10-Q 1 e10-q.txt FORM 10-Q DATED 6/30/00 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 2000 OR [ ] 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 0-19117 IMMULOGIC PHARMACEUTICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3397957 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 12 Alfred Street, Suite 300, Woburn, MA 01810 --------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 933-1772 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ---- ----- Number of shares of $.01 par value common stock outstanding as of July 14, 2000 - 20,550,773 -------------------------------------------------------------------------------- 2 IMMULOGIC PHARMACEUTICAL CORPORATION INDEX TO FORM 10-Q

2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IMMULOGIC PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION (UNAUDITED) (in thousands)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 3 4 IMMULOGIC PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION (UNAUDITED) (in thousands)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 5 IMMULOGIC PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - GOING CONCERN BASIS) (in thousands, except per share data)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 6 IMMULOGIC PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - GOING CONCERN BASIS) (in thousands)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 7 IMMULOGIC PHARMACEUTICAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (unaudited) NOTE A - ORGANIZATION AND ACCOUNTING POLICIES On March 23 1999, the Board of Directors of ImmuLogic Pharmaceutical Corporation (the "Company") approved a plan to liquidate and dissolve the Company (the "Plan"). The Plan was approved by the stockholders of the Company on August 25, 1999. The key features of the Plan are (1) the conclusion of all business activities, other than those in execution of the Plan; (2) the sale or disposition of all of the Company's assets; (3) the satisfaction of all outstanding liabilities; (4) the payment of liquidating distributions to stockholders in complete redemption of the Common Stock; and (5) the authorization of the filing of Certificate of Dissolution with the State of Delaware. As a result of the adoption of the Plan and the imminent nature of the liquidation, the Company adopted the liquidation basis of accounting effective July 1, 1999, whereby assets are valued at their estimated net realizable values and liabilities are valued at their estimated settlement amounts. The valuation of assets and liabilities requires many estimates and assumptions by management and there are substantial uncertainties in carrying out the provisions of the Plan. The amount and timing of future liquidating distributions will depend upon a variety of factors including, but not limited to, the actual proceeds from the sale of any of the Company's assets, the ultimate settlement amounts of the Company's liabilities and obligations, actual costs incurred in connection with carrying out the Plan, including management fees and administrative costs during the remaining liquidation period, and the timing of the liquidation and dissolution. The accompanying financial statements, notes and discussions should be read in conjunction with the consolidated financial statements, related notes and discussions contained in the Company's annual report on Form 10-K for the year ended December 31, 1999. The interim financial information contained herein is unaudited; however, in the opinion of management, all adjustments necessary for the fair presentation of such financial information have been included. The results for the interim period are not necessarily indicative of the results to be expected for the year ending December 31, 2000. NOTE B - LIQUIDATION BASIS OF ACCOUNTING CANTAB STOCK In December 1998, the Company signed an agreement with Cantab for the sale of the Company's assets and the transfer of control over the programs related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction (the "Nicotine and Cocaine Programs"). The assets sold consisted primarily of patents and other intellectual property, as well 7 8 as certain equipment and materials used in these programs. In connection with this sale, the Company remitted $6,000,000 in cash to Cantab in 1999 and received 2,566,845 Cantab ordinary shares in the form of 855,615 American Depository Shares ("ADSs"). One ADS is equal to approximately three ordinary shares. Under the terms of the Company's agreement with Cantab, the Company could not sell any of the ADSs or Cantab ordinary shares represented by the ADSs prior to August 2, 1999. Thereafter, the Company may immediately sell up to 25% of the ADSs, and then may sell an additional 25% every 90 days thereafter. In addition, the Company is obligated to sell such shares through a broker or brokers designated by Cantab and approved by the Company, and in a manner to be agreed upon by the Company and Cantab that is mutually advantageous to the Company and Cantab, considering the desire for the Company to sell and the