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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
[_] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period From _________ to __________.
Commission File Number: 0-27188
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PHARMACOPEIA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0557266
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
101 College Road East, Princeton, NJ 08540
(Address of principal executive offices and zip code)
(609) 452-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock $.0001
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Par Value
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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 periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of voting stock held by
nonaffiliates of the Registrant was $161,963,477 based on the last sale price of
Common Stock reported on The Nasdaq National Market on January 31, 1998.
2,053,322 shares of Common Stock held by officers, directors, and holders of 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of January 31, 1998, the number of outstanding shares of the
Registrant's Common Stock was 11,795,486.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of Form 10-K is incorporated by
reference from the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders forming a part of the Registration Statement on Form S-4 (the
"Proxy Statement"), which will be filed with the Securities and Exchange
Commission within 120 days after the close of the Registrant's fiscal year ended
December 31, 1997.
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PHARMACOPEIA, INC.
1997 Form 10-K
Table of Contents
Page
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PART I.................................................................... 3
ITEM 1. BUSINESS................................................. 3
ITEM 2. PROPERTIES............................................... 17
ITEM 3. LEGAL PROCEEDINGS........................................ 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 17
PART II................................................................... 19
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...................................... 19
ITEM 6. SELECTED FINANCIAL DATA.................................. 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK..................................................... 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............. 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................... 23
PART III.................................................................. 24
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....... 24
ITEM 11. EXECUTIVE COMPENSATION................................... 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 24
PART IV................................................................... 25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K................................................. 25
SIGNATURES................................................................ 28
REPORT OF INDEPENDENT AUDITORS............................................ F-1
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PART I
ITEM 1. BUSINESS
Overview
Since its inception in March 1993, Pharmacopeia, Inc. ("Pharmacopeia" or
the "Company"), a Delaware corporation, has focused its research efforts in
developing a novel, proprietary technology for accelerating the pace of drug
discovery for its pharmaceutical and biotechnology customers. The Company's
Encoded Combinatorial Library on Polymeric Support ("ECLiPS(TM)") technology
addresses a key challenge in the drug discovery process: generating and
evaluating large numbers of diverse and readily identifiable small molecule
compounds to find new, orally active drugs. ECLiPS enables the Company to
generate hundreds of thousands of small molecule compounds at a fraction of the
cost of traditional chemical synthesis methods. The Company focuses on drug
discovery, and seeks customers to develop, manufacture, market and sell
resulting drugs. To date, the Company has signed contracts with several
pharmaceutical customers, including Schering Corporation and Schering-Plough
Ltd. (collectively "Schering-Plough"), Berlex Laboratories, Inc. ("Berlex"),
Novartis Corporation ("Novartis"), Bayer Corporation ("Bayer"), Daiichi
Pharmaceutical Co., Ltd. ("Daiichi"), N.V. Organon ("Organon"), and Bristol-
Myers Squibb Company ("BMS"), and with a number of biotechnology customers.
The Company's technology supports its pharmaceutical and biotechnology
customers in improving their drug discovery productivity. The Company uses
"Direct Divide" combinatorial chemistry to build collections, or libraries, of
10,000 to 500,000 or more small molecule compounds by performing only 50 to 200
individual chemical reactions. The Company's ECLiPS technology offers
substantial productivity improvements as compared to the 10,000 to 500,000 or
more reactions that would be required to prepare similarly sized chemical
libraries by synthesizing each compound individually. The ECLiPS productivity
advantage results from the Company's synthesis of compounds on tiny plastic
beads in large mixtures. After each solid phase synthesis step, proprietary tag
sets are attached to the beads to indicate the chemical building block and
reaction conditions used in that step. These stable, easily detectable tag sets
enable the Company to rapidly identify from the mixture any compound that is
active in a biological screening assay. The Company's tagging technology is
licensed exclusively from Columbia University ("Columbia") and Cold Spring
Harbor Laboratory ("Cold Spring").
Pharmacopeia's objective is to be among the industry leaders in the
discovery and optimization of novel drug candidates. The Company's
commercialization strategy is to pursue collaborations with pharmaceutical and
biotechnology companies. Pursuant to collaborative agreements, the Company
licenses its libraries for screening by customers, forms drug discovery
collaborations with its customers and plans to license internally developed
compounds. The Company's technology strategy is to enhance productivity through
cost reductions and increased throughput and to build the Company's library
collection and its knowledge base of the relationships between chemical
structures and biological targets for use in future drug discovery programs.
When used in this Report, the words "expects", "believes", "anticipates",
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"estimates" and similar expressions are intended to identify forward-looking
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statements. Such statements are subject to risks and uncertainties, including
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those set forth under the caption "Business -- Important Factors Regarding
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Forward Looking Statements" and elsewhere in this Report, that could cause
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actual results to differ materially from those projected. These forward-looking
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statements speak only as of the date of this Report and the Company disclaims
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any undertaking to publicly update or revise any forward-looking statements
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contained herein to
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reflect any change in the Company's expectations with regard thereto or any
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change in events, conditions or circumstances on which any such statement is
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based.
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Pharmacopeia's Drug Discovery Technology
A major bottleneck in the drug discovery process is the limited number and
diversity of available chemical compounds. Using traditional manual chemical
synthesis techniques, a chemist is usually able to synthesize only 25 to 50
compounds per year. The low productivity of manual synthesis severely constrains
the number of compounds available for screening in order to identify active
compounds and provide the basis for initial structure-activity relationships
("SAR") analysis. Manual synthesis also slows the optimization process by
limiting the number of analogs synthesized and tested.
Numerous technologies have been developed to accelerate the synthesis of
chemical compounds. Several early methods were based on either automated or
combinatorial chemical synthesis of oligonucleotides and peptides, which are not
generally useful as oral drugs. Combinatorial chemistry involves the synthesis
of large numbers of different chemical compounds by creating all possible
combinations of a set of chemical components, or building blocks. More recent
methods include robotic synthesis and various combinatorial chemistry approaches
to synthesizing libraries of small molecules, which are generally preferred by
pharmaceutical companies as drug development candidates.
The Company believes that its drug discovery technology offers a unique
solution to the bottleneck that constrains the drug discovery process. The
Company's combinatorial chemistry technology generates large, diverse libraries
of the small molecules favored by pharmaceutical companies for development. Most
importantly, Pharmacopeia's technology uses solid phase synthesis and an
encoding system to permit rapid identification of compounds synthesized in
combinatorial mixtures.
Pharmacopeia's ECLiPS technology uses a patented "Direct Divide" approach
to combinatorial chemistry to build collections, or libraries, of 10,000 to
500,000 or more small molecule compounds by performing only 50 to 200 individual
chemical reactions. This "Direct Divide" approach yields a more controlled
distribution of final compounds than does the "pool and split" method currently
used by certain other companies in drug discovery and previously practiced at
Pharmacopeia. The Company is able to synthesize a large number of widely diverse
libraries of small molecule compounds because its chemists can combine a nearly
unlimited set of chemical building blocks using a wide variety of reactions.
Although large libraries of peptides, oligonucleotides and other oligomers can
be generated, their diversity is constrained by the limited number of building
blocks and the fewer reactions available to combine them.
The Company uses ECLiPS to build libraries of small, low molecular weight
(less than 700 Daltons) compounds, predominantly heterocycles. These low
molecular weight compounds are preferred by pharmaceutical companies because
they are more likely to be orally active (effective as drugs in tablet or
capsule form), tend to have longer duration of action and are less expensive to
manufacture. In contrast, natural peptide and oligonucleotide drugs are usually
degraded by human digestive system enzymes and generally must be administered by
injection. In addition, peptide and oligonucleotide drugs are often quickly
eliminated from the body, which limits their duration of action.
Pharmacopeia's ECLiPS technology allows the Company to quickly identify the
chemical structure of individual small compounds synthesized in combinatorial
mixtures. This identification is made possible through the use of the Company's
encoded solid phase synthesis technology. Solid phase synthesis generally refers
to the synthesis of compounds on tiny plastic beads. Encoding refers to the tag
sets that the Company attaches to each bead as a compound is synthesized. These
tag sets allow the Company to rapidly identify the chemical structure of each
compound.
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Description of Pharmacopeia's Drug Discovery Technology
The Company's drug discovery approach encompasses its ECLiPS technology,
assay technology, production automation, information systems and quality
assurance programs.
ECLiPS Technology
The ECLiPS technology is the central component of the Company's integrated
drug discovery approach. ECLiPS includes solid phase synthesis, combinatorial
chemistry and sets of encoding molecules.
Solid Phase Synthesis. The Company has developed proprietary methods and
procedures for performing a variety of small molecule chemical reactions on tiny
plastic beads. In this approach to chemical synthesis, known as solid phase
synthesis, compounds are bound to these tiny plastic beads using special
linkers. This approach offers several advantages over solution phase synthesis.
Solid phase synthesis can often result in higher yields because the beads can be
repeatedly re-exposed to reactants until the desired reaction product has
reached a satisfactorily high yield. Solid phase synthesis also facilitates the
isolation of individual compounds. Beads can be washed with solvents to remove
byproducts, and an individual compound can then be isolated from a mixture by
removing a single bead and breaking the linkage to detach the compound from the
bead.
The Company believes that its experience in solid phase synthesis of
diverse, heterocyclic, small compounds is a key competitive advantage. Large,
diverse libraries of these small molecules are more difficult to synthesize than
libraries of oligonucleotides or peptides. The great diversity of chemical
building blocks and the variety of chemical reactions that must be used in
synthesizing these small molecules require a wide range of reaction conditions,
including temperature, pH, solvents, catalysts and other variables. Each
chemical reaction must be optimized to achieve high yields of the desired
compound.
Combinatorial Chemistry. The Company's ECLiPS technology employs "Direct
Divide" combinatorial chemistry. For example, a chemist using a five step
reaction sequence and ten building blocks per step can synthesize a mixture of
100,000 different chemicals by performing only 50 chemical reactions. Using
larger numbers of building blocks or steps can create larger libraries. This
technology offers substantial productivity improvement in comparison to
parallel synthesis and other techniques currently employed to generate chemical
libraries. Parallel synthesis is the performance of a series of individual
chemical reactions, usually several dozen simultaneously, typically using
robotics. In parallel synthesis, 111,110 individual chemical reactions would be
required to synthesize the same 100,000 compounds that Pharmacopeia's technology
can accomplish in 50 reactions. Parallel synthesis requires extensive labor and
time and a significant capital investment in robotics. The labor and time
disadvantage increases exponentially with library size.
Sets of encoding molecules. The Company overcomes the challenge of
identifying active compounds from combinatorial mixtures through its use of a
proprietary collection of chemically stable small molecules, or tag sets, to
encode each bead used in solid phase synthesis. This enables the Company to
quickly identify the structure of an active compound prepared using the "Direct
Divide" technique without resorting to deconvolution, a process in which an
active compound must be "reverse engineered" by resynthesizing and testing
various component combinations until the structure of the active compound is
deduced. During each step of the Company's solid phase synthesis process,
specific tag sets are attached to the beads to indicate the chemical reagent and
reaction conditions used in that step. By the end of the synthesis process, each
bead has collected tag sets that represent all of the building blocks used to
create the compound on that bead. When an active compound is found in an assay,
the bead from which the active compound was extracted is analyzed. The tag sets
are detached from the bead using specific chemical reactions that break the
linkage between the
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tag sets and the bead. The detached tag sets are read using conventional gas
chromatography techniques. The results, which resemble a bar code, are captured
in a database that identifies and stores data regarding the active compound.
The Company's proprietary tag sets have the following important
characteristics:
Stability. The Company's proprietary tag sets are relatively unreactive.
For this reason the tag sets do not break or decompose as a result of heat,
vigorous shaking or other harsh reaction conditions. Thus, the tag sets rarely
interfere with or limit the solid phase chemical reactions used to create
potential new drug compounds. By contrast, the oligonucleotides and peptides
used as tags by some companies are more fragile because they are more reactive.
These large molecule tags may therefore interfere with chemical reactions or may
be decomposed or altered chemically during compound synthesis. These factors
constrain the range of chemicals that can be synthesized in solid phase when
oligonucleotide or peptide tags are used.
Size and Detectability. In contrast to the relatively large size of
oligonucleotide and peptide tags, the Company's tag sets are small and easy to
attach to and detach from the beads. The highly sensitive detection methods
available for these tag sets allow the Company to use them in extremely small
quantities. The Company's tag sets do not occupy a significant portion of the
beads' capacity and do not interfere with the extraction or testing of detached
compounds.
Thus, using its proprietary ECLiPS technology, the Company can synthesize a
large combinatorial mixture of compounds and rapidly identify the specific
structure of individual active compounds found in the library. To date, the
Company has used its ECLiPS technology to synthesize libraries containing an
aggregate of more than 3.8 million unique chemical compounds. Many of these
libraries have initially been licensed to customers for their exclusive use for
varying periods of time.
ECLiPS also assists the Company in protecting its intellectual property.
When a customer licenses the Company's libraries, the Company ships microtiter
plates containing library compounds detached from the beads for screening in the
customer's laboratories. The beads containing the tag sets never leave the
Company's facility. When the customer finds an active compound in an assay, the
customer asks the Company to decode the compound. This process notifies the
Company of active compounds identified by its customers.
Assay Technology
The second component of the Company's integrated drug discovery approach is
its proprietary assay technology. The Company employs 96-well microtiter plate
solution phase assays, a standard format in the pharmaceutical and biotechnology
industry, to evaluate the biological activity of compounds in the Company's
libraries. The Company's adoption of this format facilitates the use of its
libraries in assays performed by its customers.
The Company has improved the 96-well microtiter plate assays it performs
for its collaborators and its internal drug discovery programs. These
improvements include increasing the sensitivity of detection, increasing the
number of assays that can be run daily, reducing labor and materials required to
execute assays and allowing simultaneous collection of information on the
activity of a single compound against multiple targets.
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The Company has also been developing an integrated set of workstations to
provide a complete front-end for miniaturization within a conventional high-
throughput screening environment. Using this technology will enable existing
compound collections or combinatorial libraries to be reformatted from current
96-well microtiter formats into 1536-well high-density plates designed for high-
throughput screening applications, and to be screened in this new format.
Production Automation
Production automation technology is the third component of the Company's
integrated drug discovery approach. The Company has developed proprietary
instruments and methods for quickly and cost effectively manipulating large
numbers of small plastic beads and the compounds that are detached from these
beads. The Company's proprietary technology includes bead washing and synthesis
vessels that support the synthesis process. The production automation technology
also includes proprietary engineering methods and automated systems for placing
individual compounds in 96-well microtiter plates and processing these plates in
preparation for screening. Screening a single 50,000 compound library against 20
or more targets can require the loading, processing and testing of thousands of
96-well microtiter plates.
Information Systems
The Company has developed proprietary software to support its drug
discovery activities. Pharmacopeia's information systems assist the Company's
scientists in managing the extensive data generated during library production
and testing. First, the software tracks the chemical building blocks, reaction
steps and tag sets used to create each library. The Company's systems then track
the thousands of bar-coded microtiter plates filled and processed as libraries
are screened. As active compounds are identified and decoded, the Company's
software integrates the tag set decoding results with the original library
design database to quickly provide the Company's scientists with the specific
chemical structure and synthesis steps for the active compound.
The Company's information systems also include analytical and database
tools. Databases of available chemical building blocks and reactions are used as
reference sources in the library design process. Molecular modeling, structure
analysis and statistical programs are available for designing optimization
libraries. In addition, analytical and database software is used to collect and
analyze the results of individual assays.
As the Company continues to build its chemical libraries and accelerates it
high-throughput screening activities an enormous amount of SAR information is
emerging from these activities, which is being stored in the Company's
information systems. The Company has the ability to provide existing and new
customers access to this data warehouse of SAR information to assist in the
search for candidate molecules that interact with specific targets. No
assurance can be given as to if or when such access will be provided.
For information regarding year 2000 compliance see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Quality Assurance
The Company's drug discovery approach includes an extensive quality
assurance program. As libraries are synthesized, representative compounds are
analyzed at each reaction step to assure that yields are high and compounds are
sufficiently pure. During library production, samples are tested at each
reaction step to assure that the tag sets have been satisfactorily attached and
can be decoded. Representative compounds are also tested to identify optimal
solvents and detachment conditions for removing compounds
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from beads to perform screening assays. Production plates containing compounds
for screening include control samples to further assure that plates to be
screened in assays have been prepared appropriately.
Pharmacopeia's Drug Discovery Programs
Pharmacopeia has several active drug discovery programs underway using its
drug discovery technology. The Company is presently conducting ten programs
pursuant to collaborative agreements with six of its customers. The Company is
also using its drug discovery technology for internal programs. As of December
31, 1997, the Company was performing high throughput assays for eighteen
biological targets selected by the Company for its internal programs. These
targets include receptors and enzymes in therapeutic areas, including
inflammation, cancer, certain neurological disorders, and metabolic and
cardiovascular diseases. In an effort to identify lead compounds, the Company
has commenced the screening of its combinatorial libraries against these targets
and has identified several active compounds in these assays. Activities are
currently being extended to include the optimization of lead compounds and the
determination of bioavailability. Future activities may include preclinical
animal efficacy and toxicity studies. The Company will continue to seek
financial support from pharmaceutical companies for the optimization of lead
compounds identified by internal screening. In return for such support, the
Company would offer the funding pharmaceutical company an option to license the
resulting drug development candidate for commercialization. The Company may also
invest its own funds to optimize these lead compounds into development
candidates for outlicensing to pharmaceutical companies.
Proposed Merger
On February 4, 1998, Pharmacopeia, Micro Acquisition Corporation, a wholly-
owned subsidiary of Pharmacopeia ("MAC") and Molecular Simulations Incorporated
("MSI") executed a definitive merger agreement pursuant to which Pharmacopeia
will acquire MSI in a tax-free, stock-for-stock transaction. MSI is a provider
of molecular modeling and simulation software. MSI designs, develops, markets
and supports software that facilitates the discovery and development of new
products and processes in the pharmaceutical, biotechnology, chemical,
petrochemical and materials industries. The closing of the merger is subject to
the satisfaction of a number of conditions and approvals and there can be no
assurance that the merger will be consummated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Proposed Merger".
Business Strategy
Pharmacopeia's objective is to be the industry leader in the discovery and
optimization of novel drug candidates. The Company seeks to minimize its
financing requirements and shorten its time to profitability by pursuing drug
discovery collaborations with multiple pharmaceutical and biotechnology
companies. The Company does not currently plan to develop, manufacture and sell
its own pharmaceutical products. The Company's business strategy exploits the
emerging trend in the pharmaceutical industry to outsource certain products and
services that can be more efficiently provided by third parties. Pharmacopeia's
commercialization and technology strategy has several components.
Commercialization Strategy
The Company's commercialization strategy is to provide collections of
compounds and drug development candidates to multiple pharmaceutical and
biotechnology customers. Under these arrangements, the Company's customers are
responsible for the clinical development and eventual manufacture and sale of
resulting drugs. Customers compensate the Company through (i) funding or fees
during or upon completion of its research and (ii) milestone payments and
royalties on drugs based on the Company's technology and
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developed by the Company's customers. Each collaboration is tailored to the
individual customer's needs but is developed within three broad frameworks:
Form Drug Discovery Collaborations. The Company synthesizes targeted and
optimization libraries of compounds and, using its high throughput screening
technology, screens these libraries and the Company's internal libraries to
identify drug development candidates.
License Libraries. Pharmacopeia creates and licenses large libraries of
compounds to customers who screen these compounds using their own assays and
facilities. This increases the potential value of the Company's libraries by
having them screened in drug discovery assays against many biological targets.
These libraries are most often licensed on an exclusive basis and become non-
exclusive after the expiration of defined time frames.
Outlicense Compounds from Internal Discovery Programs. The Company will
seek to license to third parties drug development candidates identified by the
Company. The Company may also seek pharmaceutical sponsors for various internal
development programs, giving the sponsor an option to license any resulting drug
development candidates.
Technology Strategy
The Company's technology strategy is to enhance productivity through cost
reductions and increased throughput and to build the Company's library
collection and its knowledge base of the relationships between chemical
structures and biological targets for use in future drug discovery programs.
Enhance Productivity. Pharmacopeia seeks to leverage its existing
technology by increasing productivity through cost reductions and significant
increases in throughput. The Company's internal research and development efforts
focus on: (i) advances in the Company's automated systems; (ii) the development
of enhanced software; (iii) the development of new materials and reactions for
solid phase synthesis; (iv) new high throughput screening formats; and (v) the
discovery and optimization of lead compounds for the Company's internal
programs.
Develop Collection of Libraries and Knowledge Base. The Company is
building sets of libraries that will eventually aggregate millions of compounds
available for future screening programs. This collection of compounds will
increase as new libraries are created and as outlicensed libraries are returned
to the Company upon the expiration of customers' exclusivity periods. The
Company believes that this growing library collection will provide a valuable
source of leads for future drug discovery programs. The Company also intends to
build a knowledge base of the relationships between classes of chemical
structures and classes of biological targets. This knowledge base will grow as
the Company designs, synthesizes and screens large numbers of compounds against
a growing number of targets. The Company believes that this knowledge base will
provide a future competitive advantage by enabling the Company to identify more
quickly active compounds for newly identified targets.
Collaborative Arrangements
The Company has signed collaborative agreements with Schering-Plough,
Berlex, Novartis, Bayer, Daiichi, Organon, and BMS as described below.
Schering-Plough. In December 1994, the Company and Schering-Plough signed
a collaborative agreement for (i) the optimization of lead compounds that
interact with a specific molecular target in the field of cancer and (ii) the
identification and optimization of lead compounds that interact with specific
molecular
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targets in the field of asthma. The Company and Schering-Plough also signed an
agreement under which the Company provided Schering-Plough with combinatorial
libraries for screening by Schering-Plough in a wide range of Schering-Plough's
internal drug screening assays. Schering-Plough has paid the Company $13.5
million under the research program to be performed through the fourth year of
the Collaboration Agreement. The term of the research program as amended extends
until December 1998 and is subject to further extension by agreement of both
parties, although no assurance can be given that such extension will occur or
regarding the terms and conditions of such extension. The agreements provide
Schering-Plough with exclusive worldwide rights to develop and commercialize
lead compounds discovered by the Company that are active against the specified
molecular targets or discovered by Schering-Plough to be active in its assays.
Compounds contained in libraries created by the Company for Schering-Plough will
be exclusive to Schering-Plough for various time periods. These exclusivity
periods can be extended upon payment of additional fees. In the event Schering-
Plough successfully identifies, develops and obtains regulatory approval for
drugs based upon the Company's compounds, Schering-Plough will make additional
milestone payments to the Company. During 1996 and 1997, Schering-Plough made
milestone payments to the Company. Schering-Plough will also be obligated to pay
to the Company royalties on the sale of any drugs that result from this
relationship. In connection with the collaboration, Schering-Plough has made
investments totaling $20 million in the Company.
Berlex. In February 1995, Pharmacopeia and Berlex signed a collaborative
agreement for the identification and optimization of lead compounds which
interact with a specific molecular target that may have applications in the
treatment of multiple sclerosis. Under the terms of this agreement, Berlex paid
the Company an aggregate of $5.5 million over the first two years of the
agreement for library synthesis and screening conducted by the Company. The
term of the research program as amended expired in February 1998. The parties
are currently negotiating a further extension of such program, although no
assurance can be given that such extension will occur or regarding the terms and
conditions of such extension. Berlex is also obligated to make additional
payments upon the achievement of certain milestones and to pay royalties on
sales of drugs that may result from the relationship. During 1997 Berlex made
its first milestone payment. The agreement provides Berlex with exclusive
worldwide rights to develop and commercialize compounds active against the
specified molecular target. The agreement also provides for an exclusivity
period on the compounds provided to Berlex. In connection with the
collaboration, an affiliate of Berlex made a $3.5 million equity investment in
the Company and purchased an additional $2.5 million of the Common Stock sold in
the Company's initial public offering.
Novartis. Effective October 1, 1995, the Company entered into an agreement
with Novartis to create libraries in collaboration with Novartis for screening
by Novartis. Under this agreement, the Company is obligated to provide certain
numbers of compounds during each of the five years of the research program. The
agreement grants Novartis an exclusivity period on the libraries, which may be
extended for a fee. Under the terms of this agreement, Novartis has paid the
Company $6 million and is obligated to pay an additional $2 million during each
subsequent year of the research program. The agreement provides Novartis with
exclusive worldwide rights to develop and commercialize certain products based
on active compounds discovered using these libraries. In the event Novartis
successfully identifies and develops drugs based on the Company's compounds,
Novartis will make milestone payments to the Company. Novartis will also be
obligated to pay to the Company royalties on the sale of any drugs that result
from the relationship.
Bayer. Effective December 31, 1995, the Company entered into (i) a
collaborative agreement with Bayer for the identification and optimization of
lead compounds that interact with specific molecular target(s) selected by
Bayer, and (ii) an agreement under which the Company is to provide Bayer with
combinatorial libraries for screening by Bayer in Bayer's internal screening
assays. Bayer has paid the Company $4 million through the second year of the
agreement for library creation. Bayer is also obligated to fund research
conducted by the Company during the period from July 1, 1996 through February
15, 1999 in
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the amount of $5.5 million. A minimum of an additional $2.75 million of research
funding is due if Bayer exercises an option to extend the term of the research
program for an additional year. Bayer has paid the Company $5.5 million for
research to be performed through the first two years of the agreement. The
agreements provide Bayer with exclusive worldwide rights to develop and
commercialize lead compounds discovered by the Company that are active against
the specified molecular targets or discovered by Bayer to be active in its
assays. Compounds contained in libraries created by the Company for Bayer will
be exclusive to Bayer for various time periods. These exclusivity periods can be
extended upon payment of additional fees. In the event Bayer successfully
identifies, develops and obtains regulatory approval for drugs based upon the
Company's compounds, Bayer will make milestone payments to the Company. Bayer
will also be obligated to pay to the Company royalties on the sale of any
products that result from this relationship. In connection with the
collaboration, Bayer made a $10 million equity investment in the Company in
February 1996.
