<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
Amendment No. 1 to
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 10, 1997
Millennium Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-28494 04-3177038
---------------------- --------------------------------
(Commission File Number) (IRS Employer Identification No.)
640 Memorial Drive, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 679-7000
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 10, 1997, Millennium Pharmaceuticals, Inc. ("Millennium")
acquired (the "Acquisition") all of the issued capital stock of ChemGenics
Pharmaceuticals Inc., a Delaware corporation ("ChemGenics"), by means of a
merger of CPI Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Millennium (the "Transitory Subsidiary"), with and into
ChemGenics. The Acquisition took place pursuant to the terms of an Agreement and
Plan of Merger, dated as of January 20, 1997 (the "Merger Agreement"), among
Millennium, the Transitory Subsidiary and ChemGenics. Under the terms of the
Merger Agreement, the stockholders of ChemGenics received an aggregate of
4,783,688 shares of Millennium's Common Stock, $.001 par value ("Millennium
Common Stock") in exchange for their capital stock. In addition, each
outstanding option to purchase a share of Common Stock, $.001 par value of
ChemGenics ("ChemGenics Common Stock") was exchanged for an option to purchase
0.2374 shares of Millennium Common Stock at an exercise price equal to the
exercise price prior to the Acquisition divided by 0.2374. Warrants to purchase
an aggregate of 177,083 shares of Series A Convertible Preferred Stock, $.01 par
value, of ChemGenics and a warrant to purchase up to 4,896,335 shares of
ChemGenics Common Stock were surrendered for payments of $511,000 and
$1,000,000, respectively. The consideration for the capital stock, options and
warrants of ChemGenics was determined by arm's length negotiation between the
parties as to the fair market value of ChemGenics as a going concern.
ChemGenics is located in Cambridge, Massachusetts and is in the
business of antifungal and antibacterial drug discovery.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
The following audited financial statements of ChemGenics, together with
the report thereon manually signed by Arthur Andersen LLP, appear as Exhibit
99.3 to this report and are incorporated herein by reference.
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and 1996
Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1994, 1995 and 1996
Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996
<PAGE> 3
Notes to Financial Statements
(b) Pro Forma Financial Information.
The following unaudited pro forma combined financial statements appear
as Exhibit 99.4 to this report and are incorporated herein by reference:
Unaudited Pro Forma Combined Condensed Balance Sheet at
December 31, 1996
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
as of December 31, 1996
Unaudited Combined Condensed Statement of Operations for the
year ended December 31, 1996
Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996
(c) Exhibits.
See Exhibit Index attached hereto.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: April 18, 1997 By: /s/ Peter J. Courossi
-----------------------------------
Peter J. Courossi
Director of Finance and
Chief Accounting Officer
<PAGE> 5
EXHIBIT INDEX
* (2) Agreement and Plan of Merger dated January 20, 1997 by and
among Millennium Pharmaceuticals, Inc., CPI Acquisition Corp.
and ChemGenics Pharmaceuticals Inc. Millennium will furnish
supplementally a copy of any omitted Exhibit or Schedule to
the Securities and Exchange Commission upon request.
*(99.1) Press Release dated January 20, 1997.
*(99.2) Press Release dated February 11, 1997.
(99.3) Financial Statements of Business Acquired:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and 1996
Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1994, 1995 and 1996
Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996
Notes to Financial Statements
(99.4) Pro Forma Financial Information:
Unaudited Pro Forma Combined Condensed Balance Sheet at
December 31, 1996
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
as of December 31, 1996
Unaudited Combined Condensed Statement of Operations for the
year ended December 31, 1996
Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996
- -------------
* Previously filed.
<PAGE> 1
EXHIBIT 99.3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants............................................ 2
Balance Sheets as of December 31, 1995 and 1996..................................... 3
Statements of Operations for the Years Ended December 31, 1994,
1995, and 1996..................................................................... 4
Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1994, 1995, and 1996.................................................. 5
Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996...................................................................... 6
Notes to Financial Statements....................................................... 7
</TABLE>
<PAGE> 2
[ARTHUR ANDERSEN LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ChemGenics Pharmaceuticals Inc.:
We have audited the accompanying balance sheets of ChemGenics
Pharmaceuticals Inc. (a Delaware corporation) as of December 31, 1995 and 1996,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
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 of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ChemGenics Pharmaceuticals
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Arthur Anderson LLP
Boston, Massachusetts
January 10, 1997 (except with respect to the matters discussed
in Note 2, as to which the date is February 10, 1997)
2
<PAGE> 3
CHEMGENICS PHARMACEUTICALS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................................. $ 8,050,821 $ 2,301,697
Marketable securities...................................... -- 11,159,179
Accounts receivable........................................ 154,090 63,870
Prepaid expenses and other current assets.................. 323,144 445,355
------------ ------------
Total current assets..................................... 8,528,055 13,970,101
------------ ------------
Property and Equipment, at Cost:
Equipment under capital leases............................. 2,322,724 3,038,320
Laboratory equipment....................................... 303,690 1,207,676