desire of Cantab to avoid undue disruption of the market for such securities. On June 16, 2000, the Company converted 785,615 of its total 855,615 ADSs of Cantab Pharmaceuticals Plc ("Cantab") into 2,356,845 Ordinary Shares of Cantab and sold 1,300,000 of such Ordinary Shares on the London Stock Exchange for aggregate gross proceeds of approximately $7,215,000. In addition, ImmuLogic sold the remaining 70,000 ADSs to a private buyer in the United States for aggregate gross proceeds of approximately $1,165,000. On July 7, 2000, the Company sold 100,000 Ordinary Shares of Cantab on the London Stock Exchange for aggregate gross proceeds of approximately $580,000. The Company's remaining holdings of in Cantab consist of 956,845 Ordinary Shares as of July 8, 2000. The determination of when to sell the remaining Cantab stock will be based on the judgement of the Board of Directors as to whether the sale of the Cantab stock at any particular time will result in realization of the highest possible value to the Company's stockholders and will be based upon several factors, including without limitation, (i) the Company's contractual obligations to Cantab regarding the sale of the shares; (ii) the anticipated effect on the market price of Cantab stock; (iii) whether a sale of Cantab stock would require registration under the Securities Act or the Exchange Act; (iv) whether an orderly public market for Cantab stock exists; and (v) the availability of one or more purchasers of the stock in a private sale. The valuation of this investment is based upon subjective judgements due to the inherent uncertainty of Cantab's volatile stock price, low trading volume, the large quantity of shares the Company holds in Cantab, and restrictions in place under the Company's agreement with Cantab as outlined above. Accordingly, based upon its 90 day trading history, applying a discount factor and taking into consideration the contractual restrictions to which it is subject, the Company recorded the estimated net realizable value of the remaining 1,056,845 ordinary shares of Cantab common stock as of June 30, 2000 at approximately $5.1 million for the purpose of the liquidation basis accounting. MILESTONES & ROYALTIES The Company could receive up to a maximum of $11 million in milestone payments contingent upon Cantab's successful development to the end of Phase II clinical trials of the Nicotine and Cocaine Programs sold to Cantab. These payments may be made in cash or in additional ADSs or a combination thereof at Cantab's discretion. The Company would receive the following for successful completion of the Phases (as defined in the agreement) as follows: Cocaine............................ Phase II $2 million Nicotine........................... Phase I $3 million Nicotine........................... Phase II $6 million 8 9 Upon receipt of the Phase II Cocaine or Phase I Nicotine milestones in the form of Cantab stock or ADSs, the Company may sell up to 25% of such shares in each of the four quarters following the expiration of an initial six-month period. Any shares paid in respect of any additional milestones would not be subject to these lock-up provisions. The Company could potentially also receive a share of the net royalties Cantab may receive from vaccine sales proportionate to the level of worldwide product sales achieved. While the Company will attempt to monetize these potential royalty streams, the Company does not anticipate receiving significant value for them and thus has not recorded any net realizable value for the royalty stream. The Company estimates that the range of value to be received from these milestones and royalties to be $0 to $11 million based on the contract terms. The Company recorded $3.0 million at December 31, 1999 as the estimated net realizable value for the purpose of liquidation basis accounting, which assumes the realization of one of these milestones. The estimate recorded for the milestones has not changed since December 31, 1999 because no factors have indicated a change in their net realizable value. LANDLORD RECEIVABLE In February 1998, the Company entered into a phased sublease agreement with Scriptgen Pharmaceticals, Inc. ("Scriptgen") for the Company's 85,000 square foot headquarters and research and development facility located in Waltham, Massachusetts. The entire facility was subleased to Scriptgen effective August 1, 1999. Under the terms of the sublease, Scriptgen has assumed the Company's obligations under the lease in addition to reimbursing the Company for a portion of the Company's leasehold improvements. The Company negotiated an arrangement with the landlord and Scriptgen eliminating the Company's liability for the lease in the event that Scriptgen were to default on its sublease obligations. In consideration for this arrangement, the Company expects to receive $55,000 per month from Scriptgen through August 2002, or an aggregate of approximately $1.76 million. If Scriptgen were to default on its lease agreement or if the Company sold its interest in the lease, the Company would