forma |
|
$ |
(0.24 |
) |
|
$ |
(0.24 |
) |
|
$ |
0.46 |
|
| Diluted earnings (loss) per share, as reported |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.72 |
|
| Diluted earnings (loss) per share, pro forma |
|
$ |
(0.24 |
) |
|
$ |
(0.24 |
) |
|
$ |
0.45 |
|
|
|
|
| (1) |
|
The pro forma net earnings (loss) for 2004 and 2003 of $(58.4) million and $114.6 million,
respectively, have been recomputed from the pro forma net earnings (loss) previously disclosed
of $(66.2) million and $98.2 million, respectively, to reflect a revised estimated tax effect
and to properly reflect the Company’s accounting policy for amortization of compensation costs
using the graded-vesting method, an accelerated method described by FASB Interpretation No.
28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans”
(“FIN 28”) (see discussion of New Accounting Standards below). |
As of December 31, 2005, there was approximately $34 million of total unrecognized pro forma
compensation cost, net of tax, related to nonvested stock option awards. Approximately 66% of this
unrecognized compensation cost will be amortized during 2006.
Effective January 1, 2005, the Company has estimated the fair value of stock compensation
expense associated with employee stock options using the binomial model approach. The Company believes that the binomial approach provides a better measure of fair
value of employee stock options because it incorporates assumptions about patterns of employee
exercises in relation to such considerations as stock price appreciation, post-vesting employment
termination behavior, the contractual term of the option and other factors. Before 2005, the
Company estimated the fair value of employee stock options using the Black-Scholes option pricing
model, which does not incorporate such correlation assumptions.
Based on an analysis of economic data that marketplace participants would likely use in
determining an exchange price for an option, the Company’s weighted-average estimate of expected
volatility for 2005 was 32%, reflecting the implied volatility determined from the market prices of
traded call options on the Company’s stock. During 2004 and 2003, the weighted-average estimate of
expected volatility using monthly observations was 49% and 51%, respectively, based on the
historical volatility over the expected term.
The following disclosure provides a description of the significant assumptions used during
2005, 2004 and 2003 to estimate the fair value of the Company’s employee stock option awards.
2005 - The fair value of employee stock options granted during 2005 was estimated using a
binomial model that uses the weighted-average assumptions shown in the table below. The Company
uses historical data to estimate option exercise and employee termination within the binomial
model; separate groups of employees that have similar historical exercise behavior are considered
separately for valuation purposes. The expected life of an option is derived from the output of the
binomial model and represents the period of time that options granted are expected to be
outstanding; the range given below results from certain groups of employees exhibiting different
exercise patterns. The risk-free interest rate is based on the rate currently available for
zero-coupon U.S. government issues with a term equal to the contractual life of the option.
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
|
|
|
Option pricing model |
|
Binomial |
|
|
|
|
Expected stock price volatility |
|
|
32 |
% |
|
|
|
|
Expected dividend yield |
|
|
0 |
% |
|
|
|
|
Expected life of option-years |
|
|
4.3 to 5.4 |
|
|
|
|
|
Risk-free interest rate |
|
|
4.3 |
% |
|
|
|
|
Weighted average fair value of options granted |
|
$ |
8.94 |
|
|
|
|
|
2004 and 2003 — The fair value of employee stock options granted during 2004 and 2003 was
estimated using a Black-Scholes model that uses the weighted-average assumptions shown in the table
below. The expected life of an option was derived from historical stock option exercise experience.
The risk-free interest rate was based on the rate currently available for zero-coupon U.S. government issues with a term equal to the
expected life of the option.
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
|
2003 |
|
Option pricing model |
|
Black-Scholes |
|
Black-Scholes |
Expected stock price volatility |
|
|
49 |
% |
|
|
51 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected life of option-years |
|
|
5.0 |
|
|
|
5.0 |
|
Risk-free interest rate |
|
|
3.4 |
% |
|
|
3.3 |
% |
Weighted average fair value of
options granted |
|
$ |
11.20 |
|
|
$ |
16.55 |
|
Defined Contribution Plans— The Company sponsors a defined contribution plan under Section
401(k) of the Internal Revenue Code covering substantially all full-time U.S. employees. Employee
contributions are voluntary and are determined on an individual basis subject to the maximum
allowable under federal tax regulations. Participants are always fully vested in their
contributions. The Company also makes employer contributions, which primarily vest pro ratably over
three years of service. During 2005, 2004 and 2003, the Company contributed approximately $3.9
million, $3.2 million and $2.4 million, respectively, in cash to the plan. The Company also
sponsors various defined contribution savings plans covering its full-time non-U.S. employees.
Reclassifications— Certain prior year amounts have been reclassified to conform to the
current presentation.
Use of Estimates— The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the financial statement date and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
New Accounting Standards—
On January 1, 2006, the Company adopted SFAS 123R, which requires public companies to
recognize expense associated with share-based compensation arrangements, including employee stock
options, using a fair value-based option pricing model. Adoption of the expense provisions of the
statement will have a material impact on the Company’s results of operations going forward. The
Company estimates that its pre-tax stock based compensation expense will approximate $40 million in
2006. Using the modified prospective transition method of adoption, the Company will reflect
compensation expense in its financial statements beginning January 1, 2006 with no restatement of
prior periods. As such, compensation expense will be recognized for awards that are granted,
modified, repurchased or cancelled on or after January 1, 2006 as well as for the portion of awards
previously granted that have not vested as of January 1, 2006. Upon the adoption, the Company
implemented the straight-line expense attribution method, whereas its previous expense attribution
method was the graded-vesting method, an accelerated method, described by FIN 28.
In December 2004, the FASB issued SFAS 151, “Inventory Costs—An Amendment of ARB No. 43,
Chapter 4.” SFAS 151 amends the guidance in ARB No. 43, Chapter 4 to require that idle facility
expense, freight, handling costs and wasted material (spoilage) be recognized as current-period
charges regardless of whether they meet the criterion of “so abnormal.” In addition, the Statement
requires that allocation of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. The Company adopted SFAS 151 for inventory costs on
January 1, 2006, without impact to its consolidated financial position and results of operations.
In December 2005, the SEC issued an interpretive release entitled “Commission Guidance
Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government
for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile.” This
release addresses the timing of revenue recognition for the sale of vaccines related to Federal
governmental stockpile programs and allows revenue earned under these programs to be recognized
when all of the revenue recognition criteria specified under GAAP and Commission rules and
regulations are met, with the exception of those criteria that require a fixed schedule for
delivery of goods and that the ordered goods must be segregated from the seller’s inventory. The
alternative accounting method described in this release is effective on January 1, 2006. The new
interpretive release does not have any impact on the Company’s consolidated financial position or
results of operations as of and for the year ended December 31, 2005. However, the interpretive
release may ease revenue recognition criteria for sales to the federal government under certain
stockpile programs, in which the Company may participate in the future.
3. ACQUISITION OF CELLECTIVE THERAPEUTICS, INC.
On October 14, 2005, the Company acquired the outstanding equity interests of Cellective
Therapeutics, Inc. (“Cellective”), a privately-held development-stage biopharmaceutical company,
for approximately $44.0 million in cash, net of cash acquired of approximately $8.9 million. The
transaction was accounted for as a purchase of assets with the purchase price allocated to assets
acquired and liabilities assumed based on their relative fair values. Cellective has three
preclinical stage programs developing monoclonal antibodies that target the B-cell antigens CD19,
CD20 and CD22, which are believed to play important roles in regulating the immune system and offer
potential treatments for patients battling cancer and autoimmune diseases. Under the terms of the
agreement, the Company has also agreed to pay Cellective’s shareholders future contingent payments
of up to approximately $105 million should the antibody programs achieve certain product
development and sales milestones. The Company’s wholly owned venture capital subsidiary, MedImmune
Ventures, Inc., owned approximately 10% of the outstanding equity interests of Cellective prior to
the acquisition. In connection with the transaction, the Company recorded a charge for acquired
in-process research and development (“IPR&D”) of approximately $43.7 million during the fourth
quarter of 2005. The charge for acquired IPR&D is not deductible for tax purposes. Significant
efforts will be required to complete the projects and the Company does not anticipate material cash
inflows until 8 to 10 years from the acquisition date, if ever. The nature, timing and projected costs associated with the
remaining efforts for completion are not reasonably estimable at this time.
4. SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION
The Company is organized along functional lines of responsibility as opposed to a product,
divisional or regional organizational structure. The Company’s chief operating decision makers make
decisions and assess the Company’s performance on a consolidated level. As such, the operations of
the Company comprise one operating segment.
The Company sells its products primarily to a limited number of pharmaceutical wholesalers and
distributors. Synagis is distributed domestically by about a dozen U.S. specialty distributors and
wholesalers. The Company has contractual agreements with Abbott International, an affiliate of
Abbott, for distribution of Synagis outside of the U.S., and with affiliates of Schering Plough
Corporation (“Schering”) for international distribution of Ethyol. Customers individually
accounting for at least ten percent of the Company’s product sales during the past three years are
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Amerisource-Bergen
Corp. |
|
|
35 |
% |
|
|
25 |
% |
|
|
29 |
% |
McKesson HBOC, Inc. |
|
|
14 |
% |
|
|
18 |
% |
|
|
12 |
% |
Cardinal Health, Inc. |
|
|
13 |
% |
|
|
15 |
% |
|
|
18 |
% |
Abbott International |
|
|
12 |
% |
|
|
9 |
% |
|
|
6 |
% |
Caremark Rx, Inc. (1) |
|
|
0 |
% |
|
|
6 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
Total % of product
sales |
|
|
74 |
% |
|
|
73 |
% |
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Caremark Rx, Inc. ceased being a direct customer, purchasing through
one of the Company’s wholesalers during 2004. |
The breakdown of product sales by geographic region is as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
United States |
|
$ |
1,055.6 |
|
|
$ |
1,008.7 |
|
|
$ |
911.3 |
|
International |
|
|
165.4 |
|
|
|
115.3 |
|
|
|
81.3 |
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
1,221.0 |
|
|
|
1,124.0 |
|
|
|
992.6 |
|
Other revenue |
|
|
22.9 |
|
|
|
17.1 |
|
|
|
61.8 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,243.9 |
|
|
$ |
1,141.1 |
|
|
$ |
1,054.4 |
|
|
|
|
|
|
|
|
|
|
|
Other revenue includes $17.1 million, $7.5 million and $10.2 million, respectively, of revenue
recognized under the Company’s international distribution agreement with Abbott International in
2005, 2004, and 2003 (see Note 16). The remaining other revenues in 2005, 2004 and 2003 consist
mainly of U.S. distribution, licensing and milestone revenues, corporate funding, and contract
manufacturing revenues.
