Form 10-K (Part II)

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Price of Our Common Stock and Related Stockholder Matters

Our Common Stock is quoted on the NASDAQ Global Market under the symbol "IMGN." The table below sets forth the high and low closing price per share of our Common Stock as listed on the NASDAQ Global Market:

 

 

Fiscal Year 2006

 

Fiscal Year 2005

 

 

High

 

Low

 

High

 

Low

First Quarter

 

$

7.340

 

$

5.820

 

$

6.210

 

$

4.090

Second Quarter

 

$

7.290

 

$

5.120

 

$

9.390

 

$

4.940

Third Quarter

 

$

5.310

 

$

3.990

 

$

8.990

 

$

4.950

Fourth Quarter

 

$

4.410

 

$

3.000

 

$

6.560

 

$

4.590

 

As of August 24, 2006, the closing price per share of our common stock was $3.26, as reported on the NASDAQ Global Market, and we had approximately 593 holders of record of the Company's common stock and, according to the Company's estimates, approximately 16,600 beneficial owners of the Company's common stock.

The Company has not paid any cash dividends on its Common Stock since its inception and does not intend to pay any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities

None.

Item 6. Selected Financial Data

The following table (in thousands, except per share data) sets forth our consolidated financial data for each of our five fiscal years through our fiscal year ended June 30, 2006. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this report on Form 10-K.

 

 

Year Ended June 30,

 

 

 

2006

 

2005

 

2004

 

2003

 

2002

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

32,088

 

$

35,718

 

$

25,956

 

$

7,628

 

$

5,883

 

Total expenses

 

 

53,474

 

 

48,395

 

 

34,369

 

 

32,064

 

 

26,268

 

Other income, net

 

 

3,569

 

 

1,755

 

 

2,542

 

 

4,489

 

 

5,883

 

Income tax expense

 

 

17

 

 

29

 

 

46

 

 

35

 

 

128

 

Net loss

 

$

(17,834

)

$

(10,951

)

$

(5,917

)

$

(19,982

)

$

(14,630

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.43

)

$

(0.27

)

$

(0.15

)

$

(0.48

)

$

(0.37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

 

41,184

 

 

40,868

 

 

40,646

 

 

41,912

 

 

39,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

94,128

 

$

110,132

 

$

122,630

 

$

118,032

 

$

152,156

 

Stockholders’ equity

 

 

72,350

 

 

86,842

 

 

97,137

 

 

102,680

 

 

134,215

 

 


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Since the Company's inception, we have been principally engaged in the development of antibodybased anticancer therapeutics. The combination of our expertise in antibodies and cancer biology has resulted in the development of both proprietary product candidates and technologies. Our proprietary Tumor-Activated Prodrug, or TAP, technology combines extremely potent small molecule cytotoxic agents with monoclonal antibodies that bind specifically to cancer cells. Our TAP technology is designed to increase the potency of tumor-targeting antibodies and kill cancer cells with only modest damage to healthy tissue. The cytotoxic agents we use in our TAP compounds currently involved in clinical testing are the maytansinoid DM1 and DM4 molecules, chemical derivatives of a naturally occurring substance called maytansine. We also use our expertise in antibodies and cancer to develop other types of therapeutics, such as naked-antibody anticancer product candidates.

We have entered into collaborative agreements that enable companies to use our TAP technology to develop commercial product candidates containing their antibodies. We have also used our proprietary TAP technology in conjunction with our in-house antibody expertise to develop our own anticancer product candidates. Under the terms of our collaborative agreements, we are entitled to upfront fees, milestone payments, and royalties on any commercial product sales. We are reimbursed our fully burdened costs to manufacture preclinical and clinical materials and, under certain collaborative agreements, the reimbursement includes a profit margin. Currently, our collaborative partners include Amgen, Inc. (formerly Abgenix, Inc.), Biogen Idec, Boehringer Ingelheim International GmbH, Centocor, Inc., Genentech, Inc., Millennium Pharmaceuticals, Inc., and the sanofi-aventis Group, and most recently, Biotest AG (effective July 7, 2006). We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements.

In July 2003, we announced a discovery, development and commercialization collaboration with Aventis Pharmaceuticals, Inc. (now the sanofi-aventis Group). Under the terms of this agreement, in consideration of an upfront payment of $12 million sanofi-aventis gained commercialization rights to three of the then most advanced product candidates in our preclinical pipeline and the commercialization rights to certain new product candidates developed during the research program portion of the collaboration. This collaboration allows us to access sanofi-aventis' clinical development and commercialization capabilities. Under the terms of the sanofi-aventis agreement, we also are entitled to receive committed research funding of approximately $50.7 million during the initial three-year term of the research program ending August 31, 2006. In August 2005, sanofi-aventis exercised its contractual right to extend the term of its research program with the Company and committed to fund $18.2 million in research support over the twelve months beginning September 1, 2006. This funding is in addition to the research support already committed for the three years ending August 31, 2006. Should sanofi-aventis elect to exercise its contractual right to extend the term of the research program for the second additional 12-month period, we would receive additional research funding.

On January 27, 2006, Genentech notified us that the trastuzumab-DM1 Investigational New Drug (IND) application submitted by Genentech to the FDA had become effective. Under the terms of the May 2000 exclusive license agreement for antibodies to HER2, this event triggered a $2.0 million milestone payment.

On January 25, 2006, Millennium Pharmaceuticals, Inc. notified us that, as part of its ongoing portfolio management process and based on the evaluation of recent clinical data in the context of other opportunities in its pipeline, Millennium had decided not to continue the development of its MLN2704 compound. MLN2704 consists of a Millennium antibody to the Prostate-Specific Membrane Antigen (PSMA) and our DM1 and was in development by Millennium under a 2002 license that gave Millennium exclusive rights to use our maytansinoid TAP technology with antibodies targeting PSMA. Millennium retains its right to use our maytansinoid TAP technology with antibodies targeting PSMA.

On March 27, 2006, Millennium extended the agreement that provides Millennium with certain rights to test our (TAP) technology with antibodies to specific targets and to license the right to use the technology to develop products on the terms defined in the agreement. This agreement was scheduled to expire March 30, 2006 unless extended by Millennium. It is now scheduled to expire March 30, 2007. In consideration for this extension, Millennium paid us an extension fee equal to $250,000.

In August 2003, Vernalis completed its acquisition of British Biotech. In connection with this acquisition, the merged company, called Vernalis plc, announced that it intended to review its merged product candidate portfolio, including its collaboration with ImmunoGen on huN901-DM1. After discussion with Vernalis, in January 2004 we announced that we would take over further development of the product candidate. Pursuant to the terms of the termination agreement executed on January 7, 2004, Vernalis retained responsibility for the conduct and expense of the study it initiated in the United States (Study 001) until June 30, 2004, and the study it had started in the United Kingdom (Study 002) through completion. We took over responsibility for Study 001 on July 1, 2004 and, in September 2005, we announced the initiation of our own clinical trial with huN901-DM1 in multiple myeloma (Study 003). On December 15, 2005, we executed an agreement to amend the residual obligation terms of the January 7, 2004 Termination Agreement with Vernalis. Under the terms of the amendment, we assumed responsibility for Study 002 as of December 15, 2005, including the cost of its completion. Under the amendment, Vernalis paid us $365,000 in consideration of the expected cost of the obligations assumed by us with the amendment. This $365,000 has been recognized as other income in the accompanying Consolidated Statements of Operations for the year ended June 30, 2006.

On January 8, 2004, we announced that we intended to advance cantuzumab mertansine into human testing to assess the clinical utility of the compound in certain indications. In October 2004, we decided to move huC242-DM4 into clinical trials instead of cantuzumab mertansine (huC242-DM1). We initiated a Phase I clinical trial with huC242-DM4 in June 2005.

Based upon the results of our clinical trials, if and when they are completed, we will evaluate whether to continue clinical development of huN901-DM1 and huC242-DM4, and, if so, whether we will seek a collaborative partner or partners to continue the clinical development and commercialization of either or both of these compounds.

To date, we have not generated revenues from commercial product sales and we expect to incur significant operating losses for the foreseeable future. We do not anticipate that we will have a commercially approved product within the near future. Research and development expenses are expected to increase significantly in the near term as we continue our development efforts, including an expanded clinical trial program. As of June 30, 2006, we had approximately $75.0 million in cash and marketable securities. We anticipate that our current capital resources and future collaboration payments, including the committed research funding due us under the sanofi-aventis collaboration over the remainder of the research program, will enable us to meet our operational expenses and capital expenditures for at least the next two to three fiscal years.

We anticipate that the increase in total cash expenditures will be partially offset by collaborationderived proceeds, including milestone payments and the committed research funding to which we are entitled pursuant to the sanofi-aventis collaboration. Accordingly, period-to-period operational results may fluctuate dramatically based upon the timing of receipt of the proceeds. We believe that our established collaborative agreements, while subject to specified milestone achievements, will provide funding to assist us in meeting obligations under our collaborative agreements while also assisting in providing funding for the development of internal product candidates and technologies. However, we can give no assurances that such collaborative agreement funding will, in fact, be realized in the time frames we expect, or at all. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

Critical Accounting Policies

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

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

Revenue Recognition

We estimate the period of our significant involvement during development for each of our collaborative agreements. We recognize any upfront fees received from our collaborators ratably over this estimated period of significant involvement. We generally believe our period of significant involvement occurs between the date we sign a collaboration agreement and projected FDA approval of our collaborator's product that is the subject of the collaboration agreement. We estimate that this time period ranges between six and seven and one-half years, depending on the characteristics of the license. The actual period of our involvement could differ significantly based upon the results of our collaborators' preclinical and clinical trials, competitive products that are introduced into the market and the general uncertainties surrounding drug development. Any difference between our estimated period of involvement during development and our actual period of involvement could have a material effect upon our results of operations. We assess our period of significant involvement with each collaboration on a quarterly basis and adjust the period of involvement prospectively, as appropriate.

We recognize the $12.0 million upfront fee we received from sanofi-aventis ratably over our estimated period of significant involvement of five years. This estimated period includes the initial three-year term of the collaborative research program, the one 12-month extension sanofi-aventis exercised in August 2005, and one remaining 12-month extension that sanofi-aventis may exercise. In the event our period of involvement is less than we estimated, the remaining deferred balance of the upfront fee will be recognized over this shorter period.

Inventory

We review our estimates of the net realizable value of our inventory at each reporting period. Our estimate of the net realizable value of our inventory is subject to judgment and estimation. The actual net realizable value of our inventory could vary significantly from our estimates. We consider quantities of DM1 and DM4, collectively referred to as DMx, and ansamitocin P3 in excess of 12 month projected usage that is not supported by collaborators' firm fixed orders and projections to be excess. To date, we have fully reserved any such material identified as excess with a corresponding charge to research and development expense. Our collaborators' estimates of their clinical material requirements are based upon expectations of their clinical trials, including the timing, size, dosing schedule and maximum tolerated dose of each clinical trial. Our collaborators' actual requirements for clinical materials may vary significantly from their projections. Significant differences between our collaborators' actual manufacturing orders and their projections could result in our actual 12 month usage of DMx and ansamitocin P3 varying significantly from our estimated usage at an earlier reporting period. In the fiscal year 2006 we did not incur any research and development expenses related to ansamitocin P3 and DMx inventory that we identified as excess based upon our inventory policy, and we recorded $153,000 to write down certain P3 and DMx batches and certain work in process amounts to their net realizable value.

