ImmunoGen, Inc.
IMMUNOGEN INC (Form: 10-Q, Received: 02/06/2009 08:31:01)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2008

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the transition period from            to           

 

Commission file number 0-17999

 

ImmunoGen, Inc.

 

Massachusetts

 

04-2726691

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

830 Winter Street, Waltham, MA 02451

(Address of principal executive offices, including zip code)

 

(781) 895-0600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       x Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  o

 

Accelerated filer     x

Non-accelerated filer  o (Do not check if a smaller reporting company)

 

Smaller reporting company     o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

o Yes     x   No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Shares of common stock, par value $.01 per share:  51,034,440 shares outstanding as of January 29, 2009.

 

 

 



Table of Contents

 

IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2008

 

TABLE OF CONTENT S

 

Item

 

 

Page Number

 

 

Part I

 

1.

 

Financial Statements (Unaudited):

3

 

 

 

 

1a.

 

Consolidated Balance Sheets as of December 31, 2008 and June 30, 2008

3

 

 

 

 

1b.

 

Consolidated Statements of Operations for the three and six months ended December 31, 2008 and 2007

4

 

 

 

 

1c.

 

Consolidated Statements of Cash Flows for the three and six months ended December 31, 2008 and 2007

5

 

 

 

 

1d.

 

Notes to Consolidated Financial Statements

6

 

 

 

 

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

 

3.

 

Quantitative and Qualitative Disclosures about Market Risk

27

 

 

 

 

4.

 

Controls and Procedures

27

 

 

 

 

 

 

Part II

 

 

 

 

 

1.

 

Legal Proceedings

29

 

 

 

 

1A.

 

Risk Factors

29

 

 

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

 

3.

 

Defaults Upon Senior Securities

29

 

 

 

 

4.

 

Submission of Matters to a Vote of Security Holders

29

 

 

 

 

5.

 

Other Information

29

 

 

 

 

6.

 

Exhibits

30

 

 

 

 

 

 

Signatures

31

 

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ITEM 1.  Financial Statements

 

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

December 31,
2008

 

June 30,
2008

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

37,426

 

$

31,619

 

Marketable securities

 

8,485

 

16,252

 

Accounts receivable

 

1,885

 

396

 

Unbilled revenue

 

1,381

 

3,472

 

Inventory

 

480

 

2,116

 

Restricted cash

 

366

 

366

 

Prepaid and other current assets

 

2,684

 

1,820

 

Total current assets

 

52,707

 

56,041

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

21,332

 

22,751

 

Long-term restricted cash

 

4,460

 

4,508

 

Other assets

 

26

 

38

 

 

 

 

 

 

 

Total assets

 

$

78,525

 

$

83,338

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Accounts payable

 

$

2,402

 

$

1,411

 

Accrued compensation

 

3,225

 

1,164

 

Other accrued liabilities

 

2,969

 

4,304

 

Current portion of deferred lease incentive

 

979

 

935

 

Current portion of deferred revenue

 

3,374

 

2,572

 

Total current liabilities

 

12,949

 

10,386

 

 

 

 

 

 

 

Deferred lease incentive, net of current portion

 

10,030

 

10,052

 

Deferred revenue, net of current portion

 

11,113

 

5,293

 

Other long-term liabilities

 

3,259

 

2,308

 

Total liabilities

 

37,351

 

28,039

 

Commitments and contingencies (Note D)

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding

 

 

 

Common stock, $.01 par value; authorized 75,000 shares; issued and outstanding 50,890 and 50,778 shares as of December 31, 2008 and June 30, 2008, respectively

 

509

 

508

 

Additional paid-in capital

 

346,972

 

344,498

 

Accumulated deficit

 

(306,068

)

(289,568

)

Accumulated other comprehensive loss

 

(239

)

(139

)

Total shareholders’ equity

 

41,174

 

55,299

 

Total liabilities and shareholders’ equity

 

$

78,525

 

$

83,338

 

 

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

 

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Research and development support

 

$

2,283

 

$

3,672

 

$

5,490

 

$

8,145

 

License and milestone fees

 

4,766

 

2,680

 

6,989

 

6,868

 

Clinical materials reimbursement

 

2,285

 

3,399

 

2,981

 

6,163

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

9,334

 

9,751

 

15,460

 

21,176

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

12,888

 

13,158

 

24,748

 

23,992

 

General and administrative

 

3,521

 

3,527

 

7,199

 

5,951

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

16,409

 

16,685

 

31,947

 

29,943

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(7,075

)

(6,934

)

(16,487

)

(8,767

)

 

 

 

 

 

 

 

 

 

 

Other (expense) income, net

 

(129

)

727

 

(113

)

1,540

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

(7,204

)

(6,207

)

(16,600

)

(7,227

)

 

 

 

 

 

 

 

 

 

 

(Benefit) provision for income taxes

 

(101

)

5

 

(100

)

17

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,103

)

$

(6,212

)

$

(16,500

)

$

(7,244

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.14

)

$

(0.15

)

$

(0.32

)

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

50,822

 

42,700

 

50,802

 

42,558

 

 

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

 

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

Six months ended December 31,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(16,500

)

$

(7,244

)

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

 

 

 

 

 

Depreciation and amortization

 

2,491

 

2,111

 

Loss on sale/disposal of fixed assets

 

2

 

11

 

Amortization of deferred lease incentive

 

(486

)

(77

)

Loss on sale of marketable securities

 

33

 

 

Impairment of marketable securities

 

402

 

 

Loss (gain) on forward contracts

 

182

 

(242

)

Stock and deferred share unit compensation

 

2,226

 

1,085

 

Deferred rent

 

1,057

 

929

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,489

)

(207

)

Unbilled revenue

 

2,091

 

1,741

 

Inventory

 

1,636

 

1,244

 

Prepaid and other current assets

 

(1,033

)

(1,100

)

Restricted cash

 

48

 

(3,777

)

Other assets

 

12

 

63

 

Accounts payable

 

991

 

(58

)

Accrued compensation

 

2,061

 

1,142

 

Other accrued liabilities

 

(1,473

)

(2,393

)

Deferred revenue

 

6,622

 

(663

)

Proceeds from landlord for tenant improvements

 

750

 

550

 

Net cash used for operating activities

 

(377

)

(6,885

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from maturities or sales of marketable securities

 

7,232

 

26,306

 

Reclassification of cash equivalent balance to marketable securities

 

 

(13,605

)

Purchases of property and equipment, net

 

(1,037

)

(5,311

)

(Payments) proceeds from settlement of forward contracts

 

(279

)

280

 

Net cash provided by investing activities

 

5,916

 

7,670

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock options exercised

 

268

 

975

 

Net cash provided by financing activities

 

268

 

975

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

5,807

 

1,760

 

 

 

 

 

 

 

Cash and cash equivalents, beginning balance

 

31,619

 

10,605

 

 

 

 

 

 

 

Cash and cash equivalents, ending balance

 

$

37,426

 

$

12,365

 

 

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

 

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

 

A.     Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements at December 31, 2008 and June 30, 2008 and for the three and six months ended December 31, 2008, and 2007 include the accounts of ImmunoGen, Inc., or the Company, and its wholly-owned subsidiaries, ImmunoGen Securities Corp. and ImmunoGen Europe Limited. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported period. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

 

Revenue Recognition

 

The Company enters into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. The Company follows the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, Revenue Recognition , or SAB 104, and Emerging Issues Task Force (EITF) Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Elements , or EITF 00-21. In accordance with SAB 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 revenue 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 December 31, 2008, the Company had the following three types of collaborative contracts with the parties identified below:

 

· License to use our TAP technology and/or certain other intellectual property to develop compounds to a single target antigen:

 

Biogen Idec Inc. (single-target license)

 

Biotest AG (single-target license)

 

Genentech, Inc. (multiple single-target licenses)

 

sanofi-aventis (license to multiple individual targets)

 

Bayer Healthcare AG (single-target license)

 

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· Option agreement for a defined period of time to secure licenses to use our TAP technology to develop anticancer compounds to a limited number of targets on established terms (broad option agreement):

 

Amgen, Inc.

 

Genentech, Inc.

 

sanofi-aventis

 

· Non-exclusive license to the Company’s humanization technology:

 

sanofi-aventis

 

Generally, the forgoing collaboration agreements provide that the Company will (i) at the collaborator’s request, manufacture and provide to them preclinical and clinical materials at the Company’s cost, or, in some cases, cost plus a margin, (ii) earn payments upon the collaborators’ achievements of certain milestones and (iii) earn royalty payments, generally until the later of the last applicable patent expiration or 12 years after product launch. Royalty rates may vary over the royalty term depending on certain intellectual property rights. The Company is required to provide technical training and to share any process improvements and know-how with its collaborators during the research term of the collaboration agreements.

 

Generally, upfront payments on single-target licenses are deferred over the period of the Company’s substantial involvement during development. The Company’s 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 at the end of non-pivotal Phase II testing. The Company believes this period of involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, the Company reassesses its periods of substantial involvement over which the Company amortizes its upfront license fees. 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 option agreements 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. Upon exercise of an option to acquire a license, the Company would recognize any remaining deferred option fee over the period of the Company’s substantial involvement under the license acquired. 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 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 preclinical activity on another product candidate and the Company’s remaining period of substantial involvement can be estimated.

 

When milestone fees are specifically tied to a separate earnings process and are deemed to be substantive and at risk, revenue is recognized when such milestones are achieved. In addition, the Company recognizes research and development support revenue from certain collaboration and development agreements based upon the level of research services performed during the period of the relevant research agreement. Deferred revenue substantially 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 revenue upon achievement of milestones by its collaborative partners.

 

The Company produces preclinical and clinical materials for its collaborators. The Company is reimbursed for certain of its direct and overhead costs to produce clinical materials. The Company recognizes revenue on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator.

 

The Company also produces research material for potential collaborators under material transfer agreements. Additionally, the Company performs research activities, including developing antibody-specific conjugation processes, on behalf of its collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. Generally, the Company is reimbursed for certain of its direct and overhead costs of producing these materials or providing these services. The Company records the amounts received for the preclinical materials produced or services performed as a component of research and development support. The Company also develops conjugation processes for materials for later stage testing and commercialization for certain

 

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collaborators. The Company is reimbursed for its direct and overhead costs and may receive milestone payments for developing these processes and these are recorded as a component of research and development support.

 

Marketable Securities

 

The Company invests in marketable securities of highly rated financial institutions and investment-grade 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 shareholders’ 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 other income, net, as well as interest and dividends. Realized gains and losses on available-for-sale securities are also included in other income, net, as well as charges for the impairment of available-for-sale securities that were determined to be other-than-temporary due to a decline in value. The cost of securities sold is based on the specific identification method. In December 2007, the Company was notified by a fund manager that a fund in which the Company held an $18.2 million investment was unable to meet shareholder redemptions on a timely basis. The Company held approximately $4.7 million in this fund at December 31, 2008. Although amounts invested are not currently impaired in value, the balance is not readily convertible to cash. The Company has the option of redeeming the entire investment from the fund in-kind which would consist of individual securities, or remaining in the fund and receiving cash redemptions as cash becomes available in the fund either through maturities or sales of the underlying securities. The Company opted to stay in the fund and has received $13.8 million in redemptions, all at par, since December 2007. In December 2007, the Company reclassified the balance in this fund from cash and cash equivalents to marketable securities. The Company expects to receive at least $3.3 million in redemptions during the remainder of fiscal 2009 and the balance in subsequent periods.

 

Fair Value of Financial Instruments

 

As of July 1, 2008, the Company partially adopted the provisions of FASB Statement No. 157, Fair Value Measurements , or Statement 157, for financial assets and liabilities recognized at fair value on a recurring basis.  Statement 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the U.S., and expands disclosures about fair value measurements.  The provisions of Statement 157 related to other non-financial assets and liabilities will be effective for the Company on July 1, 2009, and will be applied prospectively.

 

Fair value is defined under Statement 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value under Statement 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

·                   Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

·                   Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·                   Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of December 31, 2008, we held certain assets that are required to be measured at fair value on a recurring basis, including our cash equivalents and marketable securities.  In accordance with Statement 157, the following table represents the fair value hierarchy for our financial assets measured at fair value on a recurring basis as of December 31, 2008 (in thousands):

 

 

 

Fair Value Measurements at December 31, 2008 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash, cash equivalents and restricted cash

 

$

42,252

 

$

42,252

 

$

 

$

 

Available-for-sale marketable securities

 

8,485

 

 

8,485

 

 

 

 

$

50,737

 

$

42,252

 

$

8,485

 

$

 

 

The fair value of the Company’s investments is generally determined from market prices based upon either quoted prices from active markets or other significant observable market transactions at fair value.

 

Investments are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary.

 

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The Company periodically evaluates whether a decline in fair value below cost basis is other-than-temporary and considers available evidence regarding the investments.  In the event that the cost basis of a security significantly exceeds its fair value, the Company evaluates, among other factors, the duration of the period that, and extent to which, the fair value is less than cost basis; the financial health of and business outlook for the issuer, including industry and sector performance, operational and financing cash flow factors, overall market conditions and trends, and our intent and ability to hold the investment to recovery, which may be maturity.  The Company also considers credit ratings with respect to our investments provided by investment rating agencies.  All of the Company’s investments are classified as available-for-sale securities and are reflected at fair value.  If a decline in fair value is determined to be other-than-temporary, the Company records a write-down in its consolidated statement of operations and a new cost basis in the security is established.  During the three and six months ended December 31, 2008, the Company recorded $266,000 and $402,000, respectively as other-than-temporary impairment charges.  No such charges were recorded during the three and six months ended December 31, 2007.

 

Unbilled Revenue

 

The majority of the Company’s unbilled revenue at December 31, 2008 and June 30, 2008 represents (i) research funding earned based on actual resources utilized under 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 and license agreement with Biotest that the Company has not yet invoiced; and (iii) research funding earned based on actual resources utilized under the Company’s development, license and service agreements with Bayer Healthcare, Biogen Idec and Biotest.

 

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 December 31, 2008 and June 30, 2008 is summarized below (in thousands):

 

 

 

December 31,
2008

 

June 30,
2008

 

 

 

 

 

 

 

Raw materials

 

$

480

 

$

565

 

Work in process

 

 

1,551

 

 

 

 

 

 

 

Total

 

$

480

 

$

2,116

 

 

All Tumor-Activated Prodrug, or TAP, product candidates currently in preclinical and clinical testing through ImmunoGen or its collaborators include either DM1 or DM4 as a cell-killing agent. Raw materials inventory consists entirely of DM1 and DM4, collectively referred to as DMx.

 

Inventory cost is stated net of write-downs of $2.5 million as of December 31, 2008 and June 30, 2008. The write-downs represent the cost of raw materials that the Company considers to be in excess of a twelve-month supply based on firm, fixed orders and projections from its collaborators as of the respective balance sheet date.

 

The Company produces preclinical and clinical materials for its collaborators either in anticipation of or in support of preclinical studies and 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 twelve-month manufacturing projections for the quantity of conjugate the collaborator expects to need in the related twelve-month period. The amount of clinical material produced is directly related to the number of Company and collaborator anticipated or on-going clinical trials for which the Company is producing clinical material, 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. Because these elements are difficult to estimate over the course of a trial, substantial differences between collaborators’ actual manufacturing orders and their projections could result in usage of raw materials 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 required by contract 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 raw material inventory as follows:

 

a)               raw material is capitalized as inventory upon receipt of the materials.  That portion of the raw material the Company uses in

 

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the production of its own products is recorded as research and development expense as consumed;

 

b)              to the extent that the Company has up to twelve months of firm, fixed orders and/or projections from its collaborators, the Company capitalizes the value of raw materials that will be used in the production of conjugate subject to these firm, fixed orders and/or projections;

 

c)               the Company considers more than a twelve month supply of raw materials that is not supported by firm, fixed orders or projections from its collaborators to be excess and establishes a reserve to reduce to zero the value of any such excess raw material inventory with a corresponding charge to research and development expense; and

 

d)              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 raw material inventory at each reporting period.