The breakdown of long-lived assets by geographic region is as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
United States |
|
$ |
324.3 |
|
|
$ |
253.1 |
|
|
$ |
222.5 |
|
Europe |
|
|
57.1 |
|
|
|
57.8 |
|
|
|
51.1 |
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
381.4 |
|
|
$ |
310.9 |
|
|
$ |
273.6 |
|
|
|
|
|
|
|
|
|
|
|
The breakdown of product sales is as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Synagis |
|
$ |
1,062.9 |
|
|
$ |
942.3 |
|
|
$ |
849.3 |
|
Ethyol |
|
|
95.0 |
|
|
|
92.4 |
|
|
|
100.2 |
|
FluMist |
|
|
21.3 |
|
|
|
48.0 |
|
|
|
— |
|
Other Products |
|
|
41.8 |
|
|
|
41.3 |
|
|
|
43.1 |
|
|
|
|
|
|
|
|
|
|
|
Total Product Sales |
|
$ |
1,221.0 |
|
|
$ |
1,124.0 |
|
|
$ |
992.6 |
|
|
|
|
|
|
|
|
|
|
|
5. CASH, CASH EQUIVALENTS AND INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investments in cash, cash equivalents and marketable securities are comprised of the following
(in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Balance Sheet Date |
|
| |
|
|
|
|
|
Cost/ |
|
|
Gross |
|
|
Gross |
|
|
Cash and |
|
|
Short-Term |
|
|
Long-Term |
|
| |
|
Principal |
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Cash |
|
|
Marketable |
|
|
Marketable |
|
| |
|
Amount |
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Equivalents |
|
|
Securities |
|
|
Securities |
|
December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Money
Market Mutual
Funds |
|
$ |
42.9 |
|
|
$ |
42.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
42.9 |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial Paper |
|
|
163.2 |
|
|
|
161.9 |
|
|
|
— |
|
|
|
— |
|
|
|
110.5 |
|
|
|
51.4 |
|
|
|
— |
|
U.S. Government and
Agencies |
|
|
304.1 |
|
|
|
306.3 |
|
|
|
— |
|
|
|
(4.3 |
) |
|
|
— |
|
|
|
181.0 |
|
|
|
121.0 |
|
Corporate Notes and
Bonds |
|
|
905.1 |
|
|
|
942.5 |
|
|
|
0.7 |
|
|
|
(20.1 |
) |
|
|
— |
|
|
|
182.7 |
|
|
|
740.4 |
|
Equity Securities |
|
|
36.0 |
|
|
|
36.0 |
|
|
|
6.0 |
|
|
|
— |
|
|
|
— |
|
|
|
42.0 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,451.3 |
|
|
$ |
1,489.6 |
|
|
$ |
6.7 |
|
|
$ |
(24.4 |
) |
|
$ |
153.4 |
|
|
$ |
457.1 |
|
|
$ |
861.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Money
Market Mutual
Funds |
|
$ |
38.6 |
|
|
$ |
38.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
38.6 |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial Paper |
|
|
62.0 |
|
|
|
61.9 |
|
|
|
— |
|
|
|
— |
|
|
|
61.9 |
|
|
|
— |
|
|
|
— |
|
U.S. Government and
Agencies |
|
|
384.8 |
|
|
|
389.7 |
|
|
|
1.3 |
|
|
|
(2.8 |
) |
|
|
67.8 |
|
|
|
— |
|
|
|
320.4 |
|
Corporate Notes and
Bonds |
|
|
1,126.8 |
|
|
|
1,180.3 |
|
|
|
11.6 |
|
|
|
(7.4 |
) |
|
|
3.0 |
|
|
|
139.7 |
|
|
|
1,041.8 |
|
Equity Securities |
|
|
20.0 |
|
|
|
20.0 |
|
|
|
12.9 |
|
|
|
— |
|
|
|
— |
|
|
|
32.9 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,632.2 |
|
|
$ |
1,690.5 |
|
|
$ |
25.8 |
|
|
$ |
(10.2 |
) |
|
$ |
171.3 |
|
|
$ |
172.6 |
|
|
$ |
1,362.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair market value of the Company’s investments in cash, cash
equivalents and marketable securities at December 31, 2005, by contractual maturities are (in
millions):
| |
|
|
|
|
|
|
|
|
| |
|
Cost/ |
|
|
|
|
| |
|
Amortized |
|
|
Fair |
|
| |
|
Cost |
|
|
Value |
|
Equity securities |
|
$ |
36.0 |
|
|
$ |
42.0 |
|
Due in one year or less |
|
|
571.1 |
|
|
|
568.5 |
|
Due after one year through two years |
|
|
197.6 |
|
|
|
193.9 |
|
Due after two years through five years |
|
|
599.9 |
|
|
|
585.3 |
|
Due after five years through seven years |
|
|
85.0 |
|
|
|
82.2 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,489.6 |
|
|
$ |
1,471.9 |
|
|
|
|
|
|
|
|
Proceeds from sales of marketable securities totaled $223.6 million, $308.0 million and $219.3
million in 2005, 2004 and 2003, respectively. Gross gains recognized on sales of securities in
2005, 2004 and 2003 were $1.1 million, $11.2 million and $5.9 million, respectively, as determined by specific identification. Gross losses recognized on sales of
securities were $1.0 million during 2005 and immaterial during 2004 and 2003, as determined by
specific identification.
The following table shows the gross unrealized losses and fair value of the Company’s
investments in marketable securities with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at December 31, 2005 (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less Than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S. Government and
Agencies |
|
$ |
180.8 |
|
|
$ |
1.9 |
|
|
$ |
113.0 |
|
|
$ |
2.4 |
|
|
$ |
293.8 |
|
|
$ |
4.3 |
|
Corporate Notes and
Bonds |
|
|
100.1 |
|
|
|
0.9 |
|
|
|
697.9 |
|
|
|
19.2 |
|
|
|
798.0 |
|
|
|
20.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
280.9 |
|
|
$ |
2.8 |
|
|
$ |
810.9 |
|
|
$ |
21.6 |
|
|
$ |
1,091.8 |
|
|
$ |
24.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company reviewed these investments for potential other-than-temporary impairment. Based on
the credit worthiness of the issuers and the Company’s ability and intent to hold the investments
until maturity, the Company determined that the unrealized losses are not other-than-temporary.
The cost basis of the Company’s minority interest investments in privately-held companies was
$34.5 million and $27.9 million as of December 31, 2005 and 2004, respectively, and is included in
other assets in the accompanying consolidated balance sheets. The fair value of these investments
is not readily determinable, and the cost basis was not adjusted because there were no identified
events or changes in circumstances that would have a significant adverse effect on the fair value
of the investments.
During 2005, 2004 and 2003, the Company recorded impairment losses of $8.6 million, $13.7
million and $1.7 million, respectively, based on the duration and magnitude of the declines in fair
value, as well as the financial condition and near-term prospects of the investee companies.
6. INVENTORY
Inventory, net of valuation reserves, at December 31, is comprised of the following (in
millions):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
Raw materials |
|
$ |
11.1 |
|
|
$ |
16.5 |
|
Work in process |
|
|
42.4 |
|
|
|
38.3 |
|
Finished goods |
|
|
15.9 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
$ |
69.4 |
|
|
$ |
64.1 |
|
|
|
|
|
|
|
|
The Company recorded permanent inventory write-downs totaling $14.3 million, $45.8 million and
$17.7 million during 2005, 2004 and 2003, respectively, to cost of sales to reflect total FluMist
inventories at net realizable value. The Company recorded permanent inventory write-downs totaling
$19.6 million to other operating expenses to reflect FluMist inventories at net realizable value
during 2003. The Company recorded permanent inventory write-downs for unsold seasonal FluMist
product of $19.1 million, $4.3 million and $20.3 million during 2005, 2004, and 2003, respectively.
The Company recorded permanent inventory write-downs of $3.3 million during 2005 for certain
Synagis lots that were determined to be nonsaleable as they are outside of normal specifications
and not recoverable. In connection with the Company’s plans to replace the lyophilized formulation
of Synagis with the liquid formulation, the Company recorded a permanent inventory write-down at
December 31, 2004 for excess inventories of $5.5 million in cost of goods sold. The write-down was
based on an analysis of inventory quantities, including pending future commitments, and projected
sales levels of the lyophilized formulation of Synagis.
The Company recorded other permanent inventory write-downs totaling $5.2 million, $15.3
million and $1.4 million in cost of goods sold during 2005, 2004, and 2003, respectively.
7. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost at December 31, is comprised of the following (in
millions):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
Land and land improvements |
|
$ |
30.4 |
|
|
$ |
30.2 |
|
Buildings and building improvements |
|
|
123.8 |
|
|
|
123.1 |
|
Leasehold improvements |
|
|
55.7 |
|
|
|
55.5 |
|
Laboratory, manufacturing and facilities
equipment |
|
|
81.6 |
|
|
|
70.7 |
|
Office furniture, computers and equipment |
|
|
62.2 |
|
|
|
52.4 |
|
Construction in progress |
|
|
161.6 |
|
|
|
83.7 |
|
|
|
|
|
|
|
|
|
|
|
515.3 |
|
|
|
415.6 |
|
Less accumulated depreciation and
amortization |
|
|
(133.9 |
) |
|
|
(104.7 |
) |
|
|
|
|
|
|
|
|
|
$ |
381.4 |
|
|
$ |
310.9 |
|
|
|
|
|
|
|
|
As of December 31, 2005, construction in progress includes $81.3 million of engineering,
construction and equipment costs and other professional fees related to the pilot plant facility
and administrative offices located in Gaithersburg, Maryland, as well as $65.7 million of
engineering, construction and equipment costs related to the Company’s manufacturing facilities in
Pennsylvania and the United Kingdom. The Company’s bulk vaccine manufacturing in the U.K. was
approved by the FDA in December 2005, and is awaiting final regulatory approval in the U.K. prior
to being ready for its intended use. As of December 31, 2004, construction in progress includes
$15.9 million of engineering and construction costs and other professional fees related to the
pilot plant facility located in Gaithersburg, Maryland, and $62.0 million of engineering,
construction and equipment costs related to the Company’s manufacturing facilities in Pennsylvania
and the United Kingdom.
Depreciation and amortization expense for the years ended December 31, 2005, 2004 and 2003 was
$30.5 million, $30.4 million and $24.0 million, respectively.
Interest costs capitalized in connection with the Company’s construction activities totaled
$1.1 million, $1.6 million and $2.9 million in 2005, 2004 and 2003, respectively.
8. INTANGIBLE ASSETS
Intangible assets are comprised of the following at December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
| |
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Promotion rights acquired from Abbott |
|
$ |
360.4 |
|
|
$ |
(41.3 |
) |
|
$ |
— |
|
|
$ |
— |
|
Manufacturing know-how acquired from
Evans |
|
|
39.0 |
|
|
|
(34.6 |
) |
|
|
39.0 |
|
|
|
(25.9 |
) |
Other intangible assets |
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
399.8 |
|
|
$ |
(76.3 |
) |
|
$ |
39.4 |
|
|
$ |
(26.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 16, the Company recorded an intangible asset of $360.4 million during
2005 in conjunction with the reacquisition of the co-promotion rights for Synagis in the U.S. from
Abbott. Amortization is computed based on future sales of Synagis over the expected period of
active sales and marketing efforts in the U.S., which is projected to continue through the first
half of 2009, as the Company expects to launch Numax during the 2008/2009 RSV season. The Company’s
remaining intangible assets are amortized using the straight-line method based on the estimated
useful lives of the assets.
Amortization for the Company’s intangible assets for the years ended December 31, 2005, 2004
and 2003 was $50.0 million, $10.6 million and $16.6 million, respectively. The estimated aggregate
amortization for the remaining life of the assets is as follows (in millions):
| |
|
|
|
|
For the year ended December 31, 2006 |
|
$ |
102.1 |
|
For the year ended December 31, 2007 |
|
|
106.1 |
|
For the year ended December 31, 2008 |
|
|
85.2 |
|
For the year ended December 31, 2009 |
|
|
30.1 |
|
|
|
|
|
|
|
$ |
323.5 |
|
|
|
|
|
9. ACCRUED EXPENSES
Accrued expenses at December 31, are comprised of the following (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
Co-promotion expenses |
|
$ |
90.6 |
|
|
$ |
85.6 |
|
Rebates due to government purchasers |
|
|
52.5 |
|
|
|
52.5 |
|
Research and development expenses |
|
|
12.0 |
|
|
|
6.7 |
|
Sales and marketing costs |
|
|
16.0 |
|
|
|
22.8 |
|
Bonuses |
|
|
17.3 |
|
|
|
13.3 |
|
Clinical trial costs |
|
|
33.9 |
|
|
|
30.0 |
|
Other |
|
|
19.8 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
$ |
242.1 |
|
|
$ |
231.8 |
|
|
|
|
|
|
|
|
10. FACILITIES LEASES
The Company leases warehouse, laboratory and administrative space under numerous operating
leases. Under the leases, the Company is obligated to pay a basic monthly rent as well as utilities
and its proportionate share of taxes, assessments, insurance and maintenance costs. Rent expense
for the years ended December 31, 2005, 2004 and 2003 was $8.8 million, $9.2 million and $9.3
million, respectively.