Stock Compensation

As of June 30, 2006, the Company has one share-based compensation plan, which is the ImmunoGen, Inc. Restated Stock Option Plan. Effective July 1, 2005, we adopted the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement 123(R), Share-Based Payment (Statement 123(R)), using the modified-prospective-transition method. Under that transition method, compensation cost includes: (a) compensation cost for all share-based payments granted, but not yet vested as of July 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of Statement 123 (as defined below), and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Such amounts have been reduced by the Company's estimate of forfeitures of all unvested awards.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes optionpricing model. Expected volatility is based exclusively on historical volatility data of the Company's stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior amongst its employee population. The risk-free rate of the stock options is based on the United States Treasury rate in effect at the time of grant for the expected term of the stock options. The compensation cost that has been incurred during the year ended June 30, 2006 is $2.4 million.

Results of Operations

Revenues

Our total revenues for the year ended June 30, 2006 were $32.1 million compared with $35.7 million and $26.0 million for the years ended June 30, 2005 and 2004, respectively. The $3.6 million decrease in revenues from fiscal 2005 to fiscal 2006 is primarily attributable to lower revenues from clinical materials reimbursement, partially offset by higher revenues from research development support, as well as increases in license and milestone fees, as discussed below. The $9.8 million increase in revenues from fiscal 2004 to fiscal 2005 is primarily attributable to higher revenues from clinical materials reimbursement and research and development support, as well as increases in license and milestone fees.

Research and development support was $21.8 million for the year ended June 30, 2006 compared with $18.4 million for the year ended June 30, 2005. These amounts primarily represent committed research funding earned based on actual resources utilized under our discovery, development and commercialization agreement with sanofi-aventis, as well as amounts earned for resources utilized under our development and license agreements with Biogen Idec, Centocor, and Genentech. The sanofi-aventis agreement provides that we are entitled to receive a minimum of $50.7 million of committed research funding during a three-year research program, with annual amounts to be determined in each of the three research program years. We entered into the agreement with sanofi-aventis in July 2003 and initiation of the committed research funding began on September 1, 2003. At the conclusion of the second sanofiaventis research program year on August 31, 2005, a review of research activities during this period was conducted. This review identified $1.1 million in billable activities performed under the program during the fiscal year ended June 30, 2005 which had not been billed or recorded as revenue. Accordingly, we have included this additional $1.1 million of research and development support revenue in the accompanying consolidated statement of operations for the year ended June 30, 2006. Also included in research and development support revenue are fees related to process development and research work performed by the Company on behalf of collaborators, as well as samples of research-grade material shipped to collaborators. To date, our development fees represent the fully burdened reimbursement of costs incurred in producing research-grade materials and developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The amount of development fees we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators' products and the resources our collaborators allocate to the development effort. As such, the amount of development fees may vary widely from quarter to quarter and year to year.

Revenue from license and milestone fees for the year ended June 30, 2006 increased approximately $375,000 to $7.2 million from $6.8 million in the year ended June 30, 2005. Revenue from license and milestone fees for the year ended June 30, 2004 was $5.5 million. Included in license and milestone fees for the year ended June 30, 2006 was $2.0 million related to the achievement of a milestone under the Genentech agreement from the initiation of clinical testing of trastuzumab-DM1, along with amounts earned under the three-year renewal of the broad access agreement with Genentech. Included in license and milestone fees for the year ended June 30, 2005 was $2.5 million related to the achievement of milestones under the sanofi-aventis agreement from the initiation of clinical testing of AVE9633 and for the preclinical advancement of SAR3419. Total revenue recognized from license and milestone fees from each of our collaborative partners in the years ended June 30, 2006, 2005 and 2004 is included in the following table (in thousands):

 

 

Year ended June 30,

 

 

 

2006

 

2005

 

2004

 

 

 

 

 

Collaborative Partner:

 

 

 

 

 

 

 

 

 

 

Amgen (formerly Abgenix)

 

$

400

 

$

471

 

$

546

 

Biogen Idec

 

 

45

 

 

-

 

 

-

 

Boehringer Ingelheim

 

 

-

 

 

97

 

 

166

 

Centocor

 

 

159

 

 

83

 

 

-

 

Genentech

 

 

3,639

 

 

782

 

 

643

 

Millennium

 

 

508

 

 

443

 

 

443

 

Sanofi-aventis

 

 

2,400

 

 

4,900

 

 

2,000

 

Vernalis

 

 

-

 

 

-

 

 

1,750

 

Total

 

$

7,151

 

$

6,776

 

$

5,548

 

 

Deferred revenue of $16.0 million at June 30, 2006 represents payments received from our collaborators pursuant to our license agreements with them, which we have yet to earn pursuant to our revenue recognition policy.

Clinical materials reimbursement decreased by approximately $7.4 million to $3.1 million in the year ended June 30, 2006 compared to $10.5 million in the year ended June 30, 2005. We earned clinical materials reimbursement of $6.6 million during the year ended June 30, 2004. During the years ended June 30, 2006, 2005 and 2004, we shipped clinical materials in support of the huN901-DM1, bivatuzumab mertansine, MLN2704, trastuzumab-DM1 and AVE9633 clinical trials, as well as preclinical materials in support of the development efforts of certain other collaborators. The decrease in clinical materials reimbursement in fiscal 2006 as compared to fiscal 2005 and fiscal 2004 is due to a reduction in demand primarily related to clinical material to support the Boehringer Ingelheim and Millennium programs. The increase in clinical materials reimbursement in fiscal 2005 as compared to fiscal 2004 is primarily related to the advancement of the clinical trials of bivatuzumab mertansine and MLN2704, along with the initiation of clinical trials of AVE9633. Under certain collaborative agreements, we are reimbursed for our fully burdened cost to produce clinical materials plus a profit margin. The amount of clinical materials reimbursement we earn, and the related cost of clinical materials reimbursed, is directly related to (i) the number of on-going clinical trials our collaborators have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and (ii) our production of clinical grade material on behalf of our collaborators, either in anticipation of clinical trials, or for process development and analytical purposes. As such, the amount of clinical materials reimbursement and the related cost of clinical materials reimbursed may vary significantly from quarter to quarter and year to year.

Research and Development Expenses

We report research and development expense net of certain reimbursements we receive from our collaborators. Our net research and development expenses relate to (i) research to identify and evaluate new targets and to develop and evaluate new antibodies and cytotoxic drugs, (ii) preclinical testing of our own and, in certain instances, our collaborators' product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes and (iv) manufacturing operations. Our research and development efforts have been primarily focused in the following areas:

  • activities pursuant to our discovery, development and commercialization agreement with sanofiaventis;
  • activities related to the preclinical and clinical development of huN901-DM1 and huC242-DM4;
  • process development related to production of the huN901 antibody and huN901-DM1 conjugate for clinical materials;
  • process development related to production of the huC242 antibody and huC242-DM4 conjugate for clinical materials;
  • process improvements related to the production of DM1, DM4 and strain development of their precursor, ansamitocin P3;
  • funded development activities with contract manufacturers for the huN901 antibody, the huC242 antibody, and DM1, DM4 and their precursor, ansamitocin P3;
  • operation and maintenance of our conjugate manufacturing plant;
  • process improvements to our TAP technology;
  • identification and evaluation of potential antigen targets;
  • evaluation of internally developed and in-licensed antibody candidates; and
  • development and evaluation of additional cytotoxic agents.

DM1 and DM4 are the cytotoxic agents that we currently use in the manufacture of our two TAP product candidates in clinical testing. We have also investigated the viability of other maytansinoid effector molecules, which, collectively with DM1 and DM4, we refer to as DMx. In order to make commercial manufacture of DMx conjugates viable, we have devoted substantial resources to improving the strain of the microorganism that produces ansamitocin P3, the precursor to DMx, to enhance manufacturing yields. We also continue to devote considerable resources to improve other DMx manufacturing processes.

On January 8, 2004, we announced that pursuant to the terms and conditions of a termination agreement between us and Vernalis, Vernalis relinquished its rights to develop and commercialize huN901-DM1. As a result, we regained the rights to develop and commercialize huN901-DM1. Under the terms of our January 7, 2004 Termination Agreement with Vernalis, we assumed responsibility of one of the studies underway with the compound, Study 001, on July 1, 2004. Since then, we have expanded this study based upon the data from the initial patients enrolled and have expanded the number of clinical centers participating in this study to expedite patient enrollment. Additionally, we initiated a Phase I clinical trial with huN901-DM1 in CD56-positive multiple myeloma (Study 003) in September 2005. On December 15, 2005, we executed an amendment to the January 7, 2004 Termination Agreement with Vernalis. Under the terms of the amendment, we assumed responsibility as of December 15, 2005, at our own expense, to complete the huN901-DM1 clinical study (Study 002) that had been initiated in the United Kingdom. Vernalis paid us $365,000 in consideration of the expected cost of the obligations assumed by us under the amendment. Such consideration is included in other income/expense in the accompanying consolidated statements of operations for the year ended June 30, 2006. We intend to evaluate whether to out-license all or part of the development and commercial rights to this compound as we move through the clinical trial process.

In January 2004, we announced that we planned to advance cantuzumab mertansine, or an improved version of the compound, into a clinical trial that we would manage. In October 2004, we decided to move forward in developing a modified version of cantuzumab mertansine which we ca ll huC242-DM4. Patient dosing was initiated for the Phase I study of huC242-DM4 in June 2005. We intend to evaluate whether to out-license all or part of the development and commercial rights to this compound as we move through the clinical trial process for this compound.

In fiscal 2003, we licensed the then three most advanced product candidates in our preclinical portfolio to sanofi-aventis under the terms of our discovery, development and commercialization collaboration. These three product candidates were an anti-CD33 TAP compound for acute myeloid leukemia (AVE9633), an anti-IGF-1R antibody (AVE1642), and an anti-CD19 TAP compound (SAR 3419) for certain B-cell malignancies. Additional compounds were also licensed to sanofi-aventis under this agreement.

In December 2004, sanofi-aventis filed an Investigational New Drug Application (IND) for AVE9633. Clinical testing of this compound was initiated in March 2005. The anti-IGF-1R antibody is a naked antibody directed against a target found on various solid tumors, including certain breast, lung and prostate cancers. At June 30, 2006, pursuant to our collaboration research program with sanofi-aventis, we have identified a lead antibody product candidate and sanofi-aventis is performing further advancement of this antibody. The third potential product candidate is directed at certain anti-CD19 B-cell malignancies, including non-Hodgkin's lymphoma, and is in preclinical development. Additional compounds also are in various stages of development.

During the term of our research collaboration with sanofi-aventis, we are required to propose for inclusion in the collaborative research program certain antibodies or antibody targets that we believe will have utility in oncology, with the exception of those antibodies or antibody targets that are the subject of our preexisting or future collaboration and license agreements. Sanofi-aventis then has the right to either include in or exclude from the collaborative research program these proposed antibodies and antibody targets. If sanofi-aventis elects to exclude any antibodies or antibody targets, we may elect to develop the products for our own pipeline. Furthermore, sanofi-aventis may only include a certain number of antibody targets in the research program at any one time. Sanofi-aventis must therefore exclude any proposed antibody or antibody target in excess of the agreed-upon number. Over the original, three-year term of the research program and agreed-upon one-year extension, we will receive a minimum of $68.9 million of committed research funding and will devote a significant amount of our internal research and development resources to advancing the research program. Under the terms of the agreement, we may advance any TAP or antibody products that sanofi-aventis has elected not to either initially include or later advance in the research program.

