<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-28006
MICROCIDE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3186021
(State or other jurisdiction of incorporation (I.R.S. Employer
of organization) Identification Number)
850 MAUDE AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 650-428-1550
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, no par value, outstanding as of July 31, 1997:
10,835,396.
<PAGE> 2
MICROCIDE PHARMACEUTICALS, INC.
INDEX FOR FORM 10-Q
JUNE 30, 1997
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Condensed Balance Sheets as of June 30, 1997 3
and December 31, 1996
Condensed Statements of Operations for the three
and six months ended June 30, 1997 and June 30, 1996 4
Condensed Statements of Cash Flows for the six
months ended June 30, 1997 and June 30, 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION 12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 14
</TABLE>
-2-
<PAGE> 3
MICROCIDE PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,191 $ 8,317
Short-term investments 39,916 39,191
Prepaid expenses and other current assets 569 334
------------ ------------
Total current assets 44,676 47,842
Property and equipment, net 8,875 8,825
Other assets 153 159
------------ ------------
Total assets $ 53,704 $ 56,826
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 908 $ 1,523
Construction payable 5 745
Accrued compensation 612 496
Current portion of capital lease obligations 918 1,110
Deferred revenue 1,314 1,189
Other accrued liabilities 510 237
------------ ------------
Total current liabilities 4,267 5,300
Long-term portion of capital lease obligations 421 811
Accrued rent 173 141
Stockholders' equity:
Common stock 66,583 66,314
Stockholder note receivable -- (35)
Deferred compensation (1,425) (1,577)
Net unrealized gain on securities available-for-sale 34 9
Accumulated deficit (16,349) (14,137)
------------ ------------
Total stockholders' equity 48,843 50,574
------------ ------------
Total liabilities and stockholders' equity $ 53,704 $ 56,826
============ ============
</TABLE>
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Financial Statements.
-3-
<PAGE> 4
MICROCIDE PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License and milestone fees $ -- $ -- $ 1,000 $ 1,000
Research revenue 2,994 2,243 6,101 3,868
-------- -------- -------- --------
Total revenues 2,994 2,243 7,101 4,868
Operating expenses:
Research and development 4,336 2,305 8,437 4,085
General and administrative 1,099 581 2,121 1,107
-------- -------- -------- --------
Total operating expenses 5,435 2,886 10,558 5,192
-------- -------- -------- --------
Loss from operations (2,441) (643) (3,457) (324)
Interest income 650 416 1,338 553
Interest expense (40) (50) (93) (123)
-------- -------- -------- --------
Net income (loss) $ (1,831) $ (277) $ (2,212) $ 106
======== ======== ======== ========
Net income (loss) per share $ (0.17) $ (0.04) $ (0.21) $ 0.02
======== ======== ======== ========
Shares used in calculation of
net income (loss) per share 10,778 6,616 10,797 4,984
Pro forma net income (loss)
per share $ (0.03) $ 0.01
======== ========
Shares used in calculation of
pro forma net income (loss)
per share 9,408 9,248
</TABLE>
See Notes to Condensed Financial Statements.