 

The Company did not record any expense related to excess inventory during the six month periods ended December 31, 2008 and 2007.  Increases in the Company’s on-hand supply of raw materials, or a reduction to the Company’s collaborators’ projections, could result in significant changes in the Company’s estimate of the net realizable value of such raw material inventory. Reductions in collaborators’ projections could indicate that the Company has additional excess raw material inventory and the Company would then evaluate the need to record further write-downs as charges to research and development expense.

 

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. The Company’s common stock equivalents, as calculated in accordance with the treasury-stock accounting method, are shown in the following table (in thousands):

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

2008

 

2007

 

2008

 

2007

 

Options to purchase common stock

5,629

 

4,889

 

5,629

 

4,889

 

 

 

 

 

 

 

 

 

 

Common stock equivalents under treasury stock method

312

 

462

 

516

 

483

 

 

The Company’s 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.

 

Comprehensive Loss

 

The Company presents comprehensive loss in accordance with FASB Statement No. 130, Reporting Comprehensive Income .  For the three and six months ended December 31, 2008, total comprehensive loss equaled $7.3 million and $16.6 million, respectively. For the three and six months ended December 31, 2007, total comprehensive loss equaled $6.3 million and $7.3 million respectively.  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.

 

Stock-Based Compensation

 

As of December 31, 2008, the Company is authorized to grant future awards under one employee share-based compensation plan, which is the ImmunoGen, Inc. 2006 Employee, Director and Consultant Equity Incentive Plan, or the 2006 Plan. The 2006 Plan was approved by the Company’s Board of Directors and the shareholders of the Company on November 14, 2006 and replaced the previous stock option plan, the ImmunoGen, Inc. Restated Stock Option Plan, as amended, or the Former Plan. At the annual meeting of shareholders on November 12, 2008, an amendment to the 2006 Plan was approved and an additional 2,000,000 shares were authorized for issuance under this plan. As amended, the 2006 Plan provides for the issuance of Stock Grants, the grant of Options and the grant of Stock-Based Awards for up to 4,500,000 shares of the Company’s common stock, as well as any shares of common stock that are represented by awards granted under the Former Plan that are forfeited, expire or are cancelled without delivery of shares of common stock or which result in the forfeiture of shares of common stock back to the Company on or after November 13, 2006, or the equivalent of such number of shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the 2006 Plan; provided, however, that no more than 5,900,000 shares shall be added to the Plan from the Former Plan, pursuant to this provision. 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.

 

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The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. 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 among its employee population. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

Dividend

 

None

 

None

 

None

 

None

 

Volatility

 

63.39

%

75.82

%

63.33

%

75.49

%

Risk-free interest rate

 

3.11

%

3.85

%

3.14

%

3.91

%

Expected life (years)

 

7.1

 

7.5

 

7.1

 

7.4

 

 

Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended December 31, 2008 and 2007 were $2.65 and $3.50 per share, respectively, and $2.71 and $3.50 for options granted during the six months ended December 31, 2008 and 2007, respectively.

 

Compensation cost incurred during the three and six months ended December 31, 2008 was $838,000 and $2.1 million respectively.  Compensation cost incurred during the three and six months ended December 31, 2007 was $546,000 and $1.1 million respectively. During the three and six months ended December 31, 2008 we recorded approximately $35,000 and $747,000, respectively, of compensation expense, which is included in the amounts above, related to the modification of the terms certain of options previously granted to the Chief Executive Officer of the Company in accordance with the succession plan approved by our Board of Directors in September 2008.

 

As of December 31, 2008, the estimated fair value of unvested employee awards was $3.7 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately two and a half years.

 

During the six months ended December 31, 2008, holders of options issued under the Plan exercised their rights to acquire an aggregate of 109,000 shares of common stock at prices ranging from $1.38 to $5.34 per share .  The total proceeds to the Company from these option exercises were approximately $268,000.

 

Derivatives

 

Derivative instruments include a portfolio of short duration foreign currency forward contracts intended to mitigate the risk of exchange fluctuations for existing or anticipated receivable and payable balances denominated in foreign currency. Derivatives are estimated at fair value and classified as other current assets or liabilities. The fair value of these instruments represent the present value of estimated future cash flows under the contracts, which are a function of underlying interest rates, currency rates, related volatility, counterparty creditworthiness and duration of the contracts. Changes in these factors or a combination thereof may affect the fair value of these instruments.

 

The Company does not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized in earnings during the period of change.  Because the Company enters into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated existing or anticipated receivable or payable balance would be offset by the loss or gain on the forward contract. For the three and six months ended December 31, 2008, net losses recognized on forward contracts were $79,000 and $182,000, respectively, and are included in the accompanying consolidated statement of operations as other (loss) income, net. As of December 31, 2008, the Company had outstanding forward contracts with amounts equivalent to approximately $3.4 million (2.6 million in Euros), all maturing on or before February 27, 2009. As of June 30, 2008, the Company had outstanding forward contracts with amounts equivalent to approximately $1.4 million (924,000 in Euros). For the three and six months ended December 31, 2007, net gains recognized on forward contracts were $49,000 and $242,000, respectively. As of December 31, 2007, the Company had outstanding forward contracts with amounts equivalent to approximately $7.4 million (5.1 million in Euros). The Company does not anticipate using derivative instruments for any purpose other than hedging our exchange rate exposure.

 

Segment Information

 

During the three and six months ended December 31, 2008, the Company continued to operate in one reportable business segment under the management approach of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information , which is the business of discovery of monoclonal antibody-based anticancer therapeutics.

 

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The percentages of revenues recognized from significant customers of the Company in the three and six months ended December 31, 2008 and 2007 are included in the following table:

 

 

 

Three Months Ended 
December 31,

 

Six Months Ended 
December 31,

 

Collaborative Partner:

 

2008

 

2007

 

2008

 

2007

 

sanofi-aventis

 

80

%

58

%

68

%

51

%

Genentech

 

1

%

16

%

1

%

32

%

Biogen Idec

 

2

%

13

%

7

%

6

%

Biotest

 

13

%

12

%

15

%

8

%

 

There were no other customers of the Company with significant revenues in the three or six months ended December 31, 2008 and 2007.

 

B.    Significant Collaborative Agreements

 

sanofi-aventis

 

In August 2006, sanofi-aventis exercised its final remaining option to extend the term of the research collaboration with the Company for another year, and committed to pay the Company a minimum of $10.4 million in research support over the twelve months beginning September 1, 2007. The two companies subsequently agreed to extend the date of payment through October 31, 2008 to enable completion of previously agreed upon research. The Company records the research funding as it is earned based upon its actual resources utilized in the collaboration. Through the end of the research program, the Company has earned $81.5 million of committed funding. As with all of its collaborative partners, the Company now performs research for sanofi-aventis and receives financial compensation from them on a mutually-agreed upon basis.

 

In October 2006, sanofi-aventis licensed non-exclusive rights to use the Company’s proprietary resurfacing technology to humanize antibodies to targets not included in the collaboration, including antibodies for non-cancer applications. This license provides sanofi-aventis with the non-exclusive right to use the Company’s proprietary humanization technology through August 31, 2011 with the right to extend for one or more additional periods of three years each by providing the Company with written notice prior to expiration of the then-current license term and payment of a specified renewal fee. Under the terms of the license, the Company received a $1 million license fee, half of which was paid upon contract signing and the second half was paid in August 2008, and in addition, the Company is entitled to receive milestone payments potentially totaling $4.5 million for each licensed product under this agreement and also royalties on commercial sales, if any. The Company has deferred the $1 million upfront payment and is recognizing this amount as revenue over the five-year term of the agreement.

 

In August 2008, sanofi-aventis exercised its option under a 2006 agreement for expanded access to the Company’s TAP technology. The exercise of this option enables sanofi-aventis to evaluate, with certain restrictions, the Company’s maytansinoid TAP technology with antibodies to targets not licensed as part of the research collaboration between the companies and to take licenses for the exclusive right to use the technology to develop products to specific targets on the terms in the 2006 agreement. The Company is entitled to earn upfront and milestone payments potentially totaling $32 million per target for each compound developed under the 2006 agreement, as well as royalties on commercial sales. The Company is also entitled to manufacturing payments for any materials made on behalf of sanofi-aventis. The Company received $3.5 million with the exercise of this option in August 2008, in addition to the $500,000 the Company received in December 2006 with the signing of the option agreement. The agreement has a three-year term from the date of the exercise of the option and can be renewed by sanofi-aventis for one additional three-year term by payment of a $2 million fee. The Company has deferred the $3.5 million exercise fee and is recognizing this amount as revenue over the initial three-year option term.

 

In October 2008, sanofi-aventis began Phase II evaluation of AVE1642, triggering a $4 million milestone payment to the Company.  This milestone is included in license and milestone fee revenue for the three and six months ended December 31, 2008.

 

Genentech, Inc.

 

Genentech began Phase II evaluation of trastuzumab-DM1, or T-DM1, in July 2007 and the Company received a $5 million milestone payment with this event. Of the $5 million milestone payment received, $3 million is included in license and milestone fees for the three months ended December 31, 2007. The balance of the $5 million milestone was earned during the third quarter of fiscal 2008. The milestone was earned under the May 2000 license agreement, as amended in 2006. This amendment increased the potential milestone payments to the Company in conjunction with the achievement of milestones earned under a separate process development agreement with Genentech.

 

In December 2008, Genentech licensed the exclusive right to use the Company’s maytansinoid TAP technology with its

 

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therapeutic antibodies to an undisclosed target.  This license was taken under an agreement entered into by the companies in 2000 that provided Genentech with the right to take exclusive licenses to use the Company’s maytansinoid TAP technology to develop products for individual targets on agreed upon terms.  Under the terms of the license, the Company received a $1 million upfront payment and is entitled to receive milestone payments plus royalties on the sales of any resulting products.  Genentech is responsible for the development, manufacturing, and marketing of any products resulting from this license.  The Company has deferred the $1 million upfront payment and is recognizing this amount as revenue over the estimated period of substantial involvement.

 

Bayer HealthCare AG

 

In October 2008, the Company entered into a development and license agreement with Bayer HealthCare AG.  The agreement grants Bayer exclusive rights to use the Company’s TAP technology to develop therapeutic compounds to a target found on solid tumors. The Company received a $4 million upfront payment upon execution of the agreement, and – for each compound developed and marketed by Bayer under this collaboration – the Company could potentially receive up to $170.5 million in milestone payments; additionally, the Company receives royalties on the sales of any resulting products. The Company will be compensated by Bayer at a stipulated rate for work performed on behalf of Bayer under a mutually agreed upon research plan and budget which may be amended from time to time during the term of the agreement. The Company also will receive payments for manufacturing any preclinical and clinical materials made at the request of Bayer, and for any related process development activities. The Company has deferred the $4 million upfront payment and is recognizing this amount as revenue over the estimated period of substantial involvement.

 

The Company has agreements with other companies with respect to its compounds, as described elsewhere in this Quarterly Report and in its 2008 Annual Report on Form 10-K.

 

C.    Capital Stock

 

2001 Non-Employee Director Stock Plan

 

During the three and six months ended December 31, 2008, the Company recorded approximately $(9,000) and $19,000 in (expense reduction) or compensation expense, respectively, related to stock units outstanding under the Company’s 2001 Non-Employee Director Stock Plan. The value of the stock units is adjusted to market value at each reporting period as the redemption amount of stock units for this plan will be paid in cash. No stock units have been issued under the 2001 Plan subsequent to June 30, 2004.  During the three and six months ended December 31, 2007, the Company recorded approximately $(8,000) and $(21,000) in expense reduction, respectively.

 

2004 Non-Employee Director Compensation and Deferred Share Unit Plan

 

The 2004 Non-Employee Director Compensation and Deferred Share Unit Plan, or 2004 Director Plan, was amended on September 5, 2006. Under the terms of the amended 2004 Director Plan, the redemption amount of deferred share units will be paid in shares of common stock of the Company. In addition, the vesting for annual retainers is to take place quarterly over the three years after the award and the number of deferred share units awarded for all compensation is now based on the market value of the Company’s common stock on the date of the award.

 

During the three and six months ended December 31, 2008, the Company recorded approximately $37,000 and $71,000 in compensation expense, respectively, related to deferred share units outstanding under the amended 2004 Director Plan. During the three and six months ended December 31, 2007, the Company recorded approximately $16,000 and $23,000 in compensation expense, respectively.

 

D.    Commitments and Contingencies

 

Effective July 27, 2007, the Company entered into a lease agreement with Intercontinental Fund III for the rental of approximately 89,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MA. The Company occupied the space on March 24, 2008 and uses this space for its corporate headquarters, research and other operations previously located in Cambridge, MA. The initial term of the lease is for twelve years with an option for the Company to extend the lease for two additional terms of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

As part of the lease agreement, the Company received a construction allowance of up to approximately $13.3 million to build out laboratory and office space to the Company’s specifications. The construction allowance is accounted for as a lease incentive pursuant to FASB Statement No. 13, Accounting for Leases, and FASB Technical Bulletin 88-1, Issues Relating to Accounting for Leases . After completion, the Company had recorded $12 million of leasehold improvements under the construction allowance. The Company received $10.8 million from the landlord and paid out the same amount towards these leasehold improvements. The remaining balance of the improvements was paid directly by the landlord. The lease term began on October 1, 2007, when the Company obtained physical control of the space in order to begin construction.

 

Under the terms of the agreement, the remaining $1.3 million of the construction allowance is to be applied evenly as a

 

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credit to rent for the first year. The final balance of the construction allowance was determined in August 2008, resulting in a credit of $1 million to the Company from the landlord during the current six-month period relating to the first nine months of occupancy. The balance of the credit will be applied evenly to the remaining three months of the first year of rent.

 

At December 31, 2008, the Company also leases facilities in Norwood and Cambridge, MA under agreements through 2011. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. The Company entered into a sub-sublease in May 2008 for the entire space in Cambridge, MA through 2011, the remainder of the sublease.

 

The minimum rental commitments, including real estate taxes and other expenses, for the next five fiscal years under the non-cancelable operating lease agreements discussed above are as follows (in thousands):

 

2009 (six months remaining)

 

$

2,660

 

2010

 

6,108

 

2011

 

5,671

 

2012

 

4,646

 

2013

 

4,646

 

Total minimum lease payments

 

$

23,731

 

Total minimum rental income from sub-sublease

 

(1,446

)

Total minimum lease payments, net

 

$

22,285

 

 

The Company intends to sublease approximately 14,000 rentable square feet of laboratory and office space at 830 Winter Street, Waltham, MA.  The Company has not included any estimated sublease income for the space in Waltham in the table above.

 

E.     Income Taxes

 

During the three and six months ended December 31, 2008, the Company recognized approximately $101,000 of tax benefit associated with U.S. research and development tax credits against which the Company had previously provided a full valuation allowance, but which became refundable as a result of legislation passed in July 2008.  There were no other significant income tax provisions or benefits for the six months ended December 31, 2008.  Due to the degree of uncertainty related to the ultimate use of loss carryforwards and tax credits, the Company has established a valuation allowance to fully reserve the remaining tax benefits.

 

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

 

OVERVIEW

 

Since our inception, we have been principally engaged in the development of novel, targeted therapeutics for the treatment of cancer using our expertise in cancer biology, monoclonal antibodies, and small-molecule cytotoxic, or cell-killing, agents. Our Tumor-Activated Prodrug, or TAP, technology uses antibodies to deliver a potent cytotoxic agent specifically to cancer targets, and consists of a monoclonal antibody that binds to a cancer target with one of our proprietary cell-killing agents attached. The antibody component enables a TAP compound to bind specifically to cancer cells that express a particular target antigen and the cytotoxic agent serves to kill the cancer cell. Our TAP technology is designed to enable the creation of highly effective, well-tolerated anticancer products. All of our and our collaborative partners’ TAP compounds currently in preclinical and clinical testing contain either DM1 or DM4 as the cytotoxic agent. Both DM1 and DM4 are our proprietary derivatives of a naturally occurring substance called maytansine. We also use our expertise in antibodies and cancer biology to develop “naked,” or unconjugated, antibody anticancer product candidates.