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

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

Research and development expense for the year ended June 30, 2006 increased $10.4 million to $40.9 million from $30.5 million for the year ended June 30, 2005. Research and development expense was $21.7 million for the year ended June 30, 2004. The number of our research and development personnel increased to 152 for the year ended June 30, 2006 compared to 137 at June 30, 2005. We had 116 research and development personnel for the year ended June 30, 2004. Research and development salaries and related expenses increased by $3.5 million in the year ended June 30, 2006 compared to the year ended June 30, 2005 and increased by $3.8 million in the year ended June 30, 2005 compared to the year ended June 30, 2004. Included in salaries and related expenses for the year ended June 30, 2006 is $2.4 million of stock compensation costs incurred with the adoption of SFAS 123(R) on July 1, 2005. Facilities expense, including depreciation, increased $1.2 million during the year ended June 30, 2006 as compared to the same period in 2005 and increased $1.0 million in the year ended June 30, 2005 compared to the year ended June 30, 2004. The increase in facilities expense in 2006 and 2005 was principally due to the addition of two manufacturing suites placed in service during 2005. Also contributing to the increase in 2006 was an increase in administrative expenses primarily resulting from increased rent for the facilities, real estate taxes and operating expenses, and higher utility costs.

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

 

 

Year Ended June 30,

 

Research and Development

 

2006

 

2005

 

2004

 

 

 

 

 

Research

 

$

13,943

 

$

12,273

 

$

10,015

 

Preclinical and Clinical Testing

 

 

7,343

 

 

5,000

 

 

3,198

 

Process and Product Development

 

 

5,463

 

 

4,501

 

 

3,739

 

Manufacturing Operations

 

 

14,159

 

 

8,765

 

 

4,741

 

 

 

$

40,908

 

$

30,539

 

$

21,693

 

 

Research:   Research includes expenses associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, fees to in-license certain technology, facilities and lab supplies. Research expenses increased $1.7 million to $13.9 million in 2006 and increased $2.3 million to $12.3 million in 2005. The increase in research expenses in both 2006 and 2005 was primarily the result of an increase in salaries and related expenses. The increase in salaries and related expenses was the result of an increase in personnel required to support our collaborators' research programs, along with compensation costs incurred with the adoption of SFAS 123(R) as of July 1, 2005.

Preclinical and Clinical Testing:   Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators' product candidates, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses increased $2.3 million to $7.3 million in 2006 and $1.8 million to $5.0 million in 2005. The increases in 2006 and 2005 are substantially due to an increase in salaries and related expense, the result of an increase in personnel to support both our own as well as our collaborators' preclinical and clinical activities, along with compensation costs incurred with the adoption of SFAS 123(R) as of July 1, 2005. Clinical trial costs increased in 2006 and 2005 due to the advancement of our own clinical programs. Also contributing to the increase in 2005 was an increase in contract services for certain preclinical studies related to huC242-DM4.

Process and Product Development:   Process and product development expenses include costs for development of clinical and commercial manufacturing processes. Such expenses include the costs of personnel, contract services and facility expenses. Total development expenses increased approximately $962,000 to $5.5 million in 2006 and increased approximately $762,000 to $4.5 million in 2005. The increases in 2006 and 2005 are primarily the result of an increase in salaries and related expenses due to increases in personnel to support our own as well as our collaborators' development activities, along with compensation costs incurred with the adoption of SFAS 123(R) as of July 1, 2005.

Manufacturing Operations:   Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own product candidates and costs to support the operation and maintenance of our conjugate manufacturing plant. Such expenses include personnel, raw materials for our preclinical and clinical trials, manufacturing supplies, and facilities expense. Manufacturing costs related to the production of material for our collaborators are recorded as cost of clinical material reimbursed in our statement of operations. Manufacturing operations expense increased $5.4 million to $14.2 million in 2006 and increased $4.0 million to $8.8 million in 2005. The increase in 2006 as compared to 2005 was primarily the result of (i) an increase in salaries and related expenses due to an increase in personnel to support both our own as well as our collaborators' preclinical and clinical activities, along with compensation costs incurred with the adoption of SFAS 123(R) as of July 1, 2005, (ii) an increase in contract service expense substantially due to higher antibody purchases as well as development costs with contract manufacturing organizations for the potential production of later-stage materials, (iii) lower overhead utilization from the manufacture of clinical materials on behalf of our collaborators, (iv) an increase in facilities expense related to the addition of two manufacturing suites that were placed into service during the prior fiscal year, and (v) an increase in administrative expense resulting primarily from increases in freight in, electricity, and recruiting fees. Partially offsetting these increases was the use of material that was reserved in prior fiscal years. The increase in 2005 as compared to 2004 was primarily the result of (i) an increase in salaries and related expenses, (ii) an increase in expenses to reserve for excess quantities of ansamitocin P3 and DMx in accordance with our inventory reserve policy, (iii) an increase in facilities expense related to the addition of two manufacturing suites that were placed into service during the year and (iv) lower overhead utilization from the manufacture of clinical materials on behalf of our collaborators.

Antibody expense in anticipation of potential future clinical trials was $7.1 million in 2006, $1.3 million in 2005 and $1.2 million in 2004. Approximately $818,000 of the antibody expense during 2004 was related to the purchase of antibody in support of one of the preclinical product candidates that was licensed by sanofi-aventis. We received reimbursement of this amount in 2004 from sanofi-aventis. The process of antibody production is lengthy as is the lead time to establish a satisfactory production process at a vendor. Accordingly, amounts incurred related to antibody production have fluctuated from period to period and we expect that these period fluctuations will continue in the future.

During fiscal 2005 and 2004, we recorded research and development expenses of $2.3 million and $307,000, respectively, related to ansamitocin P3 and DMx inventory that we identified as excess based upon our inventory policy. We did not incur any similar expenses in fiscal 2006. The higher write-off in 2005 as compared to 2004 contributed to the increase in manufacturing operations expense in 2005, as noted above. Reserve requirements for excess quantities of P3 and DMx are principally determined based on our collaborators' forecasted demand co mpared to our inventory position. Due to lead times required to secure material and the changing requirements of our collaborators, expenses to provide for excess quantities have fluctuated from period to period and we expect that these period fluctuations will continue in the future. (See "Inventory" within our Critical Accounting Policies for further discussion of our inventory reserve policy).

General and Administrative Expenses

General and administrative expenses for the year ended June 30, 2006 increased $1.3 million to $9.9 million from $8.6 million for the year ended June 30, 2005. General and administrative expenses for the year ended June 30, 2004 were $7.0 million. The increases in both years primarily relate to increases in salaries and related expenses, and expanded patent filings. Salaries and related expenses increased due to an increase in personnel, along with compensation costs incurred with the adoption of SFAS 123(R) as of July 1, 2005.

Interest Income

Interest income for the year ended June 30, 2006 increased $1.4 million to $3.3 million from $1.8 million for the year ended June 30, 2005. Interest income for the year ended June 30, 2004 was $1.2 million. The increase in interest income from fiscal 2006 to fiscal 2005 and fiscal 2005 to fiscal 2004 is primarily the result higher rates of return resulting from higher yields on investments.

Net Realized Losses on Investments

Net realized losses on investments were $28,000, $81,000, and $58,000 for the years ended June 30, 2006, 2005, and 2004, respectively. The net realized losses in 2006, 2005, and 2004 are attributable to the timing of investment sales.

Other Income

Other income for the year ended June 30, 2006 increased $313,000 to $320,000 as compared to $8,000 for the year ended June 30, 2005. During the year ended June 30, 2006, we recorded as other income $365,000 for consideration of the expected cost of the obligations assumed by us resulting from the Amendment to the January 7, 2004 Termination Agreement executed by us and Vernalis. Under the terms of the Amendment, we assumed responsibility as of December 15, 2005, at our own expense, to complete Study 002 for huN901-DM1. Offsetting this amount, we incurred foreign currency translation expense related to obligations with non-United States-dollar-based suppliers. Other income for the year ended June 30, 2004 was $1.4 million. During the year ended June 30, 2004, we recorded in other income reimbursement of approximately $1.3 million from sanofi-aventis for the GMP production of antibody manufactured in support of one of the preclinical product candidates that was licensed by sanofi-aventis.

Liquidity and Capital Resources

 

 

June 30,

 

 

 

2006

 

2005

 

 

 

(In thousands)

 

Cash and short-term investments

 

$

75,023

 

$

90,565

 

Working capital

 

 

73,820

 

 

90,710

 

Stockholders’ equity

 

 

72,350

 

 

86,842

 

 

Cash Flows

We require cash to fund our operating expenses, including the advancement of our own clinical programs, and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity financings in public markets and payments from our collaborators, including equity investments, license fees and research funding. As of June 30, 2006, we had approximately $75.0 million in cash and marketable securities. Net cash used in operations was $14.3 million, $2.1 million and $5.0 million during the years ended June 30, 2006, 2005 and 2004, respectively. The principal use of cash in operating activities for all periods presented was to fund our net loss. The increase in operational cash use from fiscal 2005 to fiscal 2006 is principally due to the increased net loss, as a result of increased research and development costs and general and administrative expenses compared to last year, without the benefit of the reduction in working capital that occurred in fiscal 2005. The decrease in operational cash use from fiscal 2004 to fiscal 2005 is substantially due to a reduction in working capital that partially offset our fiscal 2005 net loss. Also contributing to the decrease in fiscal 2005 was $5.0 million of upfront fees received for which revenue recognition was deferred.

Net cash provided by investing activities was $14.5 million for the year ended June 30, 2006, and represents cash inflows from the sales and maturities of marketable securities partially offset by capital expenditures. Net cash used for investing activities was $1.8 million for the year ended June 30, 2005 and represents cash outflows for capital expenditures partially offset by proceeds from the sales and maturities of marketable securities. Net cash provided by investing activities was $1.1 million for the year ended June 30, 2004 and primarily represents cash inflows from the sale and maturities of marketable securities partially offset by capital expenditures. Capital expenditures were $2.1 million, $2.4 million and $2.0 million for the fiscal years ended June 30, 2006, 2005 and 2004, respectively. Capital expenditures for the year ended June 30, 2006, consisted primarily of laboratory equipment. For the year ended June 30, 2005, capital expenditures consisted primarily of capacity and capability expansion at our existing conjugate manufacturing facility located in Norwood, Massachusetts. For the year ended June 30, 2004, capital expenditures consisted primarily of the renovation of our new laboratory and office facility at 148 Sidney Street, Cambridge, Massachusetts. Net cash provided by financing activities was $1.2 million, $529,000 and $599,000 for the years ended June 30, 2006, 2005 and 2004, respectively, which represents the proceeds from the exercise of 454,000, 231,000 and 194,000 stock options, respectively.

We anticipate that our current capital resources and future collaborator payments, including committed research funding that we expect to receive from sanofi-aventis pursuant to the terms of our collaboration agreement, will enable us to meet our operational expenses and capital expenditures for at least the next two to three fiscal years. We believe that our existing capital resources in addition to our established collaborative agreements will provide funding sufficient to allow us to meet our obligations under all collaborative agreements while also allowing us to develop product candidates and technologies not covered by collaborative agreements. However, we cannot provide assurance that such collaborative agreement funding will, in fact, be received. Should we not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

Contractual Obligations

Below is a table that presents our contractual obligations and commercial commitments as of June 30, 2006 (in thousands):

 

 

Payments Due by Period

 

 

 

 

Total

 

Less than One Year

 

1-3 Years

 

4-5 Years

 

More than

5 Years

 

 

 

 

 

Operating lease obligations

 

$

8,081

 

$

3,482

 

$

4,362

 

$

237

 

$

-

 

Unconditional purchase obligations

 

 

6,949

 

 

6,949

 

 

-

 

 

-

 

 

-

 

Total

 

$

15,030

 

$

10,431

 

$

4,362

 

$

237

 

$

-

 

 

Recent Accounting Pronouncements

In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which will require entities that voluntarily make a change in accounting principle to apply that change retrospectively to prior periods' financial statements, unless this would be impracticable. SFAS No. 154 supersedes APB Opinion No. 20, Accounting Changes, which previously required that most voluntary changes in accounting principle be recognized by including in the current period's net income the cumulative effect of changing to the new accounting principle. SFAS No. 154 also makes the distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. Another significant change in practice under SFAS No. 154 will be that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. Under APB No. 20, such a change would have been reported as a change in accounting principle. SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. Although we continue to evaluate the application of SFAS No. 154, we do not currently believe that adoption will have a material impact on our results of operations, financial position or cash flows.