receive less than the $1.76 million. As of June 30, 2000, the Company has recorded $1.1 million (estimated total payments of $1.4 million as of December 31, 1999, less $0.3 million in payments actually received during the first half of 2000) as the remaining estimated net realizable value for the purpose of liquidation basis accounting. LIABILITIES At June 30, 2000, the Company estimates that there are $.8 million of costs to be incurred during the remaining liquidation period through August 26, 2002 as compared to $1.2 million of costs remaining as of December 31, 1999. The decrease of $0.4 million resulted from payments made during the first half of 2000 consisting of management compensation ($127,000), insurance ($102,000) professional fees ($70,000), and facility/miscellaneous costs ($50,000), and a decrease in the estimate of costs to be incurred during the liquidation period ($190,000). 9 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OVERVIEW Since inception, the Company had focused on the research and clinical development of products to treat allergies, autoimmune diseases, and vaccines for the management of drugs of abuse. On February 5, 1999, the Company announced that its Board of Directors had decided to conclude the business activities of the Company as soon as practicable. On March 23 1999, the Board of Directors approved a plan to liquidate and dissolve the Company (the "Plan"). The Plan was approved by the stockholders of the Company on August 25, 1999. The key features of the Plan are (1) the conclusion of all business activities, other than those in execution of the Plan; (2) the sale or disposition of all of the Company's assets; (3) the satisfaction of all outstanding liabilities; (4) the payment of liquidating distributions to stockholders in complete redemption of the Common Stock; and (5) the authorization of the filing of Certificate of Dissolution with the State of Delaware. As a result of the adoption of the Plan and the imminent nature of the liquidation, the Company adopted the liquidation basis of accounting effective July 1, 1999, whereby assets are valued at their estimated net realizable values and liabilities are valued at their estimated settlement amounts. The valuation of assets and liabilities requires many estimates and assumptions by management and there are substantial uncertainties in carrying out the provisions of the Plan. The amount and timing of future liquidating distributions will depend upon a variety of factors including, but not limited to, the actual proceeds from the sale of any of the Company's assets, the ultimate settlement amounts of the Company's liabilities and obligations, actual costs incurred in connection with carrying out the Plan, including management fees and administrative costs during the liquidation period, and the timing of the liquidation and dissolution. The Company is a Delaware corporation and Delaware law requires that the Company stay in existence as a non-operating entity for three years from August 27, 1999, the date the Company filed a certificate of dissolution in Delaware. During the dissolution period, the Company will attempt to convert its remaining net assets to cash as expeditiously as possible. On September 1, 1999, the Company returned to its stockholders the sum of $39.9 million (or $1.94 per share, based on 20,550,773 shares of Common Stock currently outstanding) to stockholders of record as of August 25, 1999. Future distributions to stockholders would be made by the Board of Directors of the Company as the Company's net assets are converted to cash. The actual amount and timing of future distributions cannot be predicted at this time. The Company intends to distribute pro rata to its stockholders, in cash or in-kind, or sell or otherwise dispose of, all of its property and net assets. The liquidation should be concluded prior to August 27, 2002 by a final liquidating distribution either directly to the stockholders or to one or more liquidating trusts. Details regarding the plan to liquidate and dissolve the Company can be found in the Company's 1999 Proxy Statement filed with the Securities and Exchange Commission and mailed to stockholders on July 15, 1999. 10 11 LIQUIDITY AND CAPITAL RESOURCES The Company's primary objectives are to liquidate its net assets in an efficient manner that optimizes the values for such assets and to reduce operating costs. The period of time to liquidate the assets and distribute the proceeds of the Company's assets is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. As of June 30, 2000, the Company had cash and cash equivalents of $10,452,000 invested primarily in high-grade commercial paper and money market funds. The Company currently owns 956,845 Cantab ordinary shares. The Company is obligated to sell such shares through a broker or brokers designated by Cantab and approved by the Company, and in a manner to be agreed upon by the Company and Cantab that is mutually advantageous to the Company and Cantab, considering the desire for the Company to sell and the desire