The Company’s future minimum lease payments under operating leases are as follows (in
millions):
| |
|
|
|
|
| Year Ending December 31, |
|
|
|
|
2006 |
|
$ |
7.8 |
|
2007 |
|
|
6.2 |
|
2008 |
|
|
3.9 |
|
2009 |
|
|
2.6 |
|
2010 |
|
|
2.6 |
|
Thereafter |
|
|
25.5 |
|
|
|
|
|
|
|
$ |
48.6 |
|
|
|
|
|
11. LONG-TERM DEBT
Long-term debt at December 31, is comprised of the following (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
1% Convertible Senior Notes, due 2023 |
|
$ |
500.0 |
|
|
$ |
500.0 |
|
4% notes due to Maryland Department of Business and
Economic Development, due 2016 |
|
|
4.5 |
|
|
|
4.8 |
|
7.53% note due to Maryland Industrial Development Finance
Authority, due 2007
(collectively with the 4% notes referred to as the
“Maryland Notes”) |
|
|
1.5 |
|
|
|
2.1 |
|
Note due to Cooperative Rabobank, B.A., due 2009,
variable interest rate |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
506.2 |
|
|
|
507.1 |
|
Less current portion included in other current liabilities |
|
|
(501.0 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
$ |
5.2 |
|
|
$ |
506.2 |
|
|
|
|
|
|
|
|
Maturities of the Company’s long-term debt for the next five years are as follows:
2006—$501.0 million; 2007—$1.1 million; 2008—$0.6 million; 2009—$0.4 million; 2010—$0.4
million. As discussed below, the holders of the Company’s 1% convertible senior notes may require
the Company to redeem the notes on July 15, 2006 for cash. As such, the aggregate principal amount
of the notes of $500 million has been reclassified to current liabilities within the consolidated
balance sheet as of December 31, 2005 and is presented as due in 2005 representing the earliest
possible redemption date.
1% Convertible Senior Notes— During July 2003, the Company issued $500 million aggregate
principal amount of convertible senior notes due 2023 in a private placement. These notes bear
interest at 1% per annum payable semi-annually in arrears on January 15 and July 15 of each year.
Beginning July 2006, the Company will pay contingent interest on these notes during a six-month
interest period if the average trading price of these notes equals or exceeds 120% of the principal
amount of the notes. Under certain circumstances, these notes will be convertible into the
Company’s common stock at an initial conversion price of approximately $68.18 per share. On or
after July 15, 2006, the Company may at its option redeem all or a portion of these notes for cash
at a redemption price equal to 100% of the principal amount of the 1% Notes to be redeemed, plus
any accrued and unpaid interest; contingent interest, if any; and liquidated damages, if any. In
addition, on each of July 15, 2006, July 15, 2009, July 15, 2013 and July 15, 2019, holders may
require the Company to purchase all or a portion of their 1% Notes for cash at 100% of the
principal amount of the 1% Notes to be purchased, plus any accrued and unpaid interest; contingent
interest, if any; and liquidated damages, if any. The estimated fair value of the 1% Notes as of
December 31, 2005 and 2004 was $488.9 million and $481.1 million, respectively, based on quoted
market prices.
Collateralized Loans— The Maryland Notes are collateralized by the land, buildings and
building fixtures of the FMC. The agreements include a provision for early retirement of the notes
by the Company. Pursuant to the terms of the agreements, the Company is required to meet certain
financial and non-financial covenants including maintaining minimum cash balances and net
worth ratios. The Company maintains a $0.4 million compensating balance related to the Maryland Notes,
which is included in other assets.
The mortgage loan with Cooperative Rabobank B.A. is held by the Company’s subsidiary,
MedImmune Pharma B.V., and is collateralized by the land and buildings of its manufacturing
facility in Nijmegen, the Netherlands and guaranteed by the Company. Proceeds from the loan were
used to partially fund the purchase of additional equipment for the facility. The mortgage loan,
for which principal payments began in March 1995, has a 15-year term and bears interest at a
quarterly variable rate. The interest rate as of December 31, 2005 and December 31, 2004 was 4.95%
and 5.05%, respectively.
The estimated fair values of the Company’s collateralized loans at December 31, 2005 and 2004
based on quoted market prices or discounted cash flows using currently available borrowing rates,
were $6.2 million and $7.5 million, respectively, compared to the carrying values of $6.2 million
and $7.1 million, respectively.
12. SHAREHOLDERS’ EQUITY
Pursuant to the terms of the Stockholder Rights Plan adopted by the Company’s Board of
Directors, common stock purchase rights (“Rights”) were distributed as a dividend at the rate of
one Right for each share of common stock of the Company held by stockholders of record as of the
close of business on July 21, 1997. The Rights will be exercisable only if a person or group
acquires beneficial ownership of 20% or more of the Company’s common stock or commences a tender or
exchange offer upon consummation of which such a person or group would beneficially own 20% or more
of the Company’s stock. The Rights will expire on July 9, 2007.
In May 2003, the Company’s shareholders approved an amendment to the Company’s Restated
Certificate of Incorporation to increase the authorized number of shares of common stock from 320.0
million to 420.0 million.
The Company’s Board of Directors has authorized the repurchase of up to $500 million of the
Company’s common stock during the period from July 2003 through June 2006 on the open market or in
privately negotiated transactions, pursuant to terms management deems appropriate and at such times
it may designate. During 2005, the Company repurchased approximately 4.0 million shares at a cost
of $105.9 million, or an average cost of $26.18 per share. In 2004, the Company repurchased
approximately 1.2 million shares at a cost of $30.0 million, or an average cost of $24.33 per
share. In 2003, the Company repurchased approximately 6.2 million shares at a cost of $229.8
million, or an average cost of $36.83 per share.The Company will hold repurchased shares as
treasury shares and intends to use them for general corporate purposes, including but not limited
to acquisition-related transactions and for issuance upon exercise of outstanding stock options.
During 2005 and 2004, the Company reissued 2.4 million and 0.5 million shares, respectively, from
treasury.
13. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the diluted EPS
computation for the years ended December 31, 2005, 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Numerator (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for basic EPS |
|
$ |
(16.6 |
) |
|
$ |
(3.8 |
) |
|
$ |
183.2 |
|
Adjustments for interest expense on 1%
Convertible Senior Notes, net of tax |
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) for diluted EPS |
|
$ |
(16.6 |
) |
|
$ |
(3.8 |
) |
|
$ |
185.3 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Denominator (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic EPS |
|
|
246.9 |
|
|
|
248.6 |
|
|
|
250.1 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants |
|
|
— |
|
|
|
— |
|
|
|
3.7 |
|
1% Convertible Senior Notes |
|
|
— |
|
|
|
— |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS |
|
|
246.9 |
|
|
|
248.6 |
|
|
|
257.2 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
The Company incurred a net loss for 2005 and 2004 and, accordingly, did not assume exercise or
conversion of any of the Company’s outstanding stock options, warrants, or convertible notes during
the periods because to do so would be anti-dilutive. As a result, options and warrants to purchase
31.1 million and 30.9 million shares of common stock were outstanding at December 31, 2005 and
2004, respectively, but were excluded from the calculation of diluted earnings per share. The
Company’s 1% Notes, which were issued during 2003 and represent 7.3 million potential shares of
common stock issuable upon conversion, were excluded from the diluted earnings per share
calculation in 2005 and 2004 because they were anti-dilutive.
If option exercise prices are greater than the average market price of the Company’s common
stock for the period presented, the effect of including such options in the earnings per share
calculation is anti-dilutive. Options to purchase 14.8 million shares of common stock at prices
ranging from $32.38 to $83.25 per share were outstanding at December 31, 2003 but were not included
in the computation of diluted earnings per share because the exercise price of the options exceeded
the average market price.
14. COMMON STOCK EQUIVALENTS
The Company grants stock incentive awards under certain of the following plans. At the
Company’s annual meeting in May 2004, the Company’s shareholders approved the establishment of the
2004 Stock Incentive Plan, (the “2004 Plan”) to be used as the primary plan for employee awards. A
total of 21,000,000 shares of common stock have been reserved for issuance under the 2004 Plan. Of
this amount, a total of 8,000,000 shares were previously approved by the stockholders for issuance
under the 1999 Plan and were effectively transferred into the 2004 Plan.
| |
|
|
|
|
|
|
| |
|
|
|
Shares |
| |
|
|
|
Authorized for |
| Plan |
|
Description |
|
Option Grants |
| |
|
|
|
(in millions) |
1991 Plan
|
|
Provides option incentives to
employees, consultants and
advisors of the Company
|
|
|
33.0 |
|
1999 Plan
|
|
Provides option incentives to
employees, consultants and
advisors of the Company
|
|
|
23.3 |
|
2003 Non-Employee
Directors Plan
|
|
Provides option incentives to
non-employee directors
|
|
|
0.8 |
|
2004 Plan
|
|
Provides option, stock
appreciation rights,
restricted stock, stock units
and/or stock
incentive awards to
employees, non-employee
directors, consultants and
advisors of the
Company
|
|
|
21.0 |
|
The following compensation plans, for which there are options outstanding but no future grants
will be made, were acquired by the Company in connection with its acquisitions of U.S. Bioscience,
Inc. and Aviron (“Acquired Plans”):
| |
|
|
| Plan |
|
Description |
Non-Executive Plan
|
|
Provided option incentives to
employees who were not officers
or directors of U.S. Bioscience,
Inc., consultants and advisors of
the company |
Non-Employee Directors Plan
|
|
Provided option incentives to
elected non-employee directors of
U.S. Bioscience, Inc. |
1996 Equity Incentive Plan
|
|
Provided incentive and
nonstatutory stock options to
employees and consultants of
Aviron |
1999 Non-Officer Equity Incentive Plan
|
|
Provided nonstatutory stock
options, stock bonuses, rights to
purchase restricted stock, and
stock appreciation rights to
consultants and employees who
were not officers or directors of
Aviron |
Options under all plans normally vest over a three to five year period and have a maximum term of
10 years. The Company has reserved a total of 17.9 million shares of common stock for issuance
under these plans as of December 31, 2005.
Related stock option activity is as follows (shares in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1991, 1999 and |
|
|
Non-Employee |
|
|
|
|
| |
|
2004 Plans |
|
|
Directors Plans |
|
|
Acquired Plans |
|
| |
|
|
|
|
|
Price per |
|
|
|
|
|
|
Price per |
|
|
|
|
|
|
Price per |
|
| |
|
Shares |
|
|
share (1) |
|
|
Shares |
|
|
share (1) |
|
|
Shares |
|
|
share (1) |
|
Outstanding, Dec.
31, 2002 |
|
|
24.1 |
|
|
$ |
33.45 |
|
|
|
0.9 |
|
|
$ |
29.53 |
|
|
|
3.6 |
|
|
$ |
28.17 |
|
Granted |
|
|
5.4 |
|
|
|
30.18 |
|
|
|
0.2 |
|
|
|
35.87 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(2.0 |
) |
|
|
11.61 |
|
|
|
(0.1 |
) |
|
|
2.02 |
|
|
|
(0.7 |
) |
|
|
21.30 |
|
Canceled |
|
|
(1.4 |
) |
|
|
41.33 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
33.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Dec.
31, 2003 |
|
|
26.1 |
|
|
|
34.00 |
|
|
|
1.0 |
|
|
|
30.52 |
|
|
|
2.6 |
|
|
|
29.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
4.9 |
|
|
|
23.93 |
|
|
|
0.2 |
|
|
|
23.17 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(1.0 |
) |
|
|
9.21 |
|
|
|
(0.2 |
) |
|
|
1.31 |
|
|
|
(0.2 |
) |
|
|
20.86 |
|
Canceled |
|
|
(2.5 |
) |
|
|
35.51 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
32.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Dec.
31, 2004 |
|
|
27.5 |
|
|
|
33.12 |
|
|
|
1.0 |
|
|
|
33.12 |
|
|
|
2.1 |
|
|
|
30.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
5.0 |
|
|
|
25.78 |
|
|
|
0.2 |
|
|
|
26.71 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(1.6 |
) |
|
|
17.16 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
21.32 |
|
Canceled |
|
|
(2.4 |
) |
|
|
33.31 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
36.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Dec.