In July 2006, the FASB issued Financial Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes, which applies to all tax positions related to income taxes subject to No. 109 (SFAS 109), Accounting for Income Taxes. This includes tax positions considered to be "routine" as well as those with a high degree of uncertainty. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more-likely-than-not to be sustained). Under step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more-likely-than-not to be realized upon ultimate settlement. FIN 48's use of the term "more-likely-than-not" in steps one and two is consistent with how that term is used in SFAS 109 (i.e., a likelihood of occurrence greater than 50 percent).

Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the more-likely-than-not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions. Additionally, FIN 48 requires expanded disclosure requirements, which include a tabular rollforward of the beginning and ending aggregate unrecognized tax benefits as well as specific detail related to tax uncertainties for which it is reasonably possible the amount of unrecognized tax benefit will significantly increase or decrease within twelve months. These disclosures are required at each annual reporting period unless a significant change occurs in an interim period. FIN 48 is effective for fiscal years beginning after December 15, 2006 (our fiscal year 2008). We do not believe the adoption will have material impact on our results of operation.





Item 7A. Quantitative and Qualitative Disclosure About Market Risk

We maintain an investment portfolio in accordance with our Investment Policy. The primary objectives of our Investment Policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Although our investments are subject to credit risk, our Investment Policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short duration, interest rate risk is mitigated. We do not own derivative financial instruments in our investment portfolio. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item.

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Page

Report of Independent Registered Public Accounting Firm as o f June 30, 2006 and 2005 and for the Three Years then Ended........................................

 

47

Consolidated Financial Statements:

 

 

Consolidated Balance Sheets as of June 30, 2006 and 2005....................

 

48

Consolidated Statements of Operations for the Years Ended June 30, 2006, 2005, and 2004.................................................................................

 

49

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2006, 2005, and 2004...................................................................

 

50

Consolidated Statements of Cash Flows for the Years Ended June 30, 2006, 2005, and 2004.................................................................................

 

51

Notes to Consolidated Financial Statements...............................................

 

52

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of ImmunoGen, Inc.

We have audited the accompanying consolidated balance sheets of ImmunoGen, Inc. as of June 30, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ImmunoGen, Inc. at June 30, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ImmunoGen, Inc.'s internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 24, 2006 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG

Boston, Massachusetts
August 24, 2006

ImmunoGen, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2006 AND JUNE 30, 2005
In thousands, except per share amounts

 

 

June 30, 

 

 

 

2006

 

2005

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,813

 

$

3,423

 

Marketable securities

 

 

70,210

 

 

87,142

 

Accounts receivable

 

 

1,569

 

 

1,418

 

Unbilled revenue

 

 

5,419

 

 

5,035

 

Inventory

 

 

1,235

 

 

1,520

 

Prepaid and other current assets

 

 

1,298

 

 

1,398

 

Total current assets

 

 

84,544

 

 

99,936

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

 

9,319

 

 

9,883

 

Other assets

 

 

265

 

 

313

 

 

 

 

 

 

 

 

 

Total assets

 

$

94,128

 

$

110,132

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Accounts payable

 

$

1,346

 

$

2,099

 

Accrued compensation

 

 

925

 

 

728

 

Other current accrued liabilities

 

 

3,129

 

 

1,327

 

Current portion of deferred revenue

 

 

5,323

 

 

5,072

 

Total current liabilities

 

 

10,723

 

 

9,226

 

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

10,705

 

 

13,739

 

Other long-term liabilities

 

 

350

 

 

325

 

Total liabilities

 

 

21,778

 

 

23,290

 

Commitments and Contingencies (Note H)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $.01 par value; authorized 75,000 shares; issued and outstanding 45,149 shares and 44,695 shares as of June 30, 2006 and June 30, 2005 , respectively

 

 

451

 

 

447

 

Additional paid-in capital

 

 

321,885

 

 

318,300

 

Deferred compensation

 

 

-

 

 

(13

)

Treasury stock, 3,675 shares at June 30, 2006 and 2005

 

 

(11,071

)

 

(11,071

)

Accumulated deficit

 

 

(238,561

)

 

(220,727

)

Accumulated other comprehensive loss

 

 

(354

)

 

(94

)

Total stockholders’ equity

 

 

72,350

 

 

86,842

 

Total liabilities and stockholders’ equity

 

$

94,128

 

$

110,132

 

 

The accompanying notes are an integral part of the consolidated financial statements.

ImmunoGen, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data

 

 

Year Ended June 30,

 

 

 

2006

 

2005

 

2004

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

Research and development support

 

$

21,849

 

$

18,419

 

$

13,837

 

License and milestone fees

 

 

7,151

 

 

6,776

 

 

5,548

 

Clinical materials reimbursement

 

 

3,088

 

 

10,523

 

 

6,571

 

Total revenues

 

 

32,088

 

 

35,718

 

 

25,956

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

Cost of clinical materials reimbursed

 

 

2,668

 

 

9,236

 

 

5,659

 

Research and development (1)

 

 

40,908

 

 

30,539

 

 

21,693

 

General and administrative (1)

 

 

9,898

 

 

8,620

 

 

7,017

 

Total expenses

 

 

53,474

 

 

48,395

 

 

34,369

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(21,386

)

 

(12,677

)

 

(8,413

)

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

3,274

 

 

1,828

 

 

1,219

 

Net realized loss on investments

 

 

(28

)

 

(81

)

 

(58

)

Gain on sale of assets

 

 

3

 

 

-

 

 

-

 

Other income

 

 

320

 

 

8

 

 

1,381

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income tax expense

 

 

(17,817

)

 

(10,922

)

 

(5,871

)

Income tax expense

 

 

17

 

 

29

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,834

)

$

(10,951

)

$

(5,917

)

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.43

)

$

(0.27

)

$

(0.15

)

Basic and diluted weighted average common shares outstanding

 

 

41,184

 

 

40,868

 

 

40,646

 

 

The accompanying notes are an integral part of the consolidated financial statements.

ImmunoGen, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In thousands

 

Common Stock

 

Additional Paid-In

 

 

 

 

Deferred

 

Treasury Stock

 

Accumulated

 

Accumulated Other Comprehensive Income

 

Comprehensive Income

 

Total Stockholders’

 

Shares

 

Amount

 

Capital

 

Compensation

 

Shares

 

Amount

 

Deficit

 

(Loss)

 

(Loss)

 

Equity

Balance at June 30, 2003

44,261

 

$ 443

 

$ 317,077

 

$ (41)

 

3,675

 

$ (11,071)

 

$ (203,859)

 

$ 131 

 

 

 

$ 102,680

Unrealized (losses) gains  on marketable securities, net

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(233)

 

(233)

 

(233)

Net loss for the year ended June 30, 2004

-

 

-

 

-

 

-

 

-

 

-

 

(5,917)

 

-

 

(5,917)

 

(5,917)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ (6,150)

 

-

Stock options exercised

195

 

2

 

597

 

-

 

-

 

-

 

-

 

-

 

-

 

599

Issuance of stock and stock  units for directors’ compensation

6

 

-

 

31

 

(40)

 

-

 

-

 

-

 

-

 

-

 

(9)

Amortization of deferred compensation

-

 

-

 

-

 

17

 

-

 

-

 

-

 

-

 

-

 

17

Recapture and reversal of compensation expense for stock options related to terminated employees

-

 

-

 

(1)

 

1

 

-

 

-

 

-

 

-

 

-

 

-

Balance at June 30, 2004

44,462

 

$ 445

 

$ 317,704

 

$ (63)

 

3,675

 

$ (11,071)

 

$ (209,776)

 

$ (102)

 

 

 

$ 97,137

Unrealized (losses) gains on marketable securities, net

-

 

-

 

-

 

-

 

-

 

-

 

-

 

8

 

8

 

8

Net loss for the year ended June 30, 2005

-

 

-

 

-

 

-

 

-

 

-

 

(10,951)

 

-

 

(10,951)

 

(10,951)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ (10,943)

 

-

Stock options exercised

231

 

2

 

526

 

-

 

-

 

-

 

-

 

-

 

-

 

528

Issuance of stock for directors’ compensation

2

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Amortization of deferred compensation

-

 

-

 

-

 

35

 

-

 

-

 

-

 

-

 

-

 

35

Compensation for stock options

-

 

-

 

74

 

-

 

-

 

-

 

-

 

-

 

-

 

74

Recapture and reversal of compensation expense for stock options related to terminated employees

-

 

-

 

(4)

 

15

 

-

 

-

 

-

 

-

 

-

 

11

Balance at June 30, 2005

44,695

 

$ 447

 

$ 318,300

 

$ (13)

 

3,675

 

$ (11,071)

 

$ (220,727)

 

$ (94)

 

 

 

$ 86,842

Unrealized (losses) gains on marketable securities

-

 

-

 

-

 

 

-

 

-

 

-

 

-

 

(260)

 

(260)

 

(260)

Net loss for the year ended June 30, 2006

-

 

-

 

-

 

-

 

-

 

-

 

(17,834)

 

-

 

(17,834)

 

(17,834)

Comprehensive loss

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(18,094)

 

-

Stock options exercised

454

 

4

 

1,146

 

-

 

-

 

-

 

-

 

-

 

-

 

1,150

Compensation for stock options

-

 

-

 

2,452

 

-

 

-

 

-

 

-

 

-

 

-

 

2,452

Reversal of deferred compensation

-

 

-

 

(13)

 

13

 

-

 

-

 

-

 

-

 

-

 

-

Balance at June 30, 2006

45,149

 

$ 451

 

$ 321,885

 

$ -

 

3,675

 

$ (11,071)

 

$ (238,561)

 

$ (354)

 

 

 

$ 72,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The accompanying notes are an integral part of the consolidated financial statements.