Office furniture and equipment............................. 80,492 84,201
Leasehold improvements..................................... 66,351 66,351
------------ ------------
2,773,257 4,396,548
------------ ------------
Less -- Accumulated depreciation and amortization.......... 1,183,716 2,019,198
------------ ------------
1,589,541 2,377,350
Other Assets:
Marketable securities...................................... 5,029,842 --
Other assets, net.......................................... 402,817 505,191
------------ ------------
5,432,659 505,191
------------ ------------
$ 15,550,255 $ 16,852,642
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of capital lease obligations............... $ 599,464 $ 753,458
Accounts payable........................................... 22,258 233,095
Accrued expenses........................................... 283,403 550,388
Deferred revenue........................................... 26,199 26,199
------------ ------------
Total current liabilities................................ 931,324 1,563,140
------------ ------------
Capital Lease Obligations, net of current portion............ 897,215 860,619
------------ ------------
Promissory Note to PerSeptive Biosystems, Inc................ -- 3,000,000
------------ ------------
Commitments (Note 9)
Stockholders' Equity:
Convertible preferred stock, $.01 par value --
Authorized -- 13,441,667 shares
Issued and outstanding -- 10,981,837 shares
in 1995 and 11,815,171 shares in 1996 (preference in
liquidation of $30,049,002).............................. 109,818 118,152
Common stock, $.001 par value --
Authorized -- 33,866,667 shares
Issued and outstanding -- 1,520,200 shares in 1995 and
8,335,079 shares in 1996................................. 1,520 8,335
Additional paid-in capital................................. 24,840,239 34,695,040
Deferred compensation...................................... -- (261,333)
Accumulated deficit........................................ (11,229,861) (23,131,311)
------------ ------------
Total stockholders' equity................................... 13,721,716 11,428,883
------------ ------------
$ 15,550,255 $ 16,852,642
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CHEMGENICS PHARMACEUTICALS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ..................................... $ 218,095 $ 2,903,179 $ 3,573,010
------------ ------------ ------------
Operating Expenses:
Research and development ................... 3,870,375 4,949,925 7,370,780
General and administrative ................. 883,219 1,011,505 1,806,293
Acquired in-process research and development -- -- 6,783,900
------------ ------------ ------------
Total operating expenses ................. 4,753,594 5,961,430 15,960,973
------------ ------------ ------------
Loss from operations ..................... (4,535,499) (3,058,251) (12,387,963)
Interest Income .............................. 49,315 837,750 708,249
Interest Expense ............................. (133,924) (174,781) (221,736)
------------ ------------ ------------
Net loss ................................. $ (4,620,108) $ (2,395,282) $(11,901,450)
============ ============ ============
Pro Forma Net Loss Per Common Share....... $ (.70)
============
Shares Used in Computing Pro Forma
Net Loss Per Common Share............. 16,926,753
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CHEMGENICS PHARMACEUTICALS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
NUMBER NUMBER ADDITIONAL
OF $.01 PAR OF $.001 PAR PAID-IN
SHARES VALUE SHARES VALUE CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993 .................. 4,024,000 $ 40,240 1,506,000 $ 1,506 $ 3,935,488
Conversion of demand
note payable to Series
A and B Convertible
Preferred Stock...... 440,620 4,406 -- -- 436,214
Sale of Series A and B
Convertible Preferred
Stock, net of issuance
costs of $26,895..... 2,749,478 27,495 -- -- 3,226,771
Sale of Series C
Convertible Preferred
Stock, net of issuance
costs of $16,450..... 767,739 7,677 -- -- 2,279,090
Exercise of common
stock options ........ -- -- 4,200 4 836
Net loss .............. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31,
1994 .................. 7,981,837 79,818 1,510,200 1,510 9,878,399
Sale of Series D
Convertible Preferred
Stock, net of issuance
costs of $10,450..... 3,000,000 30,000 -- -- 14,959,550
Exercise of common
stock options ....... -- -- 10,000 10 2,290
Net loss .............. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31,
1995 .................. 10,981,837 109,818 1,520,200 1,520 24,840,239
Net issuance
of common
stock and common
stock purchase
warrants to
PerSeptive
Biosystems, Inc.
in exchange for
technology and other
assets .............. -- -- 6,792,679 6,793 4,297,107
Sale of Series E
Convertible Preferred
Stock ............... 833,334 8,334 -- -- 4,991,670
Exercise of common
stock options ....... -- -- 22,200 22 6,024
Deferred
compensation on
grant of stock
option .............. -- -- -- -- 280,000
Compensation on
grant of
stock option ........ -- -- -- -- 280,000
Amortization of
deferred
compensation ........ -- -- -- -- --
Net loss .............. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31,
1996 .................. 11,815,171 $ 118,152 8,335,079 $ 8,335 $ 34,695,040
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL STOCK-
DEFERRED ACCUMU- HOLDERS'
COMPENSA- LATED EQUITY
TION DEFICIT (DEFICIT)
------------ ------------- ------------
<S> <C> <C> <C>
Balance, December 31,
1993 .................. $ -- $ (4,214,471) $ (237,237)
Conversion of demand
note payable to Series
A and B Convertible -- -- 440,620
Preferred Stock......
Sale of Series A and B
Convertible Preferred
Stock, net of issuance
costs of $26,895..... -- -- 3,254,266
Sale of Series C
Convertible Preferred
Stock, net of issuance
costs of $16,450..... -- -- 2,286,767
Exercise of common
stock options ........ -- -- 840
Net loss .............. -- (4,620,108) (4,620,108)
------------ ------------ ------------
Balance, December 31,
1994 .................. -- (8,834,579) 1,125,148
Sale of Series D
Convertible Preferred
Stock, net of issuance
costs of $10,450..... -- -- 14,989,550
Exercise of common
stock options ....... -- -- 2,300
Net loss .............. -- (2,395,282) (2,395,282)
------------ ------------ ------------
Balance, December 31,
1995 .................. -- (11,229,861) 13,721,716
Net issuance
of common
stock and common
stock purchase
warrants to
PerSeptive
Biosystems, Inc.