31, 2005 |
|
|
28.5 |
|
|
$ |
32.58 |
|
|
|
1.2 |
|
|
$ |
31.88 |
|
|
|
1.4 |
|
|
$ |
32.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Price per share is the weighted average exercise price. |
Additional information related to the plans as of December 31, 2005 is as follows (shares in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
|
Options Exercisable |
|
| |
|
|
|
|
|
Wtd Avg |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
remaining |
|
|
|
|
|
|
|
|
|
|
| Range of |
|
Options |
|
|
contractual |
|
|
Wtd Avg |
|
|
Options |
|
|
Wtd Avg |
|
| exercise prices |
|
outstanding |
|
|
life (yrs) |
|
|
Ex. Price |
|
|
Exercisable |
|
|
Ex. Price |
|
$ 0.01 - $10.00 |
|
|
1.7 |
|
|
|
1.7 |
|
|
$ |
6.26 |
|
|
|
1.7 |
|
|
$ |
6.26 |
|
$10.01 - $20.00 |
|
|
2.2 |
|
|
|
2.7 |
|
|
$ |
18.25 |
|
|
|
2.2 |
|
|
$ |
18.25 |
|
$20.01 - $30.00 |
|
|
14.0 |
|
|
|
7.4 |
|
|
$ |
25.65 |
|
|
|
6.8 |
|
|
$ |
26.28 |
|
$30.01 - $40.00 |
|
|
5.6 |
|
|
|
5.6 |
|
|
$ |
36.18 |
|
|
|
4.4 |
|
|
$ |
36.91 |
|
$40.01 - $50.00 |
|
|
3.6 |
|
|
|
5.3 |
|
|
$ |
42.46 |
|
|
|
3.4 |
|
|
$ |
42.50 |
|
$50.01 - $60.00 |
|
|
0.4 |
|
|
|
3.9 |
|
|
$ |
56.71 |
|
|
|
0.4 |
|
|
$ |
56.71 |
|
$60.01 - $70.00 |
|
|
3.3 |
|
|
|
3.6 |
|
|
$ |
60.88 |
|
|
|
3.3 |
|
|
$ |
60.88 |
|
$70.01 - $80.00 |
|
|
0.3 |
|
|
|
4.5 |
|
|
$ |
72.22 |
|
|
|
0.3 |
|
|
$ |
72.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
5.7 |
|
|
$ |
32.54 |
|
|
|
22.5 |
|
|
$ |
34.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2001, the Company introduced an employee stock purchase plan (“ESPP”) under which 3.0
million shares of common stock were reserved for issuance. Eligible employees may purchase a
limited number of shares of the Company’s common stock at 85% of the market value at plan-defined
dates. Employees purchased 0.3 million shares, 0.2 million shares and 0.2 million shares, for $5.6
million, $4.6 million and $4.8 million, during 2005, 2004 and 2003 respectively, under the plan.
In connection with the Acquisition, the Company assumed warrants to purchase common stock, of
which the following are outstanding as of December 31, 2005:
| |
|
|
|
|
|
|
|
|
| Shares (in 000’s) |
|
Exercise Price |
|
Expiration |
|
|
|
5.1 |
$ |
55.13 |
|
June 2008 |
|
|
15. INCOME TAXES
The components of the provision for income taxes are as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(1.7 |
) |
|
$ |
(10.9 |
) |
|
$ |
33.0 |
|
State |
|
|
8.0 |
|
|
|
(4.3 |
) |
|
|
7.4 |
|
Foreign |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Total current expense (benefit) |
|
|
6.4 |
|
|
|
(15.0 |
) |
|
|
40.6 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
5.0 |
|
|
|
4.8 |
|
|
|
83.1 |
|
State |
|
|
9.8 |
|
|
|
4.8 |
|
|
|
(15.7 |
) |
Foreign |
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total deferred expense |
|
|
17.7 |
|
|
|
9.6 |
|
|
|
67.4 |
|
|
|
|
|
|
|
|
|
|
|
Total tax expense (benefit) |
|
$ |
24.1 |
|
|
$ |
(5.4 |
) |
|
$ |
108.0 |
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Company’s deferred tax assets and liabilities at December 31,
are as follows (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
U.S. and state net operating loss
carryforwards |
|
$ |
63.3 |
|
|
$ |
77.4 |
|
U.K. net operating loss carryforwards |
|
|
1.8 |
|
|
|
6.8 |
|
U.S. general business credit carryforwards |
|
|
49.6 |
|
|
|
48.7 |
|
Alternative minimum tax credit
carryforwards |
|
|
8.0 |
|
|
|
7.5 |
|
Accrued co-promotional expenses not
currently deductible |
|
|
19.2 |
|
|
|
23.1 |
|
Fixed assets and intangibles |
|
|
35.4 |
|
|
|
19.3 |
|
Accounts receivable allowances and
reserves |
|
|
17.1 |
|
|
|
14.7 |
|
Allowance for government rebates |
|
|
11.4 |
|
|
|
14.1 |
|
Deferred compensation |
|
|
2.4 |
|
|
|
6.3 |
|
Other accrued expenses not currently
deductible |
|
|
9.7 |
|
|
|
6.6 |
|
State research and development credits |
|
|
14.1 |
|
|
|
13.1 |
|
Investment impairment |
|
|
10.3 |
|
|
|
6.9 |
|
Unrealized losses on investments |
|
|
5.9 |
|
|
|
— |
|
California capitalized research expenses |
|
|
0.7 |
|
|
|
1.3 |
|
Other |
|
|
2.2 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
251.1 |
|
|
|
247.0 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Unrealized gains on investments |
|
|
— |
|
|
|
(6.0 |
) |
Contingent interest |
|
|
(14.0 |
) |
|
|
(8.3 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(14.0 |
) |
|
|
(14.3 |
) |
|
|
|
|
|
|
|
U.S. valuation allowance |
|
|
(50.2 |
) |
|
|
(48.0 |
) |
U.K. valuation allowance |
|
|
(0.3 |
) |
|
|
(6.8 |
) |
|
|
|
|
|
|
|
Total valuation allowance |
|
|
(50.5 |
) |
|
|
(54.8 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
186.6 |
|
|
$ |
177.9 |
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes varies from the income taxes provided based on the
federal statutory rate (35%) as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
|
Amount |
|
|
Tax Rate |
|
|
Amount |
|
|
Tax Rate |
|
|
Amount |
|
|
Tax Rate |
|
| |
|
(In Millions) |
|
U.S. |
|
$ |
(4.2 |
) |
|
|
|
|
|
$ |
(17.7 |
) |
|
|
|
|
|
$ |
292.4 |
|
|
|
|
|
International |
|
|
11.7 |
|
|
|
|
|
|
|
8.5 |
|
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before taxes
on income: |
|
$ |
7.5 |
|
|
|
|
|
|
$ |
(9.2 |
) |
|
|
|
|
|
$ |
291.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at U.S.
federal statutory
income tax rate |
|
$ |
2.6 |
|
|
|
35.0 |
% |
|
$ |
(3.2 |
) |
|
|
(35.0 |
)% |
|
$ |
101.9 |
|
|
|
35.0 |
% |
State taxes, net of
federal tax benefit |
|
|
(2.8 |
) |
|
|
(37.4 |
)% |
|
|
(2.3 |
) |
|
|
(25.5 |
)% |
|
|
(0.6 |
) |
|
|
(0.2 |
)% |
State research and
development credits |
|
|
(0.9 |
) |
|
|
(12.1 |
)% |
|
|
(10.8 |
) |
|
|
(117.5 |
)% |
|
|
— |
|
|
|
— |
% |
Changes in federal
valuation allowance |
|
|
— |
|
|
|
— |
% |
|
|
0.8 |
|
|
|
8.6 |
% |
|
|
— |
|
|
|
— |
% |
Change in
state valuation
allowance
related to
state research and
development credits |
|
|
0.7 |
|
|
|
9.9 |
% |
|
|
9.5 |
|
|
|
103.1 |
% |
|
|
— |
|
|
|
— |
% |
Other changes in
state valuation
allowance |
|
|
5.0 |
|
|
|
66.8 |
% |
|
|
4.0 |
|
|
|
43.4 |
% |
|
|
9.8 |
|
|
|
3.4 |
% |
Changes in foreign
valuation allowance |
|
|
(4.3 |
) |
|
|
(57.6 |
)% |
|
|
(2.4 |
) |
|
|
(25.6 |
)% |
|
|
1.0 |
|
|
|
0.3 |
% |
Change in state
income tax
contingency
reserve |
|
|
1.8 |
|
|
|
24.6 |
% |
|
|
(1.5 |
) |
|
|
(15.8 |
)% |
|
|
— |
|
|
|
— |
% |
Nondeductible IPR&D
expense |
|
|
15.3 |
|
|
|
203.4 |
% |
|
|
2.4 |
|
|
|
26.4 |
% |
|
|
— |
|
|
|
— |
% |
U.S. general
business credits
generated |
|
|
(0.8 |
) |
|
|
(11.0 |
)% |
|
|
(3.6 |
) |
|
|
(38.7 |
)% |
|
|
(2.4 |
) |
|
|
(0.8 |
)% |
Effect of foreign
rates other than
35% |
|
|
(0.6 |
) |
|
|
(7.5 |
)% |
|
|
(0.4 |
) |
|
|
(4.3 |
)% |
|
|
— |
|
|
|
— |
% |
Meals and
entertainment |
|
|
1.1 |
|
|
|
14.1 |
% |
|
|
0.8 |
|
|
|
8.7 |
% |
|
|
0.6 |
|
|
|
0.2 |
% |
Nondeductible costs
associated with
orphan drug
credit |
|
|
0.3 |
|
|
|
3.6 |
% |
|
|
0.4 |
|
|
|
4.7 |
% |
|
|
— |
|
|
|
— |
% |
Record goodwill for
prior period
purchase
accounting
adjustments |
|
|
1.8 |
|
|
|
23.6 |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
True-up of unearned
compensation |
|
|
(1.9 |
) |
|
|
(25.0 |
)% |
|
|
0.5 |
|
|
|
5.1 |
% |
|
|
— |
|
|
|
— |
% |
True-up of
permanent
differences in
prior year
U.K. tax returns |
|
|
3.1 |
|
|
|
41.6 |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
True-up of prior
period tax
provisions |
|
|
2.8 |
|
|
|
37.3 |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
Other |
|
|
0.9 |
|
|
|
11.8 |
% |
|
|
0.4 |
|
|
|
3.8 |
% |
|
|
(2.3 |
) |
|
|
(0.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24.1 |
|
|
|
321.1 |
% |
|
$ |
(5.4 |
) |
|
|
(58.6 |
)% |
|
$ |
108.0 |
|
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate on earnings from continuing operations was 321.1% in 2005 as
compared to (58.6)% in 2004. The higher effective tax rate in 2005 is attributable primarily to the
Cellective Therapeutics acquisition which resulted in non-deductible acquired IPR&D expense of
$43.7 million.
During the third quarter of 2005, the prior accounting for the reversal of approximately $4.8
million of valuation allowances associated with the utilization of certain acquired income tax
carryforwards was corrected. The correction was comprised of relatively small amounts related to
reporting periods dating back to the acquisition of Aviron in January 2002 and resulted in
additional income tax expense of approximately $4.8 million during the third quarter of 2005 and a
corresponding reduction to goodwill on the consolidated balance sheet.
During the fourth quarter of 2005, the Company made a number of additional corrections related
to the reporting periods dating back to the acquisition of Aviron relating predominantly to
unearned compensation, income tax carryforwards, valuation allowances and income tax contingency
reserves, as well as for the prior accounting for foreign exchange gains on intercompany borrowings
and provision to return adjustments for the Company’s U.K. subsidiary. The aggregate impact of
these fourth quarter 2005 corrections was to reduce goodwill by $4.0 million and reduce income tax
expense by $1.6 million bringing the cumulative third and fourth quarter corrections to $3.2
million. The $11.2 million true-up adjustment recorded in the fourth quarter of 2004 related to the
final resolution and determination of beginning deferred tax assets related to the fixed assets of
Aviron was also corrected during the fourth quarter of 2005 by reducing goodwill and increasing
deferred income taxes by $5.0 million.
Tax Attributes
At December 31, 2005 the Company had consolidated net operating loss carryforwards for U.S.
income tax purposes of approximately $129.4 million expiring between 2020 and 2022. As of December
31, 2005, the Company had foreign net
operating loss carryforwards of $6.0 million for U.K. income tax purposes that can be carried
forward indefinitely.
The U.K. carryforward amount decreased from 2004 as such losses were utilized and due to
reconciliations to previously-filed tax returns. The Company also has U.S. general business credit
carryforwards comprised of federal research and experimentation and orphan drug credit
carryforwards of approximately $68.2 million at December 31, 2005 expiring through 2025. The timing
and manner in which the Company will utilize U.S. net operating loss and general business credit
carryforwards in any year, or in total, will be limited by provisions of the Internal Revenue Code
Sections 382 and 383, regarding changes in ownership of the Company. It is not anticipated that
these limitations will result in the loss of the related tax attributes.