ImmunoGen, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands

 

 

Year Ended June 30,

 

 

 

2006

 

2005

 

2004

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

$

(17,834

)

$

(10,951

)

$

(5,917

)

Net loss

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used for operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,688

 

 

2,222

 

 

1,292

 

(Gain) loss on disposal of fixed assets

 

 

(1

)

 

39

 

 

-

 

Loss on sale of marketable securities

 

 

28

 

 

81

 

 

58

 

Inventory write-down

 

 

153

 

 

2,302

 

 

307

 

Stock and deferred share unit compensation

 

 

2,424

 

 

176

 

 

107

 

Deferred rent

 

 

53

 

 

5

 

 

5

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(151

)

 

3,446

 

 

(4,191

)

Unbilled revenue

 

 

(384

)

 

615

 

 

(5,545

)

Inventory

 

 

132

 

 

2,816

 

 

(1,324

)

Prepaid and other current assets

 

 

100

 

 

(571

)

 

155

 

Other assets

 

 

48

 

 

19

 

 

-

 

Accounts payable

 

 

(753

)

 

(47

)

 

1,007

 

Accrued compensation

 

 

197

 

 

156

 

 

180

 

Other current accrued liabilities

 

 

1,802

 

 

(37

)

 

(46

)

Deferred revenue

 

 

(2,783

)

 

(2,336

)

 

8,896

 

Net cash used for operating activities

 

 

(14,281

)

 

(2,065

)

 

(5,016

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

Proceeds from maturities or sales of marketable securities

 

 

553,396

 

 

1,067,761

 

 

433,393

 

Purchases of marketable securities

 

 

(536,752

)

 

(1,067,135

)

 

(430,384

)

Capital expenditures

 

 

(2,126

)

 

(2,435

)

 

(1,956

)

Proceeds from sale of fixed assets

 

 

3

 

 

-

 

 

-

 

Net cash provided by (used for) investing activity

 

 

14,521

 

 

(1,809

)

 

1,053

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

Proceeds from stock options exercised

 

 

1,150

 

 

529

 

 

599

 

Net cash provided by financing activities

 

 

1,150

 

 

529

 

 

599

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

1,390

 

 

(3,345

)

 

(3,364

)

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning balance

 

 

3,423

 

 

6,768

 

 

10,132

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, ending balance

 

$

4,813

 

$

3,423

 

$

6,768

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure:

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

17

 

$

35

 

$

45

 


The accompanying notes are an integral part of the consolidated financial statements.

ImmunoGen, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006

A. Nature of Business and Plan of Operations

ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused on the development of antibody-based anticancer therapeutics. The Company continues to research and develop its various product candidates and technologies and does not expect to derive revenue from commercial product sales within the near future. It is anticipated that the Company's existing capital resources, enhanced by collaborative agreement funding, will enable current and planned operations to be maintained for at least the next two to three fiscal years. However, if the Company is unable to achieve future milestones under its collaborative agreements (see Note C) or raise additional capital, the Company may be required to defer or limit some or all of its research, development and/or clinical projects.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, collaboration arrangements, third-party reimbursements and compliance with governmental regulations.

B. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ImmunoGen Securities Corp. (established in December 1989), and ImmunoGen Europe Limited (established in October 2005). All intercompany transactions and balances have been eliminated.

Reclassifications

Prior period amounts have been adjusted to conform to the current year presentation. Investment management fees previously included in general and administrative expense have been reclassified against interest income, net.

Revenue Recognition—Change in Accounting Principle

Effective July 1, 2000, ImmunoGen changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). Under the new accounting method, the Company recognizes revenue from non-refundable, upfront license payments not specifically tied to a separate earnings process ratably over the term of the Company's substantial involvement during development. The cumulative effect of the change in accounting on prior years resulted in a non-cash charge to income of $5.7 million, which was included in the net loss for the year ended June 30, 2001. Included in revenue for the years ended June 30, 2006, 2005 and 2004 is $593,000, $643,000 and $643,000, respectively, of revenue that was recognized in years prior to the Company's adoption of SAB 101 and included in the cumulative effect of the change in accounting principle.

Revenue Recognition

The Company enters into out-licensing and development agreements with collaborative partners for the development of monoclonal antibody-based cancer therapeutics. The Company follows the provisions of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104 (SAB No. 104), Revenue Recognition and EITF 00-21, Accounting for Revenue Arrangements with Multiple Elements (EITF00-21). In accordance with SAB No. 104 and EITF 00-21, the Company recognizes revenue related to research activities as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable. The terms of the Company's agreements contain multiple elements which typically include non-refundable license fees, payments based upon the achievement of certain milestones and royalties on product sales. The Company evaluates such arrangements to determine if the deliverables are separable into units of accounting and then applies applicable revenue recognition criteria to each unit of accounting.

At June 30, 2006, the Company had the following three types of collaborative contracts with the parties identified below:

  • License to a single target antigen (single target license):
          Biogen Idec, Inc.
          Boehringer Ingelheim International GmbH
          Centocor, Inc., a wholly owned subsidiary of Johnson & Johnson
          Genentech, Inc. (multiple licenses)
          Millennium Pharmaceuticals, Inc.
  • Broad option agreements to acquire rights to a limited number of targets over a specified time period (broad license):
          Amgen, Inc. (formerly Abgenix, Inc.)
          Genentech, Inc.
          Millennium Pharmaceuticals, Inc.
  • Broad agreement to discover, develop and commercialize antibody-based anticancer products:
          Sanofi-aventis Group (sanofi-aventis)

Generally, all of these collaboration agreements provide that the Company will (i) manufacture preclinical and certain clinical materials for its collaborators, at the collaborator's request and cost, or in some cases, cost plus a profit margin, (ii) receive payments upon the collaborators' achievements of certain milestones and (iii) receive royalty payments, generally until the later of the last applicable patent expiration or 12 years after product launch. The Company is required to provide technical training and any process improvements and know-how to its collaborators during the term of the collaboration agreements. Practically, once a collaborator receives U.S. Food and Drug Administration (FDA) approval for any drug and the manufacturing process used to produce the drug, the collaborator will not be able to incorporate any process improvements or know-how into its manufacturing process without additional testing and review by the FDA. Accordingly, the Company believes that it is very unlikely that its collaborators will require the Company's services subsequent to FDA approval.

Generally, upfront payments on single target licenses are deferred over the period of the Company's substantial involvement during development. ImmunoGen employees are available to assist the Company's collaborators during the development of their products. The Company estimates this development phase to begin at the inception of the collaboration agreement and conclude when and if the product receives FDA approval. The Company believes this period of involvement ranges, on average, and depending on the nature of the license, between six and seven and one-half years. At each reporting period, the Company analyzes individual product facts and circumstances and reviews the estimated period of its substantial involvement to determine whether a significant change in its estimates has occurred and adjusts the deferral period accordingly. In the event that a single target license were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue at the date of such termination.

The Company defers upfront payments received from its broad licenses over the period during which the collaborator may elect to receive a license. These periods are specific to each collaboration agreement, but are between seven and 12 years. If a collaborator selects an option to acquire a license under these agreements, any option fee is deferred and recorded over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and the Company grants a single target license to the collaborator, the Company defers the license fee and accounts for the fee as it would an upfront payment on a single target license, as discussed above. In the event that a broad license agreement were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue at the date of such termination. In the event that a collaborator elects to discontinue development of a specific product candidate under a single target license, but retains its right to use the Company's technology to develop an alternative product candidate to the same target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial pre-clinical activity on another product candidate and the Company's remaining period of substantial involvement can be estimated.

Quarterly, the Company reassesses its periods of substantial involvement over which the Company amortizes its upfront license fees. In the fiscal year ended June 30, 2006, this reduced the recognition of license and milestone fees by approximately $84,000.

The Company's discovery, development and commercialization agreement with sanofi-aventis included an upfront payment of $12.0 million that sanofi-aventis paid to ImmunoGen in August 2003. The Company deferred the upfront payment and recognizes it ratably over the period of the Company's substantial involvement of five years, which includes the term of the collaborative research program of three years and two 12-month extensions that sanofi-aventis may exercise. The discovery, development and commercialization agreement also provides that ImmunoGen receive committed research funding of $50.7 million over the initial three-year period, as determined in each of the three research program years. The committed research funding is based upon resources that ImmunoGen is required to contribute to the collaboration. The Company records the research funding as it is earned based upon its actual resources utilized in the collaboration. In August 2005, sanofi-aventis exercised the first of the two 12-month extensions. This extension will provide the Company with $18.2 million in additional committed funding over the twelve months beginning September 1, 2006.

At the conclusion of the second sanofi-aventis research program year on August 31, 2005, a review of research activities during this period was conducted. This review identified $1.1 million in billable research activities performed under the program during the fiscal year ended June 30, 2005, which had not been billed or recorded as revenue. Accordingly, the Company has included this additional $1.1 million of research and support revenue in the accompanying consolidated statement of operations for the year ended June 30, 2006. The Company does not believe such previously unrecorded revenue was material to the results of operations or the financial position of the Company for any interim period of 2005 or 2006 or for the years ended June 30, 2005 and 2006.

When milestone fees are specifically tied to a separate earnings process, revenue is recognized when the milestone is achieved. In addition, when appropriate, the Company recognizes revenue from certain research payments based upon the level of research services performed during the period of the research contract. Deferred revenue represents amounts received under collaborative agreements and not yet earned pursuant to these policies. Where the Company has no continuing involvement, the Company will record non-refundable license fees as revenue upon receipt and will record milestone revenue upon achievement of the milestone by the collaborative partner.

The Company may produce preclinical and clinical materials for its collaborators. The Company is reimbursed for its fully burdened cost to produce clinical materials and, in some cases, fully burdened cost plus a profit margin. The Company recognizes revenue on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title has transferred to the collaborator.

The Company also produces research material for potential collaborators under material transfer agreements. Additionally, research activities are performed, including developing antibody-specific conjugation processes, on behalf of the Company's collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. Generally, the Company is reimbursed for its fully burdened cost of producing these materials or providing these services. The Company records the amounts received for the materials produced or services performed as a component of research and development support.

Inventory

Inventory costs primarily relate to clinical trial materials being manufactured for sale to the Company's collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

Inventory at June 30, 2006 and 2005 is summarized below (in thousands):

 

 

June 30,

 

 

2006

 

2005

 

 

 

Raw materials

 

$

-

 

$

797

Work in process

 

 

1,235

 

 

723

Total

 

$

1,235

 

$

1,520

 

Inventory cost is stated net of write-downs of $2.9 million and $3.7 million as of June 30, 2006 and June 30, 2005, respectively. The write-downs represent the cost of DM1, DM4 and ansamitocin P3 that the Company considers to be in excess of a 12-month supply based on current collaborator firm fixed orders and projections.

DM1 and DM4 are cell-killing agents used in all Tumor-Activated Prodrug (TAP) product candidates currently in preclinical and clinical testing, and are the subject of the Company's collaborations. DM1 and DM4 (collectively referred to as DMx) are both manufactured from a precursor, ansamitocin P3.

Due to yield fluctuations, the actual amount of ansamitocin P3 and DMx that will be produced in future periods under supply agreements is highly uncertain. As such, the amount of ansamitocin P3 and/or DMx produced could be more than is required to support the development of the Company's and its collaborators' products. Such excess product, as determined under the Company's inventory reserve policy, has been charged to research and development expense to date.

The Company produces preclinical and clinical materials for its collaborators either in anticipation of or in support of clinical trials, or for process development and analytical purposes. Under the terms of supply agreements with its collaborators, the Company generally receives rolling six month firm-fixed orders for conjugate that the Company is required to manufacture, and rolling 12-month manufacturing projections for the quantity of conjugate the collaborator expects to need in any given 12-month period. The amount of clinical material produced is directly related to the number of on-going clinical trials for which the Company is producing clinical material for itself and its collaborators, the speed of enrollment in those trials and the dosage schedule of each clinical trial. Because these elements can vary significantly over the course of a trial, significant differences between collaborators' actual manufacturing orders and their projections could result in 12-month usage of DMx and ansamitocin P3 varying significantly from estimated usage at an earlier reporting period. To the extent that a collaborator has provided the Company with a firm fixed order, the collaborator is contractually required to reimburse the Company the full cost of the conjugate and any agreed margin thereon, even if the collaborator subsequently cancels the manufacturing run.