 

We have entered into collaborative agreements that enable companies to use our TAP technology to develop commercial product candidates to specified targets. 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 generally entitled to upfront fees, milestone payments and royalties on any commercial product sales. In addition, under certain agreements we are entitled to research and development funding based on activities performed at our collaborative partner’s request. We are reimbursed our direct and overhead 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. , Bayer HealthCare AG, Biogen Idec Inc., Biotest AG, Genentech, Inc., and sanofi-aventis. We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements.

 

sanofi - aventis— In July 2003, we entered into a discovery, development and commercialization collaboration with sanofi-aventis.  Under the terms of this agreement, in consideration of an upfront payment of $12 million, sanofi-aventis gained commercialization rights to new anticancer therapeutics developed to targets included in the collaboration, including the right to use our TAP technology and our humanization technology in the creation of therapeutics to these targets. The agreement included a

 

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research support funding commitment by sanofi-aventis for $50.7 million over the first three years of the agreement, and then for an additional $18.2 million when the agreement was extended for a fourth year, and then for an additional $10.4 million when the agreement was extended for a fifth year. The two companies subsequently agreed to extend the date of payment through October 31, 2008 to enable completion of  previously agreed upon research. We have earned $81.5 million of committed research funding for activities performed under the completed research term of this agreement.  As with all of its collaborative partners, we now perform research for sanofi-aventis and receive financial compensation from them on a mutually-agreed upon basis..

 

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, we will receive payments of between $21.5 million and $30 million per antigen target for each product candidate developed under this agreement. Through December 31, 2008, we have received and earned $10.5 million with the achievement of various milestones related to five of the targets in this collaboration that have been disclosed.

 

Additionally, in October 2006, sanofi-aventis licensed non-exclusive rights to use our proprietary humanization technology, which enables antibodies of murine origin to avoid detection by the human immune system. This license provides sanofi-aventis with the non-exclusive right to use our proprietary humanization technology through August 31, 2011 with the right to extend for one or more additional periods of three years each by providing us with written notice prior to expiration of the then-current license term and payment of a specified renewal fee. Under the terms of the license, we received a $1 million license fee, half of which was paid upon contract signing and the second half was paid in August 2008, and in addition, we are entitled to receive milestone payments potentially totaling $4.5 million plus royalties on sales for each licensed product under this agreement. We have deferred the $1 million upfront payment and are recognizing this amount as revenue over the five-year term of the agreement.

 

In August 2008, sanofi-aventis exercised its option under a 2006 agreement for expanded access to our TAP technology. The exercise of this option enables sanofi-aventis to evaluate, with certain restrictions, our maytansinoid TAP technology with antibodies to targets not licensed as part of the research collaboration between the companies and to take licenses for the exclusive right to use the technology to develop products to specific targets on the terms in the 2006 agreement. We are entitled to earn upfront and milestone payments potentially totaling $32 million per target for each compound developed under the 2006 agreement, as well as royalties on commercial sales. We are also entitled to manufacturing payments for any materials made on behalf of sanofi-aventis. We received $3.5 million with the exercise of this option in August 2008, in addition to the $500,000 we received in December 2006 with the signing of the option agreement. The agreement has a three-year term from the date of the exercise of the option and can be renewed by sanofi-aventis for one additional three-year term by payment of a $2 million fee. We have deferred the $3.5 million exercise fee and are recognizing this amount as revenue over the initial three-year option term.

 

In October 2008, sanofi-aventis began Phase II evaluation of AVE1642, triggering a $4 million milestone payment to us.  This milestone is included in license and milestone fee revenue for the three and six months ended December 31, 2008.

 

Genentech— In May 2000, we entered into a license agreement with Genentech that granted Genentech exclusive rights to use our maytansinoid TAP technology with antibodies that target HER2. We received a $2 million upfront payment upon execution of the agreement. In addition to royalties on net sales of any HER2-targeting TAP compounds developed under this agreement if and when they occur, the terms of the agreement include other payments based upon Genentech’s achievement of milestones. In May 2006, we amended this agreement which increased the potential milestone payments and certain royalties. Assuming all requirements are met under this agreement, we are to receive $44 million in milestone payments under this agreement in addition to royalties on sales, if any. Through December 31, 2008, we have received $7 million in milestone payments.

 

In December 2008, Genentech licensed the exclusive right to use our maytansinoid TAP technology with its therapeutic antibodies to an undisclosed target.  This license was taken under an agreement entered into by the companies in 2000 that provided Genentech with the right to take exclusive licenses to use our maytansinoid TAP technology to develop products for individual targets on agreed upon terms. Under the terms of the license, we received a $1 million upfront payment and are entitled to receive milestone payments plus royalties on the sales of any resulting products. Genentech is responsible for the development, manufacturing, and marketing of any products resulting from this license. We have deferred the $1 million upfront payment and are recognizing this amount as revenue over the estimated period of substantial involvement.

 

Biotest AG— In September 2008, Biotest began Phase I evaluation of BT-062 which triggered a $500,000 milestone payment to us.  This milestone is included in license and milestone fee revenue for the six months ended December 31, 2008.

 

Bayer HealthCare AG— In October 2008, we entered into a development and license agreement with Bayer HealthCare AG.  The agreement grants Bayer exclusive rights to use our TAP technology to develop therapeutic compounds to a target found on solid tumors.  We received a $4 million upfront payment upon execution of the agreement, and – for each compound developed and marketed by Bayer under this collaboration – we could potentially receive up to $170.5 million in milestone payments; additionally, we receive royalties on the sales of any resulting products.  We will be compensated by Bayer at a stipulated rate for work performed on behalf of Bayer under a mutually agreed upon research plan and budget which may be amended from time to time during the term of the agreement. We also will receive payments for manufacturing any preclinical and clinical materials made at the request of Bayer as well as for any related process development activities. We have deferred the $4 million upfront payment and are recognizing this

 

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amount as revenue over the estimated period of substantial involvement.

 

To date, we have not generated revenues from commercial product sales and we expect to incur significant operating losses for the foreseeable future. As of December 31, 2008, we had approximately $45.9 million in cash and marketable securities compared to $47.9 million in cash and marketable securities as of June 30, 2008.

 

We anticipate that future cash expenditures will be partially offset by collaboration-derived proceeds, including milestone payments, clinical material reimbursements and upfront fees. 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. However, we cannot provide assurance that any such opportunities presented by additional strategic partners or alternative financing arrangements will be entirely available to us, if at all.

 

Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our collaborative agreements 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 enter into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. We follow the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, Revenue Recognition , or SAB 104, and Emerging Issues Task Force Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Elements , or EITF 00-21. In accordance with SAB 104 and EITF 00-21, we recognize 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 our agreements contain multiple elements which typically include non-refundable license fees, payments based upon the achievement of certain milestones and royalties on product sales. We evaluate such arrangements to determine if the deliverables are separable into units of accounting and then apply applicable revenue recognition criteria to each unit of accounting.

 

At December 31, 2008, we had the following three types of collaborative contracts with the parties identified below:

 

·        License to use our TAP technology and/or certain other intellectual property to develop compounds to a single target antigen:

Biogen Idec Inc. (single-target license)

Biotest AG (single-target license)

Genentech, Inc. (multiple single-target licenses)

sanofi-aventis (license to multiple individual targets)

Bayer Healthcare AG (single-target license)

 

·        Option agreement for a defined period of time to secure licenses to use our TAP technology to develop anticancer compounds to a limited number of targets on established terms (broad option agreement):

Amgen, Inc.

Genentech, Inc.

sanofi-aventis

 

·        Non-exclusive license to our humanization technology:

sanofi-aventis

 

Generally, the foregoing collaboration agreements provide that we will (i) at the collaborator’s request, manufacture preclinical and clinical materials at our cost, or, in some cases, cost plus a margin, (ii) earn payments upon the collaborators’ achievements of certain milestones and (iii) earn royalty payments, generally until the later of the last applicable patent expiration or twelve years after product launch. Royalty rates may vary over the royalty term depending on certain intellectual property rights. We are required to

 

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provide technical training and to share any process improvements and know-how with its collaborators during the research term of the collaboration agreements.

 

Generally, upfront payments on single-target licenses are deferred over the period of our substantial involvement during development. The determination of the length of this period is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Our employees are available to assist the Company’s collaborators during the development of their products. We estimate this development phase to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal Phase II testing. We believe this period of involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, we reassess our periods of substantial involvement over which we amortize our upfront license fees. In the event that a single-target license were to be terminated, we 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.

 

We defer upfront payments received from our broad option agreements 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 we grant a single-target license to the collaborator, we defer the license fee and account for the fee as we would an upfront payment on a single-target license, as discussed above. Upon exercise of an option to acquire a license, we would recognize any remaining deferred option fee over the period of our substantial involvement under the license acquired. In the event a broad option agreement were to be terminated, we 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 a collaborator elects to discontinue development of a specific product candidate under a single-target license, but retains its right to use our technology to develop an alternative product candidate to the same target or a target substitute, we would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and our remaining period of substantial involvement can be estimated.

 

When milestone fees are specifically tied to a separate earnings process and are deemed to be substantive and at risk, revenue is recognized when such milestones are achieved. In addition, we recognize research and development support revenue from certain collaboration and development agreements based upon the level of research services performed during the period of the research agreement. Deferred revenue substantially represents amounts received under collaborative agreements and not yet earned pursuant to these policies. Where we have no continuing involvement, we will record non-refundable license fees as revenue upon receipt and will record revenue upon achievement of milestones by its collaborative partners.

 

We produce preclinical and clinical materials for our collaborators. We are reimbursed for certain of our direct and overhead costs to produce clinical materials. We recognize revenue on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator.

 

We also produce research material for potential collaborators under material transfer agreements. Additionally, we perform research activities, including developing antibody-specific conjugation processes, on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. Generally, we are reimbursed for certain of our direct and overhead costs of producing these materials or providing these services. We record the amounts received for the materials produced or services performed as a component of research and development support. We also develop conjugation processes for materials for later stage testing and commercialization for certain collaborators. We are reimbursed for certain of our direct and overhead costs and may receive milestone payments for developing these processes and these are recorded as a component of research and development support.

 

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 raw materials in excess of twelve-month projected usage that is not supported by firm, fixed collaborator orders and projections at the time of the assessment 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 the maximum tolerated dose likely to be reached for the compound being evaluated. 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 twelve-month usage of raw materials varying significantly from our estimated usage at an earlier reporting period. Reductions in collaborators’ projections could indicate that we have additional excess raw material inventory and we would then evaluate the need to record further write-downs, which would be included as charges to research and development expense.

 

Stock Based Compensation

 

As of December 31, 2008, the Company is authorized to grant future awards under one share-based compensation plan, which is the ImmunoGen, Inc. 2006 Employee, Director and Consultant Equity Incentive Plan. Effective July 1, 2005, we adopted the fair

 

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value recognition provisions of Financial Accounting Standards Board, or FASB, Statement No. 123(R), Share-Based Payment , or 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 FASB Statement No. 123, Accounting for Stock-Based Compensation , or Statement 123, 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 our 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 option-pricing model. Expected volatility is based exclusively on historical volatility data of our 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 we do not expect substantially different exercise or post-vesting termination behavior amongst our employee population. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options. Estimated forfeitures are based on historical data as well as current trend. Compensation cost incurred during the three and six months ended December 31, 2008 was $838,000 and $2.1 million respectively.  Compensation cost incurred during the three and six months ended December 31, 2007 was $546,000 and $1.1 million respectively. During the three and six months ended December 31, 2008 we recorded approximately $35,000 and $747,000, respectively, of compensation expense, which is included in the amounts above, related to the modification of the terms certain of options previously granted to the Chief Executive Officer of the Company in accordance with the succession plan approved by our Board of Directors in September 2008.

 

As of December 31, 2008, the estimated fair value of unvested employee awards was $3.7 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately two and a half years.

 

Investment in Marketable Securities

 

We invest in marketable securities of highly rated financial institutions and investment-grade debt instruments and limit the amount of credit exposure with any one entity. These investments are accounted for in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities , or Statement 115. We have classified our marketable securities as “available-for-sale” and, accordingly, carry such securities at aggregate fair value. In accounting for investments, we evaluate if a decline in the fair value of a marketable security below our cost basis is other-than-temporary, and if so, we record an impairment charge in our consolidated statement of operations. The factors that we consider in our evaluation include the fair market value of the security, the duration and magnitude of the security’s decline, and our intent and ability to hold the security to recovery. The determination of whether a loss is other than temporary is highly judgmental and can have a material impact on our results. During the three and six months ended December 31, 2008, we recorded approximately $266,000 and $402,000, respectively, in other-than-temporary impairment charges. No similar charges were recorded in the six months ended December 31, 2007.

 

Derivatives

 

Derivative instruments include a portfolio of short duration foreign currency forward contracts intended to mitigate the risk of exchange fluctuations for existing or anticipated receivable and payable balances denominated in foreign currency. Derivatives are estimated at fair value and classified as other current assets or liabilities in the accompanying consolidated balance sheets. The fair value of these instruments represents the present value of estimated future cash flows under the contracts, which are a function of underlying interest rates, currency rates, related volatility, counterparty creditworthiness and duration of the contracts. Changes in these factors or a combination thereof may affect the fair value of these instruments.

 

We do not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized in earnings during the period of change.  Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated existing or anticipated receivable or payable balance would be offset by the loss or gain on the forward contract. For the three and six months ended December 31, 2008, net losses recognized on forward contracts were $79,000 and $182,000, respectively, and are included in the accompanying consolidated statement of operations as other (loss) income, net. As of December 31, 2008, we had outstanding forward contracts with amounts equivalent to approximately $3.4 million (2.6 million in Euros), all maturing on or before February 27, 2009. As of June 30, 2008, we had outstanding forward contracts with amounts equivalent to approximately $1.4 million (924,000 in Euros). For the three and six months ended December 31, 2007, net gains recognized on forward contracts were $49,000 and $242,000, respectively. As of December 31, 2007, we had outstanding forward contracts with amounts equivalent to approximately $7.4 million (5.1 million in Euros). We do not anticipate using derivative instruments for any purpose other than hedging our exchange rate exposure.

 

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RESULTS OF OPERATIONS

 

Comparison of Three Months ended December 31, 2008 and 2007

 

Revenues

 

Our total revenues for the three months ended December 31, 2008 and 2007 were $9.3 million and $9.8 million, respectively. The $416,000 decrease in revenues in the three months ended December 31, 2008 from the same period in the prior year is attributable to a decrease in research and development support revenue and clinical materials reimbursement revenue, partially offset by an increase in license and milestone fees, all of which are discussed below.