Daiichi. Effective March 29, 1996, Pharmacopeia and Daiichi signed a
collaborative agreement for the identification and optimization of lead
compounds which interact with a specific molecular target(s) selected by
Daiichi. Over the first three years of the agreement, Daiichi is obligated to
pay the Company approximately $14 million in research and development funding
and license fees, of which, Daiichi has paid the Company $9.7 million. The
agreement provides Daiichi with exclusive worldwide rights to develop and
commercialize compounds active against the specified molecular targets or
discovered by Daiichi to be active in its assays. In the event Daiichi
successfully identifies, develops and obtains regulatory approval for drugs
based upon the Company's compounds, Daiichi will make milestone payments to the
Company. Daiichi will also be obligated to pay to the Company royalties on the
sale of any products that result from this relationship. In connection with the
collaboration, Daiichi has made a $5 million equity investment in the Company in
March 1996. Daiichi made an additional $3.0 million equity investment in
December 1997 as a result of the Company's meeting a specific milestone.
Organon. Effective May 31, 1996, the Company entered into a collaborative
agreement with Organon for the identification and optimization of lead compounds
that interact with specific molecular target(s) selected by Organon. Under the
terms of the agreement, Organon is required to pay the Company a total of $10.7
million in research and development funding and license fees, over the initial
three year term, of which, $6.9 million has been paid. Organon is also
obligated to make additional payments upon the achievement of certain milestones
and to pay royalties on sales of drugs that may result from the relationship.
The agreement provides Organon with exclusive worldwide rights to develop and
commercialize lead compounds active against the specified molecular targets or
discovered by Organon to be active in its assays. In the event Organon
successfully identifies, develops and obtains regulatory approval for drugs
based upon the Company's compounds, Organon will make milestone payments to the
Company. Organon will also be obligated to pay to the Company royalties on the
sale on any products that result from the relationship. In connection with the
collaboration, Organon made a $4.2 million equity investment in the Company in
May 1996 and an additional $4.2 million equity investment in May 1997.
BMS. Effective December 11, 1997, the Company entered into a collaboration
and license agreement with BMS for the identification and optimization of lead
compounds that interact with specific molecular target(s) selected by BMS.
Under the terms of the agreement, BMS is required to pay the Company a total of
$10.4 million in research and development funding and license fees, over the
initial three year term, of which, $3.4 million has been paid. BMS is also
obligated to make additional payments upon the achievement of certain milestones
and to pay royalties on sales of drugs that may result from the relationship.
The agreement provides BMS with exclusive worldwide rights to develop and
commercialize lead compounds active against the specified molecular targets or
discovered by BMS to be active in its assays. In the event BMS successfully
identifies, develops and obtains regulatory approval for drugs based upon the
Company's compounds, BMS will make milestone payments to the Company.
-11-
<PAGE>
Customers
During 1997, the Company recognized $24.5 million in contract revenue
primarily from its significant customers. See Note 10 of Notes to Financial
Statements and "Collaborative Arrangements" above.
Research and Development Funding
Pharmacopeia's expenses for research and development activities were as
follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands)
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Collaborative $5,563 $13,129 $16,931
Proprietary 5,468 8,111 12,588
</TABLE>
These increased amounts primarily reflect additional costs incurred with the
expansion of the Company's chemical library production and screening efforts for
collaborations and for its own use.
Competition
Many organizations are actively attempting to identify and optimize
compounds for potential pharmaceutical development. Pharmacopeia competes with
the research departments of pharmaceutical companies, biotechnology companies,
other combinatorial chemistry companies and research and academic institutions.
Many of these competitors have greater financial and human resources, and more
experience in research and development, than the Company. Historically,
pharmaceutical companies have maintained close control over their research
activities, including the synthesis, screening and optimization of chemical
compounds. Many of these companies, which represent the greatest potential
market for Pharmacopeia's products and services, are developing combinatorial
chemistry and other methodologies to improve productivity, including major
investments in robotics technology to permit the automated parallel synthesis of
compounds. In addition, these companies may already have large collections of
compounds previously synthesized or ordered from chemical supply catalogs or
other sources against which they may screen new targets. Other sources of
compounds include compounds extracted from natural products such as plants and
microorganisms and compounds created using rational drug design. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which the Company is working, either on their
own or through collaborative efforts.
The Company competes with several alternative technologies in the design
and synthesis of new chemical libraries for drug discovery programs.
Combinatorial chemistry libraries of oligonucleotides and peptides can be
synthesized in extremely large numbers. These molecules are also sequenceable,
making it easy to identify the structure of an individual oligonucleotide or
peptide found to be active in an assay. However, oligonucleotides and peptides
are not usually effective as oral drugs because they are usually not
bioavailable. These molecules are also usually quickly metabolized in the human
bloodstream. Other, unnatural oligomer libraries have also been prepared, but
these are less easily sequenceable than peptides and oligonucleotides. In
addition, unnatural oligomer libraries lack the diversity of structures of the
small molecule libraries prepared by the Company.
Libraries of small molecule compounds, which are preferred as drug
candidates due to their increased potential for oral bioavailability and long
duration of action, have recently been developed using competitive techniques.
Three such techniques are based on "pool and split" solid phase combinatorial
-12-
<PAGE>
chemistry. The first uses oligonucleotide or peptide tags on each bead to
identify each synthesis step. These large molecule tags are relatively fragile,
which limits the nature of reaction conditions (temperature, pressure, etc.) and
reagents (acids, bases, etc.) that can be used to build compounds. In addition,
these large molecule tags complicate the synthesis of compounds or beads. The
Company's proprietary tag sets, in comparison, are durable, simple to attach and
detach, and allow the Company to make larger and more diverse libraries of small
compounds. The second "pool and split" combinatorial chemistry technique uses
deconvolution to identify the chemical structure of compounds found active in
assays. Deconvolution is a slow, labor-intensive process, and may require
several weeks of scientists' time to determine the structure of a single active
compound. The Company's tag sets permit hundreds of structures to be determined
each day. The third "pool and split" combinatorial chemistry technique uses what
are referred to as "hard tags" and is proprietary to a specific large
pharmaceutical company.
A fourth competitive approach is to perform a series of individual chemical
reactions, typically using a robotic system. The result of robotic synthesis is
compounds in individually labeled vessels. Robotic synthesis also yields larger
quantities of each compound than are usually achieved in combinatorial mixtures
such as the Company's. Using robotic synthesis, however, requires extensive
labor and time when compared with Direct Divide combinatorial chemistry. This
labor and time disadvantage increases exponentially with library size.
Exclusive License with Columbia University and Cold Spring Harbor Laboratory
In 1993, the Company entered into an exclusive license agreement with
Columbia and Cold Spring (jointly, the "Licensors") covering technology related
to tagged combinatorial chemical libraries and methods of preparing and
utilizing such libraries. The licensed technology includes a patent and patent
applications filed by Columbia and Cold Spring covering the use of encoding tag
sets to implement the drug discovery process using combinatorial chemistry
libraries. The Company is obligated to pay a minimum annual license fee of
$100,000. The term of the agreement is the later of (i) 20 years or (ii) the
expiration of the last patent relating to the technology, at which time the
Company has a fully paid license to the technology. The Company is also
obligated to pay royalties to the Licensors based on net sales of pharmaceutical
products developed by the Company as well as a percentage of all other payments
and royalties received by the Company from customers where the Company has
utilized the technology licensed from the Licensors.
Patents and Proprietary Information
The Company and its licensors currently have six issued U.S. patents and a
number of pending U.S. and foreign patent applications relating to various
aspects of the Company's technology, including its molecular tags, certain
screening technologies and its libraries or compounds contained therein. These
patents and patent applications are either owned by the Company or rights under
them are licensed to the Company. Of particular note, the Company is the
exclusive licensee of U.S. patents issued on October 15, 1996 and February 24,
1998 which provide broad protection to the Company's use of encoded
combinatorial libraries. The Company's success will depend in large part on its
ability, and the ability of its licensees and its licensors, to obtain patents
for its technologies and the compounds and other products, if any, resulting
from the application of such technologies, defend patents once obtained,
maintain trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and in foreign countries.
The patent positions of pharmaceutical and biotechnology companies,
including the Company, are uncertain and involve complex legal and factual
questions for which important legal questions are largely unresolved. Certain
patent applications, relating to encoded combinatorial libraries, have been
filed by others prior to the Company's patent applications. In February of 1997,
the European Patent Office granted to Affymax Technologies, N.V., a subsidiary
of Glaxo, certain patent claims which, if valid, would cover the
-13-
<PAGE>
synthesis of encoded small molecule libraries of the type developed by the
Company. On November 12, 1997, the Company filed an Opposition to these patent
claims challenging their validity. If these claims are found valid and are
enforceable, the Company's ability to practice its ECLiPS technology in Europe
would be restricted unless the Company obtains appropriate licenses from the
owner of such patents. Although the Company has business relationships with a
number of European customers, the Company does not currently practice its
technology in Europe. On January 13, 1998, a U.S. patent was issued to Affymax
that contains certain claims covering a method of preparing an encoded library
of chemical compounds. In a press release issued by Affymax on January 13, 1998,
Affymax stated that these patent claims provide it with "a dominant proprietary
position in the area of tagged chemical libraries." The Company has reviewed
these patent claims and, in reliance upon an opinion of patent counsel, believes
that the patent claims are invalid and, in any event, not infringed. If it is
ultimately determined that these claims are valid and enforceable and that the
Company's ECLiPS technology infringes such claims, then the Company's ability to
use its ECLiPS technology in the United States may be restricted unless the
Company obtains appropriate licenses from the owner of such patent and the
Company may be subject to a claim for monetary damages. However, if any such
licenses were required from Affymax, there can be no assurance that such
licenses would be available to the Company or would be available upon terms
reasonably acceptable to the Company. The Company does not know of any patent
applications by others that would preclude the Company from obtaining patent
protection in the United States or elsewhere for its ECLiPS technology. However,
disputes may arise between the Company and other patent holders as to claims of
infringement, which could involve protracted periods of litigation. Some of the
Company's competitors have, or are affiliated with companies having,
substantially greater resources than the Company, and such competitors may be
able to sustain the costs of complex patent litigation to a greater degree and
for longer periods of time than the Company. Uncertainties resulting from the
initiation and continuation of any patent or related litigation could have a
material adverse effect on the Company's ability to compete in the marketplace
pending resolution of the disputed matters.
There can be no assurance that patents will issue as a result of any
pending applications or that, if issued, such patents will be sufficiently broad
to afford protection against competitors with similar technology. Moreover,
there can be no assurance that the Company or its customers will be able to
obtain patent protection for lead compounds or pharmaceutical products based
upon the Company's technology. There can be no assurance that any patents issued
to the Company or its collaborative partners, or for which the Company has
license rights, will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide competitive advantages to the Company.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce the Company's patent and license rights or to determine the
scope and validity of others' proprietary rights. Further, U.S. patents do not
provide any remedies for infringement that occurred before the patent is
granted.
The commercial success of the Company will also depend upon avoiding the
infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of the Company's current products are, or
any future products under development might be, based. If competitors of the
Company prepare and file patent applications in the United States that claim
technology also claimed by the Company, the Company may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office
("PTO") to determine the priority of invention, which could result in
substantial cost to the Company, even if the outcome is favorable to the
Company. An adverse outcome could subject the Company to significant liabilities
to third parties and require the Company to license disputed rights from third
parties or cease using the technology. A U.S. patent application is maintained
under conditions of confidentiality while the application is pending in the PTO,
so that the Company cannot determine the inventions being claimed in pending
patent applications filed by its competitors in the PTO.
-14-
<PAGE>
The Company currently has certain licenses from third parties and in the
future may require additional licenses from other parties to develop,
manufacture and market commercially viable products effectively. There can be no
assurance that such licenses will be obtainable on commercially reasonable
terms, if at all, that the patents underlying such licenses will be valid and
enforceable or that the proprietary nature of the patented technology underlying
such licenses will remain proprietary.
The Company relies substantially on certain technologies which are not
patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how, which are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors.
Government Regulation
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that may be developed by a customer of the Company or,
in the event the Company decides to develop a drug beyond the preclinical phase,
by the Company. The nature and the extent to which such regulation may apply to
the Company's customers will vary depending on the nature of any such
pharmaceutical products. Virtually all pharmaceutical products developed by the
Company's customers will require regulatory approval by governmental agencies
prior to commercialization. In particular, human pharmaceutical therapeutic
products are subject to rigorous preclinical and clinical testing and other
approval procedures by the U.S. Food and Drug Administration ("FDA") and by
foreign regulatory authorities. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations are time consuming and
require the expenditure of substantial resources.
Generally, in order to gain FDA approval, a company must conduct
preclinical studies in the laboratory and in animal models to gain preliminary
information on a compound's efficacy and to identify any safety problems. The
results of these studies are submitted as a part of an Investigational New Drug
application ("IND") that the FDA must review before human clinical trials of an
investigational drug can start. In order to commercialize any products, the
Company or its customer will be required to sponsor and file an IND and will be
responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of any such
products. Clinical trials are normally done in three phases and generally take
two to five years, but may take longer, to complete. After completion of
clinical trials of a new product, FDA and foreign regulatory authority marketing
approval must be obtained. If the product is classified as a new drug, the
Company or its customer will be required to file a New Drug Application ("NDA")
and receive approval before commercial marketing of the drug. The testing and
approval processes require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. NDAs
submitted to the FDA can take, on average, two to five years to obtain approval.
If questions arise during the FDA review process, approval can take more than
five years. Even if FDA regulatory clearances are obtained, a marketed product
is subject to continual review, and later discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may
result in restrictions on the marketing of a product or withdrawal of the
product from the market as well as possible civil or criminal sanctions. For
marketing outside the United States, the Company will also be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for
-15-
<PAGE>
pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that its activities currently comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any liability could
exceed the resources of the Company. In addition, there can be no assurance that
the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future.
Sources of Supply
The Company currently relies on two suppliers to provide the majority of
plastic beads used in the solid phase chemical synthesis of its compounds. The
Company has built a significant multi-year inventory of these beads. In
addition, the Company has determined that other commercially available beads can
be used as an alternative to those indicated above. Should the Company be
unable to obtain an adequate supply of these or comparable beads at commercially
reasonable rates, its ability to continue to identify and optimize lead
compounds and development candidates would be materially and adversely affected.
Pharmaceutical Manufacturing and Marketing
The Company does not expect to directly manufacture or market
pharmaceutical products. However, the Company may, in the future, consider
undertaking such activities if it believes they are appropriate under the
circumstances. The Company has no experience in developing pharmaceutical
products or in manufacturing or marketing products on a commercial scale. The
Company may not have the resources to develop or to manufacture or market by
itself on a commercial scale any products identified by it. In the event the
Company decides to establish a manufacturing facility, the Company will require
substantial additional funds, and will be required to hire and train significant
additional personnel and comply with the extensive FDA "good manufacturing
practice" regulations applicable to such a facility.
Employees
As of December 31, 1997, the Company had 197 regular employees, 168 of whom
were in research and development, including 71 chemists, biologists and
engineers holding doctorate degrees. None of the Company's employees is covered
by collective bargaining agreements. Management considers its relations with its
employees to be good.
Important Factors Regarding Forward Looking Statements
Certain discussions set forth above regarding the Company's strategy for
the development and commercialization of its products and services as well as
its ability to achieve profitability in the near term are forward-looking
statements. This strategy depends upon the acceptance by potential customers of
combinatorial chemistry and analysis of compounds provided by the Company as an
effective tool in new drug discovery and the Company's ability to maintain the
arrangements it currently has in place. Historically, pharmaceutical companies
have conducted lead compound identification and optimization within their own
research departments, due to the highly proprietary nature of the activities
being conducted, the central importance of these activities to their drug
discovery and development efforts, and the desire to obtain maximum patent and
other proprietary protection on the results of their internal programs. In order
to achieve
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<PAGE>
its business objectives, the Company must convince these companies that the
Company's technology and expertise justify the outsourcing of these programs to
the Company. There can be no assurance that the Company will be able to attract
customers on acceptable terms for its products and services or develop a
sustainable profitable business. Moreover, the pricing and nature of the
Company's combinatorial libraries is such that there may only be a limited
number of pharmaceutical companies that are potential customers for such
libraries. There can be no assurance that the Company will be able to establish
additional collaborative or licensing arrangements, that any such arrangements
or licenses will be on terms favorable to the Company, or that current or future
collaborative or licensing arrangements will ultimately be successful.
Further, Pharmacopeia's receipt of revenues from collaborative arrangements
is affected by the timing of efforts expended by the Company and the timing of
lead compound identification. The Company's products and services will only
result in commercialized pharmaceutical products generating milestone payments
and royalties upon significant preclinical and clinical development, requisite
regulatory approvals, the establishment of manufacturing capabilities and
successful marketing. The Company does not currently intend to perform any of
these activities, other than in some instances preclinical work. Therefore, the
Company will be dependent upon the expertise and dedication of sufficient
resources by third parties to develop and commercialize products based on
library compounds produced and lead compounds discovered by the Company. Should
a collaborative partner fail to develop or commercialize a compound or product
to which it has rights from the Company, the Company may not receive any future
milestone payments or royalties associated with such compound or product. The
Company's contractual arrangements with its customers do not obligate the
customers to develop or commercialize lead compounds discovered by the Company.
In addition, there can be no assurance that any such development or
commercialization would be successful. The compound basis for drugs developed by
a customer may be a derivative or optimized version of the lead compound
provided to the customer by the Company. While the Company's existing
collaborative agreements provide that the Company will receive milestone
payments and royalties with respect to certain products developed from certain
derivative compounds, there can be no assurance that disputes will not arise
over the application of payment provisions to such products. There can be no
assurance that current or future collaborative partners will not pursue
alternative technologies, or develop alternative products either on their own or
in collaboration with others, including the Company's competitors, as a means
for developing treatments based on the targets which are the subject of the
collaborative arrangements with the Company.
The Company's success will also depend upon certain issues arising in
connection with the Company's patents and proprietary technology. See "Business
- -- Patents and Proprietary Information."
ITEM 2. PROPERTIES
The Company currently leases and occupies approximately 137,000 square feet
of laboratory and office space in three buildings in or near Princeton, New
Jersey. This includes approximately 120,000 square feet of laboratory space and
approximately 17,000 square feet of administrative office space. These leases
expire at various dates between 1998 and 2005.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Joseph A. Mollica, Ph.D. 57 Chairman of the Board, President and
Chief Executive Officer
Stephen A. Spearman, Ph.D. 48 Executive Vice President of Operations
Lewis J. Shuster 42 Executive Vice President, Corporate
Development and Chief Financial Officer
Nolan H. Sigal, M.D., Ph.D. 48 Senior Vice President of Drug Discovery
John J. Baldwin, Ph.D. 63 Senior Vice President of Chemistry
Dr. Mollica has served as the Chairman of the Board and Chief Executive
Officer of Pharmacopeia since February 1994 and was appointed President in
August 1996. From 1987 to December 1993, Dr. Mollica was employed initially by
the DuPont Company and then by The DuPont Merck Pharmaceutical Company, most
recently as President and Chief Executive Officer. Dr. Mollica is a director of
USP, Inc., ImPath, Inc. and Neurocrine BioSciences, Inc. Dr. Mollica received a
Ph.D. from the University of Wisconsin, and a Doctor of Science, h.c., from the
University of Rhode Island.
Dr. Spearman has served as Executive Vice President, Operations since
August 1996. From 1975 to August 1996, Dr. Spearman held several positions at
CIBA-GEIGY Corporation, most recently as Project Leader. Dr. Spearman received
his Ph.D. and M.S. from Emory University. Dr. Spearman also holds an M.B.A. in
Finance from Bryant College.
Mr. Shuster has served as Chief Financial Officer since November 1994 and
was appointed Executive Vice President, Corporate Development and Chief
Financial Officer in August 1996. Mr. Shuster served as Executive Vice
President, Operations and Finance for Human Genome Sciences, Inc., a
biotechnology company, from September 1992 to November 1994. From 1986 to June
1992, Mr. Shuster was with Microbiological Associates, Inc., a biological safety
testing services company, most recently as President and Chief Executive
Officer. Mr. Shuster received an M.B.A. from Stanford University Graduate School
of Business.
Dr. Sigal has served as Vice President of Biology since January 1994 and
was appointed Senior Vice President, Drug Discovery in August 1996. From 1983
to December 1993, Dr. Sigal held several positions at Merck Research
Laboratories, most recently as Executive Director of the Department of
Immunology Research. Dr. Sigal received an M.D. and Ph.D. from the University of
Pennsylvania.
Dr. Baldwin has served as Vice President of Chemistry since July 1993 and
was appointed Senior Vice President of Chemistry in August 1996. For a period of
thirty years, prior to joining the Company, Dr. Baldwin held a variety of
scientific and management positions with Merck Sharp & Dohme Research
Laboratories, most recently as Distinguished Senior Scientist. Dr. Baldwin holds
more than 140 U.S. patents and is the inventor of Trusopt, a drug for preventing
glaucoma. Dr. Baldwin received a Ph.D. in Organic Chemistry from the University
of Minnesota.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market for Common Stock
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol PCOP since the Company's initial public
offering on December 5, 1995. The following table sets forth for the periods
indicated the high and low sale prices of the Common Stock.
1997 1996
High Low High Low
------ ------ ------ ------
First Quarter $22.63 $16.50 $31.50 $23.38
Second Quarter 17.38 12.88 28.50 19.38
Third Quarter 22.75 12.75 22.88 12.13
Fourth Quarter 23.13 16.00 25.25 15.88
Holders of Record
As of January 31, 1998, there were approximately 240 holders of record.
Dividends
The Company has never paid cash dividends on its capital stock. The
Company currently expects that it will retain its future earnings for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
Recent Sales of Unregistered Securities
<TABLE>
<CAPTION>
Transaction Number of Aggregate
Date Securities Securities (1) Offering Price
----------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Daiichi December 29, 1997 Common Stock 161,616 $3,000,000
</TABLE>
(1) Transaction exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, by virtue of the exemption contained in
Section 4(2) of such act.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Period From
March 26, 1993
(inception) to Year Ended
December 31, December 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenue..................... $ -- $ -- $ 5,151 $ 14,799 $ 24,523
Operating loss.................... (2,134) (8,472) (9,661) (12,058) (10,844)
Net loss.......................... (2,107) (8,349) (8,956) (8,383) (6,678)
Basic net loss per share.......... (1.24) (3.15) (2.77) (.77) (.58)
Weighted average number of common
shares outstanding/(1)/......... 1,701,022 2,648,268 3,231,102 10,833,980 11,453,743
Cash dividends declared per
common share..................... -- -- -- -- --
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents, and
marketable securities............ $ 1,658 $ 13,490 $ 60,900 $ 81,482 $ 82,621
Total assets...................... 2,299 15,512 65,541 91,979 95,687
Notes payable, and deferred
revenue, long-term portion....... 78 254 969 3,451 3,987
Accumulated deficit............... (2,107) (10,456) (19,412) (27,795) (34,473)
Total stockholders' equity........ 1,916 10,980 54,334 69,748 70,437
</TABLE>
- ---------------------------
(1) Computed on the basis described for basic net loss per share in Note 2 of
Notes to Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following Management's Discussion and Analysis is based on historical
financial results of Pharmacopeia, Inc. ("Pharmacopeia" or the "Company") and
includes certain forward-looking statements that do not specifically reflect the
impact that the proposed merger described below under the caption "Proposed
Merger" may have on future financial performance of the post-merger company.
Such performance may not follow the same historical trends as those presented in
the following discussion.
Pharmacopeia was incorporated in March 1993 and is engaged in research and
development and chemical library production for collaborations and for its own
use. The Company's research and development has focused on efficient, cost
effective, high throughput systems for synthesizing and screening large
libraries of chemicals for new drug discovery and optimization. The Company has
incurred losses since inception and, as of December 31, 1997 had an accumulated
deficit of $34.5 million. The Company anticipates incurring additional losses
over at least the next several years as it expands its research and development
and chemical library production efforts. The Company expects that its losses
will fluctuate from quarter to quarter and that such variations may be
substantial.
Results of Operations
The Company expects that its revenue sources for at least the next several
years will be limited to future drug discovery collaboration payments from
Schering-Plough, Berlex, Novartis, Bayer, Daiichi, Organon, Zeneca and BMS and
from other customers under existing arrangements and others that may be entered
into in the future. The timing and amounts of such revenues, if any, will
likely fluctuate. Historical results should not be viewed as indicative of
future operating results. The Company will be required to conduct significant
research, development and production activities during the next several years to
fulfill its obligations under its drug discovery collaborative agreements and to
develop other collaborations and technologies. The Company does not anticipate
having net income in the next several years.
Years Ended December 31, 1997 and 1996
Revenues increased to $24.5 million in 1997, compared to $14.8 million in
1996. The increase of $9.7 million in 1997 revenues is primarily the result of
the Company's new collaboration with BMS and its expanded efforts in the drug
discovery collaborations with Bayer, Daiichi, and Organon. The Company's source
of revenues for the next several years will be interest income, payments under
its current collaborations and payments from other customers, to the extent that
the Company enters into any additional arrangements.
-20-
<PAGE>
Research and development expenses increased to $29.5 million compared to
$21.2 million in 1996. These increased amounts primarily reflect increased
salaries, personnel and facilities lease expenses as the Company continued to
hire additional research and development personnel, equipment depreciation,
leasehold amortization, and laboratory supplies purchased in connection with the
expansion of the Company's chemical library production and screening efforts for
drug discovery collaborations and for internal discovery programs. Research and
development expenses are expected to continue to increase as the Company further
expands its activities and incurs, among other things, expenses related to
additional staff increases, increased rent for expanded facilities, and
increased equipment and reagent purchases.
General and administrative expenses were $5.8 million and $5.6 million in
the years ended December 31, 1997 and 1996, respectively. The increase is
primarily attributable to increased payroll and personnel expenses as the
Company continued to hire additional management and administrative personnel,
along with increased patent legal fees.