Items Charged to Equity and Other Comprehensive Income or Goodwill
During 2005 and 2004, the Company recognized certain tax benefits related to stock option
plans in the amount of $7.6 million and $5.2 million, respectively. $0.6 million of the 2005
benefits was recorded as a reduction to income taxes payable and a reduction to goodwill as it
related to vested options of legacy Aviron employees. The remaining benefits were recorded as a
reduction to income taxes payable and an increase in additional paid-in-capital.
During 2005 the Company recognized a decrease in its unearned compensation deferred tax asset
resulting in a charge to additional paid-in capital of $1.9 million. The unearned compensation
deferred tax asset was established for the tax effect of future deductions related to the unvested
shares of the legacy Aviron employees at the time of the Acquisition. The decrease in the deferred
tax asset in 2005 relates to 2005 terminations of certain of those employees. Also during 2005, the
Company made certain corrections to prior accounting for unearned compensation and accounting for
deductions related to vested shares of legacy Aviron employees. These corrections resulted in a
$6.7 million decrease to additional paid-in capital and a $3.2 million decrease to goodwill.
During 2005 the Company released valuation allowances due to utilization of the related
deferred tax assets resulting in a $3.2 million decrease to goodwill. As these valuation allowances
were established in the purchase accounting for the Acquisition, the release of the valuation
allowances were appropriately accounted for through goodwill.
During 2005 and 2004, the Company recognized a deferred tax asset related to unrealized losses
on investments in the amount of $11.9 million and $9.0 million, respectively. The deferred tax
assets were recorded properly as a decrease in accumulated other comprehensive income.
Valuation Allowance
At December 31, 2005, the Company had a total valuation allowance against its deferred tax
assets of $50.5 million. $17.6 million of the valuation allowance relates to acquired deferred
tax assets for which subsequently recognized tax benefits will be allocated
to reduce goodwill or other noncurrent intangible assets. The change in the valuation allowance was
a net decrease of $4.3 million and an increase of $11.9 million during 2005 and 2004, respectively;
$2.7 million of the 2005 decrease was due to reclassification of income tax contingency reserves
out of valuation allowance.
The state valuation allowance related to research and development credits increased by $0.7
million. The balance of the state valuation allowance, which predominantly relates to current year
generated net operating losses, increased in total by $4.2 million, with a $5.0 million increase
impacting tax expense and the remaining $0.8 million decrease impacting goodwill. The increase in
state valuation allowances related to research and development credits and net operating loss
carryforwards relates to current year generated credits and losses for which management has not
determined that it is more likely than not that the Company will have sufficient future earnings in
that jurisdiction to utilize the credits and losses.
The foreign valuation allowance decreased by $6.5 million with $4.3 million of the decrease
impacting tax expense and the remaining $2.2 million decrease impacting goodwill. The foreign
valuation allowance decrease relates to utilization of tax attributes. Since the Company has not
determined that it is more likely than not that the Company will generate U.K. taxable income in
the future, the Company has provided a full valuation allowance against remaining U.K. deferred tax
assets totaling $0.3 million.
Management is uncertain of the realization of the tax benefit associated with a portion of the
deferred tax assets attributable to the state net operating losses and the federal and state
general business credits which were generated by U.S. Bioscience and Aviron prior to their
acquisition by the Company. Accordingly, a valuation allowance remains for some of these deferred
tax assets at December 31, 2005 and 2004.
American Jobs Creation Act of 2004
Under the American Jobs Creation Act of 2004, a phased-in special deduction was introduced
associated with pre-tax income from domestic production activities. The Company was not eligible
for the special deduction in 2005 because the Company had net operating loss carryforwards that
offset its taxable income. It is unclear whether the Company will be eligible for the special
deduction in 2006 because the Company will have net operating carryforwards that will likely offset
taxable income.The Company has analyzed the impact of the one-time favorable foreign dividend
provisions enacted as part of the American Jobs Creation Act of 2004. After considering the impact
of this legislation on the Company’s tax position, the Company has determined that it continues to
be the Company’s intention to indefinitely reinvest undistributed foreign earnings. Accordingly, no
deferred tax liability has been recorded in connection therewith. It is not practicable for the
Company to determine the amount of the unrecognized deferred tax liability for temporary
differences related to investments in foreign subsidiaries that are essentially permanent in
duration.
Income Tax Contingency Reserves
The Company has established contingency reserves related to income taxes in accordance with
SFAS No. 5. These reserves predominantly relate to research and experimentation credits,
transaction costs, and various state matters. The reserves related to research and experimentation
credits and transaction costs were appropriately recorded against correlating deferred tax assets,
and the state income tax reserves were appropriately recorded in current taxes payable.
The State of Maryland passed legislation during 2004 disallowing intercompany royalties and
interest deductions. The Company reached a settlement with the State of Maryland on these
transactions which resulted in the Company releasing a reserve of $1.5 million in 2004.
16. SIGNIFICANT AGREEMENTS AND COLLABORATIONS
GlaxoSmithKline (GSK)— The Company and GSK are developing under a strategic alliance a
vaccine against human papillomavirus (“HPV”) to prevent cervical cancer. Under the terms of the
agreement, the companies will collaborate on research and development activities. The Company
conducted Phase 1 and Phase 2 clinical trials and manufactured clinical material for the studies.
GSK is responsible for the final development of the product, as well as regulatory, manufacturing,
and marketing activities. In exchange for exclusive worldwide rights to the Company’s HPV
technology, GSK agreed to provide the Company with an upfront payment, equity investment and
research funding (substantially all received and recognized prior to 2002), as well as potential
developmental and sales milestones and royalties on any product sales.
In February 2005, the Company amended its agreement with GSK for the development of HPV
vaccines. Under the amended agreement, the Company may also receive certain milestone payments and
royalties on future development and sales of an investigational HPV vaccine now in Phase 3
development by Merck & Co., Inc (“Merck”). In the aggregate, the Company may receive up to
approximately $42 million in milestone payments from GSK and Merck in connection with the
development of the HPV vaccines.
In August 2005, the Company licensed worldwide rights from GSK to develop certain
anti-Staphylococcal monoclonal antibodies, the lead antibody being in Phase 2 clinical development
for the prevention of serious bloodstream infections caused by Staphylococcus in low-birthweight
infants. The Company will be responsible for future research and development and any resulting
second-generation monoclonal antibodies as well as all future sales and marketing activities
worldwide. Under the terms of the agreement, the Company agreed to provide an upfront fee,
potential milestone payments, and royalties on any resulting marketed products. The Company has
also assumed responsibility for future milestone and royalty payment obligations to Biosynexus
Inc., from which GSK originally licensed the BSYX-A110 antibody and related rights in 2002. The
Company and GSK have been sued by Biosynexus in connection with this transaction (see Note 18).
In 2000, the Company granted a worldwide, exclusive license to its Streptococcus pneumoniae
vaccine technology to GSK in exchange for an upfront payment of $10 million and
future milestones totaling more than $20 million, plus royalties on any product
sales. Under the terms of the agreement, GSK is responsible for all clinical development,
manufacturing and sales and marketing activities for the S. pneumoniae vaccine.
The Company has rights to a vaccine against certain subunits of Epstein-Barr virus (“EBV”), a
herpes virus that is the leading cause of infectious mononucleosis. The vaccine is being developed
by GSK under a worldwide collaborative agreement, excluding North Korea and South Korea. Under the
agreement, the Company could receive future milestone payments, and royalties from GSK based on any
net product sales.
Abbott Laboratories— The Company has a co-promotion agreement with Abbott for promotion of
Synagis in the United States. Under the terms of the co-promotion agreement, the Company is
required to pay Abbott a percentage of net domestic sales based on achieving certain sales
thresholds
over the annual contract year. In August 2005, the Company amended the co-promotion
agreement. Under the terms of the amended agreement, Abbott will continue to provide promotional
activities with respect to Synagis until June 30, 2006, at which time the Company will take full
responsibility for sales and marketing in the United States. The Company will continue to pay
Abbott for their co-promotion services during the 2005/2006 respiratory syncytial virus (“RSV”)
season and has agreed to make certain incremental payments over and above the previous co-
promotion agreement to Abbott, including milestone-based payments and increased incentive payments
contingent upon the achievement of certain sales thresholds during 2005 and 2006. In addition, if
Numax, the Company’s second-generation anti-RSV monoclonal antibody that is currently in Phase 3
development, is not approved by the FDA before September 1, 2008, the Company would pay Abbott a
portion of the proceeds from the sales of Synagis in the U.S. for up to a two-year period beginning
at such time. The present value of the incremental payments that the Company deems probable have
been recorded as liabilities in the consolidated balance sheet and are as follows as of December
31, 2005: Other Current Liabilities, $236.7 million; Other Liabilities, $54.8 million. In
connection with this transaction, the Company recorded an intangible asset of $360.4 million which
represented the estimated fair value of the exclusive promotion rights, determined as the aggregate
present value of the probable incremental payments to be made as a result of the amended terms of
the agreement in excess of the value of the co-promotion services to be rendered, as determined
under the original agreement. The intangible asset will be amortized ratably over future sales of
Synagis over the expected period of active sales and marketing activity in the United States (see
Note 8).
The Company has a distribution agreement with AI, an affiliate of Abbott, to distribute
Synagis outside of the United States. Under the terms of the distribution agreement, the Company
manufactures and sells Synagis to AI at a price based on end-user sales. The Company recognized
$7.5 million in other revenues in each of 2004 and 2003 upon the achievement of certain sales goals
under the distribution agreement. In February 2005, the Company and AI amended the international
distribution agreement to include the exclusive distribution of Numax, if and to the extent
approved for marketing by regulatory authorities outside of the United States. Under the terms of the amended
agreement, AI will be working to secure regulatory approval of Numax outside of the U.S. and, upon
receipt of such approval, will distribute and market Numax outside of the United States. The
amended agreement requires AI to pay the Company additional compensation as compared to the
previous agreement, and such amounts in excess of estimated fair value for product sales of Synagis
are recognized as other revenue in the consolidated statement of operations. During 2005, $17.1
million of incremental revenue was recognized as other revenue.
ALZA Corporation— In October 2001, the Company reacquired the domestic marketing rights to
Ethyol from ALZA Corporation. Beginning April 1, 2002, the Company pays ALZA a declining royalty
for nine years, based on sales of Ethyol in the United States.
Evans Vaccines Limited— The Company manufactures key components of FluMist, specifically the
bulk monovalents and diluents, at a facility in Speke, the U.K., pursuant to a sublease arrangement
with Evans Vaccines Limited, a division of Chiron. The manufacturing areas on the existing site are
subleased through June 2006. In connection with the agreements, the Company made an initial payment
of $15.0 million and additional payments of $3.9 million each in September 2001, 2002, 2003, 2004
and 2005. The Company was also obligated to make additional payments not to exceed $20 million,
less a $1 million credit and accrued interest on that credit, to be paid over the term of the
agreement based on net sales of FluMist. This amount was due January 2006 and is included in other
current liabilities in the accompanying consolidated balance sheets.
Schering-Plough Corporation— The Company has an agreement with affiliates of Schering, for
distribution of Ethyol in countries comprising the European Union, the European Free Trade
Association and other countries outside of the United States.
The Company also has licensing agreements for Ethyol with affiliates of Schering for several
territories outside the United States. The licensees are required to pay the Company compensation
based on their net sales of Ethyol, and the Company sells the product to the licensees at an agreed
upon price.
Wyeth— In April 2004, the Company entered into agreements to dissolve the collaboration with
Wyeth for FluMist and to reacquire rights to an investigational second-generation liquid
formulation, CAIV-T, and all related technology. As a result of the dissolution and in exchange for
an upfront fee and future development milestones and sales-related royalties, MedImmune reacquired
the influenza vaccines franchise, and has assumed full responsibility for the manufacturing,
marketing, and sale of FluMist and any subsequent related products. During a transition period that
was substantially completed as of December 31, 2004, Wyeth provided bulk manufacturing materials
and transferred clinical trial data, as well as provided manufacturing support services.