The Company accounts for the DMx and ansamitocin P3 inventory as follows:

  1. That portion of the DMx and/or ansamitocin P3 that the Company intends to use in the production of its own products is expensed upon receipt of the materials;
  2. To the extent that the Company has collaborator projections for up to 12 months of firm fixed orders, the Company capitalizes the value of DMx and ansamitocin P3 that will be used in the production of conjugate subject to these firm fixed orders and/or projections;
  3. The Company considers more than a 12-month supply of ansamitocin P3 and/or DMx that is not supported by collaborators' firm fixed orders or projections to be excess. The Company establishes a reserve to reduce to zero the value of any such excess ansamitocin P3 or DMx inventory with a corresponding charge to research and development expense; and
  4. The Company also considers any other external factors and information of which it becomes aware and assesses the impact of such factors or information on the net realizable value of the DMx and ansamitocin P3 inventory at each reporting period.

In the year ended June 30, 2005, the Company recorded as research and development expense $2.3 million of ansamitocin P3 and DMx that the Company identified as excess based upon the Company's inventory policy as described above. No additional amounts were recorded during the fiscal year ended June 30, 2006 related to excess inventory, as the total amount of the Company's on-hand supply of DMx and ansamitocin P3 was fully reserved. However, in the year ended June 30, 2006, the Company recorded $153,000 to write down certain batches of ansamitocin P3 and DMx and certain work in process amounts to their net realizable value. If the Company increases its on-hand supply of DMx or ansamitocin P3, a corresponding change to the Company's collaborators' projections could result in significant changes in the Company's estimate of the net realizable value of such DMx and ansamitocin P3 inventory. Reductions in collaborators' projections could indicate that the Company has additional excess DMx and/or ansamitocin P3 inventory and the Company would then evaluate the need to record further write-downs, included as charges to cost of clinical materials reimbursement.

Unbilled Revenue

The majority of the Company's unbilled revenue at June 30, 2006 and 2005 represents (i) committed research funding earned based on actual resources utilized unde r the Company's discovery, development and commercialization agreement with sanofi-aventis; (ii) reimbursable expenses incurred under the Company's discovery, development and commercialization agreement with sanofi-aventis that the Company has not yet invoiced; and (iii) research funding earned based on actual resources utilized under the Company's development and license agreements with Biogen Idec, Centocor and Genentech; and (iv) clinical materials that have passed quality testing, that the Company has shipped and title has transferred to the collaborator, but the Company has not yet invoiced.

Other Current Accrued Liabilities

Other current accrued liabilities consisted of the following at June 30, 2006 and 2005 (in thousands):

 

 

June 30,

 

 

 

2006

 

2005

 

 

 

 

 

Accrued contract payments

 

$

1,820

 

$

282

 

Other current accrued liabilities

 

 

540

 

 

153

 

Accrued professional services

 

 

407

 

 

267

 

Accrued employee benefits

 

 

208

 

 

487

 

Accrued public reporting charges

 

 

154

 

 

138

 

Total

 

$

3,129

 

$

1,327

 

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Research and Development Expenses

We report research and development expense net of certain reimbursements we receive from our collaborators. Our net research and development expenses relate to (i) research to identify and evaluate new targets and to develop and evaluate new antibodies and cytotoxic drugs, (ii) preclinical testing of our own and, in certain instances, our collaborators' product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes and (iv) manufacturing operations. Our research and development efforts have been primarily focused in the following areas:

  • activities pursuant to our discovery, development and commercialization agreement with sanofi-aventis;
  • activities related to the preclinical and clinical development of huN901-DM1 and huC242-DM4;
  • process development related to production of the huN901 antibody and huN901-DM1 conjugate for clinical materials;
  • process development related to production of the huC242 antibody and huC242-DM4 conjugate for clinical materials;
  • process improvements related to the production of DM1, DM4 and strain development of their precursor, ansamitocin P3;
  • funded development activities with contract manufacturers for the huN901antibody, the huC242 antibody and DM1, DM4 and their precursor, ansamitocin P3.
  • operation and maintenance of our conjugate manufacturing plant;
  • process improvements to our TAP technology;
  • identification and evaluation of potential antigen targets;
  • evaluation of internally developed and in-licensed antibody candidates; and
  • development and evaluation of additional cytotoxic agents.

Income Taxes

The Company uses the liability method to account for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax basis of assets and liabilities, as well as net operating loss carry forwards and tax credits and are measured using the enacted tax rates and laws that will be in effect when the differences reverse. A valuation allowance against net deferred tax assets is recorded if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Financial Instruments and Concentration of Credit Risk

The Company has no significant off-balance sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Cash and cash equivalents are primarily maintained with two financial institutions in the United States. Deposits 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. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of marketable securities. Marketable securities consist of United States Treasury bonds, high-grade corporate bonds, asset-backed and United States government agency securities, banknotes and commercial paper. The Company's investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, other than United States Treasury securities, thereby reducing credit risk concentrations.

Cash Equivalents

Cash equivalents consist principally of money market funds and other investments with original maturities of three months or less at the date of purchase at June 30, 2006 and 2005.

Marketable Securities

The Company invests in marketable securities of highly rated financial institutions and investmentgrade debt instruments and limits the amount of credit exposure with any one entity. The Company has classified its marketable securities as "available-for-sale" and, accordingly, carries such securities at aggregate fair value. Unrealized gains and losses, if any, are reported as other comprehensive income (loss) in stockholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretions are included in interest income. Realized gains and losses on available-for-sale securities are included in net realized loss on investments. The cost of securities sold is based on the specific identification method. Interest and dividends are included in interest income.

Property and Equipment

Property and equipment are stated at cost. The Company provides for depreciation based upon expected useful lives using the straight-line method over the following estimated useful lives:

Machinery and equipment

 

3-5 years

Computer hardware and software

 

3-5 years

Furniture and fixtures

 

5 years

Leasehold improvements

 

Shorter of remaining lease term or estimated useful life

Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost of disposed assets and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations. The Company recorded a $2,000 and $39,000 loss on the disposal of certain equipment during the years ended June 30, 2006 and June 30, 2005, respectively.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of such may not be recoverable.

Computation of Net Loss Per Common Share

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. Diluted net loss per share incorporates the dilutive effect of stock options, warrants and other convertible securities. The total number of options and warrants convertible into ImmunoGen Common Stock and the resulting ImmunoGen Common Stock equivalents, as calculated in accordance with the treasury-stock accounting method, are included in the following table (in thousands):

 

 

June 30,

 

 

2006

 

2005

 

2004

 

 

 

Options and warrants convertible into Common Stock

 

5,923

 

6,202

 

5,595

Common Stock Equivalents

 

1,423

 

1,633

 

1,733

 

ImmunoGen Common Stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the Company's net loss position.

Stock-Based Compensation

As of June 30, 2006, the Company has one share-based compensation plan, which is the ImmunoGen, Inc. Restated Stock Option Plan. The Company's Restated Stock Option Plan as amended, or the Plan, which is shareholder-approved, permits the grant of share options to its employees, consultants and directors for up to 8.55 million shares of common stock. Option awards are granted with an exercise price equal to the market price of the Company's stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant. Generally, upon share option exercise, the Company issues new shares and delivers the shares as to which the option was exercised to the participant.

Effective July 1, 2005, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement 123(R), Share-Based Payment (Statement 123(R)), using the modified-prospective-transition method. Under that transition method, compensation cost recognized for fiscal year 2006 includes: (a) compensation cost for all share-based payments granted, but not yet vested as of July 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of Statement 123 (as defined below), and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Such amounts have been reduced by the Company's estimate of forfeitures of all unvested awards. Prior to July 1, 2005, the Company accounted for its stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations for all awards granted to employees. Under APB 25, when the exercise price of options granted to employees under these plans equals the market price of the common stock on the date of grant, no compensation expense is recorded. When the exercise price of options granted to employees under these plans is less than the market price of the common stock on the date of grant, compensation expense is recognized over the vesting period. Results for prior periods have not been restated. For stock options granted to nonemployees, the Company recognizes compensation expense in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based Compensation" (Statement 123). Statement 123 requires that companies recognize compensation expense based on the estimated fair value of options granted to non-employees over their vesting period, which is generally the period during which services are rendered by such non-employees.

As a result of adopting Statement 123(R) on July 1, 2005, the Company's net loss for the year ended June 30, 2006 is $2.4 million, or $0.06 per share, greater than if it had continued to account for share-based compensation under APB 25.

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of Statement 123 to options granted under the Company's stock option plans. For purposes of this pro-forma disclosure, the value of the options is estimated using a Black- Scholes option-pricing model and amortized to expense over the options' vesting periods (in thousands, except per share data).

 

 

Fiscal Years Ended June 30,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Net loss, as reported

 

$

(10,951

)

$

(5,917

)

 

 

 

 

 

 

 

 

Add: Total stock-based compensation expense determined under the intrinsic value method for all employee awards

 

 

11

 

 

13

 

 

 

 

 

 

 

 

 

Deduct: Total stock-based compensation expense determined under the fair value method for all employee awards

 

 

(2,832

)

 

(4,530

)

 

 

 

 

 

 

 

 

Net loss, pro forma

 

$

(13,772

)

$

(10,434

)

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share, as reported

 

$

(0.27

)

$

(0.15

)

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share, pro forma

 

$

(0.34

)

$

(0.26

)


The fair value of each stock option is estimated on the date of grant using the Black-Scholes optionpricing model using the assumptions noted in the following table. Expected volatility is based exclusively on historical volatility data of the Company's stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior amongst its employee population. The risk-free rate of the stock options is based on the United States Treasury rate in effect at the time of grant for the expected term of the stock options.

 

Year Ended June 30,

 

2006

 

2005

 

2004

Dividend

None

 

None

 

None

Volatility

84.76%

 

89.87%

 

94.26%

Risk-free interest rate

4.83%

 

3.70%

 

3.71%

Expected life (years)

6.5

 

5.9

 

5.5

 

Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during fiscal 2006, 2005 and 2004 was $2.78, $4.15, and $4.94 per share, respectively.

A summary of option activity under the Plan as of June 30, 2006, and changes during the twelve month period then ended is presented below (in thousands, except weighted-average data):

 

 

Number of Stock Options

 

Weighted-Average Exercise Price

 

Weighted-Average Remaining Life in Years 

 

Aggregate Intrinsic Value 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2005

 

 

5,862

 

$

6.73

 

 

 

 

 

 

Granted

 

 

802

 

 

3.68

 

 

 

 

 

 

Exercised

 

 

(454)

 

 

2.53

 

 

 

 

 

 

Forfeited/Canceled

 

 

(287)

 

 

8.93

 

 

 

 

 

 

Outstanding at June 30, 2006

 

 

5,923

 

$

6.53

 

 

5.91

 

$

2,115

Exercisable at June 30, 2006

 

 

4,307

 

$

7.21

 

 

1.93

 

$

2,112

 

As of June 30, 2006, the estimated fair value of unvested employee awards was $5.0 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately 2.0 years.

A summary of option activity for shares vested during the fiscal years ended June 30, 2006, 2005 and 2004 is presented below (in thousands):

 

 

Year Ended June 30,

 

 

2006

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

Total fair value of shares vested

 

$

2,488

 

$

2,619

 

$

6,267

Total intrinsic value of options exercised

 

 

920

 

 

848

 

 

741

Cash received for exercise of stock options

 

 

1,150

 

 

528

 

 

599

 

On February 1, 2006, the Company's Board of Directors approved certain changes to the ImmunoGen, Inc. Restated Stock Option Plan (the Plan). The amendments provide that in the event of a Change of Control of the Company all options outstanding under the Plan shall become fully vested and immediately exercisable as of the date of the Change of Control. This provision shall apply to all options currently outstanding under the Plan and all new options granted on or after the date of the amendment. At the time of the amendments, the Company was not involved in any transactions or discussions thereof that would constitute a Change in Control. The amendments did not have an impact on the Company's statement of operations.