-4-
<PAGE> 5
MICROCIDE PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) $ (2,212) $ 106
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,258 738
Amortization of deferred compensation 295 209
Accrued rent 32 (5)
Net unrealized gain on securities 25 --
Changes in assets and liabilities:
Prepaid expenses and other current assets (235) (154)
Other assets 6 73
Accounts payable (615) 295
Construction payable (740) --
Accrued compensation and other accrued liabilities 389 97
Deferred revenue 125 1,130
-------- --------
Net cash provided by (used in) operating activities (1,672) 2,489
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of short-term investments (62,015) --
Maturities of short-term investments 61,290 --
Capital expenditures (1,308) (1,729)
-------- --------
Net cash provided by (used in) investing activities (2,033) (1,729)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (582) (502)
Repayment of shareholder note receivable 35 --
Net proceeds from issuance of common stock 126 36,618
Net proceeds from issuance of convertible
preferred stock -- 4,988
-------- --------
Net cash provided by (used in) financing activities (421) 41,104
-------- --------
Net increase (decrease) in cash and cash equivalents (4,126) 41,864
Cash and cash equivalents, beginning of period 8,317 8,517
-------- --------
Cash and cash equivalents, end of period $ 4,191 $ 50,381
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 21 $ --
======== ========
Interest paid $ 81 $ 120
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible preferred stock to
common stock $ -- $ 27,423
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
-5-
<PAGE> 6
MICROCIDE PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Microcide Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical
company founded to discover, develop and commercialize novel antibiotics for the
treatment of serious bacterial infections. The Company's discovery and
development programs address the growing problem of antibiotic resistance in
certain bacteria through two principal themes: (i) Targeted Antibiotics, which
focuses on developing novel antibiotics and antibiotic potentiators, and (ii)
Targeted Genomics, which utilizes bacterial genetics to discover new classes of
antibiotics and other novel treatments for bacterial disease. The Company has
also extended its functional genomics technology platform into a program
designed to discover improved systemic antifungal agents.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the interim periods shown herein
are not necessarily indicative of operating results for the entire year.
This unaudited financial data should be read in conjunction with the
financial statements and footnotes contained in the Company's annual report on
Form 10-K for the year ended December 31, 1996.
2. INVESTMENTS
Investment securities are classified as available-for-sale (estimated fair
value) and consist of the following investments (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Cash equivalents and short-term investments:
Money market funds $ 199 $ 420
U.S. government securities 4,097 --
Corporate debt securities 39,093 44,174
------- -------
$43,389 $44,594
======= =======
</TABLE>
-6-
<PAGE> 7
3. PER SHARE INFORMATION
Net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding during the periods presented. Common
equivalent shares are included in the computation for income periods and
excluded from the computation for loss periods as their effect is antidilutive,
except that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants, and
convertible preferred stock) issued during the 12 month period prior to the
Company's initial public offering have been included in the calculation as if
they were outstanding for all periods through March 31, 1996 (using the treasury
stock method for stock options and warrants and the if-converted method for
convertible preferred stock).
The pro forma calculation of net income (loss) per share has been computed
as described above but also gives retroactive effect from the date of issuance
to the conversion of the convertible preferred stock which automatically
converted to common shares upon closing of the Company's initial public offering
in May 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact is not expected to
result in a change in primary earnings per share for the three and six months
ended June 30, 1997 and the three months ended June 30, 1996 as the Company
incurred net losses in these periods and, accordingly, the calculation of
earnings per share for these periods excluded stock options as their effect was
antidilutive. The impact for the six months ended June 30, 1996 resulted in no
change in primary earnings per share.
4. SUBSEQUENT EVENTS
In July 1997, the Company signed a 30 month agreement to sublease two
buildings, each building consisting of approximately 18,000 square feet of
additional research and office space. The agreement calls for total minimum
monthly rental payments ranging from $62,000 to $64,000 beginning on November 1,
1997. The Company intends to temporarily sublease one building and to utilize
the other building for additional research and administrative space.
- 7 -
<PAGE> 8
MICROCIDE PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
As part of the Company's strategy to enhance its research and development
capabilities and to fund, in part, its capital requirements, Microcide has
entered into collaborative agreements with three major pharmaceutical companies.
The Company has received license fees, research support payments and milestone
payments pursuant to these agreements and can potentially receive additional
research support payments, additional milestone payments and royalty payments.
License payments are typically nonrefundable up-front payments for licenses to
develop, manufacture and market products, if any, that are developed as a result
of the collaboration. Research support payments are typically contractually
obligated payments to fund research and development over the term of the
collaboration. Milestone payments are payments contingent upon the achievement
of specified milestones, such as selection of candidates for drug development,
the commencement of clinical trials or receipt of regulatory approvals. If drugs
are successfully developed and commercialized as a result of the collaborative
agreements, the Company will receive royalty payments based upon the net sales
of such drugs.