During 2004, the Company made cash payments totaling $79.9 million under the terms of the
agreement, representing (1) the final reconciliation of the amounts owed between parties related to
the 2003/2004 influenza season, (2) the settlement of commercialization and development expenses
owed between parties through the date of the agreement, (3) the purchase of Wyeth’s distribution
facility in
Louisville, Kentucky, (4) the transfer of other assets from Wyeth and (5) the payment of certain milestones for achieving
certain goals for transition activities. The transaction was accounted for as a purchase of assets,
and the purchase price was allocated to each of the components based on their relative fair values
as determined by an independent valuation.
In connection with the transaction, the Company recorded acquired IPR&D charges of $4.7
million and $29.2 million during 2005 and 2004, respectively, as well as a permanent impairment
charge of $73.0 million during 2004 to write off the remaining unamortized cost of the Wyeth
intangible asset originally recorded for the collaboration.
Under the terms of the former collaboration, during the 2003/2004 influenza season, Wyeth
distributed FluMist and recorded all product sales, and the Company received payments from Wyeth in
the form of product transfer payments, supply goal payments and royalties. The Company shipped
approximately 4.1 million doses of FluMist to Wyeth during 2003, but did not recognize any
sales-related revenue in 2003 due to the lack of certainty associated with returns and discounts in
the vaccine’s launch season. During 2003, the Company received $8.4 million in reimbursements from
Wyeth for marketing expenses and $37.5 million in milestone revenues upon FDA approval of FluMist
and the achievement of certain other goals, which are included in other revenues. During 2003, the
Company agreed to pay $10 million to Wyeth for the purchase and use of clinical trial data from
Wyeth’s international CAIV-T trials, which is included in research and development expense.
17. COMMITMENTS AND CONTINGENCIES
Manufacturing, Supply and Purchase Agreements
Synagis —In December 1997, the Company entered into a Euro-denominated agreement with
Boehringer Ingelheim Pharma GmbH & Co. KG (“BI”) to provide supplemental manufacturing of Synagis.
The Company has firm commitments with BI for planned production and fill/finish through 2012 for
approximately 99 million Euros ($117.3 million as of December 31, 2005). The Company paid $29.4
million in 2005, $30.3 million in 2004 and $18.1 million in 2003 related to production and scale-up
of production as part of an additional agreement. Should BI be unable to supply Synagis to the
Company for any reason, there can be no assurance that the Company will be able to secure an
alternate manufacturer in a timely basis or without increased cost.
In 2005, Sicor Pharmaceuticals, Inc. began to provide filling services for Synagis product
manufactured at the FMC facility under a multi-year agreement. The Company has a firm commitment
with Sicor for approximately $6.5 million through 2007. The Company paid Sicor $3.3 million in 2005
for commercial fills. In September 2005, Cardinal Health PTS, LLC began to label and package
Synagis filled by Sicor under a multi-year agreement. The Company has a firm commitment with
Cardinal for approximately $0.4 million in 2006. The Company paid Cardinal $0.8 million in 2005 for
labeling and packaging services.
FluMist —The Company has a production agreement with Cardinal Health 406, Inc. to perform
secondary production (i.e., assembly, labeling and packaging) of FluMist. As part of this
agreement, the Company is obligated to pay annual non-refundable minimum
payments for each contract year, if the price for units invoiced to the Company during a
production year totals less than the minimum payment. Future minimum payments totaling $3.1 million
are committed through December 31, 2007. Payments of $1.6 million were made for 2005, and $1.1
million were made for each of 2004 and 2003. Should the actual level of future production exceed
the contract minimum, then actual payments will be correspondingly higher.
The Company has a worldwide multi-year supply agreement with Becton Dickinson for the supply
of its AccuSpray non-invasive nasal spray delivery system for administration of FluMist. The
Company has firm commitments to Becton Dickinson of approximately $28 million through 2009. The
Company paid Becton Dickinson $1.8 million, $6.0 million and $2.4 million in 2005, 2004 and 2003,
respectively.
CytoGam — The Company has manufacturing, supply and purchase agreements to provide production
capability for CytoGam, and to provide a supply of human plasma for production of the product. The
Company has entered into a new arrangement with BioLife Plasma Services and is committed for
approximately $1.5 million for source plasma in 2006. The Company paid BioLife $4.3 million, $4.1
million and $4.1 million in 2005, 2004, and 2003, respectively. No assurance can be given that an
adequate supply of plasma will be available from the Company’s suppliers.
Massachusetts Biologic Laboratories (“MBL”) is the current manufacturer of bulk product for
CytoGam. The Company has a commercial agreement with MBL for planned bulk production of CytoGam
through June 2006 for $2.6 million, subject to production level adjustments. Pursuant to the
agreements with MBL, the Company paid $5.9 million, $5.9 million and $8.1 million in 2005, 2004 and
2003, respectively, for production and process development.
The Company has a commercial agreement with Precision Pharma Services for manufacture of the
intermediate material (fraction II + III paste), and is committed for $0.5 million in fractionation
services, subject to production yield adjustments, through June 2006. The Company paid Precision
Pharma
Services $1.1 million, $0.7 million and $2.4 million in 2005, 2004 and 2003, respectively,
for fractionation services. The Company has entered into an agreement with Precision Pharma
Services effective July 2006 for fractionation services and to replace MBL as the bulk
manufacturer. Completion of the technical transfer for the bulk production process is expected to
be completed in 2006. The Company is contingently committed to Precision Pharma for fractionation
services and bulk production for approximately $11.0 million through 2009, pending FDA approval of
the manufacture of bulk product by Precision Pharma.
If MBL, which currently holds the sole product and establishment licenses from the FDA for the
manufacture of CytoGam, or Precision Pharma Services are unable to satisfy the Company’s
requirements for CytoGam on a timely basis or are prevented for any reason from manufacturing
CytoGam, the Company may be unable to secure an alternative manufacturer without undue and
materially adverse operational disruption and increased cost.
Letters of Credit— The Company has guaranteed performance under certain agreements related to
its construction projects. The undiscounted maximum potential
amount of future payments that the Company could be required to make under such guarantees, in
the aggregate, is approximately $1.7 million.
Research and Development, Licensing and Other Agreements —The Company has entered into
research and development collaborations, licensing and other agreements with various federal and
academic laboratories and other institutions to gain access to new product candidates and
technologies, to further develop its products and technology, and to perform clinical trials. Under
these agreements, the Company is committed to provide funding of approximately $14 million in 2006,
and $32 million in the aggregate over the term of those agreements. In addition, the Company is
also contingently committed for development milestone payments as well as sales-related milestone
payments and royalties relating to potential future product sales under these agreements. The
amount, timing and likelihood of these payments is unknown as they are dependent on the occurrence
of future events that may or may not occur, such as the granting by the FDA of a license for
product marketing in the United States. If all contractual development milestones were to be
achieved under these agreements, which the Company does not consider probable, the total
development milestones payments would approximate $1.1 billion.
18. LEGAL PROCEEDINGS
Litigation Regarding Generic Version of Ethyol
In April 2004, Sun Pharmaceutical Industries Limited (“Sun”) submitted an abbreviated new drug
application (“ANDA”) to the U.S. Food and Drug Administration for a generic version of Ethyol
(amifostine) and notified the Company of such submission in June 2004. In the notice, Sun notified
the Company that as part of its ANDA it had filed certification of the type described in Section
505(j)(2)(A)(vii)(IV) of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. §
335(j)(2)(A)(vii)(IV), with respect to certain patents owned by the Company. In August 2004, the
Company filed an action in the United States District Court for the District of Maryland for patent
infringement against Sun, arising out of the filing by Sun of the ANDA with the FDA seeking
approval to manufacture and sell the generic version of Ethyol prior to the expiration of various
U.S. patents. Discovery is currently ongoing. The Company intends to vigorously enforce its
patents.
AWP Cases
In January 2003, a lawsuit was filed by the County of Suffolk, New York (“Suffolk”) in the
United States District Court, Eastern District of New York, naming MedImmune, along with
approximately 25 other pharmaceutical and biotechnology companies, as defendants. In August 2003,
the County of Westchester, New York (“Westchester”) filed and served a similar suit against
MedImmune and approximately 25 other pharmaceutical and biotechnology companies. Likewise, in
September 2003, the County of Rockland, New York (“Rockland”) also filed and served a similar suit
against MedImmune and approximately 25 other pharmaceutical and biotechnology companies. In August
2004, the City of New York (“New York City”) also filed and served a similar suit against MedImmune
and approximately 60 other pharmaceutical and biotechnology companies.
The federal cases brought against the Company by Suffolk, Westchester and Rockland
(collectively, the “Counties”) and New York City have been consolidated for pre-trial purposes
under the caption In re Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456,
Civ. Action No. 01-CV-12257-PBS, before the United States District Court in the United States
District Court for the District of Massachusetts (AWP Multidistrict litigation).
In June 2005, an amended and consolidated complaint (“Consolidated Complaint”) was filed on
behalf of thirty New York Counties and the City of New York — all of which are represented by one
law firm. This lawsuit joins all previous county actions, with the exception of Suffolk County and
Nassau
County. (A lawsuit was also filed by Erie County, which remains pending, but that action was
filed in New York state court.) Similarly, nine additional counties, all represented by this same
law firm, are having their cases transferred to the MDL in order to join the Consolidated Complaint
or have expressed an interest in joining the consolidated complaint. Nassau County’s complaint was
transferred to the MDL in April 2005. Separate counsel represents Nassau. The Erie County suit
remains pending in New York State Supreme Court. In three separate opinions, Judge Saris dismissed
all of Suffolk County’s claims against MedImmune; Suffolk County did not join the Consolidated
Complaint as to any of the defendants that were dismissed, including MedImmune.
The Counties and New York City allege that the defendants, including MedImmune, manipulated
the “average wholesale price” (“AWP”), a price listed by price reporting agencies and used as a
Medicaid reimbursement benchmark, causing the Counties and New York City to pay artificially
inflated prices for covered drugs. In addition (with the exception of Erie County which has sued us
in state court and alleges only improper AWP reporting), the Counties and New York City argue that
the defendants, including MedImmune, did not accurately report “best price,” a statutorily defined
term that must be reported by manufacturers in order to qualify for Medicaid reimbursement. The
plaintiffs seek declaratory and injunctive relief, disgorgement of profits, and treble and punitive
damages suffered as a result of the defendants’ alleged unlawful practices related to prescription
medication paid for by Medicaid. Nassau County’s complaint makes substantially the same allegations
as the Consolidated Complaint but also includes RICO counts. With respect to the Consolidated
Complaint, it asserts similar claims to those raised in the original complaint as well as new
claims directed to RespiGam and CytoGam and new allegations related to the alleged improper
reporting of the Wholesaler Acquisition Cost of various products, including Synagis, Ethyol,
RespiGam and CytoGam, and how this alleged improper reporting affects the AWP for these products.
Similarly, in January 2005, a complaint was filed by the State of Alabama against more than 70
companies, including MedImmune, accusing all defendants of improper AWP and average manufacturer
price (AMP) reporting and further alleging fraudulent misrepresentation, unjust enrichment and
wantonness. Likewise, in October 2005, a lawsuit was filed by the State of Mississippi naming
approximately 50 defendants, including MedImmune. The complaint alleges causes of action for state
Medicaid fraud, deceptive trade practices, false advertising, crimes against the sovereignty, mail fraud,
restraint of trade, common law fraud, and unjust enrichment.
As of December 31, 2005, the Company estimates the range of possible pre-tax loss from the
Alabama action, the Mississippi action, the New York City action and the New York State County
actions (both consolidated and unconsolidated) to range from $0 to $15 million, exclusive of
alleged treble damages, best price related claims and other asserted state law causes of action.
The Company intends to vigorously defend against the claims asserted in these complaints.