The Company had interest income of $4.4 million in 1997 compared to $3.9
million in 1996. The increase in interest income resulted from higher average
balances of cash, cash equivalents and marketable securities. Interest expense
for both periods is a result of interest incurred on notes payable.
Years Ended December 31, 1996 and 1995
Revenues increased to $14.8 million in 1996, compared to $5.2 million in
1995. The increase of $9.6 million primarily reflected expanded efforts in the
Company's collaborations with Schering-Plough, Berlex, Novartis, Bayer, Daiichi
and NV Organon. The 1995 revenues were attributable entirely to the Schering-
Plough and Berlex collaborations.
The Company incurred research and development expenses of $21.2 million and
$11.0 million in the years ended December 31, 1996 and 1995, respectively.
These increased amounts primarily reflected increased salaries and personnel
expenses as the Company continued to hire additional research and development
personnel, equipment depreciation and facilities expenses and laboratory
supplies purchased in connection with the expansion of the Company's chemical
library production and screening efforts for collaborations and for its own use.
General and administrative expenses were $5.6 million and $3.8 million in
the years ended December 31, 1996 and 1995, respectively. The increase was
primarily attributable to increased payroll and personnel expenses as the
Company hired additional management and administrative personnel and incurred
additional legal, insurance and other professional fees in connection with the
overall scale-up of the Company's operations.
Liquidity and Capital Resources
As of December 31, 1997, the Company had working capital of $50.4 million.
The Company has funded its activities through December 31, 1997 primarily
through the sale of equity securities and funding under collaborative
arrangements. From inception through December 31, 1997, the Company received
$104.9 million in net proceeds from equity financing and received $59.9 million
in research and development, license fees and milestone payments under
collaborative agreements.
The Company's funds are currently invested in U.S. Treasury and government
agency obligations, investment grade commercial paper and other short-term money
market instruments. The Company may also invest such proceeds in investment
grade, interest-bearing securities having a maximum maturity of two
-21-
<PAGE>
years. As of December 31, 1997, the Company's cash and cash equivalents totaled
$9.6 million. In addition, the Company had marketable securities of $73.0
million. See Note 2 to Financial Statements.
In connection with the Company's agreement with the Trustees of Columbia
University and Cold Spring Harbor Laboratory, the Company is required to pay
annual license fees. The Company is also required to pay to Columbia University
certain royalties.
In addition, as of December 31, 1997, the Company had outstanding
commitments for construction and equipment purchases totaling $0.2 million. The
Company anticipates that its capital requirements will continue at approximately
the same level over the next two years as the Company expands its research and
development activities. In connection with such expansion, the Company expects
to incur substantial expenditures for hiring additional management, scientific
and administrative personnel and for planned expansion and upgrading of its
facilities, including acquisition of additional equipment.
As of December 31, 1997, the Company had federal net operating loss
carryforwards of $34.7 million. These carryforwards will expire beginning in the
year 2008. Utilization of the net operating loss carryforwards will be subject
to limitation under Section 382 of the Internal Revenue Code. See Note 7 of
Notes to Financial Statements.
The Company anticipates that its existing capital resources will be
adequate to fund the Company's operations at least through 1999. There can be
no assurance that changes will not occur that would consume available capital
resources before such time. The Company's capital requirements depend on
numerous factors, including the ability of the Company to extend existing
collaborations and enter into additional collaborative arrangements, competing
technological and market developments, changes in the Company's existing
collaborative relationships, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights and the outcome
of related litigation, the purchase of additional capital equipment,
acquisitions of other businesses or technologies, the progress of the Company's
drug discovery programs and the progress of the Company's customers' milestone
and royalty producing activities. There can be no assurance that additional
funding, if necessary, will be available on favorable terms, if at all. The
Company's forecasts of the period of time through which its financial resources
will be adequate to support its operations is forward looking information, and
actual results could vary. The factors described earlier in this paragraph will
impact the Company's future capital requirements and the adequacy of its
available funds.
Based on preliminary reviews, the Company believes that its significant
internal computer information systems are year 2000 compliant. All other
internal systems are currently being assessed and a further review of all
systems is currently planned. Given the information known at this time, the
Company does not believe that changes to its systems to make them year 2000
compliant will require significant resources or material costs. No assurance
can be given, however, that all of the Company's systems will be year 2000
compliant on a timely basis or that actual compliance costs or the impact of the
Company's failure to achieve substantial year 2000 compliance will not have a
material adverse effect on the Company.
The Company intends to contact its significant suppliers and large
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own year 2000 issue. To date, the
Company is unaware of any situations of noncompliance that would adversely
affect its operations. However, there can be no assurance that the systems of
other companies on which the Company's systems rely will be timely converted or
that a failure to convert by another company would not have a material adverse
effect on the Company.
-22-
<PAGE>
Proposed Merger
On February 4, 1998, Pharmacopeia, Micro Acquisition Corporation, a wholly-
owned subsidiary of Pharmacopeia ("MAC") and Molecular Simulations Incorporated
("MSI") executed a definitive merger agreement (the "Merger Agreement") pursuant
to which Pharmacopeia will acquire MSI in a tax-free, stock-for-stock
transaction, which Pharmacopeia expects will qualify for accounting treatment on
a "pooling-of-interests" basis.
Pursuant to the Merger Agreement, MAC will be merged into MSI with MSI as
the surviving corporation. Assuming that outstanding options to purchase shares
of common stock of MSI are not exercised before the effective time of the
merger, Pharmacopeia will (a) acquire all of the outstanding capital stock of
MSI in exchange for approximately 7.0 million newly-issued shares of
Pharmacopeia Common Stock and (b) assume the outstanding MSI options, which will
then be exercisable for shares of Pharmacopeia Common Stock, potentially
resulting in the issuance of up to an additional 1.7 million newly-issued shares
of Pharmacopeia Common Stock.
The transaction is subject to certain conditions, including stockholder
approvals, the effectiveness of a registration statement under federal
securities laws relating to the Pharmacopeia Common Stock to be issued in the
merger, the listing of such Pharmacopeia Common Stock on the Nasdaq National
Market and the expiration of applicable waiting periods under pre-merger
notification regulations.
As of December 31, 1997 MSI had total assets of $46.5 million and for the
year ended December 31, 1997 MSI had total revenue of $56.7 million and net
income of $5.4 million.
After the closing of the merger, Pharmacopeia will file, as part of a
current Report on Form 8-K, unaudited pro forma combined condensed financial
statements that give effect to the merger.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and notes thereto and the independent
auditors' report appear on pages F-1 through F-16 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-23-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item concerning the Company's
directors is incorporated by reference from the section captioned "Election of
Directors" in the Company's Proxy Statement related to the 1998 Annual Meeting
of Stockholders forming a part of the Registration Statement on Form S-4, to be
filed with the Securities and Exchange Commission within 120 days after the
Company's fiscal year end. Two of the Company's Directors, Ms. More and Mr.
Colella, are not included in the Proxy Statement because they have advised the
Company of their decision not to stand for re-election at the Company's 1998
Annual Meeting of Stockholders. Information concerning both Ms. More and Mr.
Colella is set forth below.
Ms. More, age 52, has served as a director of the Company since June
1994. Ms. More has been a managing member of Oak Investment Partners, a venture
capital firm, since 1980. Ms. More is currently a director of Alexion
Pharmaceuticals, Inc. and several closely held companies.
Mr. Colella, age 57, has served as a director of the Company since July
1993. Mr. Colella has been a general partner of Institutional Venture Partners,
a venture capital firm, since 1984. Mr. Colella is currently a director of CV
Therapeutics, Inc., Integrated Medical Resources, Onyx Pharmaceuticals, Inc.,
and several closely held companies.
(b) The information required by this Item concerning the Company's
executive officers is set forth in Part I of this Form 10-K.
(c) The information required by this Item concerning compliance with
Section 16(a) of the Exchange Act is incorporated by reference from the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" contained in
the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
section captioned "Executive Compensation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section captioned "Stock Ownership of Principal Stockholders and Management" in
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
sections captioned "Certain Transactions" in the Company's Proxy Statement.
-24-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following Financial Statements are included:
Report of Independent Auditors
Balance Sheets as of December 31, 1996 and 1997
Statements of Operations for the years ended December 31, 1995, 1996 and
1997
Statements of Stockholders' Equity for the years ended December 31,
1995, 1996 and 1997
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997
Notes to Financial Statements
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable, or not required, or because the required information is included in
the financial statements or notes thereto.
(a)(3) Exhibits:
<TABLE>
<C> <S>
3.1****** Restated Certificate of Incorporation of the Registrant.
3.3****** Bylaws of the Registrant, as amended.
3.3(a)******** Amendment to Bylaws of Pharmacopeia dated July 31, 1997.
4.3* Stockholders Rights Agreement, dated February 15, 1995.
10.1* Series A and Series B Preferred Stock Purchase Agreement,
dated July 21, 1993.
10.2* Series B Preferred Stock Purchase Agreement, dated March 11,
1994.
10.3* Series C Preferred Stock Purchase Agreement, dated December
22, 1994.
10.4* Series D Preferred Stock Purchase Agreement, dated February
15, 1995.
10.5**# Amended 1994 Incentive Stock Plan.
10.5(a)*******# Amendment No. 3 to the 1994 Incentive Stock Plan dated May 9,
1997.
10.6*# 1995 Employee Stock Purchase Plan.
10.7*# 1995 Director Option Plan.
10.8*+ Library Collection Agreement, dated as of October 1, 1995,
between Pharmacopeia and Novartis Corporation.
10.9*+ Research, License, and Royalty Agreement, dated as of February
15, 1995, between Pharmacopeia and Berlex Laboratories, Inc.
10.9(a)*******+ Amendment No. 1 to Research, License and Royalty Agreement
between the Company and Berlex Laboratories, Inc. dated
November 27, 1996.
10.9(b)*******+ Amendment No. 2 to Research, License and Royalty Agreement
between the Company and Berlex Laboratories, Inc. dated June
30, 1997.
10.9(c)++ Amendment No.3 to Research, License and Royalty Agreement
between the Company and Berlex Laboratories, Inc. dated
November 21, 1997.
10.10*+ License Agreement, dated as of October 6, 1995, among
Pharmacopeia, the Trustees of Columbia University in the City
of New York and Cold Spring Harbor Laboratory.
10.11*+ Collaboration Agreement, dated as of December 22, 1994,
between Pharmacopeia and Schering Corporation and
Schering-Plough, Ltd.
</TABLE>
-25-
<PAGE>
<TABLE>
<C> <S>
10.11(b)*******+ Amendment No. 2 to Collaboration Agreement and Random Library
Agreement between the Company and Schering Corporation and
Schering-Plough, Ltd. dated as of April 22, 1996.
10.11(c)*******+ Amendment No. 3 to Collaboration Agreement and Random Library
Agreement between the Company and Schering Corporation and
Schering-Plough, Ltd. dated as of April 21, 1997.
10.12*+ Random Library Agreement, dated as of December 22, 1994,
between Pharmacopeia and Schering Corporation and
Schering-Plough, Ltd.
10.13* Lease Agreement between Pharmacopeia and Eastpark at 8A.
10.13(a)** Amendment dated as of January 22, 1996 to Lease Agreement
between Pharmacopeia and Eastpark at 8A.
10.13(b)**** Third Amendment to Lease Agreement dated March 31, 1996
between Pharmacopeia and Eastpark at 8A.
10.14* Sublease, dated as of December 7, 1994, between Pharmacopeia
and Enichem Americas, Inc.
10.15* Lease, dated as of May 2, 1994, between Pharmacopeia and
College Road Associates Limited, as amended.
10.15(a)** Lease dated as of December 1, 1995 between Pharmacopeia and
College Road Associates, as amended.
10.15(b)**** Third Execution and Modification of lease dated June 7, 1996,
between Pharmacopeia and College Road Associates Limited.
10.17*# Employment Agreement, dated October 4, 1994, between the
Company and Lewis J. Shuster.
10.18# Employment Agreement effective November 1, 1997 between the
Company and Joseph A. Mollica, Ph.D.
10.20*# Employment Agreement, dated June 3, 1993, between the Company
and John J. Baldwin, Ph.D.
10.21*# Employment Agreement, dated December 2, 1993, between the
Company and Nolan H. Sigal, M.D., Ph.D.
10.22*# Consulting Agreement, dated April 30, 1993, between the
Company and W. Clark Still, Ph.D.
10.23* Warrant to purchase Common Stock issued to Columbia
University.
10.24* Warrant to purchase Common Stock issued to Cold Spring Harbor
Laboratory.
10.25**+ Collaboration Agreement effective as of December 31, 1995
between Pharmacopeia and Bayer.
10.26**+ Random Library Agreement effective as of December 31, 1995
between Pharmacopeia and Bayer.
10.30***+ Collaborative Agreement dated as of March 29, 1996 with
Daiichi Pharmaceutical Co., Ltd.
10.30(a)*******+ Amendment No. 1 to Collaboration Agreement between the
Company and Daiichi Pharmaceutical Co., Ltd. dated April 14,
1997.
10.31****+ Research Agreement, between Pharmacopeia, Inc. and N.V.
Organon dated May 31, 1996.
10.32*****# Employment Agreement, dated June 20, 1996, between the Company
and Stephen A. Spearman, Ph.D.
</TABLE>
-26-
<PAGE>
<TABLE>
<C> <S>
10.33***** Lease Agreement, dated June 21, 1996, between Pharmacopeia and
South Brunswick Rental I, Ltd.
10.34++ Collaboration and License Agreement between Pharmacopeia, Inc.
and Bristol-Myers Squibb Company dated November 26, 1997.
11.1* Statement re Computation of Per Share Earnings.
21.0 Subsidiaries of Pharmacopeia, Inc.
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference to the same numbered exhibit filed with the
Company's Registration Statement on Form S-1 No. 33-93460.
** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-K for the year ended December 31, 1995.
*** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended March 31, 1996.
**** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended June 30, 1996.
***** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended September 30, 1996.
****** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-K for the year ended December 31, 1996.
******* Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended June 30, 1997.
******** Incorporated by reference to the same numbered exhibit filed with the
Company's form 10-Q for the quarter ended September 30, 1997.
+ Confidential treatment granted.
++ Confidential treatment requested.
# Represents a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no reports on Form 8-K required to be filed for the quarter
ended December 31, 1997.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHARMACOPEIA, INC.
By: /s/ LEWIS J. SHUSTER
-----------------------
Lewis J. Shuster
Executive Vice President, Corporate
Development and Chief Financial Officer
(Principal Accounting Officer)
Date: February 25, 1998
[Rest of page intentionally left blank]
-28-
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lewis J. Shuster and Joseph A. Mollica,
Ph.D., jointly and severally, as his attorney-in-fact, each with full power of
substitution, for him or her, in any and all capacities, to sign each amendment
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact or his or her substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOSEPH A. MOLLICA, Ph.D. Chairman of the Board and Chief February 25, 1998
- ---------------------------- Executive Officer (Principal
(Joseph A. Mollica, Ph.D.) Executive Officer)
/s/ LEWIS J. SHUSTER Executive Vice President, February 25, 1998
- -------------------- Corporate Development and Chief
(Lewis J. Shuster) Financial Officer (Principal
Financial and Accounting
Officer)
/s/ FRANK BALDINO, Jr., Ph.D. Director February 25, 1998
- -----------------------------
(Frank Baldino, Jr., Ph.D.)
/s/ PAUL A. BARTLETT, Ph.D. Director February 25, 1998
- ---------------------------
(Paul A. Bartlett, Ph.D.)
/s/ SAMUEL D. COLELLA Director February 25, 1998
- ---------------------
(Samuel D. Colella)
/s/ GARY E. COSTLEY, Ph.D. Director February 25, 1998
- --------------------------
(Gary E. Costley, Ph.D.)
/s/ EDITH W. MARTIN, Ph.D. Director February 25, 1998
- --------------------------
(Edith W. Martin, Ph.D.)
/s/ EILEEN M. MORE Director February 25, 1998
- ------------------
(Eileen M. More)
/s/ CHARLES A. SANDERS, M.D. Director February 25, 1998
- ----------------------------
(Charles A. Sanders, M.D.)
</TABLE>
-29-
<PAGE>
Pharmacopeia, Inc.
Index To Financial Statements
Contents
Report of Independent Auditors............................................. F-1
Balance Sheets............................................................. F-2
Statements of Operations................................................... F-3
Statements of Stockholders' Equity......................................... F-4
Statements of Cash Flows................................................... F-5
Notes to Financial Statements.............................................. F-6
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Pharmacopeia, Inc.
We have audited the accompanying balance sheets of Pharmacopeia, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pharmacopeia, Inc. at December
31, 1996 and 1997 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Princeton, New Jersey
January 27, 1998, except for
Note 13 as to which the date is February 4, 1998
F-1
<PAGE>
Pharmacopeia, Inc.
Balance Sheets
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
1996 1997
-------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17,059 $ 9,590
Marketable securities 64,423 60,166
Prepaid expenses and other current assets 1,525 1,890
-------------------
Total current assets 83,007 71,646
-------------------
Non-current investments in marketable securities 12,865
Property and equipment, net 8,295 10,874
Other assets 677 302
-------------------
$ 91,979 $ 95,687
===================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 742 $ 1,756
Accrued liabilities 2,240 2,726
Notes payable, current portion 710 690
Deferred revenue 15,088 16,091
-------------------
Total current liabilities 18,780 21,263
Notes payable, long-term portion 1,405 712
Deferred revenue, long-term 2,046 3,275
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value, 2,000,000 shares
authorized; none issued and outstanding
Common stock, $.0001 par value; 40,000,000 shares authorized;
11,267,499 and 11,786,941 shares issued and outstanding at
December 31, 1996 and 1997, respectively 1 1
Additional paid-in capital 97,542 104,909
Accumulated deficit (27,795) (34,473)
-------------------
Total stockholders' equity 69,748 70,437
-------------------
$ 91,979 $ 95,687
===================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Pharmacopeia, Inc.
Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
-----------------------------
<S> <C> <C> <C>
Contract revenue $ 5,151 $ 14,799 $ 24,523
Operating expenses:
Research and development:
Collaborative 5,563 13,129 16,931
Proprietary 5,468 8,111 12,588
General and administrative 3,781 5,617 5,848
-----------------------------
Operating loss (9,661) (12,058) (10,844)
Interest income 798 3,938 4,397
Interest expense (93) (263) (231)
-----------------------------
Net loss $(8,956) $ (8,383) $ (6,678)
=============================
Basic net loss per share $ (2.77) $ (.77) $ (.58)
=============================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Pharmacopeia, Inc.
Statements of Stockholders' Equity
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
--------------------------------------------- Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 8,400,880 $ 1 2,672,750 $ 21,444
Sale of Convertible Series D preferred stock 350,000 3,500
Sales of common stock 1,094 1
Acquisition of treasury stock
Retirement of treasury stock (64,521) (11)
Mandatory conversion of Convertible
preferred stock to common stock (8,750,880) (1) 4,375,446 1
Common stock issued based on anti-dilution
provisions 43,750
Exercise of warrant 15,750
Issuance of common stock in initial public
offering, net of expenses 2,990,000 43,808
Issuance of common stock for exercise of
options 5,700 3
Issuance of common stock in private placement 232,558 5,000
Net loss
-----------------------------------------------------------
Balance at December 31, 1995 - - 10,272,527 1 73,745
Acquisition of treasury stock
Retirement of treasury stock (7,594) (2)
Issuance of common stock in private
placements 973,206 23,641
Issuance of common stock for exercise of
options 22,189 47
Issuance of common stock in employee stock
purchase plan 7,171 111
Net loss
-----------------------------------------------------------
Balance at December 31, 1996 - - 11,267,499 1 97,542
Acquisition of treasury stock
Retirement of treasury stock (1,646) (1)
Issuance of common stock in private
placements, net 438,323 6,861
Issuance of common stock for exercise
of options 51,669 56
Issuance of common stock in employee stock
purchase plan 18,488 235
Issuance of common stock for 401K
matching 12,608 216
Net loss
-----------------------------------------------------------
Balance at December 31, 1997 - $ - 11,786,941 $ 1 $104,909
=========================================================================================================
<CAPTION>
Treasury Stock
----------------------- Total
Number of Accumulated Stockholders'
Shares Amount Deficit Equity
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 45,000 $ (9) $ (10,456) $ 10,980
Sale of Convertible Series D preferred stock 3,500
Sales of common stock 1
Acquisition of treasury stock 19,521 (2) (2)
Retirement of treasury stock (64,521) 11 -
Mandatory conversion of Convertible
preferred stock to common stock -
Common stock issued based on anti-dilution
provisions -
Exercise of warrant -
Issuance of common stock in initial public
offering, net of expenses 43,808
Issuance of common stock for exercise of
options 3
Issuance of common stock in private placement 5,000
Net loss (8,956) (8,956)
--------------------------------------------------------
Balance at December 31, 1995 - - (19,412) 54,334
Acquisition of treasury stock 7,594 (2) (2)
Retirement of treasury stock (7,594) 2
Issuance of common stock in private
placements 23,641
Issuance of common stock for exercise of
options 47
Issuance of common stock in employee stock
purchase plan 111
Net loss (8,383) (8,383)
--------------------------------------------------------
Balance at December 31, 1996 - - (27,795) 69,748
Acquisition of treasury stock 1,646 (1) (1)
Retirement of treasury stock (1,646) 1
Issuance of common stock in private
placements, net 6,861
Issuance of common stock for exercise
of options 56
Issuance of common stock in employee stock
purchase plan 235
Issuance of common stock for 401K
matching 216
Net loss (6,678) (6,678)
--------------------------------------------------------
Balance at December 31, 1997 - $ - $ (34,473) $ 70,437
======================================================================================================
</TABLE>
F-4
<PAGE>
Pharmacopeia, Inc.
Statements of Cash Flow
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
--------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (8,956) $ (8,383) $ (6,678)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 554 1,467 2,754
Amortization 40 40 22
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other current (691) (370) (365)
assets
(Increase) decrease in other assets (238) (159) 353
Increase in accounts payable 26 241 1,014
Increase in accrued liabilities 1,046 499 486
Increase in deferred revenue 4,599 9,536 2,232
--------------------------------
Net cash provided by (used in) operating activities (3,620) 2,871 (182)
Cash flows from investing activities
Capital expenditures (2,410) (6,834) (5,333)
Purchases of marketable securities (41,391) (95,750) (90,373)
Proceeds from sales of marketable securities 13,108 63,615 81,765
(Increase) decrease in segregated cash 125
--------------------------------
Net cash used in investing activities (30,568) (38,969) (13,941)
Cash flows from financing activities
Net proceeds from issuance of common stock 48,810 23,797 7,367
Net proceeds from issuance of convertible preferred 3,500
stock
Increase in notes payable 1,233 1,344
Repayments of note payable (228) (596) (713)
--------------------------------
Net cash provided by financing activities 53,315 24,545 6,654
--------------------------------
Increase (decrease) in cash and cash equivalents 19,127 (11,553) (7,469)
Cash and cash equivalents at beginning of period 9,485 28,612 17,059
--------------------------------
Cash and cash equivalents at end of period $ 28,612 $ 17,059 $ 9,590
================================
Interest paid $ 93 $ 263 $ 231
================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
1. Organization and Description of Business
Pharmacopeia, Inc. (the "Company"), which was incorporated in Delaware in March
1993, develops combinatorial chemical libraries and uses these libraries alone,
and through collaborations, to discover new, low molecular weight compounds
principally for use as pharmaceuticals.
Through December 1994, the Company was in the development stage. Beginning in
January 1995, the Company started receiving and expects to continue to receive
revenue from collaboration agreements (see Note 10). As a result, the Company
is no longer considered to be in the development stage. Included in accumulated
deficit is $10,456 accumulated during the development stage.
The Company's approach to drug discovery represents a newly created business for
which there is little precedent. The Company's expansion of its operations and
enhancements to its drug discovery technology will result in significant
expenses over the next several years that may not be offset by significant
revenues. The Company expects that any revenues for the foreseeable future and
the Company's ability to achieve profitability will be dependent upon the
ability of the Company to enter into additional collaborative arrangements with
customers.
2. Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly-liquid investments with an original maturity of
three months or less to be cash equivalents. The Company invests its cash in
deposits with major financial institutions, money market funds, U.S. Treasury
securities and other investment grade securities such as prime rated commercial
paper.
Marketable Securities
Marketable securities consist of fixed income investments with a maturity of
greater than three months which can be readily purchased or sold using
established markets. Such securities are carried at market which approximates
cost.
F-6
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
2. Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided over the
estimated useful lives of the related assets which range from three to ten years
using the straight-line method. Assets under capital leases are amortized over
the lesser of the useful life of the assets or the applicable lease terms,
whichever is shorter, which approximates 5 years.
Intangible Assets
Intangible assets are included in other assets and consist primarily of licensed
technology which represents the initial payment for certain exclusive licenses
granted to the Company as of the date of incorporation and are being amortized
over four years. Accumulated amortization at December 31, 1996 and 1997 was
$142 and $164, respectively.
Revenue Recognition
Research and development contract revenue is recognized as the services are
performed on a percentage of completion basis. Amounts received in advance of
services to be performed are recorded as deferred revenue.
Research and Development
All research and development costs are charged to operations as incurred.
Stock Based Compensation
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting Principal
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock option plans.
Under APB 25, no compensation expense is recognized at the time of option grant
because the exercise price of the Company's employee stock option equals the
fair market value of the underlying common stock on the date of grant.
F-7
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
2. Significant Accounting Policies (continued)
Basic Net Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. The effect of adoption of Statement 128 had no financial impact and
accordingly, no restatement of loss per share for prior years was necessary.
The basic net loss per share is based on net loss for the year, divided by the
weighted average number of common shares outstanding during the year. Common
stock equivalents such as convertible preferred stock, stock options and
warrants are not included as their effect is anti-dilutive. Shares used in
computing basic net loss per share were 3,231,102, 10,833,980 and 11,453,743 for
the years ended December 31, 1995, 1996 and 1997 respectively.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components and is applied to all
enterprises. SFAS No. 130 is effective for financial statements for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 will have
no impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore, the Company will adopt the new
requirements retroactively in 1998. The adoption of SFAS No. 131 will have no
significant impact on the Company's financial reporting.