In June 1997, Microcide signed an agreement to provide Daiichi
Pharmaceutical Co., Ltd. with a subset of its synthetic molecular diversity
collection for use in Daiichi's own drug discovery screening programs in
consideration for future payments by Daiichi of $1.5 million. Delivery of the
compounds, receipt of the associated payments and recognition of related
revenues are expected to occur during the second half of 1997. In July 1997,
Microcide signed a one-year agreement to provide a minimum of 40,000 extracts
from its natural products diversity collection to Tularik Inc. for use in
Tularik's non-antimicrobial drug discovery screening programs. Pursuant to the
agreement, Microcide will receive payments for the extracts upon delivery to
Tularik, may provide refermentation of extracts for agreed upon amounts and may
potentially receive license fees and royalties on resulting products.
Through June 30, 1997, the Company had received in the aggregate $24.5
million in license fees, milestone payments and research support payments under
the collaborative agreements. Assuming none of the existing collaborative
agreements is terminated prior to its scheduled expiration, the Company will be
entitled to receive up to an additional $23.0 million of research support
payments. In addition, in the event that any of the collaborative agreements are
extended beyond their current terms, the Company will be entitled to receive
additional research support payments.
In the event that the Company achieves the specified research and product
development milestones, the Company will be entitled to receive milestone
payments under its collaborative agreements with three major pharmaceutical
companies ranging from $13.0 million to $32.5 million per product. No royalty
payments have yet been received and the Company does not expect to receive
royalties based upon the net sales of drugs for a significant number of years,
if ever.
Quarterly results of operations are subject to significant fluctuations
based on the timing and amount of certain revenues earned under the
collaborative agreements. The Company expects to incur operating losses in the
future.
-8-
<PAGE> 9
This Form 10-Q contains forward-looking statements based upon current
expectations, including statements with regard to the potential receipt of
additional research support payments, milestone payments and royalties from the
Company's collaborative partners, payments related to delivering molecular
diversity samples to Daiichi and Tularik, and the period of time the Company's
existing capital resources and future payments under collaborative agreements
will be sufficient to satisfy the Company's funding requirements, expectations
concerning the Company's future research and development and general and
administrative expenses and future facility needs. Such forward-looking
statements involve risk and uncertainties, including without limitation, the
risk that the Company's collaborations will be terminated, development
candidates will not be identified, development candidates which are selected
will not proceed through pre-clinical trials or will not prove safe and
effective for treatment of humans in clinical trials, or that the
identification, selection, pre-clinical, and clinical testing of development
candidates will take substantially longer or be substantially more expensive
than contemplated by the Company, or that the Company will not be able to obtain
on a timely basis government regulatory clearance required for clinical testing,
manufacturing, and marketing of its products, and the other risks and
uncertainties set forth in the Company's annual report on Form 10-K for the year
ended December 31, 1996. Actual results and timing of certain events could
differ materially from those indicated in the forward-looking statements as a
result of these or other factors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues. Total revenues for the second quarter of 1997 were $3.0 million, an
increase of 34% from the $2.2 million in revenues recognized in the second
quarter of 1996. There were no license and milestone fees earned for either
period. Research support revenue increased in the second quarter of 1997 due
primarily to higher revenues earned from the Pfizer and Daiichi collaborative
agreements resulting from an increase in the number of research personnel
devoted to the collaborative projects, as well as an increase in reimbursable
research expenses, such as costs related to certain equipment and outside
consulting services.
Research and Development Expenses. Research and development expenses for the
second quarter increased approximately 88% from $2.3 million in 1996 to $4.3
million in 1997. The increases are due primarily to higher compensation and
other employee-related expenses associated with an increase in headcount to
support the Company's corporate collaborations and its internal programs, higher
spending for research supplies and materials, higher expenses related to
assembling the Company's molecular diversity collection, higher costs relating
to expanded research and development facilities and higher expenses for outside
consulting services. Research and development expenses are expected to further
increase in the third quarter as the Company continues to add research personnel
to support its corporate collaborations and internal programs.