During the year ended June 30, 2006, the Company recorded approximately $31,000 of compensation expense related to the modification of certain outstanding common stock options.

Comprehensive Loss

The Company presents comprehensive loss in accordance with SFAS 130, "Reporting Comprehensive Income." Comprehensive loss is comprised of the Company's net loss for the period and unrealized gains and losses recognized on available-for-sale marketable securities.

Segment Information

During the three fiscal years ended June 30, 2006, the Company continued to operate in one reportable business segment under the management approach of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is the business of discovery of monoclonal antibody-based cancer therapeutics.

Revenues from sanofi-aventis accounted for approximately 72%, 63% and 61% of revenues for the years ended June 30, 2006, 2005 and 2004, respectively. Revenues from Genentech accounted for approximately 16%, 5% and 8% of revenues for the years ended June 30, 2006, 2005 and 2004, respectively. Revenues from Boehringer Ingelheim accounted for approximately 0%, 13% and 28% of revenues for the years ended June 30, 2006, 2005 and 2004, respectively. Revenues from Millennium Pharmaceuticals accounted for 2%, 13% and 16% of revenues for the years ended June 30, 2006, 2005 and 2004 respectively. Revenues from Vernalis accounted for approximately 0%, 2% and 10% of revenues for the years ended June 30, 2006, 2005 and 2004, respectively. There were no other significant customers of the Company in fiscal 2006, 2005 and 2004.

Recent Accounting Pronouncements

In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which will require entities that voluntarily make a change in accounting principle to apply that change retrospectively to prior periods' financial statements, unless this would be impracticable. SFAS No. 154 supersedes APB Opinion No. 20, Accounting Changes, which previously required that most voluntary changes in accounting principle be recognized by including in the current period's net income the cumulative effect of changing to the new accounting principle. SFAS No. 154 also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. Another significant change in practice under SFAS No. 154 will be that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. Under APB No. 20, such a change would have been reported as a change in accounting principle. SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. We do not expect the adoption of this pronouncement to have a material effect on the Company's financial position or results of operations.

In July 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes, which applies to all tax positions related to income taxes subject to SFAS No. 109 (SFAS 109), Accounting for Income Taxes. This includes tax positions considered to be "routine" as well as those with a high degree of uncertainty. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more-likely-than-not to be sustained). Under step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more-likely-than-not to be realized upon ultimate settlement. FIN 48's use of the term "more-likely-than-not" in steps one and two is consistent with how that term is used in SFAS 109 (i.e., a likelihood of occurrence greater than 50 percent).

Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the more-likely-than-not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions. Additionally, FIN 48 requires expanded disclosure requirements, which include a tabular rollforward of the beginning and ending aggregate unrecognized tax benefits as well as specific detail related to tax uncertainties for which it is reasonably possible the amount of unrecognized tax benefit will significantly increase or decrease within twelve months. These disclosures are required at each annual reporting period unless a significant change occurs in an interim period. FIN 48 is effective for fiscal years beginning after December 15, 2006 (fiscal 2008 for the Company). The Company is currently evaluating the impact of the adoption of FIN 48, but does not believe the adoption will have material impact on its results of operation.

C. Agreements

Out-Licenses

Sanofi-Aventis

In July 2003, the Company and Aventis Pharmaceuticals, Inc. (now the sanofi-aventis Group) entered into a broad collaboration agreement to discover, develop and commercialize anticancer therapeutics. The agreement provides sanofi-aventis with worldwide commercialization rights to new product candidates created through the collaboration as well as worldwide commercialization rights to three of the then most advanced product candidates in ImmunoGen's pipeline: a TAP compound for acute myeloid leukemia (AVE9633), anti-IGF-1R antibody (AVE1642), and an anti-CD19 TAP compound for certain B-cell malignancies (SAR3419). The overall term of the agreement extends to the later of the latest patent to expire or 12 years after the latest launch of any product discovered, developed an d/or commercialized under the agreement. The agreement provides that ImmunoGen is entitled to receive a minimum of $50.7 million of committed research funding during a three-year research program period. Sanofi-aventis has the option, with 12 months' advance notice, to request that ImmunoGen extend the research program for two additional 12-month periods. Sanofi-aventis paid ImmunoGen an upfront fee of $12.0 million in August 2003. The Company has deferred t he upfront fee and is recognizing it as revenue over ImmunoGen's estimated period of substantial involvement. The Company estimates this period to be five years, which includes the term of the collaborative research program in addition to two 12-month extensions that sanofi-aventis may exercise.

In August 2005, sanofi-aventis exercised the first of its two options to extend the term of the research collaboration with the Company for another year, and committed to pay the Company a minimum of $18.2 million in research and support over the twelve months beginning September 1, 2006. This funding is in addition to the $50.7 million in research support already committed for the three-year period ending August 31, 2006. If sanofi-aventis requests a second extension of the research program for an additional period, the Company and sanofi-aventis will negotiate the research funding level for such extension period at the time such extension is requested. Sanofi-aventis must notify the Company no later than August 31, 2006 if they intend to extend the research program for the second additional 12-month period that begins in September 2007.

The collaboration agreement also provides for certain other payments based on the achievement of product candidate milestones and royalties on sales of any resulting products, if and when such sales commence. Assuming all benchmarks are met, the Company will receive milestone payments of between $21.5 million and $30.0 million per antigen target. The agreement provides ImmunoGen an option to certain co-promotion rights in the United States on a product-by-product basis. Sanofi-aventis will be responsible for product development, manufacturing, and commercialization, and will cover all associated costs for any products created through the collaboration. ImmunoGen will be reimbursed for any preclinical and clinical materials that it makes under the agreement.

The terms of the Company's collaboration agreement with sanofi-aventis place certain restrictions upon ImmunoGen. Subject to the Company's obligations under its other collaboration agreements that were in effect at the time the Company signed the collaboration agreement with sanofi-aventis, (i) ImmunoGen may only enter into a specified number of additional single target collaboration agreements and (ii) during the term of the collaborative research program and for a specified period thereafter, ImmunoGen is prohibited from entering into any single target license, other than with sanofiaventis, utilizing the Company's TAP technology to bind any taxane effector molecule to any antibody. Any new oncology targeting antibodies discovered by ImmunoGen during the term of the collaboration must be made available to sanofi-aventis for their potential further development. Additionally, the terms of the collaboration agreement allow sanofi-aventis to elect to terminate ImmunoGen's participation in the research program and/or the Company's co-promotion rights upon a change of control of ImmunoGen.

In September 2004, sanofi-aventis confirmed that one of the product candidates under its agreement with the Company had achieved a certain milestone. The achievement of this milestone, under the terms of the sanofi-aventis agreement, triggered a payment of $500,000 from sanofi-aventis to ImmunoGen. Additionally, in March 2005, sanofi-aventis informed ImmunoGen that it initiated clinical testing of one of the product candidates under its agreement with the Company, the anti-CD33 TAP compound AVE9633, which triggered the receipt and recognition of $2 million related to the achievement of this milestone. These milestone amounts are included in license and milestone fees for the fiscal year ended June 30, 2005.

Biogen Idec, Inc.

On October 1, 2004, the Company entered into a development and license agreement with Biogen Idec, Inc. Under the terms of this agreement, Biogen Idec received exclusive rights to develop and commercialize anticancer therapeutics that comprise an antibody developed by Biogen Idec that binds to the tumor cell target Cripto and a maytansinoid cell-killing agent developed by ImmunoGen. Biogen Idec is responsible for the research, development, manufacturing, and marketing of any products resulting from the license. Under the terms of the agreement, the Company received an upfront payment of $1.0 million upon execution of the agreement. This upfront amount is subject to credit, as defined, if Biogen Idec does not submit certain regulatory filings by June 30, 2008. As a result, the Company will defer the amount subject to credit until this deadline lapses or upon the occurrence of the regulatory filing. Thereafter, the Company will recognize the fee over the estimated remaining period of substantial involvement. In addition to royalties on future product sales, when and if such sales commence, the terms of the agreement include certain other payments upon Biogen Idec's achievement of milestones. Assuming all benchmarks are met, ImmunoGen will receive $42.0 million of milestone payments under this agreement.

Boehringer Ingelheim International GmbH

In November 2001, Boehringer Ingelheim licensed the exclusive right to use ImmunoGen's DM1 TAP technologies with antibodies to CD44. Under the terms of the agreement, the Company received an upfront payment upon commencement of the agreement and could receive, based upon the exchange rate on November 27, 2001, the effective date of the agreement, approximately $41.5 million in potential payments upon Boehringer Ingelheim's achievement of certain milestones in addition to royalty payments on future product sales, if and when they commence. In October 2002, Boehringer Ingelheim confirmed to ImmunoGen that clinical testing of the novel anticancer agent, bivatuzumab mertansine, composed of ImmunoGen's DM1 effector molecule and Boehringer Ingelheim's anti-CD44v6 antibody, had commenced on or about September 24, 2002. The achievement of this milestone triggered a payment of $1.0 million from Boehringer Ingelheim to ImmunoGen. The milestone payment is included in license and milestone fee for the fiscal year ended June 30, 2003. On February 7, 2005, Boehringer Ingelheim notified the Company that development of bivatuzumab mertansine had been discontinued. Under the 2001 agreement, Boehringer Ingelheim can use ImmunoGen's DM1 to create an anticancer compound to a different antigen target in the event Boehringer Ingelheim chooses to discontinue development of the anti- CD44v6 TAP compound at an early stage. The Company has ceased amortization of the remaining portion of the upfront fee paid by Boehringer Ingelheim as it has retained its right to use ImmunoGen's DM1 TAP technology and has exercised its right to create an anticancer compound to a different antigen.

Centocor, Inc.

On December 23, 2004, the Company entered into a development and license agreement with Centocor, Inc., a wholly owned subsidiary of Johnson and Johnson. Under the terms of this agreement, Centocor will receive exclusive worldwide rights to develop and commercialize anticancer therapeutics that comprise an antibody developed by Centocor that binds to the cancer target αv integrin and a maytansinoid cell-killing agent developed by ImmunoGen. Centocor will be responsible for the research, development, manufacturing, and marketing of any products resulting from the license. Under the terms of the agreement, the Company received a non-refundable upfront payment of $1.0 million upon execution of the agreement. The Company has deferred the upfront payment and will recognize this amount as revenue over the period of the Company's substantial involvement. In addition to royalties on future product sales, when and if such sales commence, the terms of the agreement include certain other payments upon Centocor's achievement of milestones. Assuming all benchmarks are met, ImmunoGen will receive $42.5 million of milestone payments under this agreement.

Millennium Pharmaceuticals, Inc.

In March 2001, the Company entered into a five-year collaboration agreement with Millennium. The agreement provides Millennium access to the Company's TAP technology for use with Millennium's proprietary antibodies. Millennium acquired a license to utilize the Company's TAP technology in its antibody product research efforts and an option to obtain product licenses for a restricted number of antigen targets during the collaboration. ImmunoGen received a non-refundable upfront fee of $2.0 million in the third quarter of 2001. The upfront fee has been deferred and is being recognized over the period during which Millennium may elect to acquire a license to utilize the Company's TAP technology with one of Millennium's antibodies. For each license to an antigen target taken, the collaboration agreement provides for license and milestone payments potentially totaling approximately $41.0 million and royalties on sales of any resulting products, if and when such sales commence. Millennium is responsible for product development, manufacturing and marketing of any resulting products. The Company is to be reimbursed for any preclinical and clinical materials that it makes under the agreement. Pursuant to this agreement, in February 2002, Millennium signed an exclusive product license to the Company's maytansinoid technology for use with Millennium's antibody MLN591. MLN591 is directed towards the extracellular domain of Prostate Specific Membrane Antigen (PSMA). ImmunoGen received a non-refundable license fee from Millennium when the license agreement was signed. The license fee was deferred and is being recognized ratably over the Company's period of substantial involvement during development.