F-8
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
3. Property and Equipment
Property and equipment consist of the following:
December 31
1996 1997
-------------------
Laboratory equipment $ 4,904 $ 7,388
Furniture, fixtures and equipment 1,227 1,828
Computers and software 1,649 2,559
Leasehold improvements 2,716 3,629
Construction in progress 15 440
-------------------
10,511 15,844
Less accumulated depreciation and amortization (2,216) (4,970)
-------------------
Property and equipment, net $ 8,295 $10,874
===================
4. Leases
The Company has a total of three operating leases or sub-leases for office and
laboratory space which expire at various dates through November 30, 2005.
The future minimum lease commitments at December 31, 1997 are as follows:
1998 $2,911
1999 2,761
2000 1,471
2001 1,041
2002 1,041
Thereafter 3,037
Rent expense for the years ended December 31, 1995, 1996 and 1997 was $1,255,
$1,783 and $2,828, respectively.
F-9
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
5. Accrued Liabilities
Accrued liabilities consist of the following:
1996 1997
------------------
Accrued bonus $ 623 $1,005
Accrued vacation 208 322
Accrued relocation 573 219
Accrued licensing costs - related party (Note 12) 300 377
Other 536 803
------------------
$2,240 $2,726
==================
6. Notes Payable
The Company has entered into Equipment Financing Agreements primarily for the
purchase of certain laboratory and research related equipment. Under the terms
of these agreements, the Company may finance up to $2,850 of equipment and
leasehold improvements. At December 31, 1997, the Company had sixteen separate
secured notes payable under these agreements. The notes payable expire at
various dates through June 2000.
The following is a schedule, by year, of the future principal payments under
equipment financing agreements as of December 31, 1997:
1998 $ 690
1999 481
2000 231
--------
Total principal payments $1,402
========
7. Income Taxes
The Company utilizes the liability method to account for income taxes. Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's net deferred tax asset, which is considered noncurrent, are as
follows:
F-10
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
7. Income Taxes (continued)
<TABLE>
<CAPTION>
December 31
1996 1997
---------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 11,218 $ 13,900
Research credit 722 1,334
Deferred tax asset valuation reserve (11,940) (15,234)
---------------------
Net deferred tax asset $ - $ -
=====================
</TABLE>
In 1995, 1996 and 1997, the Company recorded valuation reserves of $8,145,
$11,940, and $15,234, respectively, principally to offset the benefits of net
operating loss carryforwards at the end of those years.
At December 31, 1997, the Company has federal net operating loss (NOL)
carryforwards of approximately $34,700 which expire in 2008 ($2,131), 2009
($8,475), 2010 ($9,100), 2011 ($8,294) and 2012 ($6,700). An ownership change
pursuant to Section 382 of the Internal Revenue Code occurred in December 1995
as a result of the public offering of the Company's common stock. The effect of
the ownership change is that use of approximately $11,800 of the NOL
carryforward is restricted to approximately $6,700 per year. The Company has
state NOL carryforwards $34,700 at December 31, 1997, which expire in 2000
($2,100), 2001 ($8,500), 2002 ($9,100), 2003 ($8,300) and 2004 ($6,700).
The Company has federal research tax credit carryforwards of approximately $936
at December 31, 1997 which expire from 2008 through 2012. Approximately $476 of
the carryforwards are subject to limitation pursuant to Section 382. In
addition, the Company has a state research tax credit carryforward of
approximately $466 which expires from 2002 to 2004.
8. Stockholders' Equity
Common Stock
During 1996 the Company received a total of $25,165 in proceeds from the sale to
four corporate partners of 973,206 newly issued shares of Pharmacopeia common
stock. Of the total proceeds, $23,641 was recognized as equity. The balance of
$1,524 was initially recorded on the balance sheet as deferred revenue and is
being recognized as revenue over the balance of the term of the associated
corporate collaboration agreements.
During 1997 the Company received a total of $7,165 in proceeds from the sale to
two corporate partners of newly issued shares of Pharmacopeia common stock. Of
the total proceeds, $6,791 was recognized as equity. The balance of $374 is
currently included in the balance sheet as deferred revenue and will be
recognized as revenue over the balance of the term of the associated corporate
collaboration agreement.
F-11
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
9. Stock Plans
The Company has three Stock Plans, the 1994 Incentive Stock Plan, the 1995
Employee Stock Purchase Plan and the 1995 Director Option Plan.
In accordance with the 1994 Incentive Stock Plan (the "Plan"), the Company may
grant up to 1,750,000 shares of both incentive or non-qualified stock options or
stock purchase rights to officers, directors, employees, sales representatives
and consultants of the Company. The term of each incentive and non-qualified
stock option and stock purchase right is ten years or ten years and one day from
the date of grant. Vesting generally occurs over a period of not greater than
five years.
At December 31, 1997, 387,544 of the outstanding options and stock purchase
rights were exercisable and there were 303,586 shares available for future
grants. All stock purchase rights which are not vested are subject to
repurchase by the Company.
In 1995, the Company adopted the 1995 Employee Stock Purchase Plan ("ESPP")
under Section 423 of the Internal Revenue Code. An aggregate of 250,000 shares
of common stock are reserved for offering under the ESPP. In 1997, 18,488
shares of common stock were purchased at prices ranging from $12.54 to $12.96
per share, as determined by the ESPP. At December 31, 1997, there were 224,341
shares available for future purchase.
In accordance with the 1995 Directors Option Plan, the Company may grant up to
150,000 options to purchase shares of common stock to non-employee members of
the Board. The exercise price of the stock options shall be equal to the fair
market value per share of common stock on the option grant date. Each option
has a term of ten years from the option grant date and shall become exercisable
in a series of three equal and successive annual installments. During 1997
50,000 options were granted at exercise prices ranging from $14.13 to $16.00 per
share. At December 31, 1997, 11,664 of the outstanding options were exercisable
and there were 78,334 shares available for future grants.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company has accounted for its employee stock options and
warrants granted subsequent to December 31, 1994 and shares of common stock
purchased by employees in connection with the ESPP ("equity awards") under the
fair value method of FASB 123. The fair value of these equity awards was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1995, 1996, and 1997,
respectively: risk-free interest rates of 6.06%, 6.17%, and 5.44%; expected
volatility of 59.70, 59.70, and 47.00; expected option life of 5.6, 5.6, and 5.8
years from vesting and an expected dividend yield of 0.0%.
F-12
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
9. Stock Plans (continued)
For purposes of pro forma disclosures, the estimated fair value of the equity
awards is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
1995 1996 1997
---- ---- ----
Pro forma net loss............................$(9,565) $(9,474) $(9,395)
Pro forma basic net loss per share............$(2.96) $(.87) $(.82)
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1995, 1996, and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Common Average Common Average Common Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
--------- --------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year....... 120,000 $ .48 363,575 $ 2.10 921,271 $14.19
Granted................. 250,900 2.83 598,220 20.90 517,680 16.22
Exercised............... (6,794) .49 (22,189) 2.76 (36,669) 1.06
Forfeited............... (531) .84 (18,335) 7.83 (46,583) 18.14
--------- -------- ----------
Outstanding at end of
year 363,575 2.10 921,271 14.19 1,355,699 15.17
========= ======== ==========
Exercisable at end of
year 36,959 132,715 387,544
========= ======== ==========
Weighted average fair
value of options
granted during the year 2.81 13.03 8.51
</TABLE>
Stock options outstanding at December 31, 1997 are summarized as follows:
Weighted
Outstanding Weighted Average Average
Range of Options at Remaining Exercise
Exercise Prices December 31, 1997 Contractual Life Price
--------------- ----------------- ---------------- --------
$ .48 96,402 6.9 $ .48
$ 1.24 - $19.00 971,147 8.7 14.48
$19.38 - $26.75 288,150 8.6 22.38
-----------------
$ .48 - $26.75 1,355,699 8.6 15.17
=================
F-13
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
10. Collaborative Agreements
On December 22, 1994, the Company entered into a Collaboration Agreement and
Random Library Agreement with Schering Corporation and Schering-Plough Ltd.
(collectively "Schering-Plough") which provides for research funding, product
development milestone payments and royalties on net product sales. The term of
these agreements as amended extend into 1998 and are subject to further
extension by agreement of both parties.
On February 15, 1995, the Company entered into a Collaboration Agreement with
Berlex Laboratories, Inc. ("Berlex"). The term of the Collaboration Agreement
as amended extends into 1998 and is subject to further extension by agreement of
both parties. Berlex has agreed to pay the Company research funding, product
development milestone payments, and royalties on net product sales.
On October 1, 1995, the Company entered into an agreement with Novartis
Corporation ("Novartis") to create libraries in collaboration with Novartis for
screening by Novartis. Under this agreement, the Company is obligated to
provide certain numbers of compounds during each of the five years of the
program. In return, Novartis is obligated to pay the Company research funding
during each year of the agreement. Novartis has also agreed to pay the Company
milestone payments and royalties on the sale of any drugs that result from the
relationship.
During 1996 the Company signed new agreements with Bayer, Daiichi, and NV
Organon. The effective date of the Bayer agreement was December 31, 1995. Under
these agreements each of these companies has committed to fund certain licensing
and research and development ("R&D") programs at Pharmacopeia. The R&D programs
expire at various dates through May 1999 and are subject to extension by
agreement of both parties. These firms also agreed to pay the Company milestone
payments and royalties on the sale of drugs that result from the relationships.
During 1997 the Company signed new agreements with Zeneca Limited and Bristol-
Myers Squibb Company. The R&D programs expire at various dates through December
2000 and are subject to extension by agreement of both parties. These firms
have also agreed to pay the Company milestone payments and royalties on the sale
of any products generated by the collaboration.
Revenue from customers representing 10% or more of total contract revenue for
the years ended December 31, 1995, 1996 and 1997 is as follows:
F-14
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
10. Collaborative Agreements (continued)
Customer 1995 1996 1997
- ------------------------- -------------- -------------- -------------
A 58% 36% 21%
B - 16% 21%
C - 14% 15%
D - - 13%
E - - 13%
F 42% 19% 11%
11. Employee Tax-Deferred Savings Plan
The Company maintains a 401(k) defined contribution plan (the "Plan") covering
all full time employees. Employees are eligible to participate on the first day
of the month following their date of hire. The Plan provides for voluntary
employee contributions from 1% to 20% of annual compensation, subject to a
maximum limit allowed by Internal Revenue Service guidelines. Matching
contributions in either cash or Company stock may be made at the discretion of
the Company. Employer contributions vest to participants at a rate of 33 1/3%
per year of service, provided that after three years of service all past and
subsequent employer contributions are 100% vested. $216 of contributions were
charged to operations for the year ended December 31, 1997.
12. Commitments
On July 16, 1993, the Company entered into a license agreement with the Trustees
of Columbia University and Cold Spring Harbor Laboratory. The agreement grants
to the Company an exclusive, worldwide license to certain technology for making
and using combinatorial chemical libraries. The agreement includes annual
license fees and certain royalties to be made by the Company. In October 1995,
the Company amended its license agreement with the Trustees of Columbia
University and Cold Spring Harbor Laboratories. In connection with this
amendment, the Company issued warrants to purchase 100,000 shares of common
stock at $10.00 per share, exercisable through October 5, 2000 or earlier as
defined in the warrants. During the years ended December 31, 1995, 1996, and
1997 the Company paid royalties and license fees to Columbia University of
$419, $590, and $500 respectively.
In addition, the Company had commitments for construction and equipment of
approximately $172 at December 31, 1997.
F-15
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
December 31, 1997
13. Subsequent Event
On February 4, 1998, the Company and Molecular Simulations Incorporated ("MSI")
announced the execution of a definitive merger agreement under which the Company
will acquire MSI in a tax-free, stock-for-stock transaction to be accounted for
on a pooling basis. The Company will acquire all of the outstanding stock of MSI
and will assume the outstanding MSI options, which will then be exercisable for
shares of the Company's Common Stock. MSI is a provider of molecular modeling
and simulation software. MSI designs, develops, markets and supports software
that facilitates the discovery and development of new products and processes in
the pharmaceutical, biotechnology, chemical, petrochemical and materials
industries. As of December 31, 1997 MSI had total assets of $46,500 and for the
year ended December 31, 1997 MSI had total revenue of $56,700 and net income of
$5,400.
F-16
<PAGE>
Pharmacopeia, Inc.
Report on Form 10-K for
the year ended December 31, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Exhibit Name Sequentially
Number Numbered Page
<C> <S> <C>
10.9(c) Amendment No.3 to Research, License and Royalty Agreement between
the Company and Berlex Laboratories, Inc. dated November 21, 1997.
10.18 Employment Agreement effective November 1, 1997 between the
Company and Joseph A. Mollica, Ph.D.
10.34 Collaboration and License Agreement between Pharmacopeia, Inc. and
Bristol-Myers Squibb Company dated November 26, 1997.
21.0 Subsidiaries of Pharmacopeia, Inc.
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney (see page 29 )
27.1 Financial Data Schedule (filed electronically with the SEC only)
</TABLE>
<PAGE>
EXHIBIT 10.9(c)
---------------
Amendment No. 3 to Research, License and Royalty Agreement
----------------------------------------------------------
This Amendment No. 3 to Research, License and Royalty Agreement (the
"Amendment") effective as of November 21, 1997, is entered into by and between
Pharmacopeia, Inc. ("Pharmacopeia") and Berlex Laboratories, Inc. ("Berlex"),
and amends that certain Research, License and Royalty Agreement entered into by
Pharmacopeia and Berlex effective as of February 15, 1995 (the "Agreement"), as
amended by Amendment No. 1 to Research, License and Royalty Agreement effective
as of November 27, 1996 and Amendment No. 2 to Research, License and Royalty
Agreement effective as of June 30, 1997.
1. All capitalized terms not defined in this Amendment shall have the meanings
given to them in the Agreement, as amended.
2. The following new Sections 1.49 and 1.50 are added following Section 1.48:
1.49 "Outside Compound" is defined in Section 4.9(b).
1.50 "Outside Target" means any target against which Pharmacopeia screens
one or more of the Focused Libraries other than (i) the Initial Berlex
Target or (ii) the Additional Berlex Target.
3. Subsection 4.5(a) is amended to read in its entirety as follows:
(a) subject to the terms of Section 4.7, an exclusive (even as to
Pharmacopeia) worldwide, royalty-bearing license under the Developed
Technology to make, have made, use and sell compounds in Focused Libraries,
Lead Compounds, Development Compounds, Products and Other Products in and
outside the Field;
4. Subsection 4.5(d) is amended to read in its entirety as follows:
(d) subject to the terms of Section 4.7, an exclusive (even as to
Pharmacopeia) worldwide, royalty-bearing license under the Pharmacopeia
Base Technology to make, have made, use and sell compounds in Focused
Libraries, Lead Compounds, Development Compounds, Products and Other
Products in and outside the Field.
<PAGE>
5. The following language shall be added to the end of Section 4.7:
Notwithstanding any contrary provision of this Agreement, Berlex also
grants to Pharmacopeia a co-exclusive (with Berlex) worldwide license under
the Berlex Base Technology and Berlex's interest in the Developed
Technology to make, have made, use and sell any compounds in the Focused
Libraries outside the Field on the terms and conditions set forth in
Sections 4.9 and 4.15 below, with the right to grant sublicenses in
accordance with Section 4.15 below.
6. Section 4.9 is amended to read in its entirety as follows:
4.9 Use of Focused Libraries.
------------------------
(a) Limitation on Use. For a period from the end of the Term until
-----------------
expiration of the last to expire issued Live Claim which claims Focused
Libraries, Lead Compounds, Development Compounds, Products or Other
Products or, in the case of a Live Claim in a pending patent application,
until the earlier of (i) abandonment cancellation, withdrawal, or
disclaiming of such Live Claim or (ii) the [***] anniversary of filing such
patent application or, if a parent of such patent application exists, the
[***] anniversary of the earliest such parent application, Pharmacopeia may
not use the Focused Libraries, Lead Compounds, Development Compounds,
Products and Other Products for any purpose except (A) Pharmacopeia's
Internal Research Purposes and (B) screening against Outside Targets as
set forth in Section 4.9(b) below. "Internal Research Purposes" means
Pharmacopeia's sole, internal use for which it is not receiving payment
from any Third Party, without the right to license or disclose to a Third
Party any results of such use for any purpose without the prior, express
written consent of Berlex. Pharmacopeia agrees not to transfer such
Focused Libraries, substances therein, Lead Compounds or Development
Compounds to any Third Party in connection with such use for Internal
Research Purposes.
(b) Screening Against Outside Targets. Pharmacopeia may use the Focused
----------------------------------
Libraries including those listed on Exhibit A hereto, for purposes of
screening against Outside Targets to identify Outside Compounds. As used
herein, "Outside Compound" shall mean a compound that (i) is identified
through Pharmacopeia's screening of the Focused Libraries pursuant to this
Section 4.9(b), and (ii) has activity against an Outside Target; provided,
however, that compounds which are Lead Compounds or Development Compounds
shall not be Outside Compounds. Pharmacopeia may commercialize such
Outside Compounds as set forth in Section 4.15 below.
*** Information omitted and filed separately with the Commission under Rule
24b-2
-2-
<PAGE>
7. The following new Section 4.15 is inserted following Section 4.14:
4.15 Commercialization of Outside Compounds. In the event that
--------------------------------------
Pharmacopeia desires to commercially exploit an Outside Compound,
Pharmacopeia may so notify Berlex in writing [***]
(a) [***] Berlex shall give Pharmacopeia written notice (a "Berlex
Response") stating whether Berlex desires to [***]. If Berlex states in
such Berlex Response [***]. If Berlex states in the Berlex Response that
[***].
(b) [***] In the event that Berlex and Pharmacopeia [***]. Pharmacopeia
shall not, [***].
*** Information omitted and filed separately with the Commission under Rule
24b-2
-3-
<PAGE>
(c) Third Party Collaboration. [***] Pharmacopeia may negotiate with any
-------------------------
third party, and enter into with any third party, an agreement concerning
research and development of such Outside Compound and an exclusive (even as
to Pharmacopeia and Berlex) royalty-bearing license (or sublicense as the
case may be) under the Developed Technology and the Pharmacopeia Base
Technology to make, have made, use, sell, offer to sell, and import
products containing such Outside Compound or other compounds identified
through such research and development; provided, however, that Pharmacopeia
shall pay to Berlex [***] of any non-royalty cash consideration for such
license actually received by Pharmacopeia from such third party (including
without limitation up-front payments, premiums on equity, license fees, and
milestones payments, but excluding all amounts provided to Pharmacopeia in
the form of loans or compensation for research or development services, or
other work, performed by Pharmacopeia) and [***] of any cash royalty
payments actually received by Pharmacopeia from such third party for
products containing such Outside Compound.
(d) Restriction on Exploitation of Outside Compounds. Except as the
------------------------------------------------
parties may otherwise agree in writing, Berlex shall not research, develop,
exploit, sell or commercialize (through licensing, research collaboration,
or otherwise) any Outside Compound that has been identified to Berlex in an
Outside Compound Notification received by Berlex other than through an
agreement with Pharmacopeia pursuant to this Section 4.15, and Pharmacopeia
shall not exploit, sell or commercialize (through licensing, research
collaboration, or otherwise) Outside Compounds except as provided in this
Section 4.15.
8. The following new Subsection 14.3(e) is inserted following Subsection
14.3(d):
(e) Outside Compounds. It is understood that all agreements, if any,
-----------------
between Pharmacopeia and third parties with respect to research and
development of Outside Compounds entered into pursuant to Section 4.15, and
all licenses or sublicenses, if any, granted by Pharmacopeia to a third
parties in accordance with Section 4.15, shall not be affected by the
expiration or termination of this Agreement for any reason, and such
agreements, licenses or sublicenses shall only terminate or expire in
accordance with their own terms. Notwithstanding any other provision of
this Agreement, the right of Pharmacopeia to screen Focused Libraries
against Outside Targets in accordance with Sections 4.7 and 4.9 and to
enter into agreements and licenses or sublicenses with respect to Outside
Compounds as set forth in Section 4.15 shall survive the expiration or
termination of this Agreement for any reason.
*** Information omitted and filed separately with the Commission under Rule
24b-2
-4-
<PAGE>
9. Except as specifically modified or amended hereby, the Agreement shall
remain in full force and effect and, as modified or amended, is hereby
ratified, confirmed and approved. No provision of this Amendment may be
modified or amended except expressly in a writing signed by both parties
nor shall any terms be waived except expressly in a writing signed by the
party charged therewith. This Amendment shall be governed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of laws.
IN WITNESS WHEREOF, each of the parties has executed this Amendment as of
the date indicated on this Amendment.
BERLEX LABORATORIES, INC. PHARMACOPEIA, INC.
By: /S/ DALE STRINGFELLOW By: /S/ JOSEPH A. MOLLICA
----------------------- ------------------------------
Name: Dale Stringfellow Name: Joseph A. Mollica, Ph.D.
-------------------- ------------------------
Title: Vice President Title: Chairman & CEO
-------------------- ------------------------
Date: November 21, 1997 Date: November 20, 1997
-------------------- ------------------------
-5-
<PAGE>
EXHIBIT 10.18
-------------
December 16, 1997
Dr. Joseph A. Mollica
101 College Road East
Princeton Forrestal Center
Princeton, NJ 08540
Dear Joe:
As you know, the letter agreement between you and Pharmacopeia, Inc.
(the "Company") dated January 12, 1994 (the "1994 Letter") provided for a term
of employment of three years. Now that such term has expired, the purpose of
this letter is to set forth the principal terms of your continued employment
with the Company. Upon acceptance by you this letter shall constitute a binding
agreement between you and the Company effective as of November 1, 1997.
Position: Chairman of the Board of Directors and Chief
- -------- Executive Officer.
Compensation: Your annual compensation is $365,000 per year (pre-tax),
- ------------ payable in equal monthly installments, subject to review
by the Board of Directors in February of each year (the
"Base Salary").
Expenses: Expenses incurred on the Company's behalf will be
- -------- reimbursed in accordance with the Company's expense
reimbursement policy.
Bonus: A bonus target of thirty-five percent (35%) of the
- ----- Base Salary as determined in accordance with the
Company's existing compensation policy, or such other
amount as the Board shall establish for its Chief
Executive Officer pursuant to the Company's Bonus Program
for Senior Management. Bonuses will be paid on February
15 of each year provided you are employed by the Company
or are receiving severance payments on such date.
<PAGE>
Dr. Joseph A. Mollica
December 16, 1997
Page 2
Equity: The shares of Common Stock that you were entitled
- ------ to purchase under the terms of the 1994 Letter (the
"Common Stock") will continue to vest under the terms
provided in the 1994 Letter; provided that, in addition
to such terms, in the event that you terminate your
employment for Good Reason (as defined below), the shares
of Common Stock shall continue to vest at the rate set
forth in the 1994 Letter during the period that the
Company is obligated to continue to pay your salary as
set forth below.
Benefits: You will be entitled to receive the Company's standard
- -------- medical, dental, disability and life insurance benefits
for you and your family. You will be entitled to
participate in all compensation and benefit programs
established for senior management.
Vacation: You will be entitled to take accrued vacation in
- -------- accordance with the Company's standard vacation policy.
Term of Employment: Your employment term will be three years from the date
- ------------------ hereof (the "Period of Employment") subject to extension
by mutual agreement of you and the Company, provided,
however, that the Company will give you not less than six
months' notice of (i) involuntary termination of your
employment (except for termination for Cause) following
the Period of Employment or (ii) the Company's intention
not to extend the Period of Employment.
Severance: In the event your employment is terminated by the
- --------- Company without Cause during the Period of Employment,
or in the event that during the Period of Employment you
terminate your employment by the Company for Good Reason,
the Company will continue to pay your Base Salary plus
bonus and continue to provide benefits at the Company's
expense as set forth above until fifteen months after the
date of such termination, provided that the Company's
obligation to continue to pay such salary shall cease as
of the date you commence full-time employment with
another business entity.
For the purposes of this agreement, "Cause" shall mean
the occurrence of any of the following: (a) any
intentional action or intentional failure to act by you
which was performed in bad faith and to the material
detriment of the Company; (b) you refuse to follow the
reasonable directives of the Board of Directors; or (c)
you are convicted of a felony crime involving
<PAGE>
Dr. Joseph A. Mollica
December 16, 1997
Page 3
moral turpitude; provided that in the event that any of
the foregoing events is capable of being cured, the
Company shall provide written notice to you describing
the nature of such event and you shall thereafter have
fifteen (15) days to cure such event. For the purposes of
this agreement, "Good Reason" shall mean the occurrence
of any of the following: (a) your being removed as Chief
Executive Officer, or Chairman of the Board of Directors,
of the Company; or (b) a reduction of ten percent (10%)
or more of the Base Salary, unless made simultaneously
with a similar reduction of the base salaries of all the
Company's executive officers. In the event your
employment is terminated by the Company with Cause, or is
terminated by you without Good Reason, you shall not be
entitled to any severance compensation as set forth
above.
Change in Control: In the event that the Company is acquired by way of
- ----------------- merger, sale of assets, or acquisition of more than
fifty percent (50%) of the outstanding voting securities
of the Company by a single entity during the Period of
Employment (the "Acquisition")
(i) if the acquiror makes an offer to purchase all
existing shares of the Company, you will be entitled
to tender all shares of Common Stock owned by you,
provided that the consideration paid in respect of
shares which were at the time subject to the
Company's repurchase option shall be placed in
escrow and shall be released to you ratably over the
balance of the Period of Employment, with unreleased
shares (or consideration paid in respect thereof)
being subject to forfeiture only in the event that
you voluntarily terminate your employment without
Good Reason, or your employment is terminated with
Cause by the Company or by the acquiror, before the
expiration of the Period of Employment; and
(ii) if (A) prior to or contemporaneously with
consummation of an Acquisition, the corporation
acquiring the Company's assets or into which the
Company is merged fails to assume and thereafter
perform the obligations of the Company under this
Agreement or (B) at any time after an Acquisition
and during the Period of Employment your employment
shall be involuntarily terminated without Cause,
then in either such case (1) you shall be entitled
to an immediate payment by the
<PAGE>
Dr. Joseph A. Mollica
December 16, 1997
Page 4
Company of all severance benefits as described
herein and (2) any right of the Company to
repurchase shares of the Common Stock shall be
extinguished.