of Cantab to avoid undue disruption of the market for such securities. The valuation of this investment is based upon subjective judgments due to the inherent uncertainty of Cantab's volatile stock price, low trading volume, the large quantity of shares the Company holds in Cantab, and restrictions in place under the Company's agreement with Cantab as outlined above. Accordingly, based upon its 90 day trading history, applying a discount factor and taking into consideration the contractual restrictions to which it is subject, the Company recorded an asset of approximately $5.1 million at June 30, 2000 in respect of the remaining Ordinary Shares of Cantab held by the Company, the estimated net realizable value of these shares for the purpose of the liquidation basis accounting. The Company could receive up to a maximum of $11 million in milestone payments contingent upon Cantab's successful development to the end of Phase II clinical trials of the Nicotine and Cocaine Programs sold to Cantab. These payments may be made in cash or in additional ADSs or a combination thereof at Cantab's discretion. The Company would receive the following for successful completion of the Phases as defined in the agreement as follows: Cocaine............................ Phase II $2 million Nicotine........................... Phase I $3 million Nicotine........................... Phase II $6 million Upon receipt of the Phase II Cocaine or Phase I Nicotine milestones in the form of Cantab stock or ADSs, the Company may sell up to 25% of such shares in each of the four quarters following the expiration of an initial six-month period. Any shares paid in respect of any additional milestones would not be subject to these lock-up provisions. The Company could potentially also receive a share of net royalties Cantab may receive from vaccine sales proportionate to the level of worldwide product sales achieved. While the Company will attempt to monetize these potential royalty streams, the Company does not anticipate receiving significant value for them and thus has not recorded any net realizable value for the royalty streams. The Company estimates that the range of value to be received from these milestones and royalties to be $0 to $11 million based on the contract terms. The Company recorded $3.0 million at 11 12 December 31, 1999 as the estimated net realizable value for the purpose of liquidation basis accounting, which assumes the realization of one of these milestones. The estimate recorded for the milestones has not changed since December 31, 1999 because no factors have indicated a change in the net realizable value. In February 1998, the Company entered into a phased sublease agreement with Scriptgen for the Company's 85,000 square foot headquarters and research and development facility located in Waltham, Massachusetts. The entire facility was subleased to Scriptgen effective August 1, 1999. Under the terms of the sublease, Scriptgen has assumed the Company's obligation under the lease in addition to reimbursing the Company for a portion of the Company's leasehold improvements. The Company negotiated with the landlord and Scriptgen an arrangement eliminating the Company's liability for the lease in the event that Scriptgen were to default on its sublease obligations. In consideration for such arrangement, the Company expects to receive $55,000 per month from Scriptgen through August of 2002, or an aggregate of approximately $1.76 million. If Scriptgen were to default on its lease agreement or if the Company sold its interest in the lease, the Company would receive less than the $1.76 million. As of June 30, 2000, the Company has recorded $1.1 million (estimated total payments of $1.4 million as of December 31, 1999, less $0.3 million in payments actually received during the first half of 2000) as the remaining estimated net realizable value for the purpose of liquidation basis accounting. At June 30, 2000, the Company estimates that there are $.8 million of costs to be incurred during the remaining liquidation period through August 26, 2002 as compared to $1.2 million of costs remaining as of December 31, 1999. The decrease of $0.4 million resulted from payments made during the first half of 2000 consisting of management compensation ($127,000), insurance ($102,000) professional fees ($70,000), and facility/miscellaneous costs ($50,000), and a decrease in the estimate of costs to be incurred during the liquidation period ($190,000). Accounts Payable and Accrued expenses consist primarily of costs incurred through June 30, 1999, including severance costs and other operating costs incurred prior to the liquidation of the Company. The severance costs will be paid over the next nine months ending in the first quarter of 2001. FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," expects," "intends", "estimates", and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could affect the future activities of the Company, including, without limitation, the factors set forth below and those set forth under the heading "Future