General and Administrative Expenses. General and administrative expenses for the
second quarter increased 89% from $581,000 in 1996 to $1.1 million in 1997.
Increased expenses primarily consisted of higher compensation expenses due to an
increase in administrative personnel and higher costs for legal and other
outside services associated with being a public company. General and
administrative expenses may continue to increase in dollar amounts in the next
quarter, but are expected to be at a lower percentage of total operating
expenses.
Interest Income and Expense. Interest income for the second quarter increased
from $416,000 in 1996 to $650,000 in 1997, primarily due to an increase in
average cash balances in 1997 related to proceeds received from the Company's
initial public offering in May 1996, proceeds received from the sale of other
equity and cash received under
-9-
<PAGE> 10
collaborative agreements. Interest expense for the second quarter decreased from
$50,000 in 1996 to $40,000 in 1997 due to a decrease in capital lease balances
outstanding.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues. Total revenues for the first half of 1997 were $7.1 million, an
increase of 46% from the $4.9 million in revenues for the first half of 1996.
License and milestone fees were $1.0 million in each period. Research support
revenue increased from $3.9 million in the first half of 1996 to $6.1 million in
the first half of 1997 due primarily to higher revenues earned from the Pfizer
and Daiichi collaborative agreements resulting from an increase in the number of
research personnel devoted to the collaborative projects, as well as an increase
in reimbursable research expenses, such as costs related to certain equipment
and outside consulting services.
Research and Development Expenses. Research and development expenses for the
first half of 1997 were $8.4 million, an increase of approximately 107% from
$4.1 million in the first half of 1996, primarily due to increased compensation
and other employee-related expenses associated with an increase in headcount to
support the Company's corporate collaborations and its internal programs, higher
spending for research supplies and materials, higher expenses related to
assembling the Company's molecular diversity collection, higher costs relating
to expanded research and development facilities and higher expenses for outside
consulting services. Research and development expenses are expected to further
increase in the second half of 1997 as the Company continues to add research
personnel to support its corporate collaborations and internal programs.
General and Administrative Expenses. General and administrative expenses for the
first half of 1997 increased approximately 92% from $1.1 million in 1996 to $2.1
million in 1997. Increased expenses primarily consisted of higher compensation
expenses due to an increase in administrative personnel and higher costs for
legal and other outside services associated with being a public company. General
and administrative expenses may continue to increase in dollar amounts in the
second half of 1997 as compared to the first half of 1997, but are expected to
be at a lower percentage of total operating expenses.
Interest Income and Expense. Interest income for the first half of 1997
increased from $553,000 in 1996 to $1.3 million in 1997, primarily due to an
increase in average cash balances in 1997 related to proceeds received from the
Company's initial public offering in May 1996, proceeds received from the sale
of other equity and cash received under collaborative agreements. Interest
expense for the first half of 1997 decreased from $123,000 in 1996 to $93,000 in
1997 due to a decrease in capital lease balances outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the sale of equity, through funds provided under collaborative agreements and
through equipment financing. As of June 30, 1997 the Company had received
approximately $64.2 million in net proceeds from the sale of equity and
approximately $24.5 million from license and milestone fees and research support
payments under collaborative agreements.
Cash, cash equivalents and short-term investments at June 30, 1997 were
$44.1 million compared to $47.5 million at December 31, 1996. Net cash used in
the Company's operations was $1.7 million for the first half of 1997. Net cash
used in investing activities was $2.0 million, of which $1.3 million was capital
expenditures and $725,000 was purchases of investments in excess of maturities
of investments. Net cash used in financing activities was $421,000, of which
$582,000 was principal payments on capital lease obligations.
-10-
<PAGE> 11
In July 1997, the Company signed a 30 month agreement to sublease two
buildings, each building consisting of approximately 18,000 square feet of
additional research and office space. The agreement calls for total minimum
monthly rental payments ranging from $62,000 to $64,000 beginning on November 1,
1997. The additional buildings are adjacent to the Company's principal offices.
The Company intends to temporarily sublease one building and to utilize the
other building for additional research and administrative space. It is expected
that the additional space will support the Company's expansion activities
through 1999.