Various Patent Litigation Matters
In April 2003, the Company filed a suit against Genentech, Celltech R&D Limited (“Celltech”)
and City of Hope National Medical Center in the United States District Court for the Central
District of California. The Company currently pays Genentech a royalty for sales of Synagis made or
sold in the U.S. pursuant to a patent license agreement between the parties covering United States
Patent No. 6,331,415B1 (the “Cabilly Patent”). In the complaint, the Company alleged that the
Cabilly Patent was obtained as a result of a collusive agreement between Genentech and Celltech
that violates federal and California antitrust laws as well as California’s unfair business
practices act. Additionally, the Company alleged that the Cabilly Patent is invalid and
unenforceable under federal patent law and is not infringed by Synagis. In December 2003, the court
granted Celltech’s and Genentech’s motions to dismiss the antitrust claims, and in January 2004,
the court denied the Company’s motion to amend the complaint. In March 2004, the Company appealed
from the dismissal of the antitrust claims to the United States Court of Appeals for the Federal
Circuit. In April 2004, the court dismissed the remaining claims in the case for lack of subject
matter jurisdiction. The Company filed a second appeal of that dismissal to the United States Court
of Appeals for the Federal Circuit, which was consolidated with the first appeal. Briefing in both
appeals was completed, and oral argument was held in February 2005. The court issued a decision on
October 18, 2005, affirming the District Court decision which had dismissed all claims. MedImmune
filed a Petition for Certiorari with the United States Supreme Court as to the subject matter
jurisdiction issue and the Supreme Court granted the petition on February 21, 2006. The Company
expects oral arguments to be heard during the Court’s 2006-2007 term , which begins in October
2006.
In April 2002, the Company filed a suit against Centocor, Inc. (“Centocor”) in the United
States District Court for the District of Maryland. That action was amended in January 2003 to add
the Trustees of Columbia University in the City of New York (“Columbia”) and the Board of Trustees
of the Leland Stanford Junior University (“Stanford” and together with Columbia, the
“Universities”) as the owners of the patent. The Company currently pays Centocor a royalty for
sales of Synagis made or
sold in the U.S. pursuant to a patent Sublicense Agreement between the
parties (the “Sublicense Agreement”). In the litigation, the Company has been seeking a declaratory
judgment that it has no obligation to continue paying royalties to Centocor on the basis that the
patent is invalid, unenforceable and does not cover Synagis. In March 2004, Centocor and the
Universities moved to dismiss this suit for lack of subject matter jurisdiction and the
District Court granted Centocor and the Universities’ motion in June 2004. The Company filed an
appeal and the United States Court of Appeals for the Federal Circuit issued a decision on June 1,
2005, affirming the District Court decision which had dismissed all claims. The Company filed a
Petition for Rehearing en banc which was denied on August 25, 2005. MedImmune filed a Petition for
Certiorari with the United States Supreme Court and is awaiting a decision on that petition. The
Company believes the Court will not make a decision on its petition until the Genentech matter
described above is resolved.
The Company has been made aware that on January 17, 2006, Genentech filed an action against
the Company alleging that the Company’s Synagis product infringed two United States patents
relating to certain lyophilized products. The suit was filed in the United States District Court
for the Eastern District of Texas and seeks unspecified money damages. The Company has not yet been
served with the Complaint. The Company and Genentech have been discussing matters relative to the
patents, and MedImmune has been advising Genentech of various defenses it believes it has to the
exposure, if any, for past sales of Synagis. The Company no longer makes or sells lyophilized
Synagis in the United States. The Company intends to vigorously defend this lawsuit, if served on
the Company.
Contract-Related Case
On August 26, 2005, the Company entered into a License Agreement with an affiliate of GSK,
pursuant to which the Company would develop monoclonal antibodies for infections and diseases
caused by staphylococcal bacteria. GSK itself licenses certain technology from Biosynexus, Inc.
and, in the License Agreement, sublicensed the portion of such technology related to monoclonal
antibodies to the Company on an exclusive basis as well as exclusively licensing to MedImmune
certain related technology developed internally by GSK. On December 28, 2005, Biosynexus sued GSK
and MedImmune in a New York state court alleging that GSK had improperly assigned its contract with
Biosynexus to MedImmune thereby breaching GSK’s obligations to Biosynexus and that MedImmune had
tortiously induced that breach. Biosynexus is seeking a preliminary injunction to halt the flow of
information and materials from GSK to the Company and damages due to the transfer of confidential
information that has occurred to date. The Company believes that the Biosynexus claims against the
Company are without merit and intends to vigorously defend against the claims asserted in the
complaints. The Company does not believe that the outcome of this litigation will have a material
adverse impact on the Company, but it may affect the progress of its anti-staphylococcal program.
Other Matters
The Company is also involved in other legal proceedings arising in the ordinary course of our
business. After consultation with its legal counsel, the Company believes it has meritorious
defenses to the claims against it referred to above and is determined to
defend its positions vigorously. While it is impossible to predict with certainty the eventual
outcome of these proceedings, the Company believes they are unlikely to have a material adverse
effect on its financial position, but could possibly have a material adverse effect on its results
of operations for a particular period. There can be no assurance that the Company will be
successful in any of the litigations to which it is a party. In the ordinary course of business,
the Company has provided indemnification to various parties for certain product liability claims
and claims that its products were not manufactured in accordance with applicable federal standards.
While the Company is not aware of any current claims under these provisions, there can be no
assurance that such claims will not arise in the future or that the effect of such claims will not
be material to the Company.
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| ITEM 9. |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
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| ITEM 9A. |
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CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our
principal executive officer and our principal financial officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control—Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of December 31, 2005.
Our management’s assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
ITEM 9B. OTHER INFORMATION
None.
PART III
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| ITEM 10. |
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DIRECTORS AND EXECUTIVE OFFICERS OF MEDIMMUNE |
Information with respect to directors is included our Proxy Statement to be filed pursuant to
Regulation 14A (the “Proxy Statement”) under the caption “Election of Directors,” and such
information is incorporated herein by reference. Set forth in Part I, Item 1, are the names and
ages as of February 25, 2006, the positions and offices held by, and a brief account of the
business experience during the past five years, of each executive officer. All directors hold
office until election and qualification of their successors, typically following elections at the
next annual meeting of stockholders. Officers and key employees are elected to serve, subject to
the discretion of the Board of Directors, until their successors are appointed.
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EXECUTIVE COMPENSATION |
Information pertaining to executive compensation is included in the Proxy Statement and
incorporated herein by reference.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The common stock information in the section entitled “Principal Stockholders” of the Proxy
Statement is incorporated herein by reference.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The section entitled “Certain Relationships and Related Party Transactions” of the Proxy
Statement is incorporated herein by reference.
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| ITEM 14. |
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PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to the applicable
information in the 2006 Proxy Statement under the caption “Appointment of Independent Registered
Public Accounting Firm.”
PART IV
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
The following documents or the portions thereof indicated are filed as a part of this report.
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Documents filed as part of the Report |
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Financial Statements and Supplemental Data |
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Report of Independent Registered Public Accounting Firm |
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Consolidated Balance Sheets at December 31, 2005 and 2004 |
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Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 |
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d. |
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Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 |
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e. |
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Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003 |
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f. |
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Notes to Consolidated Financial Statements |
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g. |
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Management’s Report on Internal Control over Financial Reporting |
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Supplemental Financial Statement Schedule |
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a. |
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Schedule II—Valuation and Qualifying Accounts, Page S-1 |
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit
Index beginning on page E-1 and such listing is incorporated by reference.
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.
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MEDIMMUNE, INC. |
Date: March 10, 2006 |
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/s/ DAVID M. MOTT |
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David M. Mott |
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Chief Executive Officer,
President and Vice
Chairman |
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Principal Executive Officer |
Date: March 10, 2006 |
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/s/ LOTA S. ZOTH |
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Lota S. Zoth |
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Senior Vice President and Chief Financial Officer |
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Principal Financial Officer |
Date: March 10, 2006 |
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/s/ MARK E. SPRING |
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Mark E. Spring |
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Vice President, Finance and Controller |
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Principal Accounting Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons in the capacities and on the dates indicated.
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| Date: March 10, 2006 |
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/s/ WAYNE T. HOCKMEYER |
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Wayne T. Hockmeyer, Chairman |
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| Date: March 10, 2006 |
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/s/ DAVID BALTIMORE |
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David Baltimore, Director |
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| Date: March 10, 2006 |
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/s/ M. JAMES BARRETT |
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M. James Barrett, Director |
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| Date: March 10, 2006 |
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/s/ JAMES H. CAVANAUGH |
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James H. Cavanaugh, Director |
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| Date: March 10, 2006 |
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/s/ BARBARA HACKMAN FRANKLIN |
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Barbara Hackman Franklin, Director |
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| Date: March 10, 2006 |
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/s/ GORDON S. MACKLIN |
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Gordon S. Macklin, Director |
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| Date: March 10, 2006 |
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/s/ GEORGE M. MILNE, JR. |
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George M. Milne, Jr., Director |
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| Date: March 10, 2006 |
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/s/ ELIZABETH WYATT |
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Elizabeth Wyatt, Director |
SCHEDULE II
MedImmune, Inc.
Valuation and Qualifying Accounts
(in millions)
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Additions |
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Additions |
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Balance at |
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charged to |
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charged |
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Balance |
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beginning of |
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costs and |
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to asset |
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at end |
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| Description |
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period |
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expenses |
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accounts(1) |
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Deductions(2) |
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of period |
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For the year ended December 31, 2005 |
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Sales Allowances |
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$ |
14.5 |
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$ |
76.3 |
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$ |
— |
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$ |
(70.2 |
) |
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$ |
20.6 |
|
Allowance for Doubtful Accounts |
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1.8 |
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4.1 |
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— |
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(3.0 |
) |
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2.9 |
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Inventory Reserve |
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49.3 |
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41.9 |
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— |
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(45.2 |
) |
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46.0 |
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Physical Asset Reserve |
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0.3 |
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— |
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— |
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— |
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0.3 |
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Tax Valuation Allowance (3) |
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54.8 |
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— |
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5.6 |
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(9.9 |
) |
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50.5 |
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$ |
120.7 |
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$ |
122.3 |
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|
$ |
5.6 |
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|
$ |
(128.3 |
) |
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$ |
120.3 |
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For the year ended December 31, 2004 |
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Sales Allowances |
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$ |
9.0 |
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|
$ |
64.4 |
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|
$ |
— |
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|
$ |
(58.9 |
) |
|
$ |
14.5 |
|
Allowance for Doubtful Accounts |
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|
3.8 |
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6.1 |
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— |
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(8.1 |
) |
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1.8 |
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Inventory Reserve |
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|
88.1 |
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|
70.9 |
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— |
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(109.7 |
) |
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49.3 |
|
Physical Asset Reserve |
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0.3 |
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— |
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— |
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— |
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0.3 |
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Tax Valuation Allowance (3) |
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42.9 |
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— |
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14.3 |
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(2.4 |
) |
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54.8 |
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$ |
144.1 |
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$ |
141.4 |
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$ |
14.3 |
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$ |
(179.1 |
) |
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$ |
120.7 |
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For the year ended December 31, 2003 |
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Sales Allowances |
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$ |
10.6 |
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$ |
42.4 |
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|
$ |
— |
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|
$ |
(44.0 |
) |
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$ |
9.0 |
|
Allowance for Doubtful Accounts |
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|
7.5 |
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14.5 |
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— |
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(18.2 |
) |
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3.8 |
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Inventory Reserve |
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51.1 |
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59.0 |
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— |
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(22.0 |
) |
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|
88.1 |
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Physical Asset Reserve |
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0.3 |
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— |
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— |
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— |
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0.3 |
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Tax Valuation Allowance (3) |
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32.3 |
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— |
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10.6 |
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— |
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42.9 |
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$ |
101.8 |
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$ |
115.9 |
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$ |
10.6 |
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|
$ |
(84.2 |
) |
|
$ |
144.1 |
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| (1) |
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Include amounts charged to deferred tax assets and amounts charged to
goodwill in connection with the Acquisition. |
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| (2) |
|
Deductions include reversals of costs and expenses for adjustments to
previously recorded allowances resulting from changes in estimates. |
| |
| (3) |
|
A portion of the Company’s deferred tax assets recognized relate to
state and foreign net operating loss and credit carryforwards. Because
the Company operates in multiple state and foreign jurisdictions, it
considers the need for a valuation allowance on a state-by-state and
country-by-country basis. Management believes that the Company may not
be able to utilize the loss carryforwards in the future because the
Company has a history of pre-tax losses in that jurisdiction or the
losses may expire in the near future. |
EXHIBIT INDEX
| |
|
|
| Exhibit |
|
Description |
3.1
|
|
Restated Certificate of Incorporation, as restated as of February
25, 2004, incorporated by reference to Exhibit 3.1 to our Annual
Report on Form 10-K for the year ended December 31, 2003. |
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3.2
|
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By Laws, as amended and restated as of May 19, 2005, incorporated
by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2005. |
|
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|
4.1
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|
Amended and Restated Rights Agreement, dated as of October 31,
1998, by and between MedImmune and American Stock Transfer and
Trust Company, as Rights Agent, incorporated by reference to
Exhibit 99.2 to our Registration Statement on Form 8-A/A, filed on
December 1, 1998. |
|
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|
4.2
|
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Certificate of Designations of Series B Junior Preferred Stock,
incorporated by reference to Exhibit 4.2 to our Annual Report on
Form 10-K for the year ended December 31, 2001. |
|
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|
4.3
|
|
Indenture, dated July 15, 2003, by and between MedImmune and The
Bank of New York, incorporated by reference to Exhibit 4.7 to our
Registration Statement on Form S-3 (File No. 333-108710), filed on
September 11, 2003. |
|
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|
4.4
|
|
Form of Senior Convertible Note due 2023, incorporated by
reference to Exhibit 4.9 to our Registration Statement on Form S-3
(File No. 333-108710), filed on September 11, 2003. |
|
|
|
10.1(1)
|
|
Patent License Agreement, dated July 17, 1997, by and between
Protein Design Labs and MedImmune, incorporated by reference to
Exhibit 10.73 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997. |
|
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|
10.2(1)
|
|
License Agreement, dated June 4, 1997, by and between Genentech,
Inc. and MedImmune, incorporated by reference to Exhibit 10.180 to
our Annual Report on Form 10-K for the year ended December 31,
2002. |
|
|
|
10.3(1)
|
|
License for Winter Patent, dated August 13, 1997, by and between
Medical Research Council and MedImmune, incorporated by reference
to Exhibit 10.181 to our Annual Report on Form 10-K for the year
ended December 31, 2002. |
|
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|
10.4(1)
|
|
License Agreement, dated as of December 1, 1997, by and between
the University of Iowa Research Foundation and MedImmune,
incorporated by reference to Exhibit 10.183 to our Annual Report
on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.5(1)
|
|
Sublicense Agreement, dated as of September 15, 2000, by and
between Centocor, Inc. and MedImmune, incorporated by reference to
Exhibit 10.174 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002. |
|
|
|
10.6(2)
|
|
Patent License Agreement (Adair Patent Rights) (MedI-493), dated
as of January 19, 1998, by and between Celltech Therapeutics
Limited and MedImmune, incorporated by reference to Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended June
30, 2005. |
|
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|
10.7(2)
|
|
Patent License Agreement (Adair Patent Rights) (MedI-493), dated
as of June 24, 2005, by and among Celltech R&D Limited, UCB S.A.