 

Research and development support was $2.3 million for the three months ended December 31, 2008 compared with $3.7 million for the three months ended December 31, 2007. These amounts primarily represent 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 Bayer Healthcare, Biogen Idec, Biotest, and Genentech. Under the terms of the sanofi-aventis agreement, we were entitled to receive committed research funding totaling not less than $79.3 million over the five years of the research collaboration, which included the initial three-year term of the research program ending August 31, 2006 plus the two 12-month extensions beginning September 1, 2006. The two companies subsequently agreed to extend the date of payment through October 31, 2008 to enable completion of previously agreed upon research. Through the end of the research program, we have earned $81.5 million of committed funding. Subsequent to October 31, 2008, we have performed, and will continue to perform, research on behalf of sanofi-aventis as mutually agreed upon. Also included in research and development support revenue are fees related to samples of research-grade material shipped to collaborators. To date, our development fees represent the direct and overhead 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’ product candidates 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. Total revenue recognized from research and development support from each of our collaborative partners in the three-month periods ended December 31, 2008 and 2007 is included in the following table (in thousands):

 

 

 

Three months ended December 31,

 

Research and Development Support

 

2008

 

2007

 

Collaborative Partner:

 

 

 

 

 

Bayer

 

$

90

 

$

 

Biogen Idec

 

169

 

61

 

Biotest

 

429

 

453

 

Centocor

 

 

50

 

Genentech

 

 

189

 

sanofi-aventis

 

1,595

 

2,916

 

Other

 

 

3

 

Total

 

$

2,283

 

$

3,672

 

 

Revenues from license and milestone fees for the three months ended December 31, 2008 increased $2.1 million to $4.8 million from $2.7 million in the same period ended December 31, 2007.  Included in license and milestone fees for the three months ended December 31, 2008 was a $4 million milestone related to the initiation of Phase II clinical testing of AVE1642 by sanofi-aventis.  Included in license and milestone fees for the three months ended December 31, 2007 was a $1 million milestone related to the initiation of Phase I clinical testing of SAR3419 and $500,000 related to an additional preclinical development milestone achieved under the collaboration agreement with sanofi-aventis.  Total revenue from license and milestone fees recognized from each of our collaborative partners in the three-month periods ended December 31, 2008 and 2007 is included in the following table (in thousands):

 

 

 

Three months ended December 31,

 

License and Milestone Fees

 

2008

 

2007

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

128

 

$

108

 

Bayer

 

103

 

 

Biogen Idec

 

57

 

39

 

Biotest

 

42

 

42

 

Centocor

 

34

 

 

Genentech

 

43

 

291

 

sanofi-aventis

 

4,359

 

2,200

 

Total

 

$

4,766

 

$

2,680

 

 

Deferred revenue of $14.5 million as of December 31, 2008 primarily represents payments received from our collaborators pursuant to our license agreements, which we have yet to earn pursuant to our revenue recognition policy.

 

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Clinical materials reimbursement decreased by approximately $1.1 million in the three months ended December 31, 2008, to nearly $2.3 million from $3.4 million in the three months ended December 31, 2007. The decrease in clinical materials reimbursement in the current period is primarily related to fewer batches released during the current period and certain collaborators supplying material previously provided by us.  We are reimbursed for certain of our direct and overhead costs to produce clinical materials plus, for certain programs, a profit margin.  The amount of clinical materials reimbursement we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the supply of clinical-grade material to our collaborators for process development and analytical purposes. As such, the amount of clinical materials reimbursement revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

 

Research and Development Expenses

 

Our net research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators’ product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes and (iv) manufacturing operations. 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 pursuant to our development and license agreements with various other collaborators;

·        activities related to the preclinical and clinical development of IMGN901, IMGN242 and IMGN388;

·        process development related to production of the huN901 antibody and IMGN901 conjugate for clinical materials;

·        process development related to production of the huC242 antibody and IMGN242 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;

·        production costs for the supply of the huN901 antibody and the huC242 antibody;

·        production costs for the supply of DMx for our and our partners’ preclinical and clinical activities;

·        operation and maintenance of our conjugate manufacturing facility, including production of our own and our collaborators’ clinical materials;

·        process improvements to our TAP technology;

·        evaluation of potential antigen targets;

·        evaluation of internally developed and/or in-licensed product candidates and technologies; and

·        development and evaluation of additional cytotoxic agents and linkers.

 

Research and development expense for the three months ended December 31, 2008 decreased $270,000 to $12.9 million from $13.2 million for the three months ended December 31, 2007. The decrease was primarily due to decreased antibody development and supply costs and lower cost of clinical materials reimbursed, partially offset by increased salaries and related expenses, greater clinical trial costs and lower overhead utilization. The average number of our research and development personnel increased to 183 at December 31, 2008 compared to 173 at December 31, 2007. Research and development salaries and related expenses increased by $330,000 in the three months ended December 31, 2008 compared to the three months ended December 31, 2007.

 

We are unable to accurately estimate which potential product candidates, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop these products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery stage product candidates will advance from preclinical testing and move into our internal clinical development program. The clinical trial and regulatory approval processes for our product candidates that have advanced or that we intend to advance to clinical testing are lengthy, expensive and uncertain in both timing and outcome. As a result, the pace and timing of the clinical development of our product candidates is highly uncertain and may not ever result in approved products. Completion dates and development costs will vary significantly for each product candidate and are difficult to predict. A variety of factors, many of which are outside our control, could cause or contribute to the prevention or delay of the successful completion of our clinical trials, or delay or prevent our obtaining necessary regulatory approvals. The costs to take a product through clinical trials are dependent upon, among other factors,

 

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the clinical indications, the timing, size and design of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. Product candidates may be found to be ineffective or to cause unacceptable side effects during clinical trials, may take longer to progress through clinical trials than anticipated, may fail to receive necessary regulatory approvals or may prove 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.

 

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

 

 

 

Three Months Ended December 31,

 

Research and Development Expense

 

2008

 

2007

 

Research

 

$

3,470

 

$

3,754

 

Preclinical and Clinical Testing

 

2,671

 

1,760

 

Process and Product Development

 

1,467

 

1,482

 

Manufacturing Operations

 

5,280

 

6,162

 

Total Research and Development Expense

 

$

12,888

 

$

13,158

 

 

Research :    Research includes expenses associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, fees to in-license certain technology, facilities and lab supplies. Research expenses for the three months ended December 31, 2008 decreased $284,000 to $3.5 million from $3.8 million for the three months ended December 31, 2007. The decrease in research and development expenses was primarily the result of a decrease in salaries and related expenses due to a reorganization of departments in March 2008, resulting in lower personnel costs included in research expense for the current period.

 

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 for the three months ended December 31, 2008 increased $911,000 to $2.7 million compared to $1.8 million for the three months ended December 31, 2007. This increase is primarily due to an increase in salaries and related expenses due to a reorganization of departments in March 2008 and July 2008, as well as an increase in clinical trial costs.

 

Process and Product Development :    Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the three months ended December 31, 2008, total development expenses decreased $15,000 to $1.5 million, compared to $1.5 million for the three months ended December 31, 2007.

 

Manufacturing Operations:    Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the three months ended December 31, 2008, manufacturing operations expense decreased $882,000 to $5.3 million compared to $6.2 million in the same period last year. The decrease in the three months ended December 31, 2008 as compared to the three months ended December 31, 2007 was primarily the result of (i) a decrease in antibody development and supply costs due to timing of supply requirements; (ii) a decrease in contract services due primarily to lower DMx development costs for the potential production of later-stage materials; and (iii) a decrease in cost of clinical materials reimbursed due to fewer batches released during the current period, as well as certain collaborators supplying material previously provided by us. Partially offsetting these decreases, salaries and related expenses increased, depreciation and amortization increased due to the build-out of the Norwood facility and equipment purchases, and overhead utilization from the manufacture of clinical materials on behalf of our collaborators decreased. Antibody expense in anticipation of potential future clinical trials, as well as our ongoing trials, was $327,000 and $1.6 million in the three months ended December 31, 2008 and 2007, respectively. The process of antibody production is lengthy as is the lead time to establish a satisfactory production process at a vendor. Accordingly, costs incurred related to antibody production have fluctuated from period to period and we expect these cost fluctuations to continue in the future.

 

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General and Administrative Expenses

 

General and administrative expenses for the three months ended December 31, 2008 were flat compared to the three months ended December 31, 2007. Salaries and related expenses increased $841,000 during the three months ended December 31, 2008 compared to the three months ended December 31, 2007.  During the three months ended December 31, 2008, we recorded $441,000 of compensation expense related to the transition of the Chief Executive Officer of the Company in accordance with the succession plan approved by ImmunoGen’s Board of Directors in September 2008.  The remaining increase in salaries and related expense is primarily due to higher salary levels and greater stock compensation costs.  Offsetting this increase, rent expense for the current three-month period decreased $841,000. Rent expense for the prior three-month period included rent for both the Waltham and Cambridge facilities as rent expense (not payments) for Waltham began upon initiation of the lease term in October 2007.

 

Other (Expense) Income, net

 

Other (expense) income, net for the three months ended December 31, 2008 and 2007 is included in the following table (in thousands):

 

 

 

Three Months Ended December 31,

 

Other (Expense) Income, net

 

2008

 

2007

 

Interest Income

 

$

142

 

$

676

 

Other Than Temporary Impairment

 

(266

)

 

Other (Loss) Income

 

(5

)

51

 

Total Other (Expense) Income, net

 

$

(129

)

$

727

 

 

Interest Income

 

Interest income for the three months ended December 31, 2008 decreased $534,000 to $142,000 from $676,000 for the three months ended December 31, 2007. The decrease in interest income is primarily the result of lower yields on investments tied to market rates.

 

Other than Temporary Impairment

 

During the three months ended December 31, 2008, we recognized $266,000 in charges for the impairment of available-for-sale securities that were determined to be other-than-temporary following a decline in value. No similar charges were recognized during the three months ended December 31, 2007.

 

Other (Loss) Income

 

During the three months ended December 31, 2008 we recorded net losses on forward contracts of $79,000 compared to net gains on forward contracts of $49,000 for the three months ended December 31, 2007. We incurred $67,000 and $1,000 in foreign currency translation gains related to obligations with non-U.S. dollar-based suppliers during the three months ended December 31, 2008 and 2007, respectively.

 

Comparison of Six Months ended December 31, 2008 and 2007

 

Revenues

 

Our total revenues for the six months ended December 31, 2008 and 2007 were $15.5 million and $21.2 million, respectively. The $5.7 million decrease in revenues in the three months ended December 31, 2008 from the same period in the prior year is attributable to a decrease in research and development support revenue and clinical materials reimbursement revenue, partially offset by a slight increase in license and milestone fees, all of which are discussed below.

 

Research and development support was $5.5 million for the six months ended December 31, 2008 compared with $8.1 million for the six months ended December 31, 2007. 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 Bayer Healthcare, Biogen Idec, Biotest, Centocor, and Genentech. Under the terms of the sanofi-aventis agreement, we were entitled to receive committed research funding totaling not less than $79.3 million over the five years of the research collaboration, which included the initial three-year term of the research program ending August 31, 2006 plus the two 12-month extensions beginning September 1, 2006. The two companies subsequently agreed to extend the date of payment through October 31, 2008 to enable completion of agreed upon research. Through the end of the research program, we have earned $81.5 million of committed funding. Subsequent to October 31, 2008, we have performed, and will continue to perform, research on behalf of sanofi-aventis as mutually agreed upon. Also included in research and development support revenue

 

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are fees related to samples of research-grade material shipped to collaborators. To date, our development fees represent the direct and overhead 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’ product candidates 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. Total revenue recognized from research and development support from each of our collaborative partners in the six-month periods ended December 31, 2008 and 2007 is included in the following table (in thousands):

 

 

 

Six months ended December 31,

 

Research and Development Support

 

2008

 

2007

 

Collaborative Partner:

 

 

 

 

 

Bayer

 

$

122

 

 

Biogen Idec

 

407

 

105

 

Biotest

 

954

 

879

 

Centocor

 

 

428

 

Genentech

 

9

 

365

 

sanofi-aventis

 

3,945

 

6,327

 

Other

 

53

 

41

 

Total

 

$

5,490

 

$

8,145

 

 

Revenues from license and milestone fees for the six months ended December 31, 2008 increased $121,000 to $7.0 million from $6.9 million in the same period ended December 31, 2007.  Included in license and milestone fees for the six months ended December 31, 2008 was a $4 million milestone related to the initiation of Phase II clinical testing of AVE1642 by sanofi-aventis and a $500,000 milestone related to the initiation of Phase I clinical testing of BT-062 by Biotest.  Also in this period, Millennium Pharmaceuticals and Boehringer Ingelheim agreed to terminate their licenses with us that were no longer being used to develop products and as a result, we recognized as license and milestone fees $361,000 and $486,000, respectively, of upfront fees previously deferred .  Included in license and milestone fees for the six months ended December 31, 2007 was $3 million of the $5 million milestone payment that we received with the initiation of Phase II clinical testing of trastuzumab-DM1, or T-DM1, by Genentech, a $1 million milestone related to the initiation of Phase I clinical testing of SAR3419 and $500,000 related to an additional preclinical development milestone achieved under the collaboration agreement with sanofi-aventis.  Total revenue from license and milestone fees recognized from each of our collaborative partners in the six-month periods ended December 31, 2008 and 2007 is included in the following table (in thousands):

 

 

 

Six months ended December 31,

 

License and Milestone Fees

 

2008

 

2007

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

253

 

$

217

 

Bayer

 

103

 

 

 

Biogen Idec

 

114

 

76

 

Biotest

 

584

 

84

 

Boehringer Ingelheim

 

486

 

 

Centocor

 

69

 

 

Genentech

 

74

 

3,582

 

Millennium Pharmaceuticals

 

361

 

 

sanofi-aventis

 

4,945

 

2,909

 

Total

 

$

6,989

 

$

6,868

 

 

Clinical materials reimbursement decreased by approximately $3.2 million in the six months ended December 31, 2008, to $3.0 million from $6.2 million in the six months ended December 31, 2007. The decrease in clinical materials reimbursement in the current period is primarily related to fewer batches released during the current period, lower revenue recognized on shipments of DMx to collaborators during the current period, and to a lesser extent, certain collaborators supplying material previously provided by us.  We are reimbursed for certain of our direct and overhead costs to produce clinical materials plus, for certain programs, a profit margin.  The amount of clinical materials reimbursement we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the supply of clinical-grade material to our collaborators for process development and analytical purposes. As such, the amount of clinical materials reimbursement revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

 

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Research and Development Expenses

 

Research and development expense for the six months ended December 31, 2008 increased $756,000 to $24.7 million from $24.0 million for the six months ended December 31, 2007. The increase in research and development expenses was primarily due to (i) increased employee compensation levels; (ii) greater clinical trial costs; (iii) greater contract service expense; (iv) higher facility expenses; and (v) lower overhead utilization from the manufacture of clinical materials on behalf of our collaborators. Partially offsetting these increases, cost of clinical materials reimbursed and antibody development and supply costs decreased during the current period. The average number of our research and development personnel increased to 175 at December 31, 2008 compared to 173 at December 31, 2007. Research and development salaries and related expenses increased by $627,000 in the six months ended December 31, 2008 compared to the six months ended December 31, 2007. Facilities expense, including depreciation, increased $377,000 during the six months ended December 31, 2008 as compared to the same period last year. The increase in facilities expense in the current period was principally due to an increase in depreciation and amortization. The increase in depreciation and amortization is due to the leasehold improvements made to the Norwood and Waltham facilities in fiscal 2008, as well as new capital purchases.

 

Our categories of research and development expenses are listed in the following table and described in more detail below (in thousands):

 

 

 

Six Months Ended December 31,

 

Research and Development Expense

 

2008

 

2007

 

Research

 

$

7,073

 

$

7,558

 

Preclinical and Clinical Testing

 

4,913

 

3,445

 

Process and Product Development

 

3,055

 

2,969

 

Manufacturing Operations

 

9,707

 

10,020

 

Total Research and Development Expense

 

$

24,748

 

$

23,992

 

 

Research :   Research includes expenses associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, fees to in-license certain technology, facilities and lab supplies. Research expenses for the six months ended December 31, 2008 decreased $485,000 to $7.1 million from $7.6 million for the six months ended December 31, 2007. The decrease in research and development expenses was primarily the result of a decrease in salaries and related expenses due to a reorganization of departments in March 2008 resulting in lower personnel costs included in research expense for the current period.

 

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 for the six months ended December 31, 2008 increased $1.5 million to $4.9 million compared to $3.4 million for the six months ended December 31, 2007. This increase is primarily due to an increase in salaries and related expenses due to a reorganization of departments in March 2008 and July 2008, as well as an increase in clinical trial costs.