The Company believes that its existing capital resources, interest income
and future payments due under collaborative agreements will enable the Company
to maintain current and planned operations at least through 1998.
<PAGE> 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Microcide
Pharmaceuticals, Inc. was held on May 13, 1997.
(b) The following Class I Directors were elected to serve for a
term of three years to expire at the Company's 2000 Annual
Meeting of Stockholders:
<TABLE>
<CAPTION>
Name Position Term Expires
------------------------------- ------------------------- ------------
<S> <C> <C>
Joseph S. Lacob Chairman of the Board 2000
David Schnell, M.D. Class I Director 2000
L. James Strand, M.D. Class I Director 2000
</TABLE>
The following Class II and III Directors continue to serve
their respective terms which expire on the Company's Annual
Meeting of Stockholders in the year as noted:
<TABLE>
<CAPTION>
Name Position Term Expires
------------------------------- ------------------------- ------------
<S> <C> <C>
Hugh Y. Rienhoff, Jr., M.D. Class II Director 1998
John P. Walker Class II Director 1998
Keith A. Bostian, Ph.D. Class III Director 1999
James E. Rurka Class III Director 1999
</TABLE>
(c) The matters voted upon at the meeting and the voting results
were as follows:
(i) The election of three Class I Directors for a term of
three years:
<TABLE>
<CAPTION>
Name For Against Abstain
------------------------------ ------------- ---------- -------
<S> <C> <C> <C>
Joseph S. Lacob 8,251,573 6,633 -
David Schnell, M.D. 8,251,573 6,633 -
L. James Strand, M.D. 8,251,573 6,633 -
</TABLE>
(ii) Approval of amendment to the Company's 1996 Director
Option Plan, increasing the initial option grant from 12,000
to 16,000 shares and increasing the vesting period from three
to four years:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
8,499,347 275,969 16,723
</TABLE>
-12-
<PAGE> 13
(iii) Approval of amendment to the Company's 1993 Amended
Incentive Stock Plan, increasing the number of shares of
Common Stock reserved for issuance from 1,380,000 to
1,880,000:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
8,080,432 660,623 13,169
</TABLE>
(iv) Ratification of the appointment of Ernst & Young LLP as
independent auditors for the fiscal year ending December 31,
1997:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
8,780,373 8,736 2,430
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) The following exhibits have been filed with this report:
10.18* Synthetic Compound Purchase Agreement between the Registrant and
Daiichi Pharmaceutical Co., Ltd. dated June 25, 1997.
11.1 Calculation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
</TABLE>
- ----------
* Confidential Treatment granted.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
-13-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 14, 1997
MICROCIDE PHARMACEUTICALS, INC.
-------------------------------
(Registrant)
/s/ James E. Rurka
------------------
President, Chief Executive Officer and Director
(principal executive officer)
/s/ Matthew J. Hogan
--------------------
Chief Financial Officer
(principal financial and accounting officer)
-14-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C>
10.18* Synthetic Compound Purchase Agreement between the Registrant and
Daiichi Pharmaceutical Co, Ltd. dated June 25. 1997.
11.1 Calculation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
</TABLE>
- ----------
* Confidential Treatment granted.
<PAGE> 1
EXHIBIT 10.18
SYNTHETIC COMPOUND PURCHASE AGREEMENT
This Synthetic Compound Purchase Agreement ("Agreement"), is effective
as of June 25, 1997 ("Effective Date"), by and between Microcide
Pharmaceuticals, Inc. ("Microcide"), a Delaware corporation, with its principal
place of business located at 850 Maude Avenue, Mountain View, California, 94043,
U.S.A. and Daiichi Pharmaceutical Co., Ltd. ("Daiichi"), a Japanese corporation,
with its offices located at 16-13, Kitakasai 1-chome, Edogawa-Ku, Tokyo 134,
Japan.