Pursuant to this agreement, in February 2002, Millennium licensed the exclusive right to use the Company's maytansinoid technology with antibodies targeting the Prostate-Specific Membrane Antigen (PSMA). In March 2002, the Company received a license fee from Millennium pursuant to th is license agreement. In November 2002, Millennium informed ImmunoGen that clinical testing of MLN2704, comprised of the Company's cytotoxic agent DM1 and Millennium's MLN591 antibody, had been initiated. This event triggered a milestone payment of $1.0 million from Millennium to ImmunoGen. On January 25, 2006, Millennium notified the Company that, as part of its ongoing portfolio management process and based on the evaluation of recent clinical data in the context of other opportunities in its pipeline, Millennium had decided not to continue the development of its MLN2704 compound. Millennium retains its right to use ImmunoGen's maytansinoid TAP technology with antibodies targeting PSMA. The Company has ceased amortization of the remaining portion of the upfront fee paid by Millennium as they retain rights to develop and alternative product candidate with an antibody targeting PSMA.

On March 27, 2006, ImmunoGen and Millennium agreed to amend the 2001 agreement which was scheduled to expire March 30, 2006. The amendment extends the agreement for an additional year, which ends March 30, 2007. In consideration for this extension, Millennium paid ImmunoGen an extension fee equal to $250,000. The Company will amortize the extension fee, as well as the remaining upfront fee from the March 2001 agreement through March 2007.

Amgen, Inc. (formerly Abgenix, Inc.)

In September 2000, the Company entered into a collaboration agreement with Amgen (formerly Abgenix). The agreement provides Amgen with access to the Company's maytansinoid technology for use with their antibodies along with the ability to acquire both exclusive and nonexclusive options to obtain product licenses for antigen targets. Each option has a specified option period during which Amgen may obtain a product license. Under this agreement Amgen has the right to extend each option period by a specified amount of time in exchange for an extension fee. The Company received a total of $5.0 million in technology access fee payments from Amgen when the agreement was established and is entitled to potential milestone payments and royalties on net sales of resulting products, if and when such sales commence. At June 30, 2006, $2.7 million of the technology access fees remained as deferred revenue to be recognized over the period during which Amgen may elect to acquire a license to utilize the Company's TAP technology with one of their antibodies. On September 7, 2000, Abgenix purchased $15.0 million of the Company's common stock in accordance with the agreement. The Company understands that this stock was sold during fiscal 2006. In June 2002, Amgen was granted a non-exclusive option to acquire a license to another TAP product in exchange for a nominal option fee. The non-exclusive option fee was deferred and recognized over the option period. Amgen may renew the non-exclusive option for an additional period in exchange for an extension fee. ImmunoGen's agreement with Amgen will terminate upon expiration of a 10-year term during which the Company gave Amgen access to its technology.

Vernalis plc

In August 2003, Vernalis completed its acquisition of British Biotech. In connection with the acquisition, the merged company, called Vernalis plc, announced that it intended to review its merged product candidate portfolio, including its collaboration with ImmunoGen on huN901-DM1. After discussion with Vernalis, in January 2004 the Company announced that ImmunoGen would take over future development of the product candidate. Pursuant to the terms of the termination agreement dated January 7, 2004, Vernalis retained responsibility for the conduct and expense of the study it initiated in the United States (Study 001) until June 30, 2004, and the study it had started in the United Kingdom (Study 002) through completion. The Company took over responsibility for Study 001 on July 1, 2004 and, in September 2005, announced the initiation of its own clinical trial with huN901-DM1 in multiple myeloma (Study 003). On December 15, 2005, the Company executed an amendment to the January 7, 2004 Termination Agreement with Vernalis. Under the terms of the amendment, the Company assumed responsibility for Study 002 as of December 15, 2005, including the cost of its completion. Under the amendment, Vernalis paid the Company $365,000 in consideration of the expected cost of the obligations assumed by the Company with the amendment. This $365,000 has been recognized as other income in the accompanying Consolidated Statements of Operations for the year ended June 30, 2006.

Genentech, Inc.

In May 2000, the Company executed two separate licensing agreements with Genentech. The first agreement grants an exclusive license to Genentech for ImmunoGen's maytansinoid technology for use with antibodies, such as trastuzumab (Herceptin®), that target HER2. Under the terms of the agreement, Genentech receives exclusive worldwide rights to use ImmunoGen's maytansinoid TAP technology with antibodies to HER2. Genentech will be responsible for product development, manufacturing and marketing of any products resulting from the agreement; ImmunoGen will be reimbursed for any preclinical and clinical materials that it manufactures under the agreement. ImmunoGen received a $2.0 million non-refundable payment upon execution of the agreement. In addition to royalties on net sales, when and if such sales commence, the terms of the agreement include certain other payments based upon Genentech's achievement of milestones. Assuming all benchmarks are met, ImmunoGen will receive $39.5 million of upfront and milestone payments. On May 4, 2006, the Company and Genentech amended the May 2000 agreement. This amendment increases the potential milestone payments to ImmunoGen under this agreement by $6.5 million to $44 million and the potential royalties to ImmunoGen on any HER2-targeting TAP compound that may be developed by Genentech, including trastuzumab-DM1.

The second agreement with Genentech provides Genentech with broad access to ImmunoGen's TAP technology for use with Genentech's other proprietary antibodies. This multi-year agreement provides Genentech with a license to utilize ImmunoGen's TAP platform in its antibody product research efforts and an option to obtain product licenses for a limited number of antigen targets over the agreement's five year term. Under this agreement, the Company received a non-refundable technology access fee of $3.0 million in May 2000. The upfront fee was deferred and recognized ratably over the period during which Genentech may elect obtain product licenses. This agreement also provides for other payments based upon Genentech's achievement of milestones per antigen target and royalties on net sales of any resulting products. Assuming all benchmarks are met, the Company will receive $39.0 million in license and milestone payments for each antigen target licensed under this agreement. Genentech will be responsible for manufacturing, product development and marketing of any products developed through this collaboration. ImmunoGen will be reimbursed for any preclinical and clinical materials that it manufactures under the agreement. This May 2000 agreement included a provision that allows Genentech to renew the agreement for one additional three-year term by payment of a $2.0 million access fee. On April 27, 2005, Genentech confirmed its intention to renew the agreement and paid the $2.0 million technology access fee to ImmunoGen.

On April 27, 2005, July 22, 2005 and December 12, 2005, Genentech licensed exclusive rights to use ImmunoGen's maytansinoid TAP technology with its antibodies to three undisclosed targets. These licenses are in addition to the existing agreement between the companies that grants Genentech exclusive rights to use ImmunoGen's technology with therapeutic antibodies to HER2. Under the terms defined in the May 2000 agreement, ImmunoGen received a $1.0 million license fee for each license, and is entitled to receive milestone payments; ImmunoGen also is entitled to receive royalties on the sales of any resulting products. Genentech is responsible for the development, manufacturing, and marketing of any products resulting from the licenses.

On January 27, 2006, Genentech notified the Company that the trastuzumab-DM1 Investigational New Drug application submitted by Genentech to the FDA had become effective. Under the terms of the May 2000 exclusive license agreement for the HER2 target, this event triggered a $2.0 million milestone payment to the Company. This milestone is included in license and milestone fees for the fiscal year ended June 30, 2006.

Other Agreements

BioInvent International AB

In December 2002, the Company entered into a supply agreement with BioInvent International AB to produce monoclonal antibody that is a component of one of the products that the Company licensed to sanofi-aventis. The Company prepaid $433,000 upon the signing of the agreement. The Company made payments and recorded as research and development expense $818,000 during the year ended June 30, 2004 based upon other milestones included in the supply agreement. As of June 30, 2004, the Company had received delivery of a portion of material under this monoclonal antibody supply agreement. Sanofiaventis reimbursed ImmunoGen $1.3 million, the total cost of the antibody. The Company recorded the reimbursement as other income during the year ended June 30, 2004.

In June 2006, the Company entered into a supply agreement with BioInvent AB to produce additional quantities of a monoclonal antibody pursuant to the cGMP requirements. Under the terms of the agreement, the Company agreed to pay a stated price per manufactured batch of antibody, subject to adjustment as set forth in the agreement.

Diosynth RTP, Inc.

In August 2005, the Company entered into a bioprocessing services agreement with Diosynth RTP, Inc. (Diosynth). Under the terms of the agreement, Diosynth agreed to perform technology transfer, process development and scale-up of the antibody component of one of the Company's product candidates pursuant to the cGMP requirements. Under the terms of the agreement, the Company agreed to pay Diosynth a stated price for the technology transfer and process development.

Laureate Pharma, L.P.

In April 2004, the Company entered into a monoclonal antibody supply agreement with Laureate Pharma, L.P. (Laureate). Under the terms of the agreement, Laureate agreed to perform process qualification and manufacture one of the Company's monoclonal antibodies pursuant to the cGMP requirements. Under the terms of the agreement, the Company agreed to pay a stated price per manufactured batch of antibody, subject to adjustment as set forth in the agreement.

In December 2005, the Company entered into a monoclonal antibody supply agreement with Laureate to produce additional quantities of the monoclonal antibody pursuant to the cGMP requirements. Under the terms of the agreement, the Company agreed to pay a stated price per manufactured batch of antibody, subject to adjustment as set forth in the agreement.

Societá Italiana Corticosteroidi S.r.l (SICOR)

Effective November 2004 the Company entered into a technology transfer and development agreement with SICOR. Under the terms of the agreement, SICOR agreed to perform a feasibility study and full process development work to produce DM1, a component of its TAP products. Under the terms of the agreement, the Company agreed to pay SICOR a stated price for work performed based on achievement of certain milestone events. On June 21, 2006, the Company amended the 2004 technology transfer and development agreement with SICOR. Under the terms of the amendment, SICOR will also provide preparatory activities in order to scale-up the production of ansamitocin, a precursor to DMx compounds, in anticipation of large-scale production of ansamitocin and DM1 to be used in TAP compounds for later-stage clinical trials and commercialization.

D. Marketable Securities

As of June 30, 2006, $4.8 million in cash and money market funds were classified as cash and cash equivalents. The Company's cash, cash equivalents and marketable securities as of June 30, 2006 are as follows (in thousands):

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

Cash and money market funds

 

$

4,813

 

$

-

 

$

-

 

$

4,813

 

Commercial paper

 

 

350

 

 

-

 

 

-

 

 

350

 

Government treasury notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

 

4,392

 

 

6

 

 

-

 

 

4,398

 

Due in one to three years

 

 

3,953

 

 

-

 

 

(8

)

 

3,945

 

Federal agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

 

1,397

 

 

2

 

 

-

 

 

1,399

 

Due in one to three years

 

 

5,345

 

 

-

 

 

(50

)

 

5,295

 

Asset-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

 

23,168

 

 

6

 

 

(51

)

 

23,123

 

Due in one to three years

 

 

6,007

 

 

-

 

 

(83

)

 

5,924

 

Corporate notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

 

14,379

 

 

-

 

 

(46

)

 

14,717

 

Due in one to three years

 

 

11,573

 

 

-

 

 

(130

)

 

11,059

 

Total

 

$

75,377

 

$

14

 

$

(368

)

$

75,023

 

Less amounts classified as cash and cash equivalents

 

 

(4,813

)

 

 

 

 

 

(4,81