in exchange for
technology and other
assets .............. -- -- 4,303,900
Sale of Series E
Convertible Preferred
Stock ............... -- -- 5,000,004
Exercise of common
stock options ....... -- -- 6,046
Deferred
compensation on
grant of stock
option .............. (280,000) -- --
Compensation on
grant of
stock option ........ -- -- 280,000
Amortization of
deferred
compensation ........ 18,667 -- 18,667
Net loss .............. -- (11,901,450) (11,901,450)
------------ ------------ ------------
Balance, December 31,
1996 .................. $ (261,333) $(23,131,311) $ 11,428,883
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CHEMGENICS PHARMACEUTICALS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss .............................................. $ (4,620,108) $ (2,395,282) $(11,901,450)
Adjustments to reconcile net loss to net cash used
in operating activities --
Depreciation and amortization ....................... 482,668 634,765 913,795
Compensation related to stock option grants ......... -- -- 298,667
Acquired in-process research development ............ -- -- 6,783,900
Changes in current assets and liabilities --
Accounts receivable ............................... (38,848) (80,517) 90,220
Prepaid expenses and other current assets ......... (82,655) (211,822) (122,211)
Accounts payable .................................. (101,333) (43,000) 210,837
Accrued expenses .................................. 78,039 120,707 266,985
Deferred revenue .................................. -- 26,199 --
------------ ------------ ------------
Net cash used in operating activities ........... (4,282,237) (1,948,950) (3,459,257)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of marketable securities, net ............... -- (5,029,842) (6,129,337)
Purchases of property and equipment ................... (96,838) (57,892) (207,695)
Increase in other assets .............................. (83,000) (89,324) (180,507)
Cash paid in connection with the PerSeptive
transaction ......................................... -- -- (180,000)
------------ ------------ ------------
Net cash used in investing activities ........... (179,838) (5,177,058) (6,697,539)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from exercise of common stock options ........ 840 2,300 6,046
Net proceeds from sale of Convertible Preferred Stock . 5,541,033 14,989,550 5,000,004
Payments on capital lease obligations ................. (283,719) (468,802) (598,378)
Payment of demand notes payable to stockholders ....... (159,380) -- --
------------ ------------ ------------
Net cash provided by financing activities ....... 5,098,774 14,523,048 4,407,672
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents .... 636,699 7,397,040 (5,749,124)
Cash and Cash Equivalents, beginning of year ............ 17,082 653,781 8,050,821
------------ ------------ ------------
Cash and Cash Equivalents, end of year .................. $ 653,781 $ 8,050,821 2,301,697
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest ................................ $ 127,482 $ 154,396 $ 193,724
============ ============ ============
Noncash Investing and Financing Activities:
In connection with the acquisition of
assets of PerSeptive (see Note 4), the following
noncash transactions occurred --
Fair value of assets acquired ....................... $ -- $ -- $ 7,483,900
Issuance of common stock and common stock purchase
warrants .......................................... -- -- (4,303,900)
Issuance of promissory note to PerSeptive ........... -- -- (3,000,000)
------------ ------------ ------------
Cash paid for acquisition costs ................... $ -- $ -- $ 180,000
============ ============ ============
Property and equipment acquired under capital leases .. $ 526,183 $ 455,388 $ 715,596
============ ============ ============
Conversion of demand notes payable to stockholder
to Convertible Preferred Stock ........................ $ 440,620 $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS
ChemGenics Pharmaceuticals Inc., formerly Myco Pharmaceuticals Inc., (the
Company or ChemGenics) was incorporated in Delaware on January 13, 1992.
ChemGenics is a drug discovery company which applies two complementary
technology platforms, Drug Discovery Genomics and Advanced Selection
Technologies, to key rate limiting steps in identifying new drugs. Prior to
December 31, 1996, the Company was in the development stage. Since inception the
Company has incurred significant operating losses and as of December 31, 1996
had an accumulated deficit of approximately $23,131,000, which includes a
one-time charge of $6,783,900 associated with the acquisition of in-process
research and development from PerSeptive Biosystems, Inc. (PerSeptive) (see Note
4).
2. SUBSEQUENT EVENT: MERGER WITH MILLENNIUM PHARMACEUTICALS, INC.
On January 19, 1997, the Company's Board of Directors approved an Agreement
and Plan of Merger with Millennium Pharmaceuticals, Inc. (Millennium) under
which, on February 10, 1997, Millennium acquired 100% of the Company's
outstanding capital stock in exchange for common stock of Millennium. Under the
terms of the merger agreement, 20,150,250 shares of outstanding common stock
(which reflects the conversion of all outstanding shares of Convertible
Preferred Stock into an aggregate of 11,815,171 shares of common stock) were
exchanged, on a ratio of .2374 shares of Millennium common stock for each share
of the Company's common stock (the exchange ratio), for an aggregate of
4,783,688 shares of Millennium common stock. In addition, all outstanding common
stock options were exchanged, in accordance with the exchange ratio, for options
to purchase Millennium common stock.
In connection with the Millennium merger, certain of the Company's
agreements were modified, effective with the closing of the merger. The Company
amended certain terms of its agreement with PerSeptive whereby the Company
repurchased a warrant to purchase 4,896,335 shares of the Company's common stock
for $1,000,000, and repaid the principal and interest outstanding on the
$3,000,000 promissory note with PerSeptive (see Note 4). In addition, the
Company repurchased a warrant to purchase 177,083 shares of the Company's Series
A Convertible Preferred Stock for $511,000 (see Note 6), and modified certain of
the terms of its collaborative alliance with Wyeth Ayerst (see Note 5).
Prior to entering into the merger agreement with Millennium, the Company had
filed a Registration Statement on Form S-1 in anticipation of completing an
initial public offering during February 1997. The Company withdrew its
Registration Statement upon execution of the merger agreement. The Company's
operating results for the year ended December 31, 1996 include a charge of
approximately $369,000 representing costs incurred in connection with the
terminated public offering.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
accounting policies described below and elsewhere in the notes to financial
statements.
a. REVENUE RECOGNITION
Revenues consist of research and contract revenues which are derived from
government grants as well as under collaborative agreements. Research revenues
under government grants and collaborative research and development
7
<PAGE> 8
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
arrangements are recognized as earned. Milestone payments under collaborative
research and development arrangements are recognized when they are achieved.
Deferred revenue represents amounts received prior to revenue recognition.
b. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The Company applies Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, securities that
the Company has the positive intent and ability to hold to maturity are reported
at amortized cost and are classified as held-to-maturity.
At December 31, 1995 and 1996 cash and cash equivalents and marketable
securities consisted of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents
Commercial paper .......................... $ 7,950,359 $ 1,973,217
(average maturity of 31 and 30 days in 1995
and 1996, respectively)
Cash ...................................... 100,462 328,480
----------- -----------
$ 8,050,821 $ 2,301,697
=========== ===========
Marketable securities Less than one year:
Commercial paper .......................... $ -- $ 6,157,521
(average maturity of 71 days in 1996)
1 to 5 years:
U.S. treasury notes ....................... 5,029,842 5,001,658
(average maturity of 396 and 30 days in
1995 and 1996, respectively)
$ 5,029,842 $11,159,179
=========== ===========
</TABLE>
c. DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization by charges to
operations using the straight-line method over an estimated useful life of five
years. Equipment under capital leases is depreciated over four years. Leasehold
improvements are amortized over the life of the lease.
d. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
e. PRO FORMA NET LOSS PER COMMON SHARE
For the year ended December 31, 1996, pro forma net loss per common share is
computed by dividing the net loss by the pro forma weighted average number of
common shares outstanding during the period which consist of (i) the weighted
average number of common shares outstanding, and (ii) the weighted average
number of Series A, B, C, D, and E Convertible Preferred Stock as converted into
11,051,282 shares of common stock. Common stock equivalents have not been
included, as the effect would be antidilutive. Historical net loss per share
data has not been presented, as such information is not considered to be
relevant or meaningful.