Death: In the event of your death, your Base Salary through
- ----- the month of your death will be paid to your estate.
Indemnification: The Company agrees to indemnify you to the fullest
- --------------- extent permitted by Delaware law, including mandatory
advancement of costs allowed by law.
Board Authorization: The terms of this letter agreement have been approved
- ------------------- by the Board of Directors of the Company and will be
set forth in a duly adopted resolution of the Board of
Directors contained in the minute book of the Company.
Governing Law: This Agreement shall be construed under and governed
- ------------- by the laws of the State of New Jersey.
If the foregoing accurately reflects our agreement, please so indicate by
signing where indicated below and returning the enclosed duplicate copy of this
letter to me.
Sincerely,
Samuel D. Colella
On behalf of the Board of Directors of
Pharmacopeia, Inc.
The foregoing is agreed and accepted.
/s/ Joseph A. Mollica
- -------------------------------
Dr. Joseph A. Mollica
December 16, 1997
- -------------------------------
Date
<PAGE>
EXHIBIT 10.34
-------------
COLLABORATION
AND
LICENSE AGREEMENT
BETWEEN
PHARMACOPEIA, INC.
AND
BRISTOL-MYERS SQUIBB COMPANY
DATED AS OF NOVEMBER 26, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
BACKGROUND......................................................................... 1
ARTICLE 1 DEFINITIONS................................................... 1
ARTICLE 2 RESEARCH COLLABORATION........................................ 8
2.1 Nature of Collaboration; Research Collaboration Activities.... 8
----------------------------------------------------------
2.2 Conduct of Research Collaboration............................. 8
---------------------------------
2.3 Annual Research Plans......................................... 9
---------------------
2.4 Term and Termination of Research Collaboration................ 10
----------------------------------------------
2.4.1 Research Term................................................. 10
-------------
2.4.2 Extension of Research Term.................................... 10
--------------------------
2.4.3 Termination of Research Collaboration......................... 10
-------------------------------------
2.4.4 Effect of Termination......................................... 11
---------------------
2.5 Third Party Licenses.......................................... 12
--------------------
2.6 Exclusivity................................................... 12
-----------
2.7 Records; Inspection Rights.................................... 12
--------------------------
2.8 Post-Research Collaboration Activities........................ 12
--------------------------------------
ARTICLE 3 MANAGEMENT.................................................... 13
3.1 Research Steering Committee................................... 13
---------------------------
3.2 Membership.................................................... 13
----------
3.3 Meetings...................................................... 13
--------
3.4 Decision Making............................................... 13
---------------
ARTICLE 4 LIBRARIES..................................................... 14
4.1 Collaboration Screening....................................... 14
-----------------------
4.2 Library Exclusivity........................................... 14
-------------------
4.2.1 Internal Libraries............................................ 14
-------------------
4.2.2 Collaboration Libraries....................................... 14
-----------------------
4.3 Physical Ownership............................................ 14
------------------
ARTICLE 5 BMS SCREENING................................................. 14
5.1 Screening of Collaboration Libraries by BMS Outside the Field. 14
--------------------------------------------------------------
5.1.1 Co-Exclusive Access........................................... 14
-------------------
5.1.2 Supply of Collaboration Libraries............................. 15
---------------------------------
5.1.3 Costs......................................................... 15
-----
5.2 Right to Designate Other Compounds............................ 15
----------------------------------
5.3 Designation of Other Compounds................................ 15
------------------------------
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.3.1 Decoding by Pharmacopeia.................................. 16
------------------------
5.3.2 Identification by BMS..................................... 16
---------------------
5.3.3 Designation Date.......................................... 16
----------------
5.3.4 Designation Required...................................... 16
--------------------
ARTICLE 6 LICENSES.................................................. 16
6.1 License to Active Compounds and Corresponding Products.... 16
------------------------------------------------------
6.2 Other Compounds and Corresponding Products................ 16
------------------------------------------
6.2.1 License Grant............................................. 16
-------------
6.2.2 Limited Term.............................................. 17
------------
6.2.3 License Maintenance Payment............................... 18
---------------------------
6.3 Sublicenses............................................... 18
-----------
6.4 Other Licenses............................................ 18
--------------
6.4.1 Internal Library Compounds which are not Active Compounds. 18
---------------------------------------------------------
6.4.2 Claimed Compounds Without the Claimed Activity............ 19
----------------------------------------------
6.5 Research Licenses......................................... 19
-----------------
6.6 Third Party Rights........................................ 19
------------------
6.6.1 Overlapping Rights........................................ 19
------------------
6.6.2 No Liability.............................................. 20
------------
6.7 Columbia Sublicense....................................... 20
-------------------
6.8 No Implied Licenses....................................... 20
-------------------
6.9 No Products Other than Products........................... 20
-------------------------------
ARTICLE 7 PAYMENTS.................................................. 20
7.1 License Fee............................................... 20
-----------
7.2 Research Collaboration Funding............................ 21
------------------------------
7.2.1 Research Phase Payment Schedule........................... 21
-------------------------------
7.2.2 Research Phase IV......................................... 21
-----------------
7.2.3 Quarterly Payments........................................ 21
------------------
7.2.4 After the Initial Term.................................... 21
----------------------
7.2.5 No Withholding............................................ 21
--------------
7.3 Milestones................................................ 22
----------
7.3.1 In the Field.............................................. 22
------------
7.3.2 Outside the Field......................................... 23
-----------------
7.3.3 Back-Up Compounds......................................... 23
-----------------
7.4 Royalties................................................. 23
---------
7.4.1 Therapeutic Products...................................... 23
--------------------
7.4.2 Trade Secret Royalties.................................... 24
----------------------
7.4.3 Single Royalty; Non-Royalty Sales......................... 24
---------------------------------
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (continued)
-----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
7.4.4 Royalty Term.............................................. 24
------------
7.4.5 Third Party Royalties..................................... 24
---------------------
7.5 Diagnostic Products....................................... 24
-------------------
ARTICLE 8 PAYMENTS; BOOKS AND RECORDS............................... 25
8.1 Royalty Reports and Payments.............................. 25
----------------------------
8.2 Payment Method............................................ 25
--------------
8.3 Currency Conversion....................................... 25
-------------------
8.4 Records; Inspection....................................... 25
-------------------
8.5 Tax Matters............................................... 26
-----------
8.5.1 Withholding Taxes......................................... 26
-----------------
8.5.2 Other Taxes............................................... 26
-----------
ARTICLE 9 DUE DILIGENCE............................................. 26
9.1 Due Diligence............................................. 26
-------------
9.2 Reports................................................... 26
-------
9.3 Reversion of Rights....................................... 27
-------------------
9.3.1 Termination of Licenses................................... 27
-----------------------
9.3.2 Grant Back................................................ 27
----------
9.3.3 Regulatory Filings........................................ 27
------------------
ARTICLE 10 INTELLECTUAL PROPERTY..................................... 27
10.1 Ownership of Inventions; Disclosure....................... 27
-----------------------------------
10.2 Patent Prosecution........................................ 28
------------------
10.2.1 Responsibilities.......................................... 28
----------------
10.2.2 Failure to Prosecute...................................... 28
--------------------
10.3 Cooperation............................................... 29
-----------
10.4 Costs..................................................... 29
-----
10.5 Copies.................................................... 30
------
10.6 Enforcement and Defense................................... 30
-----------------------
10.6.1 Notice.................................................... 30
------
10.6.2 Joint Inventions.......................................... 30
----------------
10.6.3 BMS....................................................... 30
---
10.6.4 Pharmacopeia.............................................. 30
------------
10.6.5 Cooperation; Costs and Recoveries......................... 31
---------------------------------
10.7 Infringement Claims....................................... 31
-------------------
ARTICLE 11 CONFIDENTIALITY........................................... 31
11.1 Confidential Information.................................. 31
------------------------
11.2 Permitted Use and Disclosures............................. 32
-----------------------------
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS (continued)
-----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
11.3 Nondisclosure of Terms.................................... 32
----------------------
11.4 Publication............................................... 32
-----------
ARTICLE 12 REPRESENTATIONS AND WARRANTIES................. 33
12.1 Representations and Warranties of Both Parties. 33
----------------------------------------------
12.2 Pharmacopeia................................... 34
------------
12.3 Disclaimer..................................... 34
----------
ARTICLE 13 INDEMNIFICATION................................ 35
13.1 BMS............................................ 35
---
13.2 Pharmacopeia................................... 35
------------
13.3 Procedure...................................... 36
---------
ARTICLE 14 TERM AND TERMINATION........................... 36
14.1 Term........................................... 36
----
14.2 Termination for Breach......................... 36
----------------------
14.3 Termination for Insolvency..................... 36
--------------------------
14.4 Termination Due to Acquisition................. 37
------------------------------
14.5 Permissive Termination......................... 37
----------------------
14.6 Effect of Breach or Termination................ 37
-------------------------------
14.6.1 Accrued Rights and Obligations................. 37
------------------------------
14.6.2 Return of Materials............................ 37
-------------------
14.6.3 Post-Termination Product Sales................. 37
------------------------------
14.6.4 Licenses....................................... 37
--------
14.7 Survival Sections.............................. 38
-----------------
ARTICLE 15 MISCELLANEOUS.................................. 38
15.1 Governing Laws................................. 38
--------------
15.2 Waiver......................................... 38
------
15.3 Assignment..................................... 38
----------
15.4 Independent Contractors........................ 39
-----------------------
15.5 Compliance with Laws........................... 39
--------------------
15.6 Patent Marking................................. 39
--------------
15.7 Notices........................................ 39
-------
15.8 Severability................................... 40
------------
15.9 Advice of Counsel.............................. 40
-----------------
15.10 Performance Warranty........................... 40
--------------------
15.11 Force Majeure.................................. 40
-------------
15.12 Complete Agreement............................. 40
------------------
15.13 Dispute Resolution............................. 40
------------------
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS (continued)
-----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
15.13.1 Mediation...................................... 40
---------
15.13.2 Arbitration.................................... 40
-----------
15.14 Non-Solicitation............................... 41
----------------
15.15 Headings....................................... 41
--------
15.16 Counterparts................................... 41
------------
EXHIBIT A.................................................... 43
</TABLE>
v
<PAGE>
COLLABORATION AND LICENSE AGREEMENT
This COLLABORATION AND LICENSE AGREEMENT (the "Agreement"), executed as of
November 26, 1997 (the "Execution Date"), is made by and between Pharmacopeia,
Inc., a Delaware corporation, having a principal place of business at 101
College Road East, Princeton, New Jersey 08540 ("Pharmacopeia"), and Bristol-
Myers Squibb Company, a Delaware corporation, having a principal place of
business at Route 206 and Province Line Road, P.O. Box 4000, Princeton, New
Jersey 08543-4000 ("BMS").
BACKGROUND
A. Pharmacopeia has developed novel, proprietary methods for the
generation and screening of encoded compound libraries. Pharmacopeia believes
that its technology, by rapidly producing diverse and targeted compound
libraries will accelerate the drug discovery process and increase productivity
of drug discovery programs;
B. BMS and Pharmacopeia desire to collaborate to prepare and screen
compound libraries to identify compounds with [***]; and
C. BMS wishes to acquire an exclusive license to develop and commercialize
Products (as defined below), and Pharmacopeia wishes to grant to BMS such
license, on the terms and conditions herein;
NOW, THEREFORE, for and in consideration of the covenants, conditions and
undertakings hereinafter set forth, it is agreed by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms will have the meanings set forth below:
1.1 "Active Compound" shall mean any Library Compound which has activity
---------------
at a concentration of [***] against any Target that is identified prior to or
during the Research Term.
1.2 "Affiliate" of either Pharmacopeia or BMS shall mean any corporation
---------
or other business entity which, during the term of this Agreement, controls, is
controlled by or is under common control with such party but only for so long as
such entity controls, is controlled by, or is under common control with such
party. For this purpose, control means the possession of the power to direct or
cause the direction of the management and the policies of an entity
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
<PAGE>
whether through ownership directly or indirectly of fifty percent (50%) or more
of the stock entitled to vote, and for nonstock organizations, the right to
receive over fifty percent (50%) of the profits by contract or otherwise, or if
not meeting the preceding requirement, any company owned or controlled by or
owning or controlling such party at the maximum control or ownership right
permitted in the country where such entity exists.
1.3 "Annual Research Plan" shall mean the written annual research plan,
--------------------
determined by the Research Steering Committee pursuant to Section 2.3 below,
governing the joint effort of the parties in conducting the Research
Collaboration, including, without limitation, describing the information to be
included in the quarterly and semi-annual reports being provided pursuant to
Section 2.2(d) and (e), which may be amended from time to time by the Research
Steering Committee as it deems necessary or appropriate.
1.4 "BMS Technology" shall mean any patent application or patent owned or
--------------
controlled, in whole or in part, by BMS or its Affiliates or Sublicensees at any
time during the term of this Agreement, that claims a Collaboration Compound, or
method of use or process for the synthesis thereof, or composition-of-matter
containing such Collaboration Compound.
1.5 "Collaboration Compound" shall mean any Active Compound, Other
----------------------
Compound, or Derivative Compound.
1.6 "Collaboration Library Compound" shall mean a Library Compound from a
------------------------------
Collaboration Library.
1.7 "Columbia License" shall mean that certain License Agreement effective
----------------
as of July 16, 1993, as amended and restated as of October 6, 1995, entered by
and between Pharmacopeia, Inc., the Trustees of Columbia University in the City
of New York and the Cold Spring Harbor Laboratory.
1.8 "Consumer Price Index" or "CPI" means the Consumer Price Index, All
-------------------- ---
Urban Consumers, as published by the U.S. Bureau of Labor Statistics.
1.9 "Core Countries" shall mean the United States, Canada, Europe (members
--------------
of the European Patent Convention via European Patent Office Applications) and
Japan.
1.10 "Delivery Date" shall have the meaning set forth in Section 5.1.1
-------------
below.
1.11 "Derivative Compound" shall mean any compound made by or on behalf of
-------------------
BMS or its Affiliates or Sublicensees or Pharmacopeia which:
(i) results from a chemical synthesis program based on an Active
Compound or an Other Compound;
-2-
<PAGE>
(ii) is based on structure-activity data relating to Library
Compounds which are active or inactive in the Field; or
(iii) is covered by the claims of any patent application or patent
filed by either party, which patent application or patent
discloses any compound in subsection (i) or (ii) above.
"Derivative Compound" also includes any compound synthesized based on, or
derived from, another Derivative Compound in any way set forth in subsections
(i), (ii) or (iii) above.
1.12 "Designation Date" shall have the meaning set forth in Section 5.3.3
----------------
below.
1.13 "Effective Date" shall have the meaning set forth in Section 2.3
--------------
below.
1.14 "FDA" shall mean the U.S. Food and Drug Administration, and any
---
successor thereto, or any corresponding foreign registration or regulatory
authority.
1.15 "Field" shall mean the diagnosis or therapeutic or prophylactic
-----
treatment of diseases and conditions in humans and animals through the use of a
compound that is [***] a Target.
1.16 "Initial Term" shall mean the period commencing on the Effective Date
------------
and terminating on the third anniversary thereof.
1.17 "IND" shall mean an Investigational New Drug application, as defined
---
in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder for initiating clinical trials in the United States, or any
corresponding foreign application, registration or certification.
1.18 "Lead Compound" shall mean (i) an Active Compound identified by
-------------
Pharmacopeia as having [***] for a Target, as demonstrated by criteria defined
in the applicable Annual Research Plan, or (ii) an Active Compound identified by
Pharmacopeia or BMS prior to the Effective Date as having [***] for a Target, as
demonstrated to the reasonable satisfaction of the Research Steering Committee.
1.19 "Library" shall mean any chemical compound library prepared by or on
-------
behalf of Pharmacopeia. Libraries shall be comprised of two (2) types, as
follows:
1.19.1 "Collaboration Library" shall mean a chemical compound library
---------------------
prepared by Pharmacopeia during the Research Term specifically for the Research
Collaboration.
1.19.2 "Internal Library" shall mean a chemical compound library
----------------
prepared by Pharmacopeia for use in Pharmacopeia's internal and external
programs, including the Research Collaboration. It is understood that
Pharmacopeia shall retain all rights to Internal Libraries screened in the
Research Collaboration, except with respect to Active Compounds.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-3-
<PAGE>
1.20 "Library Compound" shall mean any compound that was, prior to the
----------------
Effective Date, or is, at any time during the Research Term, contained in an
Internal Library or Collaboration Library.
1.21 "Licensed Technology" shall mean any Patent Rights or Know-How owned
-------------------
or controlled, in whole or in part, by Pharmacopeia, or developed in the course
of and in connection with the Research Collaboration. It is understood that the
Licensed Technology shall not include any technology proprietary to third
parties or intellectual property owned or licensed to Pharmacopeia relating to
the Columbia License or certain proprietary high throughput screening technology
(the "Excluded Technology").
1.21.1 "Patent Rights" shall mean (i) all patents and patent
-------------
applications existing as of the Effective Date, or covering inventions conceived
and reduced to practice by Pharmacopeia alone or jointly with BMS during the
term of the Research Collaboration or within one (1) year thereafter, that claim
an Active Compound, Other Compound or Derivative Compound thereof, or method of
use or process for the synthesis thereof or composition-of-matter containing
such Active Compound, Other Compound or Derivative Compound thereof, and (ii)
any divisions, continuations, continuations-in-part, reissues, reexaminations,
extensions or other governmental actions which extend any of the subject matter
of the patent applications or patents in (i) above, and any substitutions,
confirmations, registrations or revalidations of any of the foregoing, in each
case, which is owned or controlled, in whole or part, by license, assignment or
otherwise by Pharmacopeia, to the extent Pharmacopeia has the right to license
or sublicense the same, and subject to any limitations and prohibitions of such
license or sublicense.
1.21.2 "Know-How" shall mean all ideas, inventions, trade secrets,
--------
data, instructions, processes, formulas, expert opinions and information,
including, without limitation, biological, chemical, pharmacological,
toxicological, pharmaceutical, physical and analytical, clinical, safety,
manufacturing and quality control data and information, existing as of the
Effective Date, or developed by Pharmacopeia alone or jointly with BMS during
the term of the Research Collaboration or within one (1) year thereafter,
whether or not patentable, in each case, which is necessary for the synthesis,
development and use of Active Compounds, Other Compounds or Derivative Compounds
thereof and/or for the development, manufacture, use or sale or
commercialization of Products, to the extent Pharmacopeia has the right to
license or sublicense the same, and subject to any limitations and prohibitions
of such license or sublicense. Know-How does not include any inventions
otherwise included in the Patent Rights.
1.22 "Major Country" shall mean any of the United States, Canada, Japan,
-------------
the United Kingdom, France, Germany, Italy or Spain.
-4-
<PAGE>
1.23 "NDA" shall mean a New Drug Application, as defined in the U.S. Food,
---
Drug and Cosmetic Act and the regulations promulgated thereunder, or any
corresponding foreign application, registration or certification.
1.24 "Net Sales" shall mean the invoice price of Products sold by BMS or
---------
its Affiliates or Sublicensees to third parties, less, to the extent included in
such invoice price the total of: (i) ordinary and customary trade, quantity
and/or cash discounts actually allowed, including government managed care and
other contract rebates, pharmacy incentive programs, including chargebacks of
pharmacy or hospital performance incentive programs or similar programs; (ii)
credits, rebates and returns (including, but not limited to, wholesaler and
retailer returns); (iii) freight, postage, shipping insurance, and other
transportation expenses paid for and separately identified on the invoice or
other documentation maintained in the ordinary course of business, and (iv)
sales, value-added and excise taxes, other consumption taxes, customs duties and
compulsory payments to governmental authorities actually paid and separately
identified on the invoice or other documentation maintained in the ordinary
course of business. Net Sales shall also include the amount or fair market
value of all other consideration received by BMS or its Affiliates or
Sublicensees in respect of Products, whether such consideration is in cash,
payment in kind, exchange or another form.
With respect to Products sold in combination with other products by BMS or
its Affiliates or Sublicensees in a capitation or bundled transaction (each, a
"Bundled Transaction"), Net Sales of such Products shall be calculated in
accordance with the following formula:
[***]
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-5-
<PAGE>
[***]
The Average Selling Price shall be based on the actual average selling
price of the applicable Product or product other than a Product, as the
case may be, determined for the applicable period.
If a Product is not sold separately and no bona fide list price exists for such
Product, the parties shall negotiate in good faith an imputed bona fide list
price for such Product, and Net Sales with respect thereto shall be based on
such imputed list price.
1.25 "Optimized Lead Compound" shall mean any Active Compound or
-----------------------
Derivative Compound that is optimized to meet the in vitro criteria for activity
-- -----
against a Target established in the applicable Annual Research Plan.
1.26 "Other Compound" shall mean a Collaboration Library Compound, or a
--------------
Derivative Compound thereof, identified by BMS as having activity against any
target other than a Target and designated as an Other Compound as provided in
Section 5.3.
1.27 "Phase I", "Phase II", and "Phase III" shall mean Phase I (or Phase
------- -------- ---------
I/II), Phase II (or Phase II/III), and Phase III clinical trials, respectively,
in each case as prescribed by applicable FDA regulations, or any corresponding
foreign statutes, rules or regulations.
1.28 "PLP Approval" shall mean the date on which any Library Compound or
------------
Derivative Compound is approved for development by the BMS Pharmaceutical Group
Development Operating Committee (or its successor) as a Preclinical Lead
Product.
1.29 "Preclinical Lead Product" or "PLP" shall mean a compound which is an
------------------------ ---
Active Compound, Lead Compound, Optimized Lead Compound or Other Compound, or a
Derivative Compound of any of the foregoing, which is approved for development
by the BMS Pharmaceutical Group Development Operating Committee (or its
successor), as reflected in the minutes of the meetings of the BMS
Pharmaceutical Group Operating Committee (or its successor), based on the
presentation of a PLP data package with respect to such compound in accordance
with its procedures.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-6-
<PAGE>
1.30 "Product" shall mean:
-------
(a) any therapeutic or prophylactic product (i) with activity in the
Field, incorporating as an active ingredient an Active Compound or a Derivative
Compound thereof, or (ii) with activity against a target outside the Field,
incorporating as an active ingredient an Other Compound or a Derivative Compound
thereof; or
(b) any diagnostic product intended to identify or measure a clinical
characteristic associated with a disease for which a Product subject to
subsection 1.30(a)(i) may be useful (a "Diagnostic Product").
A Product incorporating a Library Compound or a Derivative Compound having
activity with respect to a Target and also with respect to another target shall
be treated as a Product in the Field for all purposes of this Agreement.
1.31 "Research Collaboration" shall mean the research activities
----------------------
undertaken by the parties pursuant to Article 2 below.
1.32 "Research Phase I" shall mean that period of time commencing on the
----------------
Effective Date and ending six (6) months later.
1.33 "Research Phase II" shall mean that period of time commencing six (6)
-----------------
months after the Effective Date and ending on the first anniversary of the
Effective Date.
1.34 "Research Phase III" shall mean that period of time commencing on the
------------------
first anniversary of the Effective Date and continuing until a Lead Compound has
been identified for each Target.
1.35 "Research Phase IV" shall mean that period of time, if any,
-----------------
commencing at such time as one or more Lead Compound(s) have been identified for
each Target and ending upon the termination of the Initial Term.
1.36 "Research Steering Committee" or "RSC" shall mean the entity
---------------------------- ---
organized to supervise the Research Collaboration and acting pursuant to Article
3 below.
1.37 "Research Term" shall mean the term of the Research Collaboration, as
-------------
provided in Section 2.4.1 below.
1.38 "Sublicensee" shall mean, with respect to a particular Product, a
-----------
third party to whom BMS has granted a license or sublicense under the Licensed
Technology to develop, make, have made, use and/or sell such Product. As used
in this Agreement, "Sublicensee" shall also include a third party to whom BMS
has granted the right to distribute such Product,
-7-
<PAGE>
provided that such third party has responsibility for marketing and promotion of
such Product within the field or territory for which such distribution rights
are granted.
1.39 "Target" shall mean [***], and "Targets" shall mean [***]
------ -------
ARTICLE 2
RESEARCH COLLABORATION
2.1 Nature of Collaboration; Research Collaboration Activities. Subject to
-----------------------------------------------------------
the terms and conditions set forth herein, the parties agree to conduct research
under an Annual Research Plan on a collaborative basis. Pursuant to each Annual
Research Plan approved by the Research Steering Committee, Pharmacopeia and BMS
shall collaborate to identify one or more Library Compounds with activity in the
Field. The goal of the Research Collaboration shall be the identification of an
Optimized Lead Compound with respect to each Target.