 

Process and Product Development :   Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the six months ended December 31, 2008, total development expenses increased $86,000 to $3.1 million, compared to $3.0 million for the six months ended December 31, 2007.

 

Manufacturing Operations:   Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the six months ended December 31, 2008, manufacturing operations expense decreased $313,000 to $9.7 million compared to $10 million in the same period last year. The decrease in the six months ended December 31, 2008 was primarily the result of a decrease in antibody development and supply costs due to timing of supply requirements and a decrease in cost of clinical materials reimbursed due to fewer batches released and lower costs incurred on shipments of DMx to collaborators during the current period, as well as certain collaborators supplying material previously provided by us. Partially offsetting these decreases, salaries and related expenses increased, depreciation and amortization increased, and overhead utilization from the manufacture of clinical materials on behalf of our collaborators decreased.  Antibody expense in anticipation of potential future clinical trials, as well as our ongoing trials, was $454,000 and $2.2 million in the six months ended December 31, 2008 and 2007, respectively. The process of antibody production is lengthy as is the lead time to establish a satisfactory production process at a vendor. Accordingly, costs incurred related to antibody production have fluctuated from period to period and we expect these cost fluctuations to continue in the future.

 

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Table of Contents

 

General and Administrative Expenses

 

General and administrative expenses for the six months ended December 31, 2008 increased $1.2 million to $7.2 million compared to $6.0 million for the six months ended December 31, 2007. The increase is primarily due to a $1.9 million increase in salaries and related expenses.  During the six months ended December 31, 2008, we recorded $1.2 million of compensation expense related to the transition of the Chief Executive Officer of the Company in accordance with the succession plan approved by ImmunoGen’s Board of Directors in September 2008.  The remaining increase in salaries and related expense is primarily due to increased employee compensation levels and greater stock compensation costs. Partially offsetting this increase, rent expense for the current period decreased $841,000 as rent expense (not payments) for Waltham began upon initiation of the lease term in October 2007.

 

Other (Expense) Income, net

 

Other (expense) income, net for the six months ended December 31, 2008 and 2007 is included in the following table (in thousands):

 

 

 

Six Months Ended December 31,

 

Other (Expense) Income, net

 

2008

 

2007

 

Interest Income

 

$

445

 

$

1,343

 

Net Realized Losses on Investments

 

(33

)

 

Other Than Temporary Impairment

 

(402

)

 

Other (Loss) Income

 

(123

)

197

 

Total Other (Expense) Income, net

 

$

(113

)

$

1,540

 

 

Interest Income

 

Interest income for the six months ended December 31, 2008 decreased $898,000 to $445,000 from $1.3 million for the six months ended December 31, 2007. The decrease in interest income is primarily the result of lower yields on investments tied to market rates.

 

Net Realized Losses on Investments

 

Net realized losses on investments were $33,000 for the six months ended December 31, 2008. There were no losses recognized in the six months ended December 31, 2007. The difference is attributable to market conditions and to the timing of investment sales.

 

Other than Temporary Impairment

 

During the six months ended December 31, 2008, we recognized $402,000 in charges for the impairment of available-for-sale securities that were determined to be other-than-temporary following a decline in value. No similar charges were recognized during the six months ended December 31, 2007.

 

Other (Loss) Income

 

During the six months ended December 31, 2008 we recorded net losses on forward contracts of $182,000 compared to net gains on forward contracts of $242,000 for the six months ended December 31, 2007. We incurred $51,000 in foreign currency translation gains related to obligations with non-U.S. dollar-based suppliers during the six months ended December 31, 2008 compared to $46,000 in foreign currency translation losses during the same period in the prior year.

 

Liquidity and Capital Resources

 

 

 

December 31,

 

 

 

2008

 

2007

 

 

 

(In thousands)

 

Cash, cash equivalents and short-term investments

 

$

45,911

 

$

48,658

 

Working capital

 

39,758

 

46,030

 

Shareholders’ equity

 

41,174

 

53,137

 

Cash used for operating activities (six months ended)

 

(377

)

(6,855

)

Cash provided by investing activities (six months ended)

 

5,916

 

7,670

 

Cash provided by financing activities (six months ended)

 

268

 

975

 

 

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Table of Contents

 

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 December 31, 2008, we had approximately $45.9 million in cash and marketable securities. Net cash used in operations was $377,000 and $6.9 million for the six months ended December 31, 2008 and 2007, respectively. The principal use of cash in operating activities for all periods presented was to fund our net loss.

 

Net cash provided by investing activities was $5.9 million and $7.7 million for the six months ended December 31, 2008 and 2007, respectively, and substantially represents cash inflows from the sales and maturities of marketable securities partially offset by capital expenditures. Capital expenditures, primarily for the purchase of new equipment, were $1 million and $5.3 million for the six-month periods ended December 31, 2008 and 2007, respectively.  Capital expenditures during the prior year six-month period also included expenditures for expansion and improvements of our manufacturing plant in Norwood, MA.

 

During December 2007, we were notified by a fund manager that a fund in which we hold an investment was unable to meet shareholder redemptions on a timely basis. We held approximately $4.7 million in this fund at December 31, 2008. Although amounts invested are not currently impaired in value, the balance is not readily convertible to cash. We have the option of redeeming our entire investment from the fund in-kind which would consist of individual securities, or remaining in the fund and receiving cash redemptions as cash becomes available in the fund either through maturities or sales of the underlying securities. We opted to stay in the fund and have received $13.8 million in redemptions since December 2007. In December 2007, we reclassified the balance in this fund from cash and cash equivalents to marketable securities. We expect to receive at least $3.3 million in redemptions during the remainder of fiscal 2009 and the balance in subsequent periods .

 

Net cash provided by financing activities was $268,000 and $975,000 for the six months ended December 31, 2008 and 2007, respectively, which represents proceeds from the exercise of 109,000 and 554,000 stock options, respectively.

 

We anticipate that our current capital resources and future collaborator payments will enable us to meet our operational expenses and capital expenditures for the balance of fiscal 2009 and at least a significant portion of the following fiscal year. 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

 

Effective July 27, 2007, we entered into a lease agreement with Intercontinental Fund III for the rental of approximately 89,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MA. We occupied the space on March 24, 2008 and use this space for our corporate headquarters, research and other operations previously located in Cambridge, MA. The initial term of the lease is for twelve years with an option for us to extend the lease for two additional terms of five years. We are required to pay certain operating expenses for the leased premises subject to escalation charges for such expense increases over a base amount.

 

As part of the lease agreement, we received a construction allowance of up to approximately $13.3 million to build out laboratory and office space to our specifications. The construction allowance is accounted for as a lease incentive pursuant to FASB Statement No. 13, Accounting for Leases, and FASB Technical Bulletin 88-1, Issues Relating to Accounting for Leases . Through December 31, 2008, we have recorded $12 million of leasehold improvements under the construction allowance. Under the terms of the agreement, the remaining $1.3 million of the construction allowance is to be applied evenly as a credit to rent for the first year.

 

At December 31, 2008, the Company also leases facilities in Norwood and Cambridge, MA under agreements through 2011. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. The Company entered into a sub-sublease in May 2008 for the entire space in Cambridge, MA through 2011, the remainder of the sublease.

 

The minimum rental commitments, including real estate taxes and other expenses, for the next five fiscal years under the non-cancelable operating lease agreements discussed above are as follows (in thousands):

 

2009 (six months remaining)

 

$

2,660

 

2010

 

6,108

 

2011

 

5,671

 

2012

 

4,646

 

2013

 

4,646

 

Total minimum lease payments

 

$

23,731

 

Total minimum rental income from sub-sublease

 

(1,446

)

Total minimum lease payments, net

 

$

22,285

 

 

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We intend to sublease approximately 14,000 rentable square feet of laboratory and office space at 830 Winter Street, Waltham, MA.  We have not included any estimated sublease income for the space in Waltham in the table above.

 

Forward-Looking Statements

 

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

 

·                   future products revenues, expenses, liquidity and cash needs;

·                   anticipated redemptions from an investment fund;

·                   anticipated agreements with collaboration partners;

·                   anticipated clinical trial timelines or results;

·                   anticipated research and product development results;

·                   projected regulatory timelines;

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

·                   forecasts of future economic performance; and

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

 

Forward-looking statements can be identified by the fact that they do not relate to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “opportunity,” “plan,” “potential,” “believe” or words of similar meaning. They may also use words such as “will,” “would,” “should,” “could” or “may”. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should review carefully the risks and uncertainties identified in this Quarterly Report on Form 10-Q, including the cautionary information set forth under Part II, Item 1A., Risk Factors, and our Annual Report on Form 10-K for the year ended June 30, 2008. We may not revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

 

ITEM 3.                              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.

 

Our foreign currency hedging program uses forward contracts to manage the foreign currency exposures that exist as part of our ongoing business operations. The contracts are denominated in Euros and have maturities of less than one year. Our foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the value of transactions, anticipated transactions and balances denominated in foreign currency, resulting from changes in foreign currency exchange rates.

 

Our market risks associated with changes in foreign currency exchange rates are concentrated primarily in a portfolio of short duration foreign currency forward contracts. Generally, these contracts provide that we receive certain foreign currencies and pay U.S. dollars at specified exchange rates at specified future dates. Although we are exposed to credit and market risk in the event of future nonperformance by a counterparty, management has no reason to believe that such an event will occur.

 

ITEM 4.                              Controls and Procedures

 

(a)           Disclosure Controls and Procedures

 

The Company’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that,

 

27



Table of Contents

 

as of the end of such period, the Company’s disclosure controls and procedures were adequate and effective.

 

(b)          Changes in Internal Controls

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

28



Table of Contents

 

PART II. OTHER INFORMATION

 

ITEM 1.                              Legal Proceedings

 

From time to time we may be a party to various legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.

 

ITEM 1A.                     Risk Factors

 

You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Item 1A. (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. There have been no material changes from the factors disclosed in our 2008 Annual Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

 

ITEM 2.                              Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

ITEM 3.                              Defaults Upon Senior Securities

 

None.

 

ITEM 4.                              Submission of Matters to a Vote of Security Holders

 

Our 2008 Annual Meeting of Shareholders was held on November 12, 2008 (the “Meeting”). At the Meeting, shareholders fixed the number of Directors constituting the full Board of Directors at eight. The voting results were as follows:

 

For:

 

38,246,812

 

Against:

 

821,120

 

Abstain:

 

59,420

 

 

At the Meeting, the shareholders elected eight Directors as follows:

 

DIRECTOR

 

FOR

 

WITHHELD

 

Mitchel Sayare, Ph.D.

 

37,865,350

 

1,262,002

 

Daniel M. Junius

 

37,902,667

 

1,224,685

 

David W. Carter

 

37,706,800

 

1,420,552

 

Stephen C. McCluski

 

37,581,025

 

1,546,327

 

Nicole Onetto, MD

 

37,665,112

 

1,462,240

 

Mark Skaletsky

 

37,544,468

 

1,582,884

 

Joseph J. Villafranca, Ph.D.

 

37,776,413

 

1,350,939

 

Richard J. Wallace

 

37,772,884

 

1,354,468

 

 

At the meeting, the shareholders approved an amendment to the 2006 Employee, Director and Consultant Equity Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder.  The voting results were as follows:

 

For:

 

13,347,605

 

Against:

 

1,626,908

 

Abstain:

 

333,105

 

 

ITEM 5.       Other Information

 

None.

 

29



Table of Contents

 

ITEM 6.                              Exhibits

 

 

10.1

Severance Agreement dated as of December 1, 2008 between the Registrant and Daniel M. Junius

10.2

Severance Agreement dated as of December 1, 2008 between the Registrant and Mitchel Sayare

10.3

Severance Agreement dated as of December 1, 2008 between the Registrant and John M. Lambert

10.4

Severance Agreement dated as of December 1, 2008 between the Registrant and James J. O’Leary

10.5

Severance Agreement dated as of January 9, 2009 between the Registrant and Gregory D. Perry

10.6

Employment offer letter between the Registrant and Gregory D. Perry

10.7*

Amendment No. 3, dated as of August 31, 2008 to the Collaboration and License Agreement between the Registrant and sanofi-aventis U.S. LLC

31.1

Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.

Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

 


(*) Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ImmunoGen, Inc.

 

 

 

Date:  February 6, 2009

By:

/s/ Daniel M. Junius

 

 

Daniel M. Junius

 

 

President, Chief Executive Officer (Principal Executive Officer)

 

 

 

Date:  February 6, 2009

By:

/s/ Gregory D. Perry

 

 

Gregory D. Perry

 

 

Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

 

31



Table of Contents

 

INDEX TO EXHIBITS

 

E xhibit No.

 

Description

10.1

 

Severance Agreement dated as of December 1, 2008 between the Registrant and Daniel M. Junius

10.2

 

Severance Agreement dated as of December 1, 2008 between the Registrant and Mitchel Sayare

10.3

 

Severance Agreement dated as of December 1, 2008 between the Registrant and John M. Lambert

10.4

 

Severance Agreement dated as of December 1, 2008 between the Registrant and James J. O’Leary

10.5

 

Severance Agreement dated as of January 9, 2009 between the Registrant and Gregory D. Perry

10.6

 

Employment offer letter between the Registrant and Gregory D. Perry

10.7

 

Amendment No. 3, dated as of August 31, 2008 to the Collaboration and License Agreement between the Registrant and sanofi-aventis U.S. LLC

31.1

 

Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.

 

Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the

 

 

Sarbanes-Oxley Act of 2002.

 


(*) Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment.

 

32


Exhibit 10.1

 

SEVERANCE AGREEMENT

 

This Agreement is entered into as of the 1st day of December, 2008 (the “ Effective Date ”) by and between ImmunoGen, Inc., a Massachusetts corporation (the “ Company ”) and Daniel M. Junius (the “ Executive ”).

 

WHEREAS, the Company recognizes that the Executive’s service to the Company is very important to the future success of the Company;

 

WHEREAS, the Executive desires to enter into this Agreement to provide the Executive with certain financial protection in the event that his employment terminates under certain conditions following a change in control of the Company; and

 

WHEREAS the Board of Directors of the Company (the “ Board ”) has determined that it is in the best interests of the Company to enter into this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows:

 

1.              Definitions .

 

(a)            Cause .  For purposes of this Agreement, “ Cause ” shall mean that the Executive has (i) intentionally committed an act or omission that materially harms the Company; (ii) been grossly negligent in the performance of the Executive’s duties to the Company; (iii) willfully failed or refused to follow the lawful and proper directives of the Board; (iv) been convicted of, or pleaded guilty or nolo contendre , to a felony; (v) committed an act involving moral turpitude; (vi) committed an act relating to the Executive’s employment or the Company involving, in the good faith judgment of the Board, material fraud or theft; (vii) breached any material provision of this Agreement or any nondisclosure or non-competition agreement between the Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.

 

(b)            Change in Control .  For purposes of this Agreement, a “ Change in Control ” shall mean the occurrence of any of the following events; provided that “Change in Control” shall be interpreted in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and Treasury Regulations 1.409A-3(i)(5), and any successor statute, regulation and guidance thereto:

 

(i)             Ownership.  Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then

 

Executive Severance Agreement (24)

 



 

outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates (as defined in the Company’s 2006 Employer, Director and Consultant Equity Incentive Plan) or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board does not approve; or

 

(ii)            Merger/Sale of Assets.  (A) A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iii)           Change in Board Composition.  A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of November 11, 2006, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

 

(c)            Disability .  For purposes of this Agreement, “ Disability ” shall mean that the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under a Company-sponsored group disability plan. Whether the Executive has a Disability will be determined by a majority of the Board based on evidence provided by one or more physicians selected by the Board and approved by the Executive, which approval shall not be unreasonably withheld.