WHEREAS, Daiichi desires to obtain certain synthetic compounds
("Compounds") from Microcide for use in its drug discovery screening programs;
and
WHEREAS, Microcide desires to provide such Compounds to Daiichi.
NOW, THEREFORE, in consideration of the recitals and the covenants and
conditions set forth in this Agreement, the parties agree as follows.
1. Delivery of Compounds. Microcide will provide to Daiichi [*] Compounds
in 96-well microtitre plate format (100 microliters at a concentration of 10
milligrams per milliliter in 100% DMSO) at a mutually acceptable date which is
not expected to be later than June 30, 1997. Microcide will also provide
structure and source files (SD files), and a description of plate well
locations. Microcide will subsequently provide, in shipments of [*] Compounds
each, the following supplies of synthetic compounds in dry powder format:
[*] Compounds - 10-15 mg each
[*] Compounds - 5 mg each
The last shipment of the supplies of synthetic compounds in dry powder format is
expected to be made prior to December 31, 1997. Microcide will use its best
efforts to provide SD files and description of plate well locations and to carry
out the weighing and labeling of the Compounds hereunder.
2. Purchase Price and Costs. In consideration for the delivery of the
Compounds, Daiichi will pay to Microcide [*] within 30 days of receiving the [*]
Compounds in microtiter plates and a further [*] within 30 days of receiving
each shipment of [*] Compounds in dry powder format. These payments would be net
of payments for withholding taxes, if any, and fulfillment of any withholding
tax obligations would be the sole responsibility of Daiichi. Daiichi will
reimburse Microcide for its labor and material costs incurred in weighing out
the compounds, labeling the containers and packaging for shipment, as well as
for the actual shipping costs related to the delivery of the compounds,
including any customs duties that might arise. Microcide shall keep true and
accurate written records of such costs and shall invoice Daiichi for the entire
amount of such costs after the delivery of the last supplies of synthetic
compounds in dry powder format. Daiichi shall pay Microcide within 30 days after
receiving the invoice. Any payments to Microcide under this agreement shall be
made to the designated bank account of Microcide by bank wire transfer.
- --------
*Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE> 2
3. No Warranties; Limitation of Liability
3.1 No Warranties. Daiichi acknowledges that the Compounds are being
provided "as-is", without warranty of any kind, including but not limited to no
warranty of merchantability or fitness for a particular program, and no warranty
of non-infringement with respect to the patent or other intellectual property
rights of third parties.
3.2 Limitation of Liability. In no event shall either party be liable
to the other party for any lost profits or revenues or any special consequential
or incidental damages under any theory of liability.
4. Miscellaneous.
4.1 Disclosure of Agreement. Recognizing that Microcide is subject to
certain disclosure obligations as a publicly traded company, Microcide will have
the right to issue a press release, in form and substance similar to Exhibit A,
upon the execution of this Agreement.
4.2 Indemnification. Daiichi hereby agrees to indemnify, protect,
defend and hold Microcide harmless from all claims, suits or actions, damages,
judgments, costs, expenses, including attorney's fees which may be sustained by
reason of Daiichi's screening and use of the Compounds, except to the extent
that such liabilities are caused by negligence, recklessness or intentional
misconduct of Microcide.
4.3 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California, with the venue for any action or dispute being the Northern District
of California.
IN WITNESS WHEREOF, Microcide and Daiichi have caused this Agreement to
be signed by their duly authorized respective officers as of the date written
above.
MICROCIDE PHARMACEUTICALS, INC.
By: /S/ James E. Rurka
-------------------------------
President & CEO
June 13, 1997
DAIICHI PHARMACEUTICAL CO., LTD.
By: /S/ Tadashi Horiuchi
-------------------------------
General Manager, Basic Technology
Research Laboratory
June 25, 1997
<PAGE> 3
Exhibit A
Form of Press Release
MICROCIDE ANNOUNCES AGREEMENT TO PROVIDE SYNTHETIC COMPOUNDS TO DAIICHI
Mountain View, CA (DATE, 1997) -- Microcide Pharmaceuticals, Inc. (Nasdaq: MCDE)
today announced the signing of an agreement with Daiichi Pharmaceutical Co.,
Ltd. whereby Microcide will provide Daiichi with a subset of its synthetic
molecular diversity collection for use in Daiichi's drug discovery screening
programs in consideration for $1.5 million. Delivery of the compounds and
receipt of the associated payments are expected to occur during the remainder of
1997.