2.2 Conduct of Research Collaboration.
---------------------------------
During the term of the Research Collaboration, each party shall:
(a) undertake an interactive, cooperative Research Collaboration with
the other party as set forth in any Annual Research Plan, and such other
activities which, from time to time, the Research Steering Committee decides are
necessary for the commercial success of the Research Collaboration;
(b) use all reasonable efforts and proceed diligently to perform the
work set out for such party to perform in each Annual Research Plan, including,
without limitation, by using personnel with sufficient skills and experience,
together with sufficient equipment and facilities, to carry out such party's
obligations under the Research Collaboration and to accomplish the objectives of
the Research Collaboration;
(c) conduct the Research Collaboration in good scientific manner, and
in compliance in all material respects with all requirements of applicable laws,
rules and regulations, and all other requirements of any applicable good
laboratory practices to attempt to achieve its objectives efficiently and
expeditiously;
(d) within 30 days following the end of each quarter during the term
of the Research Collaboration, furnish the RSC with written reports summarizing
all activities conducted by such party under the Research Collaboration during
such quarter, including without limitation: (i) with respect to Pharmacopeia,
all data and information regarding Collaboration
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-8-
<PAGE>
Compounds, structures thereof and biological assays developed by Pharmacopeia
relating to the Field, provided, that it is understood that Pharmacopeia shall
have no obligation to disclose to BMS any Excluded Technology, and further
provided, that Pharmacopeia shall not be obligated to disclose any data or
information regarding Collaboration Compounds that have been previously licensed
by Pharmacopeia to a third party; and (ii) with respect to BMS, all data and
information regarding Collaboration Compounds, structures thereof and biological
assays developed by BMS relating to the Field which would be useful for the
Research Collaboration;
(e) within 30 days following the end of each six-month period during
the term of the Research Collaboration and within 30 days following the
expiration or termination of the Research Collaboration, furnish the other party
with reasonably detailed, written reports on all activities conducted by such
party under the Research Collaboration during such six-month period or the term
of the Research Collaboration, as the case may be, provided, that it is
understood that Pharmacopeia shall have no obligation to disclose to BMS any
Excluded Technology;
(f) promptly provide an invention disclosure report to the other party
with respect to any BMS Invention, Pharmacopeia Invention, or Joint Invention,
as the case may be;
(g) allow representatives of the other party, at agreed times, upon
reasonable notice and during normal business hours, to visit the facilities of
such party where the Research Collaboration is being conducted, and consult
informally at agreed times, during such visits and by telephone, with such
party's personnel performing work on the Research Collaboration; and
(h) [***]
2.3 Annual Research Plans. The Research Collaboration shall be carried out
----------------------
in accordance with a written Annual Research Plan, which shall establish
specific research objectives for the applicable year consistent with the amount
of research funding being provided by BMS pursuant to this Agreement, and the
research tasks to be performed by each party. Each Annual Research Plan, when
approved by the RSC, shall be signed and dated by a representative of each party
serving on the RSC. The Annual Research Plan for the first year of the Research
Collaboration shall be determined as soon as practicable after the Execution
Date. The date of execution of the Annual Research Plan for the first year shall
be deemed to be the "Effective Date" for all purposes under this Agreement.
Discussions regarding subsequent Annual Research Plans shall be commenced by the
Research Steering Committee at least three (3) months prior to the annual
anniversary of the Effective Date during the Research Term, and shall be
finalized by
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-9-
<PAGE>
the RSC at least thirty (30) days prior to such annual anniversary of the
Effective Date. The Annual Research Plan shall be reviewed on an ongoing basis
and may be amended by the Research Steering Committee from time to time.
2.4 Term and Termination of Research Collaboration.
----------------------------------------------
2.4.1 Research Term. The Research Collaboration shall commence on the
--------------
Effective Date and, unless terminated earlier as provided in Section 2.4.3
below, in which case the Research Collaboration shall terminate on the effective
date of such termination, the Research Collaboration shall terminate on the last
day of the Initial Term, unless extended pursuant to Section 2.4.2 below, in
which case the Research Collaboration shall terminate on the last day of such
extension term.
2.4.2 Extension of Research Term. With the written agreement of the
---------------------------
parties, the Research Term may be extended for up to two (2) years following the
Initial Term. If it wishes to extend the Research Term, BMS must notify
Pharmacopeia in writing at least six (6) months prior to the then current
expiration date for the Research Term. If BMS so notifies Pharmacopeia, the
parties shall negotiate in good faith the terms of any such extension.
2.4.3 Termination of Research Collaboration.
-------------------------------------
(a) Either party may terminate the Research Collaboration and/or the
Agreement (including, without limitation, the Research Collaboration) pursuant
to Sections 14.2 or 14.3.
(b) BMS may terminate the Research Collaboration and/or the Agreement
(including, without limitation, the Research Collaboration) pursuant to Section
14.4.
(c) BMS may terminate the Research Collaboration at any time due to a
failure by Pharmacopeia's Chief Executive Officer and the President of the BMS
Pharmaceutical Research Institute to resolve a dispute pursuant to Section 3.4;
provided, however, that BMS shall provide Pharmacopeia written notice of its
intent to terminate the Research Collaboration no less than ninety (90) days
prior to the effective date of such termination.
(d) BMS may terminate the Research Collaboration at any time, without
cause; provided, however, that BMS shall provide Pharmacopeia written notice of
its intent to terminate the Research Collaboration no less than ninety (90) days
prior to the effective date of such termination.
-10-
<PAGE>
2.4.4 Effect of Termination.
---------------------
(a) If BMS terminates the Research Collaboration pursuant to Section
2.4.3(a) or (b), BMS' obligations to fund the Research Collaboration shall cease
as of the effective date of such termination.
(b) If BMS terminates the Research Collaboration prior to the end of
the Initial Term pursuant to Section 2.4.3(d), or if Pharmacopeia terminates the
Research Collaboration prior to the end of the Initial Term pursuant to Section
14.2 or Section 14.3, then within forty-five (45) days following the effective
date of termination, BMS shall pay to Pharmacopeia [***]
(c) If BMS terminates the Research Collaboration pursuant to Section
2.4.3(c), then the Research Collaboration shall remain in effect for two (2)
additional calendar quarters beyond the calendar quarter during which BMS gave
notice to Pharmacopeia of its intent to terminate the Research Collaboration,
and BMS shall pay to Pharmacopeia quarterly payments during such period equal
each quarter to the amount of research funding owed by BMS pursuant to Section
7.2.1 for the quarter in which BMS gave notice.
(d) In the event of any termination of the Research Collaboration by
BMS pursuant to Section 2.4.3(a), 2.4.3(b) or 2.4.3(d), during the period, if
any, between the notice of termination and the effective date of such
termination when BMS continues to have an obligation to fund the Research
Collaboration, Pharmacopeia shall continue to conduct such Research
Collaboration activities previously commenced pursuant to the applicable Annual
Research Plan, as the RSC may reasonably agree.
(e) In the event of any termination of the Research Collaboration by
BMS pursuant to Section 2.4.3(a), 2.4.3(b) or 2.4.3(c), then (i) Pharmacopeia
shall promptly return to BMS all relevant records and materials in
Pharmacopeia's possession or control containing Confidential Information of BMS,
(ii) Pharmacopeia shall promptly provide a final written, detailed report for
the Research Collaboration pursuant to Section 2.2(e), which shall include such
information as is reasonably necessary to enable BMS to continue the research
being conducted pursuant to the Research Collaboration as of the effective date
of such termination, provided that it is understood that Pharmacopeia shall have
no obligation to disclose to BMS any Excluded Technology, (iii) the research
license granted to BMS by Pharmacopeia pursuant to Section 6.5 shall remain in
effect during the remainder of the Initial Term, and (iv) the research license
granted by BMS to Pharmacopeia under Section 6.5 shall terminate and the
licenses granted by Pharmacopeia to BMS under Article 6 prior to the effective
date of such termination shall remain in effect, subject to the terms and
conditions of this Agreement applicable thereto.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-11-
<PAGE>
2.5 Third Party Licenses. In the event that it is necessary for
---------------------
Pharmacopeia to acquire any third party license specifically for the conduct of
the Research Collaboration in the Field, BMS will be responsible for the payment
of any amounts due to third parties for the license of intellectual property
which directly applies to any Target, and the costs of negotiating and preparing
any such license. Pharmacopeia will be responsible for the payment of any
amounts due to third parties for the license of any other intellectual property
necessary for the performance of the Research Collaboration (e.g., relating to
non-target-specific screening technologies, or methods of use, or synthesis, of
Collaboration Libraries) and the costs of negotiating and preparing any such
license. It is understood that Pharmacopeia shall be responsible for all
payments due under the Columbia License.
2.6 Exclusivity. During the Research Term and for [***] thereafter,
------------
Pharmacopeia shall not (a) knowingly provide to any third party any Active
Compound or Derivative Compound described in Section 1.11(i), (b) knowingly
enter into a research collaboration or research program with a third party, or
perform screening, on its own account or for the benefit of any third party,
with regard to any Target; provided that, if BMS terminates the Research
Collaboration pursuant to Section 2.4.3(d), the foregoing obligations shall
terminate on the effective date of such termination. Notwithstanding the
foregoing, the foregoing obligations shall continue in effect, on a Target-by-
Target basis, if, and for so long as, BMS is diligently pursuing
commercialization of at least one milestone- and royalty-bearing Product with
activity with respect to such Target in accordance with the obligations set
forth in Section 9.1 below.
2.7 Records; Inspection Rights.
---------------------------
(a) Research Collaboration Records. Pharmacopeia and BMS shall
------------------------------
maintain records of the Research Collaboration (or cause such records to be
maintained) in sufficient detail and in good scientific manner as will properly
reflect all work done and results achieved in the performance of the Research
Collaboration (including all data in the form required under any applicable
governmental regulations and as directed by the RSC).
(b) Inspection Rights. Each party shall allow the other to have
-----------------
reasonable access to all pertinent materials and data generated by or on behalf
of such party with respect to each Collaboration Compound in connection with the
Research Program, as set forth in the Annual Research Plan. It is understood
that Pharmacopeia shall have no obligation to disclose to BMS any Excluded
Technology. Each party shall maintain such records and the information
contained therein in confidence in accordance with Section 11 and shall not use
such records or information except to the extent otherwise permitted by this
Agreement.
2.8 Post-Research Collaboration Activities.
--------------------------------------
For each Collaboration Compound and Product to which BMS retains
rights under this Agreement, BMS shall be responsible, at its sole expense, for
conducting all development of such Collaboration Compound or Product following
the termination of the Research Term, and all commercialization of such Product.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-12-
<PAGE>
ARTICLE 3
MANAGEMENT
3.1 Research Steering Committee. BMS and Pharmacopeia will establish a
----------------------------
Research Steering Committee ("RSC") to oversee, review and establish the
direction of the Research Collaboration; and review, approve and modify Annual
Research Plans; and provide advice regarding prosecution of patent applications
within the Joint Inventions (as defined below). The responsibilities of the
Research Steering Committee shall include: (i) monitoring and reporting research
progress and ensuring open and frequent exchange between the parties regarding
Research Collaboration activities; (ii) determining when Research Phase III has
been completed and when Research Phase IV shall commence; and (iii) establishing
criteria for the selection of Lead Compounds and Optimized Lead Compounds for
each Target. The RSC shall prepare written minutes of each RSC meeting and a
written record of all RSC decisions, whether made at an RSC meeting or
otherwise.
3.2 Membership. The RSC shall include three (3) representatives of each of
----------
BMS and Pharmacopeia, each party's members selected by that party. Pharmacopeia
and BMS may each replace its RSC representatives at any time, upon written
notice to the other party. From time to time, the RSC may establish
subcommittees, to oversee particular projects or activities, and such
subcommittees will be constituted as the RSC agrees.
3.3 Meetings. During the Research Term, the RSC shall meet at least
--------
quarterly, or more frequently as agreed by the parties, at such locations as the
parties agree, and will otherwise communicate regularly by telephone, electronic
mail, facsimile and/or video conference. With the consent of the parties, other
representatives of Pharmacopeia or BMS may attend RSC meetings as nonvoting
observers. Each party shall be responsible for all of its own expenses
associated with attendance of such meetings. The first meeting of the RSC shall
occur within forty-five (45) days after the Effective Date.
3.4 Decision Making. Decisions of the RSC shall be made by unanimous
----------------
agreement. In the event that unanimity is not achieved within the RSC, the
matter will be referred to Pharmacopeia's Senior Vice President, Drug Discovery
(or designee of similar rank) and BMS' Senior Vice President for Drug Discovery
(or designee of similar rank), who shall promptly meet and endeavor in good
faith to resolve such matter in a timely manner. In the event such individuals
are unable to resolve such dispute, the matter will be referred to
Pharmacopeia's Chief Executive Officer and the President of the BMS
Pharmaceutical Research Institute, who shall promptly meet and endeavor to reach
consensus in a timely manner. If such individuals cannot resolve such dispute,
then, subject to Section 2.4.4, BMS may terminate the Research Collaboration
pursuant to Section 2.4.3(c).
-13-
<PAGE>
ARTICLE 4
LIBRARIES
4.1 Collaboration Screening. During the Research Term, Pharmacopeia will
-----------------------
prepare Collaboration Libraries and will screen those Libraries against the
Targets in connection with the Research Collaboration. In addition, Pharmacopeia
has screened, or will screen, Internal Libraries against the Targets.
4.2 Library Exclusivity.
-------------------
4.2.1 Internal Libraries. BMS shall have no exclusivity with respect
-------------------
to any Internal Library or any Library Compound therein, except that BMS shall
have an exclusive license as provided in Section 6.1 below with respect to
Library Compounds which are Active Compounds. It is understood that the Internal
Libraries are regularly used by Pharmacopeia and may be, or may have been,
provided to third parties for screening outside the Field, and that Pharmacopeia
shall have the right to screen the Internal Libraries against targets other than
the Targets during the Research Term or thereafter on its own behalf or for
third parties.
4.2.2 Collaboration Libraries. During the term of this Agreement,
------------------------
Pharmacopeia shall not screen any Collaboration Library against any Target for
any purpose other than the performance of its duties within the Research
Collaboration. However, after the Delivery Date of a Collaboration Library, as
defined in Section 5.1.1 below, subject to the license granted BMS in Section
6.1, Pharmacopeia may screen such Collaboration Library against any target other
than a Target.
4.3 Physical Ownership. Pharmacopeia shall retain physical ownership of the
-------------------
tangible property embodied in all Libraries.
ARTICLE 5
BMS SCREENING
5.1 Screening of Collaboration Libraries by BMS Outside the Field.
-------------------------------------------------------------
5.1.1 Co-Exclusive Access. After Pharmacopeia reports to the Research
--------------------
Steering Committee the results of the full screening of a particular
Collaboration Library against the Targets, subject to Section 5.1.2 below,
Pharmacopeia shall provide to BMS samplings of such Collaboration Library for
screening by BMS against targets outside the Field, on a co-exclusive basis with
Pharmacopeia. BMS may conduct such screening during the Research Term and for a
period of [***] thereafter; provided, however, if BMS terminates the Research
Collaboration pursuant to Section 2.4.3(d) or Pharmacopeia terminates the
Research
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-14-
<PAGE>
Collaboration pursuant to Section 2.4.3(a) before the end of the Initial Term,
then BMS' rights to obtain and screen any such Collaboration Library shall
terminate as of the effective date of such termination. Until the Delivery Date
of a Collaboration Library, Pharmacopeia agrees not to screen such Collaboration
Library for any purpose other than the performance of its duties within the
Research Collaboration. During the period that BMS has the right of co-exclusive
access to a particular Collaboration Library, Pharmacopeia shall not deliver
such Collaboration Library to any third party. For purposes of this Agreement,
the "Delivery Date" of a particular Collaboration Library shall be the date that
BMS receives the first sampling of such Collaboration Library (as described in
Item 2 of Exhibit A) from Pharmacopeia or, in the event that BMS has not
authorized delivery of such sampling within thirty (30) days after receiving
notice from Pharmacopeia that such sampling of such Collaboration Library is
ready for delivery to BMS, the date which is thirty (30) days after BMS' receipt
of such notice.
5.1.2 Supply of Collaboration Libraries. If a Collaboration Library is
----------------------------------
technically compatible with the 96-well microtiter plate format and
Pharmacopeia's production processes, as reasonably determined by Pharmacopeia,
Pharmacopeia shall use diligent efforts to provide to BMS the requested number
of samplings of such Collaboration Library within three (3) months of BMS'
written request. The Collaboration Libraries shall be provided to BMS in the
format described in Exhibit A hereto unless otherwise agreed by the parties.
5.1.3 Costs. [***]
-----
5.2 Right to Designate Other Compounds. BMS may acquire exclusive rights to
-----------------------------------
any Collaboration Library Compound which has activity against a particular
molecular target outside the Field (identified on a coded basis) by designating
such Collaboration Library Compound an Other Compound as set forth in Section
5.3 below, provided Pharmacopeia has not previously decoded such Collaboration
Library Compound based upon screening by Pharmacopeia against a target outside
the Field on its own behalf or for a third party. If, after screening a
Collaboration Library against a target outside the Field, BMS identifies to
Pharmacopeia, or requests decoding of, a Collaboration Library Compound that
Pharmacopeia has previously decoded on its own behalf or for a third party,
Pharmacopeia shall indicate to BMS that the Collaboration Library Compound is
not available for license to BMS. However, if Pharmacopeia identifies a compound
with activity against a Pharmacopeia or third party target, but such
Collaboration Library Compound has already been decoded for BMS, such
Collaboration Library Compound shall not be available to Pharmacopeia or any
third party.
5.3 Designation of Other Compounds. If BMS has the right to designate a
-------------------------------
Collaboration Library Compound as an Other Compound pursuant to Section 5.2
above, such Collaboration Library Compound may be designated an Other Compound
as follows:
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-15-
<PAGE>
5.3.1 Decoding by Pharmacopeia. At such time as Pharmacopeia has
-------------------------
identified to BMS the structure of a Collaboration Library Compound with
activity against a particular target outside the Field following a request for
decoding of such Library Compound by BMS, such compound shall automatically be
designated an Other Compound.
5.3.2 Identification by BMS. In the event that BMS identifies, without
----------------------
decoding by Pharmacopeia pursuant to Section 5.3.1 above, a particular
Collaboration Library Compound with activity against a molecular target outside
the Field, BMS shall give Pharmacopeia notice identifying such Collaboration
Library Compound and indicating that the Collaboration Library Compound has
activity outside the Field. Subject to Section 5.2, such Collaboration Library
Compound shall be designated an Other Compound as of the date of Pharmacopeia's
receipt of such notice.
5.3.3 Designation Date. The Designation Date with respect to a
-----------------
particular Other Compound shall be the date Pharmacopeia (i) identifies the
structure of a Collaboration Library Compound pursuant to Section 5.3.1 above,
or (ii) receives notice from BMS pursuant to Section 5.3.2 above.
5.3.4 Designation Required. It is understood and agreed that BMS shall
---------------------
not develop or commercialize any Collaboration Library Compound (or any
Derivative Compound thereof) which has activity outside the Field, unless the
applicable Collaboration Library Compound has been designated an Other Compound.
ARTICLE 6
LICENSES
6.1 License to Active Compounds and Corresponding Products. Subject to the
-------------------------------------------------------
terms and conditions of this Agreement, Pharmacopeia grants to BMS, and BMS
accepts, an exclusive, worldwide license under the applicable Licensed
Technology to develop, make, have made, and use all Active Compounds and
Derivative Compounds thereof, and to develop, make, have made, use, import,
offer for sale and sell Products containing such Active Compounds and Derivative
Compounds, during the term of this Agreement. The foregoing license shall not
apply to any Library Compound to which a third party has been granted a license
by Pharmacopeia prior to the identification of such Library Compound as an
Active Compound, and provides BMS no license under any Licensed Technology
solely owned by Pharmacopeia that relates only to target(s) outside the Field.
6.2 Other Compounds and Corresponding Products.
------------------------------------------
6.2.1 License Grant. Subject to the terms and conditions of this
--------------
Agreement, Pharmacopeia grants to BMS, and BMS accepts, an exclusive, worldwide
license under the
-16-
<PAGE>
applicable Licensed Technology to develop, make, have made and use Other
Compounds and Derivative Compounds thereof, and to develop, make, have made,
use, import, offer for sale and sell Products incorporating such Other Compounds
and Derivative Compounds, during the term of this Agreement. The foregoing
license shall not apply to any Library Compound to which a third party has been
granted a license by Pharmacopeia prior to the designation of such Library
Compound as an Other Compound, and provides BMS no license under any Licensed
Technology solely owned by Pharmacopeia that does not relate to the applicable
Other Compounds or Derivative Compounds, or Products therefrom.
6.2.2 Limited Term. Any license granted to BMS in Section 6.2.1 above
-------------
shall be for a limited term. The initial term of any such license with respect
to a particular Other Compound (or Derivative Compound with activity against the
same target) shall commence on the Designation Date of such Other Compound and
shall remain in effect until the [***] anniversary of such date. Such license
shall automatically expire at the end of such period unless, during such period,
BMS has achieved the first milestone shown below and timely paid the
corresponding milestone payment, if any, due under Section 7.3.2 below. In such
event the license term for the applicable Other Compound (and all Other
Compounds and Derivative Compounds active against the same target) shall
automatically extend until the end of the next applicable time period shown
below. If, during the subsequent time period, BMS achieves the applicable
milestone and timely pays the corresponding milestone payment, the license term
shall automatically extend until the end of the next indicated time period. In
the event BMS achieves NDA Approval with respect to a particular Product, and
pays the corresponding milestone payment due under Section 7.3.2 below, the
license term shall thereafter extend for the life of the last to expire patent
within the Licensed Technology applicable to such Product (or to any Other
Compound or Derivative Compound from which such Product was developed). In the
event that a particular Derivative Compound does not have activity against the
same target as an Other Compound from which such Derivative Compound was
developed, and, consequently, BMS will be unable to achieve a PLP Approval with
respect to such Derivative Compound within [***] years after designation of such
Other Compound pursuant to Section 5.3, then BMS shall so notify Pharmacopeia
and the parties shall meet to discuss, in good faith, modification of the time
period for PLP Approval.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-17-
<PAGE>
<TABLE>
<CAPTION>
Time Period for
Achieving Milestone Milestone
<S> <C>
[***] years after designation as an Other Compound PLP Approval
[***] years after PLP Approval Filing of IND or initiation of human trials
in any country
[***] years after filing of IND or initiation of human Initiation of Phase III clinical trials in any
trials country
[***] years after initiation of Phase III clinical Filing of NDA in any Major Country
trials
[***] years after filing of NDA First NDA Approval
</TABLE>
6.2.3 License Maintenance Payment. Notwithstanding Section 6.2.2
----------------------------
above, in the event that BMS fails to achieve any particular milestone above
within the applicable time period, BMS may maintain its license, on a target-by-
target basis, with respect to the entire set of Other Compounds active against
the same molecular target (and Derivative Compounds thereof active against the
same molecular target) for the applicable period specified in Section 6.2.2
above by paying to Pharmacopeia [***] of such applicable milestone payment due
pursuant to Section 7.3.2 on or before the expiration of the specified time
period. This license maintenance payment shall be non-refundable, but shall be
fully creditable against the milestone payment due upon accomplishment of such
milestone. Upon achievement of any milestone for which BMS has made a [***]
payment pursuant to this Section 6.2.3, BMS shall pay Pharmacopeia the remaining
[***] of any such milestone payment due under Section 7.3.2
6.3 Sublicenses. Subject to the terms and conditions of this Agreement, BMS
------------
shall have the right to sublicense the rights granted in Sections 6.1 and 6.2
above; provided that, within thirty (30) days following the execution of any
such sublicense, BMS shall provide Pharmacopeia with at least the following
information with respect to each Sublicensee: (i) the identity of the
Sublicensee; (ii) a description of the Product, and the rights granted to the
Sublicensee; and (iii) the territory in which the Product will be sold. Each
sublicense granted by BMS shall be subject to the requirements of 35 U.S.C. (S)
200 et seq. and implementing regulations, and shall be consistent with all the
terms and conditions of this Agreement, and subordinate thereto, and BMS shall
remain responsible to Pharmacopeia for the compliance of each such Sublicensee
with the financial and other obligations due under this Agreement. No sublicense
granted by BMS may be assigned, transferred or further sublicensed to any third
party without the prior written consent of Pharmacopeia.
6.4 Other Licenses.
--------------
6.4.1 Internal Library Compounds which are not Active Compounds.
---------------------------------------------------------
In the event that any patent application or patent, jointly owned by BMS and
Pharmacopeia pursuant to Section 10.1, claims a Library Compound from an
Internal Library, which is not an Active Compound, BMS agrees to grant and
hereby grants to Pharmacopeia, an exclusive, worldwide, royalty-free license,
with the right to grant and authorize sublicenses, under BMS' interest in
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-18-
<PAGE>
the applicable Joint Inventions relating to such Library Compound, to make, have
made, use, import, offer for sale and sell products based thereon, outside the
Field, for the life of the applicable patent.
6.4.2 Claimed Compounds Without the Claimed Activity. If BMS or
-----------------------------------------------
Pharmacopeia, as the case may be (the "Filing Party"), files a patent
application claiming a Collaboration Library Compound, and the other party (the
"Nonfiling Party") reasonably believes that any compound within the scope of any
claim of such patent application (or corresponding patent) does not have the
activity disclosed in such patent or patent application, then the Filing Party
shall, within forty-five (45) days after receiving a reasonable quantity of such
compound from the Nonfiling Party together with a request to do so, provide
evidence to the Nonfiling Party reasonably demonstrating that such compound
does, in fact, have the disclosed activity. If the Filing Party is unable to
provide such evidence within such period, the Filing Party shall grant to the
Nonfiling Party an exclusive, worldwide license, with the right to grant and
authorize sublicenses, to the Filing Party's interest in such compound under
such patent application or patent, to make, have made, use, import, offer for
sale and sell products based thereon outside the Field for the life of the
applicable patent. Any such license to Pharmacopeia shall be royalty-free, and
any such license to BMS shall be subject to Sections 7.3 and 7.4 below.
6.5 Research Licenses. Solely for the purpose of conducting the Research
------------------
Collaboration with respect to the Targets as agreed by the RSC, each party
("Licensor") hereby grants to the other, during the Research Term, an exclusive,
except as to Licensor and its consultants and subcontractors, world-wide
license, with the right to grant sublicenses to its Affiliates only, under the
Licensed Technology and the BMS Technology, as the case may be, to use and
practice screens and to use, synthesize and develop Collaboration Library
Compounds, Active Compounds and Derivative Compounds therefrom. The foregoing
shall not restrict (i) Pharmacopeia from using or licensing the Licensed
Technology, or (ii) BMS from using or licensing the BMS Technology, in each case
for any use with respect to other targets outside the Field, subject to the
other restrictions in this Agreement.