 

(d)            Good Reason .  For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following without the Executive’s consent: (i) a change in the principal location at which the Executive performs his duties for the Company to a new location that is at least forty (40) miles from the prior location; (ii) a material change in the Executive’s authority, functions, duties or responsibilities as an executive of the Company, which would cause his position with the Company to become of less responsibility, importance or scope than his highest position with the Company at any time from the date of this Agreement to immediately prior to the Change in Control, provided , however , that such material change is not in connection with the termination of the Executive’s employment by the Company for Cause or death or Disability and further provided that it shall not be considered a material change if the Company becomes a subsidiary of another entity and the Executive continues to hold a position in the subsidiary that is at least as high as the highest position he held with the Company at any time from the date of this Agreement to

 

2



 

immediately prior to the Change in Control; (iii) a material reduction in the Executive’s annual base salary or (iv) a material reduction in the Executive’s target annual bonus as compared to the target annual bonus set for the previous fiscal year.

 

2.              Term of Agreement .  The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue in effect for two (2) years; provided , however , that commencing on second anniversary of the Effective Date and continuing each anniversary thereafter, the Term shall automatically be extended for one (1) additional year unless, not later than nine (9) months before the conclusion of the Term, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24 th ) month following the month in which such Change in Control occurred. Notice of termination or termination of this Agreement shall not constitute Cause or Good Reason (both terms as defined above).

 

3.              Termination; Notice; Severance Compensation .

 

(a)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Company elects to terminate the Executive’s employment other than for Cause (but not including termination due to the Executive’s Disability), then the Company shall give the Executive no less than sixty (60) days advance notice of such termination (the “Company’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Company’s Notice Period.

 

(b)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive elects to terminate his employment for Good Reason, then the Executive shall give the Company no less than thirty (30) days and no more than sixty (60) days advance notice of such termination (the “Executive’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Executive’s Notice Period. In order to effect a termination for Good Reason pursuant to this Agreement, the Executive must notice his intent to terminate for Good Reason not later than ninety (90) days following the occurrence of the Good Reason.

 

(c)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive’s employment with the Company is terminated by the Company other than for Cause (but not including termination due to the Executive’s death or Disability), or by the Executive for Good Reason, then, contingent upon the Executive’s execution of a release of claims against the Company in a form reasonably acceptable to the Company (the “ Release ”) the Executive shall be entitled to, in addition to any amounts due to the Executive for services rendered prior to the termination date:

 

3



 

(i)  the Executive’s target annual bonus for the fiscal year in which such termination occurs at one hundred percent (100%) of such target annual bonus, pro-rated by the number of calendar days in which the Executive is employed by the Company during the applicable year, including any applicable Notice Period, and less any amount of the target annual bonus for the applicable year previously paid to the Executive, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then; and

 

(ii)  a lump sum payment from the Company in an amount equal to two (2) times the Executive’s Annual Salary, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then;

 

(iii)  all outstanding options, restricted stock and other similar rights held by the Executive, which shall become one hundred percent (100%) vested; and

 

(iv)  continuation of medical insurance coverage for the Executive and the Executive’s family, subject to COBRA and subject to the Executive’s payment of a premium co-pay related to the coverage that is no less favorable than the premium co-pay charged to active employees of the Company electing the same coverage, for twenty-four (24) months from the Separation Date; provided that the Company shall have no obligation to provide such coverage if the Executive fails to elect COBRA benefits in a timely fashion or if the Executive becomes eligible for medical coverage with another employer; and provided that if COBRA continuation coverage is otherwise earlier terminated under applicable law, then, in lieu of coverage, the Company will pay the same amount it paid on a monthly basis for COBRA continuation coverage directly to the Executive each month for the remainder of the relevant period .

 

For purposes of this Agreement, “ Annual Salary ” shall mean the Executive’s annual base salary then in effect or, if higher, in effect at the time of the Change in Control, excluding reimbursements and amounts attributable to stock options and other non-cash compensation; and the “ Severance Compensation ” shall mean the compensation set forth in (ii), (iii), and (iv) above.

 

(d)            Notwithstanding any other provision with respect to the timing of payments, if, at the time of the Executive’s termination, the Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Executive may become entitled under this Agreement which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1 st ) business day of the seventh (7 th ) month following the termination of the Executive’s employment, at which time the Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to the Executive under the terms of this Agreement.

 

(e)            If any payment or benefit the Executive would receive under this Agreement, when combined with any other payment or benefit the Executive receives pursuant to a Change in Control (“Payment”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the

 

4



 

“Excise Tax”), then such Payment shall be either (x) the full amount of such Payment or (y) such less amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state, and local employments taxes, income taxes, and the Excise Tax results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment, notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. The Company shall determine in good faith which payment(s) or benefit(s) to reduce based on what provides the best economic result for the Executive. The Company shall provide the Executive with sufficient information to make such determination and to file and pay any required taxes.

 

4.              No Duplication of Compensation .  The Severance Compensation shall replace, and be provided in lieu of, any severance or similar compensation that may be provided to the Executive under any other agreement or arrangement in relation to termination of employment, including without limitation that certain Severance Agreement dated as of November 30, 2006 between the Company and the Executive; provided , however , that this prohibition against duplication shall not be construed to otherwise limit the Executive’s rights to payments or benefits provided under any pension plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), deferred compensation, stock, stock option or similar plan sponsored by the Company.

 

5.              No Mitigation .  If the Executive’s employment with the Company terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 3 or Section 15.  Except as set forth in Section 4, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

6.              Confidentiality, Non-Competition, and Assignment of Inventions.   The Company’s obligations under this Agreement are contingent upon the Executive’s execution of the Company’s Proprietary Information, Inventions, and Competition Agreement (the “Proprietary Information Agreement”).  The parties agree that the obligations set forth in the Proprietary Information Agreement shall survive termination of this Agreement and termination of the Executive’s employment, regardless of the reason for such termination.

 

7.              Enforceability .  If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable. No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement.

 

8.              Notices .  Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i)  by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notices to the Executive shall be sent to the last known address in the Company’s records or such other address as the Executive may specify in writing. Notices to the Company shall be sent to the Company’s Lead Director, or to such other Company representative as the Company may specify in writing.

 

5



 

9.              Claims for Benefits.   All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive’s claim has been denied.

 

10.            Modifications and Amendments .  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the Company and the Executive. The Company and the Executive agree that they will jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereto; provided that no such amendment shall increase the total financial obligation of the Company under this Agreement.

 

11.            Waivers and Consents .  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

12.            Binding Effect; Assignment .  The Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of the Executive upon the Executive’s death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of the Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of the Executive to receive any form of compensation payable pursuant to the Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of the Executive’s right to compensation or other benefits will be null and void.

 

13.            Governing Law .  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

 

14.            Jurisdiction and Service of Process .  Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.

 

15.            Attorneys’ Fees .  The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement. Such payments shall be made within five (5) business days after

 

6



 

delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

 

16.            Withholding .  The Company is authorized to withhold, or to cause to be withheld, from any payment or benefit under the Agreement the full amount of any applicable withholding taxes.

 

17.            Tax Consequences .  The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement.

 

18.            Acknowledgment .  The Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of the Agreement, and is knowingly and voluntarily entering into the Agreement.

 

19.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

20.            Section 409A .  The parties hereto intend that this Agreement comply with the requirements of Code Section 409A and related regulations and Treasury pronouncements. If any provision provided herein results in the imposition of an additional tax under the provisions of Code Section 409A, the Executive and the Company agree that such provision will be reformed to avoid imposition of any such additional tax in the manner that the Executive and the Company mutually agree is appropriate to comply with Code Section 409A.

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Severance Agreement as of the day and year first above written.

 

 

COMPANY:

 

 

 

IMMUNOGEN, INC.

 

 

 

 

 

/s/ Mitchel Sayare

 

Name: Mitchel Sayare

 

Title: Chairman and Chief Executive Officer

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

/s/ Daniel Junius

 

Name: Daniel M. Junius

 

7


Exhibit 10.2

 

SEVERANCE AGREEMENT

 

This Agreement is entered into as of the 1st day of December, 2008 (the “ Effective Date ”) by and between ImmunoGen, Inc., a Massachusetts corporation (the “ Company ”) and Mitchel Sayare, Ph.D. (the “ Executive ”).

 

WHEREAS, the Company recognizes that the Executive’s service to the Company is very important to the future success of the Company;

 

WHEREAS, the Executive desires to enter into this Agreement to provide the Executive with certain financial protection in the event that his employment terminates under certain conditions following a change in control of the Company; and

 

WHEREAS the Board of Directors of the Company (the “ Board ”) has determined that it is in the best interests of the Company to enter into this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows:

 

1.              Definitions .

 

(a)            Cause .  For purposes of this Agreement, “ Cause ” shall mean that the Executive has (i) intentionally committed an act or omission that materially harms the Company; (ii) been grossly negligent in the performance of the Executive’s duties to the Company; (iii) willfully failed or refused to follow the lawful and proper directives of the Board; (iv) been convicted of, or pleaded guilty or nolo contendre , to a felony; (v) committed an act involving moral turpitude; (vi) committed an act relating to the Executive’s employment or the Company involving, in the good faith judgment of the Board, material fraud or theft; (vii) breached any material provision of this Agreement or any nondisclosure or non-competition agreement between the Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.

 

(b)            Change in Control .  For purposes of this Agreement, a “ Change in Control ” shall mean the occurrence of any of the following events; provided that “Change in Control” shall be interpreted in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and Treasury Regulations 1.409A-3(i)(5), and any successor statute, regulation and guidance thereto:

 

(i)             Ownership.  Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then

 

Executive Severance Agreement (24)

 



 

outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates (as defined in the Company’s 2006 Employer, Director and Consultant Equity Incentive Plan) or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board does not approve; or

 

(ii)            Merger/Sale of Assets.  (A) A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iii)           Change in Board Composition.  A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of November 11, 2006, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

 

(c)            Disability .  For purposes of this Agreement, “ Disability ” shall mean that the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under a Company-sponsored group disability plan. Whether the Executive has a Disability will be determined by a majority of the Board based on evidence provided by one or more physicians selected by the Board and approved by the Executive, which approval shall not be unreasonably withheld.

 

(d)            Good Reason .  For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following without the Executive’s consent: (i) a change in the principal location at which the Executive performs his duties for the Company to a new location that is at least forty (40) miles from the prior location; (ii) a material change in the Executive’s authority, functions, duties or responsibilities as an executive of the Company, which would cause his position with the Company to become of less responsibility, importance or scope than his highest position with the Company at any time from the date of this Agreement to immediately prior to the Change in Control, provided , however , that such material change is not in connection with the termination of the Executive’s employment by the Company for Cause or death or Disability and further provided that it shall not be considered a material change if the Company becomes a subsidiary of another entity and the Executive continues to hold a position in the subsidiary that is at least as high as the highest position he held with the Company at any time from the date of this Agreement to

 

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immediately prior to the Change in Control; (iii) a material reduction in the Executive’s annual base salary or (iv) a material reduction in the Executive’s target annual bonus as compared to the target annual bonus set for the previous fiscal year.

 

2.              Term of Agreement .  The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue in effect through June 30, 2009; provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24 th ) month following the month in which such Change in Control occurred. Termination of this Agreement shall not constitute Cause or Good Reason (both terms as defined above).

 

3.              Termination; Notice; Severance Compensation .

 

(a)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Company elects to terminate the Executive’s employment other than for Cause (but not including termination due to the Executive’s Disability), then the Company shall give the Executive no less than sixty (60) days advance notice of such termination (the “Company’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Company’s Notice Period.

 

(b)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive elects to terminate his employment for Good Reason, then the Executive shall give the Company no less than thirty (30) days and no more than sixty (60) days advance notice of such termination (the “Executive’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Executive’s Notice Period. In order to effect a termination for Good Reason pursuant to this Agreement, the Executive must notice his intent to terminate for Good Reason not later than ninety (90) days following the occurrence of the Good Reason.

 

(c)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive’s employment with the Company is terminated by the Company other than for Cause (but not including termination due to the Executive’s death or Disability), or by the Executive for Good Reason, then, contingent upon the Executive’s execution of a release of claims against the Company in a form reasonably acceptable to the Company (the “ Release ”) the Executive shall be entitled to, in addition to any amounts due to the Executive for services rendered prior to the termination date:

 

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(i)  the Executive’s target annual bonus for the fiscal year in which such termination occurs at one hundred percent (100%) of such target annual bonus, pro-rated by the number of calendar days in which the Executive is employed by the Company during the applicable year, including any applicable Notice Period, and less any amount of the target annual bonus for the applicable year previously paid to the Executive, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then; and

 

(ii)  a lump sum payment from the Company in an amount equal to two (2) times the Executive’s Annual Salary, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then;

 

(iii)  all outstanding options, restricted stock and other similar rights held by the Executive, which shall become one hundred percent (100%) vested; and

 

(iv)  continuation of medical insurance coverage for the Executive and the Executive’s family, subject to COBRA and subject to the Executive’s payment of a premium co-pay related to the coverage that is no less favorable than the premium co-pay charged to active employees of the Company electing the same coverage, for twenty-four (24) months from the Separation Date; provided that the Company shall have no obligation to provide such coverage if the Executive fails to elect COBRA benefits in a timely fashion or if the Executive becomes eligible for medical coverage with another employer; and provided that if COBRA continuation coverage is otherwise earlier terminated under applicable law, then, in lieu of coverage, the Company will pay the same amount it paid on a monthly basis for COBRA continuation coverage directly to the Executive each month for the remainder of the relevant period .

 

For purposes of this Agreement, “ Annual Salary ” shall mean the Executive’s annual base salary then in effect or, if higher, in effect at the time of the Change in Control, excluding reimbursements and amounts attributable to stock options and other non-cash compensation; and the “ Severance Compensation ” shall mean the compensation set forth in (ii), (iii), and (iv) above.

 

(d)            Notwithstanding any other provision with respect to the timing of payments, if, at the time of the Executive’s termination, the Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Executive may become entitled under this Agreement which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1 st ) business day of the seventh (7 th ) month following the termination of the Executive’s employment, at which time the Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to the Executive under the terms of this Agreement.

 

(e)            If any payment or benefit the Executive would receive under this Agreement, when combined with any other payment or benefit the Executive receives pursuant to a Change in Control (“Payment”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the

 

4



 

“Excise Tax”), then such Payment shall be either (x) the full amount of such Payment or (y) such less amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state, and local employments taxes, income taxes, and the Excise Tax results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment, notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. The Company shall determine in good faith which payment(s) or benefit(s) to reduce based on what provides the best economic result for the Executive. The Company shall provide the Executive with sufficient information to make such determination and to file and pay any required taxes.

 

4.              No Duplication of Compensation .  The Severance Compensation shall replace, and be provided in lieu of, any severance or similar compensation that may be provided to the Executive under any other agreement or arrangement in relation to termination of employment, including without limitation that certain Severance Agreement dated as of November 30, 2006 between the Company and the Executive; provided , however , that this prohibition against duplication shall not be construed to otherwise limit the Executive’s rights to payments or benefits provided under any pension plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), deferred compensation, stock, stock option or similar plan sponsored by the Company.

 

5.              No Mitigation .  If the Executive’s employment with the Company terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 3 or Section 15.  Except as set forth in Section 4, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

6.              Confidentiality, Non-Competition, and Assignment of Inventions.   The Company’s obligations under this Agreement are contingent upon the Executive’s execution of the Company’s Proprietary Information, Inventions, and Competition Agreement (the “Proprietary Information Agreement”).  The parties agree that the obligations set forth in the Proprietary Information Agreement shall survive termination of this Agreement and termination of the Executive’s employment, regardless of the reason for such termination.

 

7.              Enforceability .  If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable. No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement.

 

8.              Notices .  Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i)  by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notices to the Executive shall be sent to the last known address in the Company’s records or such other address as the Executive may specify in writing. Notices to the Company shall be sent to the Company’s Lead Director, or to such other Company representative as the Company may specify in writing.

 

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9.              Claims for Benefits.   All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive’s claim has been denied.