and MedImmune, incorporated by reference to Exhibit 10.2 to the
our Quarterly Report on Form 10-Q for the quarter ended June 30,
2005. |
|
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|
10.8(3)
|
|
Co-Promotion Agreement, dated as of November 26, 1997, by and
between MedImmune and Abbott Laboratories, incorporated by
reference to Exhibit 10.76 to our Annual Report on Form 10-K for
the year ended December 31, 1997, as amended by the Third
Amendment to the Co-Promotion Agreement, dated as of August 26,
2005, incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2005. |
|
|
|
10.9(2)
|
|
Amended and Restated Distribution Agreement, dated as of February
23, 2005, by and between MedImmune and Abbott International LLC. |
|
|
|
10.10(1)
|
|
Manufacturing Agreement, dated November 27, 1997, between
MedImmune and Boehringer Ingelheim Pharma GmbH & Co. KG
(successor-in-interest to Dr. Karl Thomae GmbH), incorporated by
reference to Exhibit 10.78 to our Annual Report on Form 10-K for
the year ended December 31, 1997. |
| |
|
|
| Exhibit |
|
Description |
10.11
|
|
Amended and Restated License Agreement, effective as of May 1,
1993, by and between MedImmune Oncology, Inc., our wholly owned
subsidiary formerly known as U.S. Bioscience, Inc. (“USB”), and
Southern Research Institute, incorporated by reference to Exhibit
10.8 to the USB Annual Report on Form 10-K for the year ended
December 31, 1993. |
|
|
|
10.12(1)
|
|
Amifostine Manufacturing and Supply Agreement, dated as of
January 1, 2001, by and between MedImmune Oncology, Inc. and PPG
Industries, Inc., incorporated by reference to Exhibit 10.20 to
our Annual Report on Form 10-K/A for the year ended December 31,
2003, filed on December 21, 2004. |
|
|
|
10.13(1)
|
|
Terms and Conditions for the Manufacture of Products by Ben Venue
Laboratories, Inc., dated as of October 17, 2003, incorporated by
reference to Exhibit 10.21 to our Annual Report on Form 10-K/A
for the year ended December 31, 2003, filed on December 21, 2004. |
|
|
|
10.14(1)
|
|
Materials Transfer and Intellectual Property Agreement, dated
February 24, 1995, by and between MedImmune Vaccines, Inc.
(“MedImmune Vaccines”), our wholly owned subsidiary, formerly
known as Aviron (“Aviron”), and the Regents of the University of
Michigan, incorporated by reference to Exhibit 10.3 to Aviron’s
Registration Statement on Form S-1 (File No. 333-05209), filed on
June 5, 1996, as amended by the Letter Amendment, dated as of
February 24, 1999, incorporated by reference to Exhibit 10.24 to
Aviron’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, as further amended by the letter dated March 4,
1996 exercising MedImmune Vaccines’ option to include Japan as
part of the Territory (as defined in the agreement), incorporated
by reference to Exhibit 10.11 to our Annual Report on Form 10-K
for the year ended December 31, 2004. |
|
|
|
10.15(1)
|
|
Agreement Relating to the Sharing and Provision of Certain
Services, by and between Evans Vaccines Limited and MedImmune UK
Limited, a wholly owned subsidiary of MedImmune Vaccines formerly
known as Aviron UK Limited, incorporated by reference to Exhibit
10.45 to Aviron’s Annual Report on Form 10-K for the year ended
December 31, 2000. |
|
|
|
10.16(1)
|
|
Amended and Restated Contract Manufacture Agreement, dated
October 11, 2000, by and between Evans Vaccines Limited and
MedImmune Vaccines, incorporated by reference to Exhibit 10.47 to
Aviron’s Annual Report on Form 10-K for the year ended December
31, 2000. |
|
|
|
10.17(1)
|
|
Know How License Agreement, dated October 11, 2000, by and
between Evans Vaccines Limited and MedImmune UK Limited,
incorporated by reference to Exhibit 10.48 to Aviron’s Annual
Report on Form 10-K for the year ended December 31, 2000. |
|
|
|
10.18(1)
|
|
Underlease of Plot 6 Boulevard Industry Park Halewood Merseyside,
dated February 17, 2000, by and between MPEC Boulevard Limited
(as Landlord), Medeva Pharma Limited (as Tenant) and Medeva PLC
(as Guarantor), as subsequently assigned to MedImmune Vaccines,
incorporated by reference to Exhibit 10.43 to Aviron’s Annual
Report on Form 10-K for the year ended December 31, 2000. |
|
|
|
10.19+
|
|
Form of Employment Agreement entered into by and between
MedImmune and each of David M. Mott and James F. Young,
incorporated by reference to Exhibit 99.1 to our Current Report
on Form 8-K filed on December 15, 2005. |
|
|
|
10.20+
|
|
Form of Employment Agreement entered into by and between
MedImmune and Edward M. Connor and our other executive officers
(other than Dr. Hockmeyer, Mr. Mott and Dr. Young), incorporated
by reference to Exhibit 99.2 to our Current Report on Form 8-K
filed on December 15, 2005. |
|
|
|
10.21+
|
|
Employment Agreement entered into by and between MedImmune and
Wayne T. Hockmeyer, Ph.D., dated as of March 1, 2006 incorporated
by reference to Exhibit 99.1 to our Current Report on Form 8-K
filed March 1, 2006. |
|
|
|
10.22+
|
|
2004 Stock Incentive Plan, incorporated by reference to Exhibit A
to our Definitive Proxy Statement filed on April 4, 2004, as
amended on February 17, 2005. |
|
|
|
10.23+
|
|
Form of Stock Option Agreement generally used for stock option
grants to Mr. Mott, Dr. Hockmeyer or Dr. Young under the 2004 Stock
Incentive Plan, incorporated by reference to Exhibit 10.23 to our
Annual Report on Form 10-K for the year ended December 31, 2004. |
| |
|
|
| Exhibit |
|
Description |
10.24+
|
|
Form of Stock Option Agreement generally used for stock option
grants to executive officers (other than Mr. Mott, Dr. Hockmeyer or
Dr. Young) under the 2004 Stock Incentive Plan, incorporated by
reference to Exhibit 10.24 to our Annual Report on Form 10-K for
the year ended December 31, 2004. |
|
|
|
10.25+
|
|
2003 Non-Employee Directors Stock Option Plan, incorporated by
reference to Exhibit A to our Definitive Proxy Statement, filed on
April 17, 2003. |
|
|
|
10.26+
|
|
Form of Stock Option Agreement generally used for grants to
directors under the 2003 Non-Employee Directors Stock Option Plan,
incorporated by reference to Exhibit 10.26 to our Annual Report on
Form 10-K for the year ended December 31, 2004. |
|
|
|
10.27+
|
|
1999 Stock Option Plan, incorporated by reference to Exhibit 4.1 to
our Registration Statement on Form S-8 (File No. 333-79241), filed
on May 25, 1999, as amended to increase the number of shares
subject to such plan as described in our Registration Statement on
Form S-8 (File No. 333-105578), filed on May 27, 2003. |
|
|
|
10.28^
|
|
Aviron 1999 Non-Officer Equity Incentive Plan, as amended as of
September 24, 2001, incorporated by reference to Exhibit 4.1 to
Aviron’s Registration Statement on Form S-8 (File No. 333-72120),
filed on October 23, 2001. |
|
|
|
10.29^
|
|
USB Non-Executive Stock Option Plan, as amended as of April 24,
1997, incorporated by reference to Exhibit 4.2 to USB’s
Registration Statement on Form S-8 (File No. 333-26735), filed on
May 9, 1997. |
|
|
|
10.30+
|
|
1993 Non-Employee Director Stock Option Plan, incorporated by
reference to Exhibit 4.3 to our Registration Statement on Form S-8
(File No. 333-28481), filed on June 4, 1997. |
|
|
|
10.31+
|
|
1991 Stock Option Plan, as amended as of May 16, 1997, incorporated
by reference to Exhibit 4.2 to our Registration Statement on Form
S-8 (File No. 333-28527), filed on June 4, 1997. |
|
|
|
10.32+
|
|
2001 Employee Stock Purchase Plan, incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-8 (File No.
333-59272), filed on April 20, 2001. |
|
|
|
10.33+
|
|
Summary of Non-Employee Director Compensation, incorporated by
reference to Exhibit 10.33 to our Annual Report on Form 10-K for
the year ended December 31, 2004. |
|
|
|
21.1
|
|
Subsidiaries of MedImmune, Inc.* |
|
|
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP* |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934* |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934* |
|
|
|
32.1
|
|
Section 1350 Certifications* |
|
|
|
99.1
|
|
Patent Table* |
|
|
|
| Notes: |
| |
| * |
|
Filed herewith. |
| |
| + |
|
Management contract or compensatory plan or arrangement. |
| |
| ^ |
|
Compensatory plan adopted without approval of stockholders assumed by
MedImmune in connection with an acquisition. We do not intend to make
any new grants under such plans. |
| |
| (1) |
|
Confidential treatment has been granted by the SEC for certain
portions of the agreement. The copy filed as an exhibit omits the
information subject to the confidentiality order. |
| |
| (2) |
|
Confidential treatment has been requested for certain portions of the
agreement. The copy filed as an exhibit omits the information subject
to the confidentiality request. |
| |
| (3) |
|
Confidential treatment has been granted by the SEC for certain
portions of the Co-Promotion Agreement. The copy filed as an exhibit
omits the information subject to the confidentiality order.
Confidential treatment has been requested for certain portions of the
Third Amendment to the Co-Promotion Agreement. The copy filed as an
exhibit omits the information subject to the confidentiality request. |