6.6 Third Party Rights.
------------------
6.6.1 Overlapping Rights. It is understood that Pharmacopeia is in the
-------------------
business of providing combinatorial libraries to third parties, and that
Pharmacopeia may grant third parties rights to compounds in and derived from
such libraries comparable to those rights granted to BMS herein. Notwithstanding
the licenses granted BMS above, it is possible that a third party may acquire
rights from Pharmacopeia with respect to one or more compounds of which
Pharmacopeia is a sole or joint owner; accordingly, Pharmacopeia's grant of
rights in this Article 6 is limited to the extent that (i) a third party (either
alone or jointly with Pharmacopeia) has filed a patent application with respect
to such a compound prior to the filing by BMS (either alone or jointly with
Pharmacopeia) of a patent application with respect to such a compound, or
-19-
<PAGE>
(ii) Pharmacopeia has previously granted a third party a license or other rights
with respect to such a compound, and subject to any such grant of rights to a
third party.
6.6.2 No Liability. It is understood and agreed that, even if
-------------
Pharmacopeia complies with its obligations under this Agreement, compounds
provided to third parties in the course of Pharmacopeia's other business
activities may result in third party patent applications and patents, including
patent applications and patents owned by such third parties, or owned jointly by
Pharmacopeia and such third parties, which could conflict with patent
applications and patents owned by BMS, or jointly owned by BMS and Pharmacopeia
hereunder. Pharmacopeia shall use its reasonable efforts to avoid such conflict;
provided, that unless BMS is damaged as a proximate result of a material breach
by Pharmacopeia of Sections 2.6, 4.2, 5.1.1 or 5.2, or any of the
representations and warranties in Article 12, then Pharmacopeia shall have no
liability under this Agreement with respect to any such conflict.
6.7 Columbia Sublicense. Subject to the terms and conditions of this
--------------------
Agreement and the Columbia License, if necessary, Pharmacopeia will grant to BMS
and directly to its Sublicensees a nonexclusive, worldwide sublicense, without
the right to sublicense, under the Columbia License, to develop, make, have made
and use Collaboration Compounds and to develop, make, have made, use, and sell
corresponding Products. It is understood and agreed that such sublicenses do not
include the right to create, make or have made encoded combinatorial libraries,
tags, markers or other encoding compositions, or use methods or processes
relating to encoded combinatorial libraries, tags, markers, or other encoding
compositions.
6.8 No Implied Licenses. Only the licenses granted pursuant to the express
--------------------
terms of this Agreement shall be of any legal force or effect. No other license
rights shall be created by implication, estoppel or otherwise.
6.9 No Products Other than Products. Except as otherwise agreed in writing
--------------------------------
or specifically provided in the terms of this Agreement, neither BMS nor its
Affiliates nor Sublicensees shall commercialize any Library Compound or
Derivative Compound thereof, including, without limitation, any Collaboration
Compound, other than as an Product in accordance with this Agreement.
ARTICLE 7
PAYMENTS
7.1 License Fee. Within ten (10) days after the Effective Date, BMS shall
------------
pay to Pharmacopeia a license fee of [***]. Such fee shall be non-refundable and
not creditable against other amounts due Pharmacopeia hereunder.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-20-
<PAGE>
7.2 Research Collaboration Funding.
-------------------------------
7.2.1 Research Phase Payment Schedule. BMS agrees to pay to
--------------------------------
Pharmacopeia at the following rates for the performance of the Research
Collaboration during the Initial Term, based on the stage of the Research
Collaboration which has been achieved. The rates of payments for the various
Research Phases are as follows:
Period Amount
------ ------
Research Phase I [***]
Research Phase II [***]
Research Phase III [***]
Research Phase IV [***]
At such time as the previous Research Phase has been completed, BMS shall
commence payments for the Research Collaboration to Pharmacopeia at the rate for
the next Research Phase.
7.2.2 Research Phase IV. Within forty-five (45) days of the
------------------
determination of the RSC that Research Phase IV has commenced or will commence,
BMS shall pay to Pharmacopeia additional research funding for such quarter, in
an amount equal to the difference between the research funding rates provided
above for Research Phases III and IV, prorated based on the number of days
remaining in such quarter.
7.2.3 Quarterly Payments. The payments subject to this Section 7.2
-------------------
shall be paid in equal quarterly installments, in advance. The initial payment
shall be made within ten (10) days after the Effective Date, and subsequent
payments shall be made on or before each date quarterly thereafter; provided
that, in the event that the final period of the Research Term is less than a
full quarter for any reason other than as a result of termination of the
Research Collaboration and/or this Agreement by Pharmacopeia pursuant to Section
14.2 or 14.3, the amount of such final payment shall be calculated, pro rata,
based on the actual number of days included in such final period. Such payments
are not refundable, unless BMS terminates the Research Collaboration and/or this
Agreement pursuant to Section 14.2, 14.3 or 14.4, in which case, Pharmacopeia
shall reimburse BMS on a pro rata basis, calculated on the number of days
remaining in the relevant quarter after the effective date of termination.
7.2.4 After the Initial Term. The payments due Pharmacopeia for the
-----------------------
performance of the Research Collaboration after the Initial Term, if any, shall
be as agreed by the parties at the time of any extension pursuant to Section
2.4.2.
7.2.5 No Withholding. All amounts paid to Pharmacopeia pursuant to
---------------
this Section 7.2 shall be made without withholding for taxes or any other
charge.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-21-
<PAGE>
7.3 Milestones.
----------
7.3.1 In the Field.
------------
(a) Lead Compound Milestone Payments. [***] If BMS reasonably
--------------------------------
determines that any such potential Lead Compound(s) satisfy such requisite
criteria, then BMS shall pay [***] to Pharmacopeia within ten (10) days after
such determination.
(b) Other Milestone Payments. BMS shall pay to Pharmacopeia the
------------------------
following amounts within forty-five (45) days following the achievement by
Pharmacopeia or by BMS, its Affiliates, Sublicensees or other designees, as the
case may be, of each of the following milestones with respect to each Active
Compound or Derivative Compound thereof, with activity against the same Target
(and each corresponding Product):
<TABLE>
<CAPTION>
MILESTONES AMOUNT
- -------------------------------------------------------------------------------- --------------------
<S> <C>
Optimized Lead Compound identified less than [***] months after Effective Date [***]
Optimized Lead Compound identified less than [***] months after Effective Date [***]
Optimized Lead Compound identified less than [***] months after Effective Date [***]
Filing of an IND or initiation of human trials in any country [***]
Initiation of Phase III clinical trials in any country [***]
Filing of NDA in any Major Country [***]
First approval of an NDA [***]
</TABLE>
(c) Milestone Announcements. Within forty-five (45) days following
-----------------------
the achievement by Pharmacopeia or by BMS, its Affiliates, Sublicensees or other
designees, as the case may be, of each of the following milestones with respect
to each Active Compound or Derivative Compound thereof with activity against the
same Target (and each corresponding Product), the parties shall agree on and
issue a joint press release announcing the achievement of such milestone:
Milestones
- ----------------------------------------------------------------------------
Identification of Lead Compound (upon verification thereof by BMS pursuant
to Section 7.3.1(a)))
PLP Approval
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-22-
<PAGE>
7.3.2 Outside the Field.
-----------------
(a) Milestone Payments. BMS shall pay to Pharmacopeia the following
------------------
amounts within forty-five (45) days following the achievement by BMS, its
Affiliates, Sublicensees or other designees, as the case may be, of each of the
following milestones with respect to each Other Compound or Derivative Compound
thereof with activity outside the Field (and each corresponding Product):
<TABLE>
<CAPTION>
<S> <C>
MILESTONES AMOUNT
- -------------------------------------------------------------------------------- --------------------
Filing of an IND or initiation of human trials in any country [***]
Initiation of Phase III clinical trials in any country [***]
Filing of NDA in any Major Country [***]
First approval of an NDA [***]
</TABLE>
(b) Milestone Announcements. Within forty-five (45) days following
-----------------------
the achievement by BMS, its Affiliates, Sublicensees or other designees, as the
case may be, of each of the following milestones with respect to each Other
Compound or Derivative Compound thereof with activity outside the Field (and
each corresponding Product), the parties shall agree on and issue a joint press
release announcing the achievement of such milestone:
MILESTONES
- --------------------------------------------------------------------------------
Designation of Other Compound
PLP Approval
7.3.3 Back-Up Compounds. The payments set forth in Sections
------------------
7.3.1(a) and 7.3.2(a) above shall be made with respect to each Collaboration
Compound (and corresponding Product). Notwithstanding the above, none of the
milestone payments due pursuant to Sections 7.3.1(a) and 7.3.2(a) above shall be
paid with respect to any Active Compound or Other Compound, or any Derivative
Compound of any of the foregoing, which is in active clinical development for
any indication that is substantially the same as any indication for which a
milestone-bearing Lead Compound is being developed, and where BMS' development
plan for such Active Compound, Other Compound, or Derivative Compound
specifically contemplates a halt in the development thereof if such Lead
Compound is developed through NDA approval.
7.4 Royalties.
---------
7.4.1 Therapeutic Products. BMS shall pay to Pharmacopeia
---------------------
royalties on the aggregate Net Sales of Products by BMS, its Affiliates, and its
Sublicensees as follows:
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-23-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Products containing an Active Compound or Derivative Compound thereof [***]
Products containing an Other Compound or Derivative Compound thereof [***]
</TABLE>
7.4.2 Trade Secret Royalties. The parties acknowledge and agree that
-----------------------
the principal value contributed by Pharmacopeia is accelerated time to market,
enhanced probability of success and the potential for multiple Target leads and
that Pharmacopeia may not own or control patents that cover the manufacture,
sale or use of a particular Product. BMS acknowledges and agrees that the value
BMS receives hereunder is in the access to the Library Compounds and enablement
in the solid-phase synthesis and high throughput screening thereof, and
accordingly BMS shall pay the royalties at the rates specified in this Section
7.4, regardless of whether the applicable Collaboration Compound or Product is
covered by a patent application or patent within the Licensed Technology or BMS
Technology.
7.4.3 Single Royalty; Non-Royalty Sales. No royalty shall be payable
----------------------------------
under this Section 7.4 with respect to sales of Products among BMS, its
Affiliates and Sublicensees for resale; and in no event shall more than one
royalty be due hereunder with respect to any Product unit even if covered by
more than one patent included in the Licensed Technology.
7.4.4 Royalty Term. BMS' obligation to pay royalties to Pharmacopeia
-------------
shall continue for each Product, on a country-by-country basis, until the later
of (i) [***] after the first commercial sale of such Product in such country, or
(ii) the expiration of the last to expire issued patent within the Licensed
Technology or BMS Technology which contains a composition-of-matter or method of
use claim covering any formulation of such Product in such country.
7.4.5 Third Party Royalties. BMS shall be responsible for all payments
----------------------
due to third parties for the manufacture, use, or sale of Products by BMS, its
Affiliates or Sublicensees; provided, that Pharmacopeia shall be responsible for
all payments due under the Columbia License or to any other third parties in
connection with Pharmacopeia's creation or synthesis of encoded combinatorial
libraries during the term of this Agreement.
7.5 Diagnostic Products. In the event that any Diagnostic Product (as
--------------------
defined in Section 1.30(b)), either in the Field or outside the Field, is
developed by BMS, its Affiliates, Sublicensees or other designees, the parties
shall negotiate in good faith the additional terms thereof, including applicable
milestone payments and announcements, and royalties thereon.
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
-24-
<PAGE>
ARTICLE 8
PAYMENTS; BOOKS AND RECORDS
8.1 Royalty Reports and Payments. After the first commercial sale of a
----------------------------
Product on which royalties are payable by BMS or its Affiliates or Sublicensees
hereunder, BMS shall make quarterly written reports to Pharmacopeia within
ninety (90) days after the end of each calendar quarter, stating in each such
report, separately for BMS and each Affiliate and Sublicensee, the number,
description, and aggregate Net Sales, by country, of each Product sold during
the calendar quarter upon which a royalty is payable under Section 7.4 above. In
the event that any Net Sales are based on Bundled Transactions, such reports
shall include a statement showing the calculation of the Net Sales with respect
to such Bundled Transactions. Concurrently with the making of such reports, BMS
shall pay to Pharmacopeia royalties due at the rates specified in such Sections.
8.2 Payment Method. All payments due under this Agreement shall be made by
--------------
bank wire transfer in immediately available funds to a bank account designated
by Pharmacopeia. All payments hereunder shall be made in U.S. dollars. In the
event that the due date of any payment subject to Article 7 hereof is a
Saturday, Sunday or national holiday, such payment may be paid on the
following business day. Any payments that are not paid on the date such
payments are due under this Agreement shall bear interest to the extent
permitted by applicable law at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, on the date such payment is due, plus an
additional two percent (2%), calculated on the number of days such payment is
delinquent.
8.3 Currency Conversion. The royalty payments due shall be calculated at
-------------------
BMS's customary internal corporate monthly exchange rates for the last month of
the calendar quarter for which remittance is made for royalties. For each month
and each currency, BMS's customary internal corporate monthly exchange rate
shall equal the arithmetic average of the daily exchange rates (obtained as
described below) during the period from (i) the 20th day of the preceding month
(or, if such 20th day is not a business day, the immediately preceding business
day) through (ii) the 19th day of the current month (or, if such 19th day is not
a business day, the immediately preceding business day); each daily exchange
rate shall be obtained from the Reuters Daily Rate Report or The Wall Street
Journal, Eastern U.S. Edition, or, if not so available, as furnished by BMS's
local Affiliates.
8.4 Records; Inspection. BMS and its Affiliates and Sublicensees shall keep
-------------------
complete, true and accurate books of account and records for the purpose of
determining the royalty amounts payable under this Agreement. Such books and
records shall be kept at the principal place of business of such party, as the
case may be, for at least three (3) years following the end of the calendar
quarter to which they pertain. Such records will be open for inspection during
such three (3) year period by a public accounting firm to whom BMS has no
reasonable objection, solely for the purpose of verifying royalty statements
hereunder. Such inspections may
-25-
<PAGE>
be made no more than once each calendar year, at reasonable times and on
reasonable notice. Inspections conducted under this Section 8.4 shall be at the
expense of Pharmacopeia, unless a variation or error producing an increase
exceeding five percent (5%) of the amount stated for any period covered by the
inspection is established in the course of any such inspection, whereupon all
reasonable costs relating to the inspection for such period and any unpaid
amounts that are discovered will be paid promptly by BMS together with interest
thereon from the date such payments were due at the prime rate as reported by
the Chase Manhattan Bank, New York, New York, plus an additional two percent
(2%). The interest available to Pharmacopeia pursuant to this Section 8.4 shall
in no way limit any other remedies available to Pharmacopeia.
8.5 Tax Matters.
-----------
8.5.1 Withholding Taxes. All milestone payments, royalty amounts and
-----------------
license fees required to be paid to Pharmacopeia pursuant to this Agreement
shall be paid with deduction for withholding for or on account of any taxes
(other than taxes imposed on or measured by net income) or similar governmental
charge imposed by a jurisdiction other than the United States ("Withholding
Taxes"). BMS shall provide Pharmacopeia a certificate evidencing payment of any
Withholding Taxes hereunder, and shall provide any further assistance reasonably
requested by Pharmacopeia to enable Pharmacopeia to obtain the benefit of any
such deduction.
8.5.2 Other Taxes. BMS shall be responsible for any sales taxes, use
-----------
taxes, transfer taxes or similar governmental charges required to be paid in
connection with the transfer of the Libraries. In the event that Pharmacopeia is
required to pay any such amounts, and reasonably documents payment, BMS shall
promptly reimburse Pharmacopeia for such amounts.
ARTICLE 9
DUE DILIGENCE
9.1 Due Diligence. BMS shall use commercially reasonable efforts,
-------------
comparable to those efforts used for its own compounds of comparable value, to
develop and commercialize Active Compounds and Derivative Compounds thereof
with activity in the Field, and corresponding Products.
9.2 Reports. Until first commercial introduction of each royalty-bearing
-------
Product by or on behalf of BMS hereunder, BMS shall keep Pharmacopeia apprised
of the status of the pre-clinical, clinical and commercial development of such
Product (and each Collaboration Compound from which such Product is being
developed) by semi-annually providing Pharmacopeia with a written report
detailing such activities with respect to each applicable Product (and each
Collaboration Compound from which such Product is being developed) during the
term of this Agreement. The reports described in this Section 9.2 shall
contain sufficient
-26-
<PAGE>
information to allow Pharmacopeia to monitor BMS' compliance with this
Agreement, including without limitation, BMS' obligations with respect to the
accomplishment of the milestones set forth in Section 7.3. All reports and
information provided under this Section 9.2 shall be deemed Confidential
Information of BMS.
9.3 Reversion of Rights.
-------------------
9.3.1 Termination of Licenses. Following the end of the Research Term,
-----------------------
in the event that BMS fails to exercise diligence as required pursuant to
Section 9.1, or discontinues development of all Products and Collaboration
Compounds active with respect to a particular Target in the Field, or
discontinues development of all Products and Collaboration Compounds active with
respect to a particular target outside the Field, then Pharmacopeia shall have
the right to terminate all licenses granted to BMS pertaining to such Products,
and to all Active Compounds, Other Compounds and Derivative Compounds thereof
from which such Products were developed.
9.3.2 Grant Back. In the event of any termination pursuant to Section
----------
6.2.2 or 9.3.1 above with respect to any Active Compound, Other Compound,
Derivative Compound or Product, if Pharmacopeia desires an exclusive license
to the BMS Technology applicable to such Active Compound, Other Compound,
Derivative Compound or Product, the parties shall negotiate in good faith the
terms of such a license.
9.3.3 Regulatory Filings. If Pharmacopeia acquires rights from BMS
------------------
with respect to any Active Compound, Other Compound, Derivative Compound or
Product pursuant to Section 9.3.1 or 9.3.2 above, BMS may, in exchange for
agreed consideration, provide Pharmacopeia with access to and the right to use
all regulatory filings made by BMS to the extent possible with respect to such
Product, together with the underlying pre-clinical and clinical data relating
thereto, and agreed government permits and health registrations and other
rights pertaining thereto.
ARTICLE 10
INTELLECTUAL PROPERTY
10.1 Ownership of Inventions; Disclosure. Title to all inventions and other
-----------------------------------
intellectual property made solely by employees of BMS, but not Pharmacopeia, in
the course of and in connection with the Research Collaboration ("BMS
Inventions") shall be deemed owned by BMS. Title to all inventions and other
intellectual property made solely by employees of Pharmacopeia, but not BMS, in
the course of and in connection with the Research Collaboration ("Pharmacopeia
Inventions") shall be deemed owned by Pharmacopeia. Title to all inventions and
other intellectual property made jointly by employees of BMS and Pharmacopeia in
the course of and in connection with the Research Collaboration ("Joint
Inventions") shall be
-27-
<PAGE>
deemed owned jointly by Pharmacopeia and BMS. Notwithstanding the foregoing, all
patents and patent applications claiming an Active Compound or an Other Compound
shall be jointly owned by Pharmacopeia and BMS. Inventorship of inventions and
other intellectual property conceived and/or reduced to practice pursuant to
this Agreement shall be determined in accordance with the patent laws of the
United States. Each party shall promptly disclose to the other any inventions
made in connection with this Agreement.
10.2 Patent Prosecution.
------------------
10.2.1 Responsibilities.
----------------
(a) Pharmacopeia Inventions. Pharmacopeia shall be responsible for
-----------------------
preparing, filing, prosecuting and maintaining, in such countries as it deems
appropriate, patent applications and patents directed to Pharmacopeia Inventions
included within the Licensed Technology and conducting any interferences, re-
examinations, reissues and oppositions relating to such patent applications and
patents.
(b) Joint Inventions. Subject to Sections 10.3 and 10.4, (i) BMS
----------------
shall be responsible for: (A) preparing, filing, prosecuting and maintaining in
the Core Countries, and any additional countries agreed by BMS and Pharmacopeia,
patent applications and patents directed to Joint Inventions that claim one or
more compositions of matter relating to an Active Compound, Other Compound or a
Derivative Compound thereof, or a method of use of any of the foregoing, and
conducting any interferences, re-examinations, reissues and oppositions relating
thereto, and (B) preparing, filing, prosecuting and maintaining in the Core
Countries outside the United States, and any additional countries agreed by BMS
and Pharmacopeia, through BMS's patent management and affiliates system, patent
applications and patents directed to all other Joint Inventions, and conducting
any interferences, re-examinations, reissues and oppositions relating thereto;
and (ii) Pharmacopeia shall be responsible for preparing, filing, prosecuting
and maintaining in the United States, patent applications and patents directed
to all other Joint Inventions, and conducting any interferences, re-
examinations, reissues and oppositions relating thereto.
(c) BMS Inventions. BMS shall be responsible for preparing, filing,
--------------
prosecuting and maintaining, in such countries as it deems appropriate, patent
applications and patents directed to all BMS Inventions, and conducting any
interferences, re-examinations, reissues and oppositions relating thereto.
10.2.2 Failure to Prosecute.
--------------------
(a) Pharmacopeia Failure to Prosecute. Pharmacopeia may elect, upon
---------------------------------
ninety (90) days prior notice, to discontinue prosecution of any patent
applications filed by Pharmacopeia pursuant to Section 10.2.1(a) or
10.2.1(b)(ii) above and/or not to file or conduct
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<PAGE>
any further activities with respect to the patent applications or patents
subject to such Sections. In the event Pharmacopeia declines to file or, having
filed, fails to further prosecute or maintain any patent applications or patents
described in such Sections, or conduct any proceedings including, but not
limited to, interferences, re-examinations, reissues, oppositions relating
thereto, then BMS shall have the right to prepare, file, prosecute and maintain
such patent applications and patents in such countries as it deems appropriate,
and conduct such proceedings, at its sole expense. In such case, Pharmacopeia
shall immediately execute all necessary documents that may be required in order
to enable BMS to file, prosecute and maintain such patent applications and to
conduct any such proceedings.
(b) BMS Failure to Prosecute. BMS may elect, upon ninety (90) days
------------------------
prior notice, to discontinue prosecution of any patent applications filed
pursuant to Section 10.2.1 (b) (i) above and/or not to file or conduct any
further activities with respect to the patent applications or patents subject to
such Section. In the event BMS declines to file or, having filed, fails to
further prosecute or maintain any patent applications or patents described in
such Section, or conduct any proceedings including, but not limited to,
interferences, re-examinations, reissues, oppositions relating thereto, then
Pharmacopeia shall have the right to prepare, file, prosecute and maintain such
patent applications and patents in such countries as it deems appropriate, and
conduct such proceedings, at its sole expense. In such case, BMS shall
immediately execute all necessary documents that may be required in order to
enable Pharmacopeia to file, prosecute and maintain such patent applications and
to conduct any such proceedings.
10.3 Cooperation. Each of BMS and Pharmacopeia shall keep the other fully
-----------
informed as to the status of patent matters described in this Article 10,
including without limitation, by providing the other the opportunity, as far in
advance of filing dates as possible, to fully review and comment on any
documents which will be filed in any patent office, and providing the other
copies of any substantive documents that such party receives from such patent
offices promptly after receipt, including notice of all interferences, reissues,
re-examinations, oppositions or requests for patent term extensions. BMS and
Pharmacopeia shall each reasonably cooperate with and assist the other at its
own expense in connection with such activities, at the other party's request.
Patent counsel designated by each party will meet as appropriate, during (i) the
Research Term, and (ii) the pendency of any patent applications claiming Joint
Inventions described in Section 10.2.1(b), to coordinate, discuss, review and
implement patent filing and prosecution strategy.
10.4 Costs.
-----
Responsibilities for costs incurred under this Article shall be as
follows:
(i) Pharmacopeia shall pay all out-of-pocket costs incurred in
connection with the conduct of the activities described in
Sections 10.2.1(a) and 10.2.1(b)(ii).
(ii) BMS shall pay all out-of-pocket costs incurred in connection
with the conduct of the activities described in Sections
10.2.1(c) and 10.2.1(b)(i).
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<PAGE>
(iii) Subject to Section 10.2.2, the parties shall reimburse each
other so as to equally share the out-of-pocket costs incurred
in connection with conduct of the activities described in
Section 10.2.1 (b).
10.5 Copies. During the term of this Agreement, BMS shall promptly provide
------
to Pharmacopeia a copy of any patent applications filed by BMS or its Affiliates
or Sublicensees, after the publication thereof, relating to any Collaboration
Compounds. During the term of this Agreement, Pharmacopeia shall promptly
provide to BMS a copy of any patent applications filed by Pharmacopeia, after
the publication thereof, relating to any Active Compounds or Derivative
Compounds thereof.
10.6 Enforcement and Defense.
-----------------------
10.6.1 Notice. Each party shall promptly notify the other of any
------
knowledge it acquires of any potential infringement of the Licensed Technology
or the BMS Technology by a third party.
10.6.2 Joint Inventions. In the event Pharmacopeia or BMS becomes
----------------
aware of any actual or threatened infringement of any patent filed pursuant to
Section 10.2.1(b), that party shall promptly notify the other and the parties
shall promptly discuss how to proceed in connection with such actual or
threatened infringement. Unless otherwise agreed by the parties, the terms of
Sections 10.6.3 and 10.6.4 shall apply; provided, the parties may decide to
jointly defend against any patent infringement by third parties, in which case
the parties shall also agree on allocation of costs and damages.
10.6.3 BMS. BMS shall have the initial right, but not the obligation,
---
to take reasonable legal action to enforce against infringements by third
parties or defend any declaratory judgment action relating to any patent filed
pursuant to Section 10.2.1(b)(i), at its sole cost and expense. If, within six
(6) months following receipt of such notice from Pharmacopeia, BMS fails to take
such action to halt a commercially significant infringement, Pharmacopeia shall,
in its sole discretion, have the right, at its sole expense, to take such
action. BMS shall have the right to enforce patents filed pursuant to Section
10.2.1(c), in its sole discretion, unless Pharmacopeia has acquired a license to
BMS' interest in such patents pursuant to Section 9.3.