 

10.            Modifications and Amendments .  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the Company and the Executive. The Company and the Executive agree that they will jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereto; provided that no such amendment shall increase the total financial obligation of the Company under this Agreement.

 

11.            Waivers and Consents .  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

12.            Binding Effect; Assignment .  The Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of the Executive upon the Executive’s death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of the Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of the Executive to receive any form of compensation payable pursuant to the Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of the Executive’s right to compensation or other benefits will be null and void.

 

13.            Governing Law .  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

 

14.            Jurisdiction and Service of Process .  Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.

 

15.            Attorneys’ Fees .  The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement. Such payments shall be made within five (5) business days after

 

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delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

 

16.            Withholding .  The Company is authorized to withhold, or to cause to be withheld, from any payment or benefit under the Agreement the full amount of any applicable withholding taxes.

 

17.            Tax Consequences .  The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement.

 

18.            Acknowledgment .  The Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of the Agreement, and is knowingly and voluntarily entering into the Agreement.

 

19.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

20.            Section 409A .  The parties hereto intend that this Agreement comply with the requirements of Code Section 409A and related regulations and Treasury pronouncements. If any provision provided herein results in the imposition of an additional tax under the provisions of Code Section 409A, the Executive and the Company agree that such provision will be reformed to avoid imposition of any such additional tax in the manner that the Executive and the Company mutually agree is appropriate to comply with Code Section 409A.

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Severance Agreement as of the day and year first above written.

 

 

COMPANY:

 

 

 

IMMUNOGEN, INC.

 

 

 

 

 

/s/ Daniel Junius

 

Name: Daniel M. Junius

 

Title: President and Chief Operating

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

/s/ Mitchel Sayare

 

Name: Mitchel Sayare, Ph.D.

 

7


Exhibit 10.3

 

SEVERANCE AGREEMENT

 

This Agreement is entered into as of the 1st day of December, 2008 (the “ Effective Date ”) by and between ImmunoGen, Inc., a Massachusetts corporation (the “ Company ”) and John M. Lambert, Ph.D. (the “ Executive ”).

 

WHEREAS, the Company recognizes that the Executive’s service to the Company is very important to the future success of the Company;

 

WHEREAS, the Executive desires to enter into this Agreement to provide the Executive with certain financial protection in the event that his employment terminates under certain conditions following a change in control of the Company; and

 

WHEREAS the Board of Directors of the Company (the “ Board ”) has determined that it is in the best interests of the Company to enter into this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows:

 

1.              Definitions .

 

(a)            Cause .  For purposes of this Agreement, “ Cause ” shall mean that the Executive has (i) intentionally committed an act or omission that materially harms the Company; (ii) been grossly negligent in the performance of the Executive’s duties to the Company; (iii) willfully failed or refused to follow the lawful and proper directives of the Board or the CEO; (iv) been convicted of, or pleaded guilty or nolo contendre , to a felony; (v) committed an act involving moral turpitude; (vi) committed an act relating to the Executive’s employment or the Company involving, in the good faith judgment of the Board, material fraud or theft; (vii) breached any material provision of this Agreement or any nondisclosure or non-competition agreement between the Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.

 

(b)            Change in Control .  For purposes of this Agreement, a “ Change in Control ” shall mean the occurrence of any of the following events; provided that “Change in Control” shall be interpreted in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and Treasury Regulations 1.409A-3(i)(5), and any successor statute, regulation and guidance thereto:

 

(i)             Ownership.  Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then

 

Executive Severance Agreement (18)

 



 

outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates (as defined in the Company’s 2006 Employer, Director and Consultant Equity Incentive Plan) or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board does not approve; or

 

(ii)            Merger/Sale of Assets.  (A) A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iii)           Change in Board Composition.  A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of November 11, 2006, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

 

(c)            Disability .  For purposes of this Agreement, “ Disability ” shall mean that the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under a Company-sponsored group disability plan.  Whether the Executive has a Disability will be determined by a majority of the Board based on evidence provided by one or more physicians selected by the Board and approved by the Executive, which approval shall not be unreasonably withheld.

 

(d)            Good Reason .  For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following without the Executive’s consent: (i) a change in the principal location at which the Executive performs his duties for the Company to a new location that is at least forty (40) miles from the prior location; (ii) a material change in the Executive’s authority, functions, duties or responsibilities as an executive of the Company, which would cause his position with the Company to become of less responsibility, importance or scope than his highest position with the Company at any time from the date of this Agreement to immediately prior to the Change in Control, provided , however , that such material change is not in connection with the termination of the Executive’s employment by the Company for Cause or death or Disability and further provided that it shall not be considered a material change if the Company becomes a subsidiary of another entity and the Executive continues to hold a position in the subsidiary that is at least as high as the highest position he held with the Company at any time from the date of this Agreement to

 

2



 

immediately prior to the Change in Control; (iii) a material reduction in the Executive’s annual base salary or (iv) a material reduction in the Executive’s target annual bonus as compared to the target annual bonus set for the previous fiscal year.

 

2.              Term of Agreement .  The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue in effect for two (2) years; provided , however , that commencing on second anniversary of the Effective Date and continuing each anniversary thereafter, the Term shall automatically be extended for one (1) additional year unless, not later than nine (9) months before the conclusion of the Term, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24 th ) month following the month in which such Change in Control occurred.  Notice of termination or termination of this Agreement shall not constitute Cause or Good Reason (both terms as defined above).

 

3.              Termination; Notice; Severance Compensation .

 

(a)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Company elects to terminate the Executive’s employment other than for Cause (but not including termination due to the Executive’s Disability), then the Company shall give the Executive no less than sixty (60) days advance notice of such termination (the “Company’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Company’s Notice Period.

 

(b)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive elects to terminate his employment for Good Reason, then the Executive shall give the Company no less than thirty (30) days and no more than sixty (60) days advance notice of such termination (the “Executive’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Executive’s Notice Period.  In order to effect a termination for Good Reason pursuant to this Agreement, the Executive must notice his intent to terminate for Good Reason not later than ninety (90) days following the occurrence of the Good Reason.

 

(c)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive’s employment with the Company is terminated by the Company other than for Cause (but not including termination due to the Executive’s death or Disability), or by the Executive for Good Reason, then, contingent upon the Executive’s execution of a release of claims against the Company in a form reasonably acceptable to the Company (the “ Release ”) the Executive shall be entitled to, in addition to any amounts due to the Executive for services rendered prior to the termination date:

 

3



 

(i)  the Executive’s target annual bonus for the fiscal year in which such termination occurs at one hundred percent (100%) of such target annual bonus, pro-rated by the number of calendar days in which the Executive is employed by the Company during the applicable year, including any applicable Notice Period, and less any amount of the target annual bonus for the applicable year previously paid to the Executive, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then; and

 

(ii)  a lump sum payment from the Company in an amount equal to one and one-half (1.5) times the Executive’s Annual Salary, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then;

 

(iii)  all outstanding options, restricted stock and other similar rights held by the Executive, which shall become one hundred percent (100%) vested; and

 

(iv)  continuation of medical insurance coverage for the Executive and the Executive’s family, subject to COBRA and subject to the Executive’s payment of a premium co-pay related to the coverage that is no less favorable than the premium co-pay charged to active employees of the Company electing the same coverage, for eighteen (18) months from the Separation Date; provided that the Company shall have no obligation to provide such coverage if the Executive fails to elect COBRA benefits in a timely fashion or if the Executive becomes eligible for medical coverage with another employer.

 

For purposes of this Agreement, “ Annual Salary ” shall mean the Executive’s annual base salary then in effect or, if higher, in effect at the time of the Change in Control, excluding reimbursements and amounts attributable to stock options and other non-cash compensation; and the “ Severance Compensation ” shall mean the compensation set forth in (ii), (iii), and (iv) above.

 

(d)            Notwithstanding any other provision with respect to the timing of payments, if, at the time of the Executive’s termination, the Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Executive may become entitled under this Agreement which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1 st ) business day of the seventh (7 th ) month following the termination of the Executive’s employment, at which time the Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to the Executive under the terms of this Agreement.

 

(e)            If any payment or benefit the Executive would receive under this Agreement, when combined with any other payment or benefit the Executive receives pursuant to a Change in Control (“Payment”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be either (x) the full amount of such Payment or (y) such less amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state, and local employments taxes, income taxes, and the Excise Tax results in the Executive’s receipt, on an after-tax basis, of the

 

4



 

greater amount of the Payment, notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  The Company shall determine in good faith which payment(s) or benefit(s) to reduce based on what provides the best economic result for the Executive.  The Company shall provide the Executive with sufficient information to make such determination and to file and pay any required taxes.

 

4.              No Duplication of Compensation .  The Severance Compensation shall replace, and be provided in lieu of, any severance or similar compensation that may be provided to the Executive under any other agreement or arrangement in relation to termination of employment, including without limitation that certain Severance Agreement dated as of November 30, 2006 between the Company and the Executive; provided , however , that this prohibition against duplication shall not be construed to otherwise limit the Executive’s rights to payments or benefits provided under any pension plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), deferred compensation, stock, stock option or similar plan sponsored by the Company.

 

5.              No Mitigation .  If the Executive’s employment with the Company terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 3 or Section 15.  Except as set forth in Section 4, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

6.              Confidentiality, Non-Competition, and Assignment of Inventions.   The Company’s obligations under this Agreement are contingent upon the Executive’s execution of the Company’s Proprietary Information, Inventions, and Competition Agreement (the “Proprietary Information Agreement”).  The parties agree that the obligations set forth in the Proprietary Information Agreement shall survive termination of this Agreement and termination of the Executive’s employment, regardless of the reason for such termination.

 

7.              Enforceability .  If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable.  No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement.

 

8.              Notices .  Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i)  by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notices to the Executive shall be sent to the last known address in the Company’s records or such other address as the Executive may specify in writing.  Notices to the Company shall be sent to the Company’s CEO and Lead Director, or to such other Company representative as the Company may specify in writing.

 

9.              Claims for Benefits.   All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing.  Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth

 

5



 

the specific reasons for the denial and the specific provisions of this Agreement relied upon.  The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive’s claim has been denied.

 

10.            Modifications and Amendments .  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the Company and the Executive.  The Company and the Executive agree that they will jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereto; provided that no such amendment shall increase the total financial obligation of the Company under this Agreement.

 

11.            Waivers and Consents .  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

12.            Binding Effect; Assignment .  The Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of the Executive upon the Executive’s death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of the Agreement for all purposes.  For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of the Executive to receive any form of compensation payable pursuant to the Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of the Executive’s right to compensation or other benefits will be null and void.

 

13.            Governing Law .  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

 

14.            Jurisdiction and Service of Process .  Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts.  By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.

 

15.            Attorneys’ Fees .  The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement.  Such payments shall be made within five (5) business days after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

 

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16.            Withholding .  The Company is authorized to withhold, or to cause to be withheld, from any payment or benefit under the Agreement the full amount of any applicable withholding taxes.

 

17.            Tax Consequences .  The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement.

 

18.            Acknowledgment .  The Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of the Agreement, and is knowingly and voluntarily entering into the Agreement.

 

19.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

20.            Section 409A .  The parties hereto intend that this Agreement comply with the requirements of Code Section 409A and related regulations and Treasury pronouncements.  If any provision provided herein results in the imposition of an additional tax under the provisions of Code Section 409A, the Executive and the Company agree that such provision will be reformed to avoid imposition of any such additional tax in the manner that the Executive and the Company mutually agree is appropriate to comply with Code Section 409A.

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Severance Agreement as of the day and year first above written.

 

 

COMPANY:

 

 

 

IMMUNOGEN, INC.

 

 

 

 

 

/s/ Mitchel Sayare

 

Name: Mitchel Sayare, Ph.D.

 

Title: Chairman and Chief Executive Officer

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

/s/ John Lambert

 

Name: John  M. Lambert, Ph.D.

 

7


Exhibit 10.4

 

SEVERANCE AGREEMENT

 

This Agreement is entered into as of the 1st day of December, 2008 (the “ Effective Date ”) by and between ImmunoGen, Inc., a Massachusetts corporation (the “ Company ”) and James J. O’Leary, M.D. (the “ Executive ”).

 

WHEREAS, the Company recognizes that the Executive’s service to the Company is very important to the future success of the Company;

 

WHEREAS, the Executive desires to enter into this Agreement to provide the Executive with certain financial protection in the event that his employment terminates under certain conditions following a change in control of the Company; and

 

WHEREAS the Board of Directors of the Company (the “ Board ”) has determined that it is in the best interests of the Company to enter into this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows:

 

1.              Definitions .

 

(a)            Cause .  For purposes of this Agreement, “ Cause ” shall mean that the Executive has (i) intentionally committed an act or omission that materially harms the Company; (ii) been grossly negligent in the performance of the Executive’s duties to the Company; (iii) willfully failed or refused to follow the lawful and proper directives of the Board or the CEO; (iv) been convicted of, or pleaded guilty or nolo contendre , to a felony; (v) committed an act involving moral turpitude; (vi) committed an act relating to the Executive’s employment or the Company involving, in the good faith judgment of the Board, material fraud or theft; (vii) breached any material provision of this Agreement or any nondisclosure or non-competition agreement between the Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.

 

(b)            Change in Control .  For purposes of this Agreement, a “ Change in Control ” shall mean the occurrence of any of the following events; provided that “Change in Control” shall be interpreted in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and Treasury Regulations 1.409A-3(i)(5), and any successor statute, regulation and guidance thereto:

 

(i)             Ownership.  Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then

 

Executive Severance Agreement (18)

 



 

outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates (as defined in the Company’s 2006 Employer, Director and Consultant Equity Incentive Plan) or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board does not approve; or

 

(ii)            Merger/Sale of Assets.  (A) A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iii)           Change in Board Composition.  A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of November 11, 2006, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

 

(c)            Disability .  For purposes of this Agreement, “ Disability ” shall mean that the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under a Company-sponsored group disability plan.  Whether the Executive has a Disability will be determined by a majority of the Board based on evidence provided by one or more physicians selected by the Board and approved by the Executive, which approval shall not be unreasonably withheld.

 

(d)            Good Reason .  For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following without the Executive’s consent: (i) a change in the principal location at which the Executive performs his duties for the Company to a new location that is at least forty (40) miles from the prior location; (ii) a material change in the Executive’s authority, functions, duties or responsibilities as an executive of the Company, which would cause his position with the Company to become of less responsibility, importance or scope than his highest position with the Company at any time from the date of this Agreement to immediately prior to the Change in Control, provided , however , that such material change is not in connection with the termination of the Executive’s employment by the Company for Cause or death or Disability and further provided that it shall not be considered a material change if the Company becomes a subsidiary of another entity and the Executive continues to hold a position in the subsidiary that is at least as high as the highest position he held with the Company at any time from the date of this Agreement to

 

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immediately prior to the Change in Control; (iii) a material reduction in the Executive’s annual base salary or (iv) a material reduction in the Executive’s target annual bonus as compared to the target annual bonus set for the previous fiscal year.

 

2.              Term of Agreement .  The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue in effect for two (2) years; provided , however , that commencing on second anniversary of the Effective Date and continuing each anniversary thereafter, the Term shall automatically be extended for one (1) additional year unless, not later than nine (9) months before the conclusion of the Term, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24 th ) month following the month in which such Change in Control occurred.  Notice of termination or termination of this Agreement shall not constitute Cause or Good Reason (both terms as defined above).

 

3.              Termination; Notice; Severance Compensation .

 

(a)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Company elects to terminate the Executive’s employment other than for Cause (but not including termination due to the Executive’s Disability), then the Company shall give the Executive no less than sixty (60) days advance notice of such termination (the “Company’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Company’s Notice Period.