Since 1994, Microcide has been building a molecular diversity collection, for
use in its partnered and unpartnered drug discovery programs. This collection,
which strives for optimal structural diversity, includes extracts from natural
product sources as well as synthetic molecules acquired only after careful
structural analysis. Currently in excess of 140,000 samples, Microcide intends
to continue to systematically grow this collection in the future.
In November 1995, Microcide and Daiichi entered into a multi-year collaboration
to discover and develop bacterial efflux pump inhibitors to be used in
combination with Daiichi's quinolone antibiotics to target Gram-negative
bacteria, including pseudomonas.
Microcide is a biopharmaceutical company founded to discover, develop and
commercialize novel antibiotics for the treatment of serious bacterial
infections. The Company's discovery and development programs address the growing
problem of bacterial drug resistance through two principal themes: (i) Targeted
Antibiotics, which focuses on developing novel antibiotics and antibiotic
potentiators to directly address existing bacterial resistance problems, and
(ii) Targeted Genomics, which utilizes bacterial genetics to discover new
classes of antibiotics and other novel treatments for bacterial disease.
Microcide has also extended its functional genomics technology platform into a
program designed to discover improved systemic antifungal agents.
The statements in this press release that are related to Microcide's expanding
its sample collection, providing a portion of this library to Daiichi and the
receipt of payment therefrom are forward-looking statements based upon current
expectations. Such forward-looking statements involve risks and uncertainties
including without limitation, the risks that the compounds will be successfully
delivered to Daiichi in the time frames discussed and in return for the
compensation discussed, the continuation of Microcide's collaboration with
Daiichi, and the other risks and uncertainties set forth in Microcide's Form
10-K dated March 31, 1997. Actual results and timing of certain events could
differ materially from those indicated in the forward-looking statements as a
result of these and other factors.
<PAGE> 1
EXHIBIT 11.1
CALCULATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
======== ======== ======== ========
<S> <C> <C> <C> <C>
Net income (loss) $ (1,831) $ (277) $ (2,212) $ 106
======== ======== ======== ========
Weighted average shares of
common stock outstanding 10,778 5,883 10,797 3,379
Net effect of dilutive stock options and warrants
using the treasury stock method -- -- -- 505
Shares related to staff accounting bulletin topic 4D:
Stock options -- 161 -- 241
Preferred stock (1) -- 572 -- 859
-------- -------- -------- --------
Shares used in calculating net income (loss) per share 10,778 6,616 10,797 4,984
======== ======== ======== ========
Net income (loss) per share $ (0.17) $ (0.04) $ (0.21) $ 0.02
======== ======== ======== ========
Calculation of shares outstanding for computing pro
forma net income (loss) per share:
Shares used in computing net income
(loss) per share 6,616 4,984
Adjusted to reflect the effect of the
assumed conversion of preferred
stock from the date of issuance (2) 2,792 4,264
-------- --------
Shares used in computing pro forma net income
(loss) per share 9,408 9,248
======== ========
Pro forma net income (loss) per share $ (0.03) $ 0.01
======== ========
</TABLE>
- ----------
(1) Series D and E shares
(2) Series A, B and C shares
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,191
<SECURITIES> 39,916
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,676
<PP&E> 13,862
<DEPRECIATION> 4,987
<TOTAL-ASSETS> 53,704
<CURRENT-LIABILITIES> 4,267
<BONDS> 0
0
0
<COMMON> 64,206
<OTHER-SE> 986
<TOTAL-LIABILITY-AND-EQUITY> 53,704
<SALES> 0
<TOTAL-REVENUES> 2,994
<CGS> 0
<TOTAL-COSTS> 5,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (1,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,831)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