Results" and elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as filed with the Securities and Exchange Commission, and the information contained in this Quarterly Report on Form 10-Q should be read in light of such factors. The Company no longer satisfies the requirements for continued listing of its common stock on the Nasdaq National Market ("NASDAQ"). The Company received a notice from NASDAQ on 12 13 October 19, 1999, indicating that the company would be delisted as of January 22, 2000. The delisting of the company's common stock in fact occurred on that date. Because NASDAQ has delisted the Company's common stock, the ability of stockholders to buy and sell shares may be materially impaired. The Company's common stock is now traded on the NASDAQ over-the-counter bulletin board. Any future payments the Company may receive under its agreement with Cantab, and, therefore, any future value which may be returned to the Company's stockholders with respect to that agreement, is dependent upon the successful development and commercialization of the products licensed or sold to such companies, as the case may be. The ability of Cantab to develop and commercialize its products is subject to all of the risks and uncertainties inherent in the biotechnology industry, including those associated with the early stage of development of such products, government regulation, competition, patents and proprietary rights, manufacturing and marketing, additional financing requirements and access to capital, product liability and third-party reimbursement. There can be no assurance that any of these products will be successfully developed or commercialized or that the Company will receive any value with respect to them during the liquidation period. The Company sold certain assets related to its drugs of addiction vaccine programs for the treatment of nicotine and cocaine addiction to Cantab. In exchange for these assets and cash totaling $6,000,000, the Company received 2,566,845 new Cantab Ordinary Shares of 2p each, which were represented by 855,615 American Depository Shares ("ADSs"). On June 16, 2000, the Company converted 785,615 of its total 855,615 ADSs of Cantab Pharmaceuticals Plc ("Cantab") into 2,356,845 Ordinary Shares of Cantab and sold 1,300,000 of these shares on the London Stock Exchange for aggregate gross proceeds of approximately $7,215,000. In addition, ImmuLogic sold the remaining 70,000 ADSs to a private buyer in the United States for aggregate gross proceeds of approximately $1,165,000. On July 7, 2000, the Company sold an additional 100,000 Ordinary Shares of Cantab on the London Stock Exchange for aggregate gross proceeds of approximately $580,000. The Company's remaining holdings in Cantab consist of 956,845 Ordinary Shares as of July 8, 2000. In addition, ImmuLogic is entitled to receive additional payments if Cantab achieves certain milestones in its cocaine and nicotine clinical development. These payments may, at the option of Cantab, be paid in ADSs. The ADSs and Ordinary Shares of Cantab held by the Company are subject to certain contractual limitations with respect to their disposition. In addition, the Cantab shares currently held by the Company, and which may be issued to the Company in the future, are subject to extreme price and volume fluctuations. Accordingly, the net realizable value of approximately $5.1 million, which the Company recorded to be received upon disposition of such remaining Cantab shares and to be distributed to the stockholders with respect thereto, cannot be assured. The actual timing of future distributions cannot be predicted at this time. The Company intends to distribute pro rata to its stockholders, in cash or in-kind, or sell or otherwise dispose of, all of its property and net assets. The liquidation should be concluded prior to the third anniversary thereof by a final liquidating distribution either directly to the stockholders or to one or more liquidating trusts. Details regarding the plan to liquidate and dissolve the Company can be found in the Company's 1999 Proxy Statement filed with the Securities and Exchange Commission and mailed to stockholders on July 15, 1999. 13 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's investment policy specifies credit quality standards for the Company's investments and limits the amount of credit exposure to any single issue, issuer or type of investment. The Company does not believe that it has any material exposure to market risk with respect to derivative or other financial instruments requiring disclosure under this item. 14 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit: Exhibit Number Exhibit ------- ------- 27 Financial Data Schedule (b) Reports on Form 8-K: None. 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMMULOGIC PHARMACEUTICAL CORPORATION (Registrant) Date: 7/28/00 /s/ J. Richard Crowley ----------- ------------------------------------- J. Richard Crowley President, Secretary and Treasurer (Principal Financial and Accounting Officer) 16

IMMULOGIC PHARMACEUTICAL CORP /DE 10-Q