8
<PAGE> 9
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
f. RESEARCH AND DEVELOPMENT
The Company expenses all research and development expenses as incurred.
g. CONCENTRATION OF CREDIT RISK
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet risks or
financial instruments with concentration of credit risk. The Company maintains
its cash and cash equivalent balances with several financial institutions, and
its accounts receivable balances are all domestic. The Company has not written
off any of its accounts receivable to date. The Company recorded revenues of
greater than 10% of total revenues under its corporate alliances (see Note 5).
h. FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments approximates
their carrying value.
4. ACQUISITION OF TECHNOLOGY AND OTHER ASSETS FROM PERSEPTIVE BIOSYSTEMS, INC.
Under agreements dated May, November and December 1996, the Company received
a worldwide, royalty-free license to certain present and future patented and
unpatented technology of PerSeptive, including early and preferred access to all
technology and five years' access to all prototype equipment, for use in the
field of drug discovery. Upon execution of the agreement in May 1996, the
Company hired 10 employees of PerSeptive and entered into a temporary sublease
agreement for approximately 5,000 square feet of laboratory and office space in
Framingham, Massachusetts. Under the terms of the agreements, the Company also
acquired certain equipment, supplies and other assets related to drug discovery
programs at PerSeptive.
In exchange for the license and other assets, the Company issued to
PerSeptive 6,792,679 shares of its common stock, of which up to 662,500 shares
are subject to forfeiture in the event that PerSeptive should fail to provide
certain services, access to equipment or supplies within three years. The
Company also issued to PerSeptive a $3,000,000 promissory note payable bearing
interest at the Applicable Federal Rate of Interest, and a warrant to purchase
4,896,335 shares of the Company's common stock at a purchase price of $5.00 per
share exercisable through June 2000. Under the initial terms of the agreement
with PerSeptive, the promissory note became payable in full if the Company had
successfully completed an initial public offering, and contained provisions for
repayment in full no later than December 31, 2002. Additionally, if the Company
did not complete an initial public offering by June 30, 1997, the Company would
repurchase 2,000,000 shares of its common stock in exchange for a $2,000,000
promissory note with terms similar to those of the $3,000,000 promissory note,
including a provision for repayment no later than December 31, 2002.
In connection with the issuance of the Company's shares, the Company and
PerSeptive entered into a Standstill and Registration Rights Agreement which
provided for certain restrictions on PerSeptive's ability to distribute or sell
its shares of the Company's common stock.
9
<PAGE> 10
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The PerSeptive transaction was accounted for as a purchase. Accordingly, the
initial purchase price, which consisted of (i) the value of the common stock and
warrants issued to PerSeptive, as determined by an independent appraiser, (ii)
the $3,000,000 promissory note, and (iii) the estimated acquisition costs, was
allocated to the acquired assets as follows:
<TABLE>
<S> <C>
In-process research and development......... $6,783,900
Equipment................................... 700,000
----------
$7,483,900
==========
</TABLE>
In order for the technology acquired from PerSeptive to be commercialized,
the Company will need to expend a substantial amount on additional research and
development, preclinical testing and clinical trials, regulatory clearances, and
manufacturing, distribution and marketing arrangements. Accordingly, the net
realizable value of the acquired research and development is uncertain.
PerSeptive incurred approximately $20 to $25 million in research and development
costs related to the purchased technology.
In connection with the Millennium merger, PerSeptive exchanged its shares of
the Company's common stock for shares of Millennium common stock in accordance
with the exchange ratio, the Company repurchased PerSeptive's warrant to
purchase 4,896,335 shares of the Company's common stock for $1,000,000, and the
Company repaid the principal and interest outstanding on the $3,000,000
promissory note payable to PerSeptive. In addition, the Company's obligation to
repurchase 2,000,000 of its shares in exchange for a $2,000,000 promissory note
payable was terminated.
5. CORPORATE ALLIANCES
a. WYETH-AYERST LABORATORIES
In December 1996, the Company entered into a collaboration with Wyeth-Ayerst
Laboratories, the pharmaceutical division of American Home Products Corporation
(Wyeth-Ayerst) to discover and develop antibacterial drugs for human use.
Pursuant to the agreements, Wyeth-Ayerst is funding and collaborating with the
Company over a five-year period in a program aimed at the comprehensive
identification and prioritization of the genes that encode potential new
molecular drug targets in important bacterial pathogens. Wyeth-Ayerst also has a
right of first refusal for products for the prevention and treatment of
bacterial diseases in animals and a right of first negotiation for drugs to
treat H. pylori infection of humans. If the alliance successfully concludes its
five-year term, the agreement, as amended, provides for the Company to receive
up to $65 million (which includes $8 million in equity and $57 million in
research funding).
Pursuant to the agreements, on December 2, 1996 Wyeth-Ayerst purchased
833,334 shares of Series E Convertible Preferred Stock for $5,000,004. In
connection with the Millennium merger, Wyeth-Ayerst and the Company amended the
terms of the agreement to provide that, subject to meeting certain research
performance milestones, Wyeth-Ayerst is committed to a purchase of $3 million of
Millennium common stock to occur no earlier than June 2, 1997. The purchase will
be priced at 115% of the then current market price of Millennium's common stock.
Assuming the agreements conclude their five-year term, Wyeth-Ayerst will become
obligated to pay the Company $15 million in research funding (adjusted for
inflation under certain circumstances) and may be obligated to pay up to an
additional $9 million in research performance payments. The Company may also
receive up to an additional $33 million in development milestone payments. In
the event the collaboration is successful in identifying targets and leads for
products to treat bacterial infection, Wyeth-Ayerst will pay all costs related
to its product development and commercialization, including, without limitation,
clinical trials, regulatory filings and marketing, and will also pay the Company
royalties on product sales, if any, which result from the collaboration. The
Company recorded $750,000 of revenue in 1996 for funding received from
Wyeth-Ayerst under the collaboration which represents approximately 21% of
revenues in 1996.