 

(b)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive elects to terminate his employment for Good Reason, then the Executive shall give the Company no less than thirty (30) days and no more than sixty (60) days advance notice of such termination (the “Executive’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Executive’s Notice Period.  In order to effect a termination for Good Reason pursuant to this Agreement, the Executive must notice his intent to terminate for Good Reason not later than ninety (90) days following the occurrence of the Good Reason.

 

(c)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive’s employment with the Company is terminated by the Company other than for Cause (but not including termination due to the Executive’s death or Disability), or by the Executive for Good Reason, then, contingent upon the Executive’s execution of a release of claims against the Company in a form reasonably acceptable to the Company (the “ Release ”) the Executive shall be entitled to, in addition to any amounts due to the Executive for services rendered prior to the termination date:

 

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(i)  the Executive’s target annual bonus for the fiscal year in which such termination occurs at one hundred percent (100%) of such target annual bonus, pro-rated by the number of calendar days in which the Executive is employed by the Company during the applicable year, including any applicable Notice Period, and less any amount of the target annual bonus for the applicable year previously paid to the Executive, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then; and

 

(ii)  a lump sum payment from the Company in an amount equal to one and one-half (1.5) times the Executive’s Annual Salary, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then;

 

(iii)  all outstanding options, restricted stock and other similar rights held by the Executive, which shall become one hundred percent (100%) vested; and

 

(iv)  continuation of medical insurance coverage for the Executive and the Executive’s family, subject to COBRA and subject to the Executive’s payment of a premium co-pay related to the coverage that is no less favorable than the premium co-pay charged to active employees of the Company electing the same coverage, for eighteen (18) months from the Separation Date; provided that the Company shall have no obligation to provide such coverage if the Executive fails to elect COBRA benefits in a timely fashion or if the Executive becomes eligible for medical coverage with another employer.

 

For purposes of this Agreement, “ Annual Salary ” shall mean the Executive’s annual base salary then in effect or, if higher, in effect at the time of the Change in Control, excluding reimbursements and amounts attributable to stock options and other non-cash compensation; and the “ Severance Compensation ” shall mean the compensation set forth in (ii), (iii), and (iv) above.

 

(d)            Notwithstanding any other provision with respect to the timing of payments, if, at the time of the Executive’s termination, the Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Executive may become entitled under this Agreement which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1 st ) business day of the seventh (7 th ) month following the termination of the Executive’s employment, at which time the Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to the Executive under the terms of this Agreement.

 

(e)            If any payment or benefit the Executive would receive under this Agreement, when combined with any other payment or benefit the Executive receives pursuant to a Change in Control (“Payment”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be either (x) the full amount of such Payment or (y) such less amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state, and local employments taxes, income taxes, and the Excise Tax results in the Executive’s receipt, on an after-tax basis, of the

 

4



 

greater amount of the Payment, notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  The Company shall determine in good faith which payment(s) or benefit(s) to reduce based on what provides the best economic result for the Executive.  The Company shall provide the Executive with sufficient information to make such determination and to file and pay any required taxes.

 

4.              No Duplication of Compensation .  The Severance Compensation shall replace, and be provided in lieu of, any severance or similar compensation that may be provided to the Executive under any other agreement or arrangement in relation to termination of employment; provided , however , that this prohibition against duplication shall not be construed to otherwise limit the Executive’s rights to payments or benefits provided under any pension plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), deferred compensation, stock, stock option or similar plan sponsored by the Company.

 

5.              No Mitigation .  If the Executive’s employment with the Company terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 3 or Section 15.  Except as set forth in Section 4, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

6.              Confidentiality, Non-Competition, and Assignment of Inventions.   The Company’s obligations under this Agreement are contingent upon the Executive’s execution of the Company’s Proprietary Information, Inventions, and Competition Agreement (the “Proprietary Information Agreement”).  The parties agree that the obligations set forth in the Proprietary Information Agreement shall survive termination of this Agreement and termination of the Executive’s employment, regardless of the reason for such termination.

 

7.              Enforceability .  If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable.  No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement.

 

8.              Notices .  Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i)  by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notices to the Executive shall be sent to the last known address in the Company’s records or such other address as the Executive may specify in writing.  Notices to the Company shall be sent to the Company’s CEO and Lead Director, or to such other Company representative as the Company may specify in writing.

 

9.              Claims for Benefits.   All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing.  Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon.  The

 

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Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive’s claim has been denied.

 

10.            Modifications and Amendments .  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the Company and the Executive.  The Company and the Executive agree that they will jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereto; provided that no such amendment shall increase the total financial obligation of the Company under this Agreement.

 

11.            Waivers and Consents .  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

12.            Binding Effect; Assignment .  The Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of the Executive upon the Executive’s death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of the Agreement for all purposes.  For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of the Executive to receive any form of compensation payable pursuant to the Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of the Executive’s right to compensation or other benefits will be null and void.

 

13.            Governing Law .  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

 

14.            Jurisdiction and Service of Process .  Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts.  By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.

 

15.            Attorneys’ Fees .  The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement.  Such payments shall be made within five (5) business days after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

 

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16.            Withholding .  The Company is authorized to withhold, or to cause to be withheld, from any payment or benefit under the Agreement the full amount of any applicable withholding taxes.

 

17.            Tax Consequences .  The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement.

 

18.            Acknowledgment .  The Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of the Agreement, and is knowingly and voluntarily entering into the Agreement.

 

19.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

20.            Section 409A .  The parties hereto intend that this Agreement comply with the requirements of Code Section 409A and related regulations and Treasury pronouncements.  If any provision provided herein results in the imposition of an additional tax under the provisions of Code Section 409A, the Executive and the Company agree that such provision will be reformed to avoid imposition of any such additional tax in the manner that the Executive and the Company mutually agree is appropriate to comply with Code Section 409A.

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Severance Agreement as of the day and year first above written.

 

 

COMPANY:

 

 

 

IMMUNOGEN, INC.

 

 

 

 

 

/s/ Mitchel Sayare

 

Name: Mitchel Sayare, Ph.D.

 

Title: Chairman and Chief Executive Officer

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

/s/ James O’Leary

 

Name: James  J. O’Leary, M.D.

 

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Exhibit 10.5

 

SEVERANCE AGREEMENT

 

This Agreement is entered into as of the 9th day of January, 2009 (the “ Effective Date ”) by and between ImmunoGen, Inc., a Massachusetts corporation (the “ Company ”) and Gregory D. Perry (the “ Executive ”).

 

WHEREAS, the Company recognizes that the Executive’s service to the Company is very important to the future success of the Company;

 

WHEREAS, the Executive desires to enter into this Agreement to provide the Executive with certain financial protection in the event that his employment terminates under certain conditions following a change in control of the Company; and

 

WHEREAS the Board of Directors of the Company (the “ Board ”) has determined that it is in the best interests of the Company to enter into this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows:

 

1.              Definitions .

 

(a)            Cause .  For purposes of this Agreement, “ Cause ” shall mean that the Executive has (i) intentionally committed an act or omission that materially harms the Company; (ii) been grossly negligent in the performance of the Executive’s duties to the Company; (iii) willfully failed or refused to follow the lawful and proper directives of the Board or the CEO; (iv) been convicted of, or pleaded guilty or nolo contendre , to a felony; (v) committed an act involving moral turpitude; (vi) committed an act relating to the Executive’s employment or the Company involving, in the good faith judgment of the Board, material fraud or theft; (vii) breached any material provision of this Agreement or any nondisclosure or non-competition agreement between the Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.

 

(b)            Change in Control .  For purposes of this Agreement, a “ Change in Control ” shall mean the occurrence of any of the following events; provided that “Change in Control” shall be interpreted in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and Treasury Regulations 1.409A-3(i)(5), and any successor statute, regulation and guidance thereto:

 

(i)             Ownership.  Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then

 

Executive Severance Agreement (18)

 



 

outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates (as defined in the Company’s 2006 Employer, Director and Consultant Equity Incentive Plan) or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board does not approve; or

 

(ii)            Merger/Sale of Assets.  (A) A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iii)           Change in Board Composition.  A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of November 11, 2006, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

 

(c)            Disability .  For purposes of this Agreement, “ Disability ” shall mean that the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under a Company-sponsored group disability plan.  Whether the Executive has a Disability will be determined by a majority of the Board based on evidence provided by one or more physicians selected by the Board and approved by the Executive, which approval shall not be unreasonably withheld.

 

(d)            Good Reason .  For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following without the Executive’s consent: (i) a change in the principal location at which the Executive performs his duties for the Company to a new location that is at least forty (40) miles from the prior location; (ii) a material change in the Executive’s authority, functions, duties or responsibilities as an executive of the Company, which would cause his position with the Company to become of less responsibility, importance or scope than his highest position with the Company at any time from the date of this Agreement to immediately prior to the Change in Control, provided , however , that such material change is not in connection with the termination of the Executive’s employment by the Company for Cause or death or Disability and further provided that it shall not be considered a material change if the Company becomes a subsidiary of another entity and the Executive continues to hold a position in the subsidiary that is at least as high as the highest position he held with the Company at any time from the date of this Agreement to

 

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immediately prior to the Change in Control; (iii) a material reduction in the Executive’s annual base salary or (iv) a material reduction in the Executive’s target annual bonus as compared to the target annual bonus set for the previous fiscal year.

 

2.              Term of Agreement .  The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue in effect for two (2) years; provided , however , that commencing on second anniversary of the Effective Date and continuing each anniversary thereafter, the Term shall automatically be extended for one (1) additional year unless, not later than nine (9) months before the conclusion of the Term, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24 th ) month following the month in which such Change in Control occurred.  Notice of termination or termination of this Agreement shall not constitute Cause or Good Reason (both terms as defined above).

 

3.              Termination; Notice; Severance Compensation .

 

(a)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Company elects to terminate the Executive’s employment other than for Cause (but not including termination due to the Executive’s Disability), then the Company shall give the Executive no less than sixty (60) days advance notice of such termination (the “Company’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Company’s Notice Period.

 

(b)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive elects to terminate his employment for Good Reason, then the Executive shall give the Company no less than thirty (30) days and no more than sixty (60) days advance notice of such termination (the “Executive’s Notice Period”); provided that the Company may elect to require the Executive to cease performing work for the Company so long as the Company continues the Executive’s full salary and benefits during the Executive’s Notice Period.  In order to effect a termination for Good Reason pursuant to this Agreement, the Executive must notice his intent to terminate for Good Reason not later than ninety (90) days following the occurrence of the Good Reason.

 

(c)            In the event that within a period of two (2) months before or two (2) years following the consummation of a Change in Control the Executive’s employment with the Company is terminated by the Company other than for Cause (but not including termination due to the Executive’s death or Disability), or by the Executive for Good Reason, then, contingent upon the Executive’s execution of a release of claims against the Company in a form reasonably acceptable to the Company (the “ Release ”) the Executive shall be entitled to, in addition to any amounts due to the Executive for services rendered prior to the termination date:

 

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(i)  the Executive’s target annual bonus for the fiscal year in which such termination occurs at one hundred percent (100%) of such target annual bonus, pro-rated by the number of calendar days in which the Executive is employed by the Company during the applicable year, including any applicable Notice Period, and less any amount of the target annual bonus for the applicable year previously paid to the Executive, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then; and

 

(ii)  a lump sum payment from the Company in an amount equal to one and one-half (1.5) times the Executive’s Annual Salary, which shall be paid no later than sixty (60) days after the Executive’s termination of employment, provided that the Release is executed and effective by then;

 

(iii)  all outstanding options, restricted stock and other similar rights held by the Executive, which shall become one hundred percent (100%) vested; and

 

(iv)  continuation of medical insurance coverage for the Executive and the Executive’s family, subject to COBRA and subject to the Executive’s payment of a premium co-pay related to the coverage that is no less favorable than the premium co-pay charged to active employees of the Company electing the same coverage, for eighteen (18) months from the Separation Date; provided that the Company shall have no obligation to provide such coverage if the Executive fails to elect COBRA benefits in a timely fashion or if the Executive becomes eligible for medical coverage with another employer.

 

For purposes of this Agreement, “ Annual Salary ” shall mean the Executive’s annual base salary then in effect or, if higher, in effect at the time of the Change in Control, excluding reimbursements and amounts attributable to stock options and other non-cash compensation; and the “ Severance Compensation ” shall mean the compensation set forth in (ii), (iii), and (iv) above.

 

(d)            Notwithstanding any other provision with respect to the timing of payments, if, at the time of the Executive’s termination, the Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Executive may become entitled under this Agreement which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1 st ) business day of the seventh (7 th ) month following the termination of the Executive’s employment, at which time the Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to the Executive under the terms of this Agreement.

 

(e)            If any payment or benefit the Executive would receive under this Agreement, when combined with any other payment or benefit the Executive receives pursuant to a Change in Control (“Payment”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be either (x) the full amount of such Payment or (y) such less amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state, and local employments taxes, income taxes, and the Excise Tax results in the Executive’s receipt, on an after-tax basis, of the

 

4



 

greater amount of the Payment, notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  The Company shall determine in good faith which payment(s) or benefit(s) to reduce based on what provides the best economic result for the Executive.  The Company shall provide the Executive with sufficient information to make such determination and to file and pay any required taxes.

 

4.              No Duplication of Compensation .  The Severance Compensation shall replace, and be provided in lieu of, any severance or similar compensation that may be provided to the Executive under any other agreement or arrangement in relation to termination of employment; provided , however , that this prohibition against duplication shall not be construed to otherwise limit the Executive’s rights to payments or benefits provided under any pension plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), deferred compensation, stock, stock option or similar plan sponsored by the Company.

 

5.              No Mitigation .  If the Executive’s employment with the Company terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 3 or Section 15.  Except as set forth in Section 4, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

6.              Confidentiality, Non-Competition, and Assignment of Inventions.   The Company’s obligations under this Agreement are contingent upon the Executive’s execution of the Company’s Proprietary Information, Inventions, and Competition Agreement (the “Proprietary Information Agreement”).  The parties agree that the obligations set forth in the Proprietary Information Agreement shall survive termination of this Agreement and termination of the Executive’s employment, regardless of the reason for such termination.

 

7.              Enforceability .  If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable.  No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement.

 

8.              Notices .  Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i)  by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notices to the Executive shall be sent to the last known address in the Company’s records or such other address as the Executive may specify in writing.  Notices to the Company shall be sent to the Company’s CEO and Lead Director, or to such other Company representative as the Company may specify in writing.

 

9.              Claims for Benefits.   All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing.  Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon.  The

 

5



 

Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive’s claim has been denied.

 

10.            Modifications and Amendments .  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the Company and the Executive.  The Company and the Executive agree that they will jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereto; provided that no such amendment shall increase the total financial obligation of the Company under this Agreement.

 

11.            Waivers and Consents .  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

12.            Binding Effect; Assignment .  The Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of the Executive upon the Executive’s death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of the Agreement for all purposes.  For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of the Executive to receive any form of compensation payable pursuant to the Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of the Executive’s right to compensation or other benefits will be null and void.

 

13.            Governing Law .  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

 

14.            Jurisdiction and Service of Process .  Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts.  By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.

 

15.            Attorneys’ Fees .  The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement.  Such payments shall be made within five (5) business days after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

 

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16.            Withholding .  The Company is authorized to withhold, or to cause to be withheld, from any payment or benefit under the Agreement the full amount of any applicable withholding taxes.

 

17.            Tax Consequences .  The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement.

 

18.            Acknowledgment .  The Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of the Agreement, and is knowingly and voluntarily entering into the Agreement.

 

19.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

20.            Section 409A .  The parties hereto intend that this Agreement comply with the requirements of Code Section 409A and related regulations and Treasury pronouncements.  If any provision provided herein results in the imposition of an additional tax under the provisions of Code Section 409A, the Executive and the Company agree that such provision will be reformed to avoid imposition of any such additional tax in the manner that the Executive and the Company mutually agree is appropriate to comply with Code Section 409A.

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Severance Agreement as of the day and year first above written.

 

 

COMPANY:

 

 

 

IMMUNOGEN, INC.