10.6.4 Pharmacopeia. Pharmacopeia shall have the initial right, but
------------
not the obligation, to take reasonable legal action to enforce against patent
infringement by third parties or defend any declaratory judgment action relating
to any patent filed pursuant to Section 10.2.1(a) or 10.2.1(b)(ii), at its sole
cost and expense. If, within six (6) months following receipt of such notice
from BMS, Pharmacopeia fails to take such action to halt a commercially
significant infringement, BMS shall, in its sole discretion, have the right, at
its expense, to take such action.
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10.6.5 Cooperation; Costs and Recoveries. Each party agrees to render
---------------------------------
such reasonable assistance as the prosecuting party may request. [***]
10.7 Infringement Claims. If the manufacture, sale or use of any Product
-------------------
pursuant to this Agreement because of the practice of the Licensed Technology or
the BMS Technology results in any claim, suit or proceeding alleging patent
infringement against Pharmacopeia or BMS (or its Affiliates or Sublicensees),
such party shall promptly notify the other party hereto in writing setting forth
the facts of such claim in reasonable detail. The defendant shall have the
exclusive right and obligation to defend and control the defense of any such
claim, suit or proceeding, at its own expense, using counsel of its own choice;
provided, however, it shall not enter into any settlement which admits or
concedes that any aspect of the BMS Technology (in the case of Pharmacopeia) or
the Licensed Technology (in the case of BMS) is invalid or unenforceable,
without the prior written consent of such other party. The defendant shall keep
the other party hereto reasonably informed of all material developments in
connection with any such claim, suit or proceeding.
ARTICLE 11
CONFIDENTIALITY
11.1 Confidential Information. Except as otherwise expressly provided
------------------------
herein, the parties agree that, for the term of this Agreement and for five (5)
years thereafter, the receiving party shall not, except as expressly provided in
this Article 11, disclose to any third party or use for any purpose any
confidential information furnished to it by the disclosing party hereto pursuant
to this Agreement ("Confidential Information") except to the extent that it can
be established by the receiving party by competent proof that such information:
(a) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving party in breach of this Agreement;
(d) was independently developed by the receiving party as demonstrated
by documented evidence prepared contemporaneously with such independent
development; or
*** Information omitted and filed separately with the Commission under
Rule 24b-2.
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<PAGE>
(e) was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
disclosing party not to disclose such information to others.
11.2 Permitted Use and Disclosures. Each party hereto may use or disclose
-----------------------------
information disclosed to it by the other party to the extent such information is
included in the Licensed Technology or the BMS Technology, as the case may be,
and to the extent such use or disclosure is reasonably necessary and permitted
in the exercise of such rights granted hereunder in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with applicable
governmental regulations or court order or otherwise submitting information to
tax or other governmental authorities, conducting clinical trials, or making a
permitted sublicense or otherwise exercising license rights expressly granted by
the other party to it pursuant to the terms of this Agreement, provided that if
a party is required to make any such disclosure, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the other
party of such disclosure and, save to the extent inappropriate in the case of
patent applications, will use its reasonable efforts to secure confidential
treatment of such information in consultation with the other party prior to its
disclosure (whether through protective orders or otherwise) and disclose only
the minimum necessary to comply with such requirements.
11.3 Nondisclosure of Terms. Each of the parties hereto agrees not to
----------------------
disclose the terms of this Agreement to any third party without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld, except to such party's attorneys, advisors, investors and
others on a need to know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Notwithstanding the
foregoing, the parties shall agree upon a press release and timing to announce
the execution of this Agreement, together with a corresponding Q&A outline for
use in responding to inquiries about the Agreement; thereafter, Pharmacopeia and
BMS may each disclose to third parties the information contained in such press
release and Q&A without the need for further approval by the other. In addition,
BMS and Pharmacopeia may make public statements regarding the progress of the
Research Collaboration and the achievement of milestones and fees with respect
thereto, following consultation and mutual agreement, the consent of neither
party to be unreasonably withheld.
11.4 Publication. Any manuscript by Pharmacopeia or BMS describing any
-----------
scientific data, information or results of the Research Collaboration, other
than data, information or results relating to any Collaboration Compound or any
screens developed or used in the Research Collaboration, which is to be
published during the Research Term or within one (1) year after the end of the
Research Term shall be subject to the prior review of the parties at least
ninety (90) days prior to submission. Any manuscript by Pharmacopeia or BMS
describing any scientific data, information or results of the Research
Collaboration relating to any Collaboration Compound or any screens developed or
used in the Research Collaboration, which is to be published at any time prior
to the launch of a Product consisting of such Collaboration
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<PAGE>
Compound or containing such Collaboration Compound as an active ingredient or
which results from the use of a screen developed or used in the Research
Collaboration shall be subject to the prior review of the parties at least
ninety (90) days prior to submission. Further, to avoid loss of patent rights as
a result of premature public disclosure of patentable information, the receiving
party shall notify the disclosing party in writing within thirty (30) days after
receipt of any disclosure whether the receiving party desires to file a patent
application on any invention disclosed in such proposed publication. In the
event that the receiving party desires to file such a patent application, the
disclosing party shall withhold publication or disclosure of such scientific
results until the earlier of (i) a patent application is filed thereon, or (ii)
the parties determine after consultation that no patentable invention exists, or
(iii) one hundred eighty (180) days after receipt by the disclosing party of the
receiving party's written notice of the receiving party's desire to file such
patent application, or such other period as is reasonable for seeking patent
protection. Further, if such scientific results contain the information of the
receiving party that is subject to use and nondisclosure restrictions under this
Article 11, the disclosing party agrees to remove such information from the
proposed publication or disclosure. Following the filing of any patent
application within the Licensed Technology or BMS Technology, in the eighteen
(18) month period prior to the publication of such a patent application, neither
party shall make any written public disclosure regarding any invention claimed
in such patent application without the prior consent of the other party. In any
publication permitted under this Section 11.4, each party shall acknowledge its
collaboration with the other party under this Agreement.
ARTICLE 12
REPRESENTATIONS AND WARRANTIES
12.1 Representations and Warranties of Both Parties. Each party represents
----------------------------------------------
and warrants to the other party that, as of the Execution Date:
(a) Such party is duly organized and validly existing under the laws
of the state of its incorporation and has full corporate power and authority to
enter into this Agreement and to carry out the provisions hereof.
(b) Such party has taken all corporate action necessary to authorize
the execution and delivery of this Agreement and the performance its obligations
under this Agreement.
(c) This Agreement is a legal and valid obligation of such party,
binding upon such party and enforceable against such party in accordance with
the terms of this Agreement. The execution, delivery and performance of this
Agreement by such party do not conflict with any agreement, instrument or
understanding, oral or written (including, with respect to Pharmacopeia, the
Columbia License), to which such party is a party or by which such party may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having authority over such party. All consents,
approvals and authorizations from
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<PAGE>
all governmental authorities or other third parties required to be obtained by
such party in connection with the execution and delivery of this Agreement have
been obtained.
(d) No person or entity has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon such party for any commission, fee or other compensation as a
finder or broker because of any act by such party or of any agent of such party.
12.2 Pharmacopeia. Pharmacopeia represents and warrants that:
------------
(a) It has not previously granted, and during the term of this
Agreement will not knowingly make, any commitment or grant any rights which are
in conflict in any material way with the rights and licenses granted herein.
(b) To the best of its knowledge, it is the owner or licensee of all
of the Licensed Technology in existence on the Execution Date, and has the right
to grant the licenses or sublicenses granted under this Agreement, as the case
may be, therefor.
(c) To the best of its knowledge as of the Execution Date, there are
no existing or threatened actions, suits or claims pending against it with
respect to the Licensed Technology.
(d) To the best of its knowledge as of the Execution Date, the
creation or synthesis of encoded combinatorial libraries by Pharmacopeia does
not infringe any patent rights of any third party.
(e) As of the Execution Date, the Columbia License is in full force
and effect. To the best of its knowledge as of the Execution Date:
Pharmacopeia has complied with all provisions of the Columbia License, and there
does not exist any event of default with respect to Pharmacopeia under the
Columbia License which, after notice or lapse of time or both, would constitute
an event of breach or default with respect to Pharmacopeia under the Columbia
License.
(f) During the term of the Research Collaboration: (i) Pharmacopeia
will use reasonable efforts not to materially breach the Columbia License; and
(ii) Pharmacopeia shall not enter into any subsequent agreement with the
licensor under the Columbia License which modifies or amends the Columbia
License in a way which would materially adversely affect the rights of BMS under
this Agreement.
12.3 Disclaimer. BMS and Pharmacopeia specifically disclaim any guarantee
----------
that the Research Collaboration will be successful, in whole or in part. The
failure of the parties to successfully develop Active Compounds or Other
Compounds or Derivative Compounds or
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<PAGE>
Products will not constitute a breach of any representation or warranty or other
obligation under this Agreement. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, PHARMACOPEIA AND BMS MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES
OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
LICENSED TECHNOLOGY, BMS TECHNOLOGY, COLLABORATION LIBRARIES, INTERNAL
LIBRARIES, LIBRARY COMPOUNDS, INFORMATION DISCLOSED HEREUNDER OR PRODUCTS
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, VALIDITY OF ANY LICENSED TECHNOLOGY OR BMS TECHNOLOGY,
PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS
OF THIRD PARTIES.
ARTICLE 13
INDEMNIFICATION
13.1 BMS. BMS agrees to indemnify, defend and hold Pharmacopeia and its
---
Affiliates and their respective directors, officers, employees, agents and their
respective successors, heirs and assigns (the "Pharmacopeia Indemnitees")
harmless from and against any losses, costs, claims, damages, liabilities or
expense (including reasonable attorneys' and professional fees and other
expenses of litigation) (collectively, "Liabilities") arising, directly or
indirectly out of or in connection with third party claims, suits, actions,
demands or judgments, relating to (i) any Products developed, manufactured,
used, sold or otherwise distributed by or on behalf of BMS, its Affiliates or
Sublicensees or other designees (including, without limitation, product
liability and patent infringement claims), (ii) BMS' performance of the Research
Collaboration, (iii) the use of the Targets which are involved in the conduct of
the Research Collaboration and the making or use of ligands to such Targets; and
(iv) any breach by BMS of the representations and warranties made in this
Agreement, except, in each case, to the extent such Liabilities result from a
material breach of this Agreement by Pharmacopeia, gross negligence or
intentional misconduct of Pharmacopeia.
13.2 Pharmacopeia. Pharmacopeia agrees to indemnify, defend and hold BMS,
------------
its Affiliates and its Sublicensees and their respective directors, officers,
employees, agents and their respective heirs and assigns (the "BMS Indemnitees")
harmless from and against any losses, costs, claims, damages, liabilities or
expense (including reasonable attorneys' and professional fees and other
expenses of litigation) (collectively, "Liabilities") arising, directly or
indirectly out of or in connection with third party claims, suits, actions,
demands or judgments, relating to (i) any product based on a Library Compound
developed, manufactured, used, sold or otherwise distributed by or on behalf of
Pharmacopeia, its Affiliates, licensees or other designees as permitted under
this Agreement (including, without limitation, product liability and patent
infringement claims), (ii) the performance of the Research Collaboration by
Pharmacopeia, and (iii) any breach by Pharmacopeia of its representations and
warranties made in this Agreement,
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<PAGE>
except, in each case, to the extent such Liabilities result from a material
breach of this Agreement by BMS, gross negligence or intentional misconduct of
BMS.
13.3 Procedure. In the event that any Indemnitee (either a BMS
---------
Indemnitee or a Pharmacopeia Indemnitee) intends to claim indemnification under
this Article 13 it shall promptly notify the other party in writing of such
alleged Liability. The indemnifying party shall have the right to control the
defense thereof with counsel of its choice as long as such counsel is reasonably
acceptable to Indemnitee; provided, however, that any Indemnitee shall have the
right to retain its own counsel at its own expense, for any reason, including if
representation of any Indemnitee by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnitee and any other party reasonably represented by such
counsel in such proceeding. The affected Indemnitee shall cooperate with the
indemnifying party and its legal representatives in the investigation of any
action, claim or liability covered by this Article 13. The Indemnitee shall not,
except at its own cost, voluntarily make any payment or incur any expense with
respect to any claim or suit without the prior written consent of the
indemnifying party, which such party shall not be required to give.
ARTICLE 14
TERM AND TERMINATION
14.1 Term. The term of this Agreement shall commence on the Effective Date,
----
and shall continue in full force and effect on a country-by-country and Product-
by-Product basis until BMS and its Sublicensees have no remaining royalty
payment obligations in a country, unless terminated earlier as provided in this
Article 14.
14.2 Termination for Breach. Either party to this Agreement may terminate
----------------------
the Research Collaboration and/or this Agreement in the event the other party
hereto shall have materially breached or defaulted in the performance of any of
its material obligations hereunder, and such default shall have continued for
sixty (60) days after written notice thereof was provided to the breaching party
by the non-breaching party. Any termination shall become effective at the end of
such sixty (60) day period unless the breaching party (or any other party on its
behalf) has cured any such breach or default prior to the expiration of the
sixty (60) day period; provided, however, in the case of a failure to pay any
amount due hereunder, such default may be the basis of termination ten (10)
business days following the date that notice of such default was provided to the
breaching party.
14.3 Termination for Insolvency. If voluntary or involuntary proceedings
--------------------------
by or against a party are instituted in bankruptcy under any insolvency law, or
a receiver or custodian is appointed for such party, or proceedings are
instituted by or against such party for corporate reorganization, dissolution,
liquidation or winding-up of such party, which proceedings, if involuntary,
shall not have been dismissed within sixty (60) days after the date of filing,
or if
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<PAGE>
such party makes an assignment for the benefit of creditors, or substantially
all of the assets of such party are seized or attached and not released within
sixty (60) days thereafter, the other party may immediately terminate the
Research Collaboration and/or this Agreement, effective upon notice of such
termination.
14.4 Termination Due to Acquisition. During the Research Term, if any major
------------------------------
pharmaceutical company which, in the good faith determination of BMS, is a
competitor of BMS acquires Pharmacopeia (whether through merger, consolidation
or acquisition, directly or indirectly, of stock representing 50% or more of the
outstanding voting stock or other equity securities of Pharmacopeia, sale of all
or substantially all the assets of Pharmacopeia or otherwise), BMS may terminate
the Research Collaboration and/or this Agreement effective ninety (90) days
after written notice is transmitted to Pharmacopeia, its parent, successor, or
the surviving or new entity, as the case may be.
14.5 Permissive Termination. If BMS terminates the Research Collaboration
----------------------
pursuant to Section 2.4.3(d) prior to the end of the Initial Term, the
Agreement shall terminate in its entirety concurrently.
14.6 Effect of Breach or Termination.
-------------------------------
14.6.1 Accrued Rights and Obligations. Termination of this Agreement
------------------------------
for any reason shall not release either party hereto from any liability which,
at the time of such termination, has already accrued to the other party or which
is attributable to a period prior to such termination nor preclude either party
from pursuing any rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.
14.6.2 Return of Materials. Upon any termination of the licenses
-------------------
granted to either party pursuant to this Agreement, BMS and/or Pharmacopeia, as
the case may be, shall promptly return to the other all Confidential Information
(including, without limitation, all Know-How) received from the other party,
except one copy of which may be retained for archival purposes.
14.6.3 Post-Termination Product Sales. In the event of the
------------------------------
cancellation or termination of any license rights with respect to a Product
prior to the expiration of this Agreement, inventory of such Product may be sold
for up to one year after date of termination or such longer period as the
parties may agree, provided earned royalties are paid thereon.
14.6.4 Licenses.
--------
(a) Following expiration of the term of this Agreement with respect to
a Product in a country pursuant to Section 14.1, BMS shall have the royalty-
free, perpetual right to make, have made, use and sell such Product in such
country. Following expiration of the term
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<PAGE>
of this Agreement with respect to every Product in every country pursuant to
Section 14.1, BMS shall have the royalty-free, perpetual right to continue to
make, have made, use and sell all Products worldwide.
(b) The licenses granted to BMS herein shall terminate in the event of
any termination of the Research Collaboration by BMS prior to the end of the
Initial Term pursuant to Section 2.4.3(d) or any termination of the Agreement by
Pharmacopeia pursuant to Section 14.2 or 14.3.
(c) Subject to Section 9.3.1, if more than one Product is being
commercially developed or exploited by BMS or its Affiliates or Sublicensees
hereunder, and Pharmacopeia terminates this Agreement pursuant to Section 14.2
due to a breach relating only to a single Product, then Pharmacopeia shall be
entitled to terminate this Agreement only with respect to the applicable
Product.
(d) Except as expressly provided in this Section 14.6.4, in the event
of any termination of this Agreement, the licenses granted under this Agreement
to either party prior to the effective date of such termination shall remain in
effect, subject to the terms and conditions of this Agreement applicable
thereto. In such event, the applicable provisions of Articles 6, 7, 9 and 14
shall survive and be applicable to such licenses in addition to the provisions
which survive pursuant to Section 14.7.
14.7 Survival Sections. Sections 2.4.4, 2.6, 2.7, 4.3, 5.1 (as provided
-----------------
therein), 5.3.4, 6.4, 6.8, 6.9, 7.4, 9.3.2, 9.3.3, 14.6 and 14.7 of this
Agreement, and Articles 8, 10, 11, 12, 13 and 15 shall survive the expiration or
termination of this Agreement for any reason.
ARTICLE 15
MISCELLANEOUS
15.1 Governing Laws. This Agreement and any dispute arising from the
--------------
construction, performance or breach hereof shall be governed by and construed,
and enforced in accordance with, the laws of the state of New Jersey, without
reference to conflicts of laws principles.
15.2 Waiver. It is agreed that no waiver by either party hereto of any
------
breach or default of any of the covenants or agreements herein set forth shall
be deemed a waiver as to any subsequent and/or similar breach or default.
15.3 Assignment. This Agreement shall not be assignable by either party to
----------
any third party hereto without the written consent of the other party hereto,
except either party may assign this Agreement, without such consent, to an
entity that acquires all or substantially all of the business or assets of such
party to which this Agreement pertains, whether by merger, reorganization,
acquisition, sale, or otherwise. This Agreement shall be binding upon and accrue
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<PAGE>
to the benefit any permitted assignee, and any such assignee shall agree to
perform the obligations of the assignor.
15.4 Independent Contractors. The relationship of the parties hereto is
-----------------------
that of independent contractors. The parties hereto are not deemed to be agents,
partners or joint venturers of the others for any purpose as a result of this
Agreement or the transactions contemplated thereby.
15.5 Compliance with Laws. In exercising their rights under this license,
--------------------
the parties shall fully comply in all material respects with the requirements of
any and all applicable laws, regulations, rules and orders of any governmental
body having jurisdiction over the exercise of rights under this license
including, without limitation, those applicable to the discovery, development,
manufacture, distribution, import and export and sale of Products pursuant to
this Agreement.
15.6 Patent Marking. BMS agrees to mark and have its Affiliates and
--------------
Sublicensees mark all Products sold pursuant to this Agreement in accordance
with the applicable statute or regulations relating to patent marking in the
country or countries of manufacture and sale thereof.
15.7 Notices. All notices, requests and other communications hereunder
-------
shall be in writing and shall be personally delivered or by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
respective address specified below, or such other address as may be specified in
writing to the other parties hereto and shall be deemed to have been given upon
receipt:
Pharmacopeia: Pharmacopeia, Inc.
101 College Road East
Princeton, New Jersey 08540
Attn: Chief Executive Officer
BMS: Bristol-Myers Squibb Company
P.O. Box 4000
Route 206 & Province Line Road
Princeton, New Jersey 08543-4000
Attention: Vice President & Senior
Counsel, Pharmaceutical
Research Institute and
Worldwide Strategic
Business Development
Facsimile No.: (609) 252-4232
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<PAGE>
15.8 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect to
the fullest extent permitted by law without said provision, and the parties
shall amend the Agreement to the extent feasible to lawfully include the
substance of the excluded term to as fully as possible realize the intent of the
parties and their commercial bargain.
15.9 Advice of Counsel. Pharmacopeia and BMS have each consulted counsel of
-----------------
their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one party or another
and will be construed accordingly.
15.10 Performance Warranty. Each Party hereby warrants and guarantees the
--------------------
performance of any and all rights and obligations of this Agreement by its
Affiliate(s) and Sublicensees.
15.11 Force Majeure. Neither party shall lose any rights hereunder or be
-------------
liable to the other party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting party if the failure is
occasioned by war, strike, fire, Act of God, earthquake, flood, lockout,
embargo, governmental acts or orders or restrictions, failure of suppliers, or
any other reason where failure to perform is beyond the reasonable control and
not caused by the negligence, intentional conduct or misconduct of the non-
performing party and such party has exerted all reasonable efforts to avoid or
remedy such force majeure; provided, however, that in no event shall a party be
required to settle any labor dispute or disturbance.
15.12 Complete Agreement. This Agreement with its Exhibits, constitutes the
------------------
entire agreement, both written and oral, between the parties with respect to the
subject matter hereof, and all prior agreements respecting the subject matter
hereof, either written or oral, express or implied, including without
limitation, the confidentiality agreement entered June 16, 1995, shall be
abrogated, canceled, and are null and void and of no effect. No amendment or
change hereof or addition hereto shall be effective or binding on either of the
parties hereto unless reduced to writing and executed by the respective duly
authorized representatives of Pharmacopeia and BMS.
15.13 Dispute Resolution.
------------------
15.13.1 Mediation. If a dispute arises out of or relates to this
---------
Agreement, or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure.
15.13.2 Arbitration. Any dispute under this Agreement which is not
-----------
settled by mutual consent shall be finally settled by binding arbitration,
conducted in accordance with
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<PAGE>
the Commercial Arbitration Rules of the American Arbitration Association by
three (3) arbitrators appointed in accordance with said rules, unless the
parties agree to conduct such arbitration with a single arbitrator. The
arbitration shall be held in New York, New York, and the arbitrators shall be
independent experts with a background suitable for the matters in dispute. The
arbitrators shall determine what discovery will be permitted, consistent with
the goal of limiting the cost and time which the parties must expend for
discovery; provided the arbitrators shall permit such discovery as they deem
necessary to permit an equitable resolution of the dispute. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original and a true copy thereof. The costs of
arbitration, including administrative and arbitrators' fees, shall be shared
equally by the parties. Each party shall bear its own costs and attorneys' and
witness' fees. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within thirty (30) days
following the final decision of the arbitrators or such other reasonable period
as the arbitrators determine in a written opinion. Any arbitration subject to
this Section 15.11 shall be completed within one (1) year from the filing of
notice of a request for such arbitration. The award shall be final and binding
upon the parties hereto.
15.14 Non-Solicitation. During the Research Term and for one (1) year
----------------
thereafter, neither party shall directly or indirectly, induce or attempt to
induce any current employee of the other party or any of its Affiliates, to
accept employment or affiliation with the other party or any of its Affiliates.
15.15 Headings. The captions to the several Sections hereof are not a part
--------
of this Agreement, but are included merely for convenience of reference and
shall not affect its meaning or interpretation.
15.16 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized representatives and delivered in duplicate
originals as of the Execution Date.
BRISTOL-MYERS SQUIBB COMPANY PHARMACOPEIA, INC.
By: /S/ MARILYN HARTIG By: /S/ JOSEPH A. MOLLICA
------------------------ ---------------------------
Name: Marilyn Hartig, Ph.D. Name: Joseph A. Mollica, Ph.D.
------------------------ ---------------------------
Title: Vice President External Science Title: Chairman & CEO
-------------------------------- ---------------------------
& Technology
------------
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<PAGE>
EXHIBIT A
1. The Collaboration Libraries will be provided by Pharmacopeia to BMS in
96-well microtiter plates dried and sealed under argon and suitable for high
throughput screening following resuspension. The type of plate, the number of
compounds per well, and format for control wells will be determined by the
Research Steering Committee.
2. A single sampling for any Collaboration Library will contain that
number of plates required to contain [***]of compounds as are contained in each
library; e.g., [***] randomly selected compounds would be provided for a library
of [***] members in each single sampling. By way of illustration, a single
sampling from a [***]-member library arrayed at [***] compounds per well in
[***] wells would require about [***] plates. The samplings will be provided at
an agreed rate, consistent with BMS' ability to screen compounds and
Pharmacopeia's production schedule.
3. After BMS has identified active wells from plates in the [***]
Pharmacopeia will [***] Pharmacopeia will then decode the chemical structure of
any singly arrayed Other Compound after receiving notice from BMS requesting
such decoding.
4. For a period of up to six (6) months from delivery of a sampling,
Pharmacopeia will store the corresponding "master" plates containing the same
compounds but attached to solid support.
5. Pharmacopeia shall not be responsible for replacing plates which are
rendered unusable due to BMS' failure to promptly screen or store libraries
under conditions recommended by Pharmacopeia at the time of delivery; provided,
however, that BMS may request Pharmacopeia to replace such plates on the terms
and conditions set forth herein.
* Information omitted and filed separately with the Commission under Rule 24b-2
-43-
<PAGE>
EXHIBIT 21.0
------------
SUBSIDIARIES OF PHARMACOPEIA, INC.
----------------------------------
Micro Acquisition Corporation, a Delaware corporation, is a wholly owned
subsidiary of Pharmacopeia, Inc.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-80341) pertaining to the 1994 Incentive Stock Plan of Pharmacopeia,
Inc., the 1995 Director Option Plan of Pharmacopeia, Inc. and the 1995 Employee
Stock Purchase Plan of Pharmacopeia, Inc. and in the Registration Statement
(Form S-8 No. 333-20883) pertaining to the 1994 Incentive Stock Plan of
Pharmacopeia, Inc. of our report dated January 27, 1998, except for Note 13 as
to which the date is February 4, 1998, with respect to the financial statements
of Pharmacopeia, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1997.
Ernst & Young LLP
Princeton, New Jersey
February 26, 1998
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE IN SUCH STATEMENTS.
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