10
<PAGE> 11
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
If certain research performance checkpoints are not achieved by the Company
by the end of the third year, Wyeth-Ayerst has an option to terminate the
agreements. The agreements provide Wyeth-Ayerst the ability to acquire exclusive
worldwide rights to develop and commercialize products discovered as part of the
collaboration to treat human bacterial infections. Commencing one year after the
end of the research term, ChemGenics will have the exclusive right, by itself,
or with a third party in the field, to develop and commercialize any ChemGenics
product and a first refusal right to any Wyeth-Ayerst product arising from the
collaboration, provided Wyeth-Ayerst is not developing a product from the
collaboration with the same activity profile. In the event the collaboration is
successful in identifying targets and leads for products to treat human
bacterial infections, Wyeth-Ayerst will pay all costs related to its development
and commercialization, including without limitation, clinical trials, regulatory
filings, manufacture and marketing. Wyeth-Ayerst will also pay ChemGenics
royalties on product sales. ChemGenics receives the same milestone and royalty
payments on any product that advances from the collaboration whether it
originates from ChemGenics or Wyeth-Ayerst.
b. PFIZER, INC.
In January 1995, the Company entered into a research and development
collaboration and licensing agreement with Pfizer, Inc. (Pfizer) to discover and
develop antifungal treatments for human use. Pfizer has the exclusive option to
acquire royalty-bearing licenses to develop and commercialize lead compounds
identified by the research program. Under the terms of the agreement, Pfizer is
funding a discovery program at the Company over a four-year term, which began in
January 1995. In connection with the agreement, Pfizer purchased 2,700,000
shares of the Company's Series D Convertible Preferred Stock for $13,500,000. In
addition, Pfizer has agreed to provide the Company with up to $11.7 million in
research funding over a four-year term of the agreement, as well as milestone
and equity payments based on the achievement of certain program accomplishments,
which could total up to an additional $32.5 million. In the years ended December
31, 1995 and 1996, the Company recognized approximately $2,462,000 and
$2,581,000, respectively, under this agreement, which represents approximately
85% and 72%, of revenues for the respective periods.
6. STOCKHOLDERS' EQUITY (DEFICIT)
a. COMMON STOCK
In 1992, the Company sold 1,506,000 shares of common stock to an officer and
to consultants of the Company for $.001 per share.
In connection with the acquisition of technology and other assets from
PerSeptive (see Note 4), the Company issued 6,792,679 shares of common stock to
PerSeptive.
In connection with the Millennium merger, all outstanding shares of the
Company's common stock were exchanged for shares of Millennium common stock (see
Note 2).
b. CONVERTIBLE PREFERRED STOCK
As of December 31, 1996, the Company had authorized 13,441,667 shares of
Convertible Preferred Stock and designated 6,400,000, 1,100,000, 775,000,
3,000,000 and 2,166,667 of such shares as Series A, B, C, D and E Convertible
Preferred Stock, respectively.
11
<PAGE> 12
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Company issued Series A, B, C, D, and E Convertible Preferred Stock as
follows:
<TABLE>
<CAPTION>
NUMBER PRICE
OF PER
DATE OF ISSUANCE DESCRIPTION SHARES SHARE
---------------- ----------- ------ -----
<S> <C> <C> <C>
February 1992, January 1993,
January and July 1994........... Series A Convertible Preferred Stock 6,150,732 $ 1.00
January and July 1994............ Series B Convertible Preferred Stock 1,063,366 $ 1.50
July 1994........................ Series C Convertible Preferred Stock 767,739 $ 3.00
February 1995.................... Series D Convertible Preferred Stock 3,000,000 $ 5.00
December 1996.................... Series E Convertible Preferred Stock 833,334 $ 6.00
</TABLE>
In connection with the Millennium merger, all outstanding shares of
Convertible Preferred Stock were converted into 11,815,171 shares of common
stock and subsequently exchanged for Millennium common stock. All rights,
privileges and preferences terminated upon the conversion.
CONVERSION
The Convertible Preferred Stock is convertible, as amended, into common
stock at the rate of one share of common stock for every share of Convertible
Preferred Stock, adjustable for certain dilutive events. The conversion is at
the option of the preferred stockholder, but becomes automatic upon the closing
of a public offering of common stock, as defined. In addition, the Convertible
Preferred Stock automatically converts into common stock with the consent of at
least 60% of the outstanding holders of Convertible Preferred Stock or, with
respect to each series of Convertible Preferred Stock. The Company has reserved
sufficient shares of common stock for issuance upon the conversion of the
outstanding shares of Convertible Preferred Stock.
LIQUIDATION PREFERENCE
The holders of the Convertible Preferred Stock have preference in the event
of liquidation or dissolution of the Company in an amount equal to the greater
of $1.00, $1.50, $3.00, $5.00 and $6.00 per share for Series A, B, C, D and E
Convertible Preferred Stock, respectively, or an amount that would have been
payable had each share of Convertible Preferred Stock been converted into common
stock immediately preceding the liquidation or dissolution. The aggregate
liquidation value at December 31, 1996 is $30,049,002.
VOTING RIGHTS
The holders of the Convertible Preferred Stock shall be entitled to the
number of votes equal to the number of shares of common stock into which each
share of Convertible Preferred Stock may be converted. Additionally, the holders
of 60% of the Convertible Preferred Stock shall be entitled to elect four
directors of the Company.
DIVIDENDS
Dividends may be declared and paid upon the consent of the holders of at
least 60% of the outstanding shares of the Convertible Preferred Stock. Upon the
declaration by the Board of Directors of a dividend payable on the then
outstanding shares of common stock, the holders of the Convertible Preferred
Stock shall be entitled to the amount of dividends per share as would be payable
on the number of shares of common stock into which each share of the Convertible
Preferred Stock could be converted.
12
<PAGE> 13
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
REORGANIZATIONS, CONSOLIDATIONS OF CONVERTIBLE PREFERRED STOCK, MERGERS AND
SALE OF ASSETS
The holders of at least 60% of the outstanding shares of Convertible
Preferred Stock, voting together as a single class, have to approve such
transactions, as defined.
REGISTRATION RIGHTS
If at any time the Company registers any of its securities, for certain
events as defined, each shareholder of Convertible Preferred Stock has the right
to register their shares, with certain limitations as defined, upon written
notification to the Company.
RIGHT OF FIRST REFUSAL
Before the Company agrees to, or issues, sells or exchanges any shares of
equity or convertible debt securities, as defined, it shall first offer to sell
such securities to those individuals then holding Convertible Preferred Stock of
the Company in proportion to the number of shares of Convertible Preferred Stock
held on an as-converted basis to the total number of outstanding shares of
capital stock of the Company, including shares issuable upon the conversion of
the Company's Convertible Preferred Stock outstanding.
c. STOCK OPTION PLAN
The Company established the 1992 Stock Option Plan (the Plan) which provides
for the grant of incentive and nonqualified stock options for the purchase of up
to 4,500,000 shares of common stock, as amended. Incentive stock options are
granted at a price not less than fair value at the date of grant, as determined
by the Board of Directors. Options granted under the Plan generally vest over
four to five years; however, options to purchase up to 517,625 shares of common
stock become vested at the end of five years or earlier, upon the achievement of
certain milestones. As of December 31, 1996, there were 1,907,550 shares
available for future grants under the Plan. In 1996 the Company amended the
vesting provisions of options to purchase 100,000 shares of common stock granted
in 1992 at an exercise price of $.20 per share. The Company recorded deferred
compensation in the amount of $280,000 to recognize the difference between the
option exercise price and the fair market value of the common stock as of the
amendment date. The deferred compensation is being amortized over the five-year
vesting period ending August 31, 2003 or earlier, upon the achievement of this
milestone. In addition, in December 1996 a performance milestone associated with
certain options to purchase 100,000 shares of common stock was achieved. The
Company recorded $280,000 of compensation expense to recognize the difference
between the option exercise price and the fair market value of the Company's
common stock on the date this milestone was achieved.
13
<PAGE> 14
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes option activity under the Plan:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF PRICE PER
OPTIONS SHARE
----------- -----------
<S> <C> <C>
Outstanding, December 31,
1993......................... 1,239,250 $.20
Granted.................... 185,150 .23 - .30
Exercised.................. (4,200) .20
Terminated................. (2,300) .20 - .50
----------- -----------
Outstanding, December 31,
1994......................... 1,417,900 .20 - .30
Granted.................... 591,600 .30 - .50
Exercised.................. (10,000) .23
Terminated................. (89,950) .20 - .50
----------- -----------
Outstanding, December 31,
1995......................... 1,909,550 .20 - .50
Granted.................... 578,750 .50 - 3.00
Exercised.................. (22,200) .20 - .50
Terminated................. (49,010) .30 - 3.00
----------- -----------
Outstanding, December 31,
1996......................... 2,417,090 $.20 -$3.00
----------- -----------
Exercisable, December 31,
1996......................... 1,221,923 $.20 -$3.00
=========== ===========
</TABLE>
In connection with the Millennium merger, all of the Company's outstanding
options were exchanged in accordance with the exchange ratio for options to
purchase shares of Millennium common stock.
d. WARRANTS
As of December 31, 1996, the Company has the following outstanding warrants:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
STOCK PRICE EXPIRATION DATE
-----------------------------------------------
<S> <C> <C> <C>
Warrants to purchase common stock
issued in connection with
the acquisition of technology
and other assets (see Note 4)......... 4,896,335 $ 5.00 June 2000
Warrants to purchase Series A June 2003, or five
Convertible Preferred Stock issued years from the
in connection with capital lease effective date of an
obligations (see Note 8)............. 177,083 $ 1.20 initial public offering
</TABLE>
In connection with the Millennium merger, the warrant to purchase common
stock was repurchased by the Company for $1,000,000 and the warrant to purchase
Series A Convertible Preferred Stock was repurchased by the Company for $511,000
(see Note 2).
e. NEW ACCOUNTING STANDARD
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 establishes a fair-value based method of
accounting for stock-based compensation plans. The Company has adopted the
disclosure-only alternative under SFAS No. 123, which requires disclosure of the
pro
14
<PAGE> 15
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
forma effects on earnings and earnings per share as if SFAS No. 123 had been
adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted for the years ended December 31, 1995 and 1996
using the Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Risk free interest rate............ 6.42% 6.56%
Expected dividend yield............ -0- -0-
Expected lives..................... 7.5 years 7.5 years
Expected volatility................ 75% 75%
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Pro forma net loss............... $(2,395,282) $(11,532,821)
Pro forma net loss as adjusted... (2,417,846) (11,662,823)
</TABLE>
7. INCOME TAXES
The Company applies the provisions of SFAS No. 109, Accounting for Income
Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current
tax liability or asset for current taxes payable or refundable and a deferred
tax liability or asset for the estimated future tax effects of temporary
differences between the carrying value of assets and liabilities for financial
reporting and their tax bases and carryforwards to the extent they are
realizable.
At December 31, 1996, the Company had available net operating loss
carryforwards for financial reporting and income tax purposes of approximately
$23,131,000 and $2,526,000, respectively. The difference relates primarily to
expenses reflected in the financial statements not yet deductible for tax
purposes. These net operating loss carryforwards may be used to reduce future
taxable income, if any, and expire through 2012. The Company also has
approximately $190,000 and $90,000 of research and development credits and
investment tax credits available to offset future federal and state income
taxes, respectively, if any. Net operating loss carryforwards and credits are
subject to review and possible adjustments by the Internal Revenue Service and
may be limited in the event of certain cumulative changes in the ownership
interest of significant shareholders over a three-year period in excess of 50%.
The Company believes it has experienced a change in ownership in excess of 50%
prior to December 31, 1996, and that it experienced such a change upon
completion of the Millennium merger.
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
---------- -----------
<S> <C> <C>
Capitalized research and development $ 3,071,000 $ 4,560,000
Acquired in-process research and
development............................ 2,623,000
Operating loss carryforwards........... 580,000 1,010,000
Temporary differences.................. 868,000 2,042,000
Tax credit carryforwards............... 222,000 280,000
---------- -----------
4,741,000 10,515,000
Less -- Valuation allowance............ 4,741,000 10,515,000
---------- -----------
$ -- $ --
========== ===========
</TABLE>
Due to the uncertainty of the realization of these potential tax benefits,
the Company has recorded a valuation allowance against its deferred tax assets.
The increase in the valuation allowance during these periods primarily relates
to the Company's operating results.
15
<PAGE> 16
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
8. CAPITAL LEASES
During 1993, the Company entered into a capital lease agreement for the
acquisition of laboratory equipment. The agreement allows the Company to finance
purchases of up to $3,500,000 of equipment. Under the agreement, the Company
leased equipment valued at approximately $3,038,000 as of December 31, 1996. The
Company may purchase up to an additional $277,000 of equipment under this
agreement, which expires in June 1997. In connection with the capital lease
agreement, the Company granted the leasing company warrants to purchase 177,083
shares of Series A Convertible Preferred Stock (see Notes 2 and 6).
Future minimum payments under the capital lease agreement are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------------- ----------
<S> <C>
1997.................................. $ 863,710
1998.................................. 474,110
1999.................................. 302,612
2000.................................. 171,972
2001.................................. 7,455
----------
Total lease payments............... 1,819,859
Less amounts representing interest...... 205,782
----------
Present value of minimum lease
payments............................. 1,614,077
Less current portion.................... 753,458
----------
$ 860,619
==========
</TABLE>
9. COMMITMENTS
a. OPERATING LEASES
The Company leases its main office and laboratory facilities under an
operating lease which expires on June 30, 2003. In addition, in 1996 the Company
entered into a short-term facilities lease in connection with the PerSeptive
transaction (see Note 4). Minimum future lease payments pursuant to these
agreements, exclusive of operating costs and real estate taxes, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------
<S> <C>
1997.................................. $ 432,000
1998.................................. 256,000
1999.................................. 175,000
2000.................................. 175,000
2001.................................. 175,000
Thereafter............................ 261,000
-----------
$ 1,474,000
===========
</TABLE>
Rent expense under these lease agreements was approximately $317,000,
$338,000 and $419,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company's main facilities lease has declining lease payments.
Accordingly, the Company has levelized its lease expense over the life of the
lease. The cumulative difference between the cash paid and rent expense was
$119,615 and $201,526 at December 31, 1995 and 1996, respectively, and is
included in other assets on the accompanying balance sheets.
16
<PAGE> 17
CHEMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
b. LICENSE AGREEMENTS
Certain technologies utilized by the Company have been obtained under
license agreements whereby the Company has been granted exclusive and
nonexclusive licenses for certain patent rights. Pursuant to the agreements, the
Company is required to pay royalties on net sales of products covered by the
patent rights. As of December 31, 1996, the Company has not had any product
sales related to these patent rights.
10. NOTE RECEIVABLE FROM EMPLOYEE
In October 1993, the Company loaned $100,000 to an officer/stockholder of
the Company. The principal and accrued interest is repaid through annual
bonuses. The loan bears interest at the prime rate as published from time to
time in the Wall Street Journal (8.25% at December 31, 1996) and is secured by a
second mortgage on the officer/stockholders' residence. In March 1996, the
Company loaned $10,000 to an officer of the Company. The principal and accrued
interest is payable in three equal payments plus accrued interest, annually on
the anniversary date. The loan bears interest at the prime rate. As of December
31, 1995 and 1996, the aggregate outstanding balance of these loans was $57,225
and $27,103, respectively. The current and long-term portion of these note
receivables are included as a component of account receivables and other assets
on the accompanying balance sheets.
11. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred rent.................................. $ 119,615 $ 201,526
Deposits....................................... 152,900 177,710
Patents and licenses........................... 107,802 119,288
Note receivable from employee, net of current
portion..................................... 22,500 6,667
---------- ----------
$ 402,817 $ 505,191
========== ==========
</TABLE>
12. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Payroll and related expenses................... $ 117,377 $ 153,538
Professional and consulting fees............... 37,174 171,889
Other.......................................... 128,852 224,961
---------- ----------
$ 283,403 $ 550,388
========== ==========
</TABLE>
17
<PAGE> 1
EXHIBIT 99.4
Pro Forma Financial Information (Unaudited)
The following Unaudited Pro Forma Combined Condensed Balance Sheet as of
December 31, 1996, and the Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996, give effect to Millennium's
acquisition of ChemGenics accounted for under the purchase method of accounting.
The Unaudited Pro Forma Combined Condensed Financial Statements are based
on the historical Financial Statements of Millennium and ChemGenics and give
effect to the assumptions and adjustments set forth in the accompanying Notes to
the Unaudited Pro Forma Combined Condensed Financial Statements.
The Unaudited Pro Forma Combined Condensed Balance Sheet assumes that the
acquisition was consummated on December 31, 1996, and the Unaudited Pro Forma
Combined Condensed Statement of Operations assumes the acquisition was
consummated on January 1, 1996.
The pro forma adjustments are based on the agreements between ChemGenics
and Millennium, which provide for ChemGenics Stockholders to receive 4,783,688
shares of newly issued Millennium common stock. For purposes of developing the
Unaudited Pro Forma Combined Condensed Balance Sheet, the value of the
Millennium common stock is based upon a quoted market per share price of $21.50
at February 10, 1997. The estimated aggregate amounts to be allocated to the
assets acquired consists of (in thousands):
<TABLE>
<S> <C>
Millennium common stock issued to ChemGenics $102,849
Cash 4,511
Estimated costs and expenses 750
--------
$108,110
========
</TABLE>
The actual allocation will be based on the estimated fair values of the
tangible and intangible assets and liabilities of ChemGenics on the date of
merger. For purposes of the pro forma financial statements, such allocation has
been estimated as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 13,970
Property and equipment 2,377
Liabilities (2,423)
Other assets 446
Intangible assets 10,440
In-process technology 83,300
---------
$ 108,110
=========
</TABLE>
<PAGE> 2
The allocation is based upon preliminary estimates. In accordance with
generally accepted accounting principles, the amount allocated to in-process
technology will be charged to expense in the first quarter of 1997. This
adjustment has been excluded from the Unaudited Pro Forma Combined Condensed
Statement of Operations as it is a nonrecurring item.
The Unaudited Pro Forma Combined Condensed Statement of Operations excludes
any potential benefits that might result from the acquisition due to synergies
that may be derived and from the elimination of any duplicate efforts or any
non-recurring costs of integration of the two operations. The Unaudited Pro
Forma Combined Condensed Financial Statements do not purport to be indicative of
the results that actually would have occurred if the acquisition occurred on the
dates indicated or indicative of results which may be obtained in the future.
The Unaudited Pro Forma Combined Condensed Financial Statements should be read
in conjunction with the historical Financial Statements and accompanying Notes
for Millennium and ChemGenics.
<PAGE> 3
UNAUDITED COMBINED CONDENSED BALANCE SHEET
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Millennium ChemGenics Adjustments and Pro forma
Pharmaceuticals, Inc. Pharmaceuticals Inc. Total Eliminating Entries Combined
--------------------- -------------------- ----- ------------------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 10,088 $ 2,302 $ 12,390 $ (3,020)(3) $ 7,859
(1,511)(2)
Short-term investments 53,760 11,159 64,919 64,919
Prepaid expenses and other assets 8,222 509 8,731 8,731
--------- --------- --------- --------- ---------
Total current assets 72,070 13,970 86,040 (4,531) 81,509
Property and equipment, net 15,191 2,377 17,568 17,568
Intangible assets, net 10,440 (1) 10,440
Other assets 483 505 988 (119)(1) 668
(201)(1)
--------- --------- --------- --------- ---------
Total assets $ 87,744 $ 16,852 $ 104,596 $ 5,589 $ 110,185
========= ========= ========= ========= =========
Accounts payable $ 2,263 $ 233 $ 2,496 $ 750 (1) $ 3,246
Accrued expenses 1,284 550 1,834 (20)(3) 1,814
Deferred revenue 3,543 26 3,569 3,569
Current portion of long term debt 1,466 1,466 1,466
Current portion of capital
lease obligations 3,241 753 3,994 3,994
--------- --------- --------- --------- ---------
Total current liabilities 11,797 1,562 13,359 730 14,089
Long term debt 3,000 3,000 (3,000)(3) --
Capital lease obligations 9,308 861 10,169 10,169
Stockholders' equity:
Preferred stock 118 118 (118)(6) --
Common stock and additional
paid in capital 87,814 34,703 122,517 102,849 (5) 190,663
(34,703)(6)
Deferred compensation (2,768) (261) (3,029) (3,029)
Notes receivable (245) (245) (245)
Unrealized loss from investments (18) (18) (18)
23,131 (6)
Accumulated deficit (18,144) (23,131) (41,275) (83,300)(4) (101,444)
--------- --------- --------- --------- ---------
Total stockholders' equity 66,639 11,429 78,068 7,859 85,927
--------- --------- --------- --------- ---------
$ 87,744 $ 16,852 $ 104,596 $ 5,589 $ 110,185
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
<PAGE> 4
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
The Unaudited Pro Forma Combined Condensed Balance Sheet was prepared to
reflect the acquisition accounted for under the purchase method of accounting on
December 31, 1996.
The following is a summary of reclassifications and adjustments
reflected in the Unaudited Pro Forma Combined Condensed Balance Sheet:
1) Represents the allocation of the purchase price to the assets and
liabilities at their estimated fair values at the date of the
acquisition.
2) Represents payment for surrender of outstanding warrants to
purchase capital stock of ChemGenics.
3) Represents payment of outstanding principal and accrued interest
thereon of note payable to PerSeptive Biosystems, Inc. as
specified in the acquisition agreement.
4) Represents the write-off of acquired-in-process technology at the
acquisition date. This adjustment is excluded from the Unaudited
Pro Forma Combined Condensed Statement of Operations as it is a
nonrecurring item.
5) Represents the issuance of 4,783,688 shares of Millennium common
stock at a fair market value of $21.50 per share.
6) Represents the elimination of historical equity accounts of
ChemGenics.
<PAGE> 5
UNAUDITED COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(in thousands, except per share)
<TABLE>
<CAPTION>
Millennium ChemGenics Adjustments and Pro forma
Pharmaceuticals, Inc. Pharmaceuticals Inc. Total Eliminating Entries Combined
--------------------- -------------------- ----- ------------------- --------
<S> <C> <C> <C> <C> <C>
Revenues under strategic alliances $ 31,764 $ 3,573 $ 35,337 $ 35,337
Costs and expenses:
Research and development 34,803 7,371 42,174 42,174
General and administrative 7,973 1,806 9,779 $ 2,410 (1) 12,189
Acquired in-process
research and development 6,784 6,784 6,784
-------- -------- -------- -------- --------
Total operating expenses 42,776 15,961 58,737 2,410 61,147
-------- -------- -------- -------- --------
Loss from operations (11,012) (12,388) (23,400) (2,410) (25,810)
Interest income 3,131 708 3,839 3,839
Interest expense (887) (221) (1,108) 20 (2) (1,088)
-------- -------- -------- -------- --------
Net loss $ (8,768) $(11,901) $(20,669) $ (2,390) $(23,059)
======== ======== ======== ======== ========
Net loss per share $ (0.39) $ (0.70) $ (0.85)
======== ======== ========
Shares used in computing (16,927)(3)
net loss per share 22,287 16,927 4,784 (3) 27,071
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Combined Condensed Statement of Operations has
been prepared to reflect the acquisition as if it occurred on January 1, 1996.
The acquisition has been accounted for under the purchase method of accounting.
The amount of the purchase price allocated has been recorded as an intangible
asset and is being amortized on a straight-line basis over 4 years.
The following is a summary of reclassifications and adjustments
reflected in the Unaudited Pro Forma Combined Condensed Statement of Operations:
1) Represents the amortization of intangible asset over 4 years.
2) Represents the adjustment to interest expense resulting from
repayment of the note payable to PerSeptive Biosystems, Inc. as
specified in the acquisition agreement.
3) Pro forma combined net loss per share amounts as presented in the
accompanying Unaudited Pro Forma Combined Condensed Statement of
Operations are based on the weighted average number of Millennium
shares used in the calculation of historical net loss per share,
adjusted to reflect the issuance of 4,783,688 new shares of
Millennium common stock to ChemGenics.
4) As required under generally accepted accounting principles,
amounts allocated to acquired in-process technology have been
written off in the accompanying Unaudited Pro Forma Combined
Condensed Balance Sheet. This $83 million charge has been
excluded from the Unaudited Pro Forma Combined Condensed
Statement of Operations as it represents a material nonrecurring
item.
