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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22669
AURORA BIOSCIENCES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-0669859
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11010 Torreyana Road, San Diego, CA 92121
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(Address of principal executive offices) (Zip code)
(619) 452-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, Par Value $0.001
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(Title of class)
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 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[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates, based on the
last sale price as reported on the Nasdaq National Market on March 17, 1998, was
approximately $132.2 million*.
The number of shares of registrant's Common Stock outstanding as of March 17,
1998 was 17,032,593.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant's proxy statement filed in connection with the solicitation of
proxies for its 1998 Annual Meeting of Stockholders is incorporated by reference
into Part III of this Form 10-K.
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*Excludes 5,278,957 shares of Common Stock held by directors, executive officers
and stockholders whose ownership exceeds ten percent of the shares outstanding
on March 17, 1998. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, directly or
indirectly, to direct or cause the direction of the management or policies of
the registrant or that such person is controlled by or under common control with
the registrant.
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PART I
Except for the historical information contained herein, this Annual Report on
Form 10-K contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company. Such
statements are only predictions and involve a high degree of technological and
competitive risks and uncertainties that exist in the Company's operations and
business environment. The Company's actual events or results may differ
materially from those projected in such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
risks associated with the Company's new and uncertain technology, dependence on
pharmaceutical and biotechnology collaborations and the development or
availability of competing systems, as well as those set forth in "Risk Factors"
and elsewhere in this Form 10-K.
ITEM 1. BUSINESS
OVERVIEW
Aurora Biosciences Corporation ("Aurora" or the "Company") designs, develops and
sells proprietary drug discovery systems, services and technologies to
accelerate and enhance the discovery of new medicines by the pharmaceutical and
biopharmaceutical industries. Aurora is developing an integrated technology
platform comprised of a portfolio of proprietary fluorescent assay technologies
and its Ultra-high Throughput Screening System ("UHTSS") designed to allow assay
miniaturization and to overcome many of the limitations associated with the
traditional drug discovery process. The Company believes that this platform will
enable Aurora and its collaborators, which include Bristol-Myers Squibb
Pharmaceutical Research Institute ("BMS"), Eli Lilly and Company ("Lilly"),
Warner-Lambert Company ("Warner-Lambert") and Merck & Co., Inc. ("Merck"), to
take advantage of the opportunities created by recent advances in genomics and
combinatorial chemistry that have generated many new therapeutic targets and an
abundance of new small molecule compounds. Aurora believes its integrated
platform will accelerate the drug discovery process by shortening the time
required to identify high quality lead compounds and to optimize those compounds
into drug development candidates.
Aurora's goal is to become the leader in the development and commercialization
of technologies to accelerate and enhance the discovery of new medicines. The
Company's strategy is to diversify business risk by generating revenue from
multiple collaborators seeking to exploit Aurora's fluorescent assay
technologies and UHTSS in many different drug discovery programs. The Company
expects to generate revenue by developing screens, providing screening services,
providing functional genomics services, developing and providing the UHTSS to
syndicate members, licensing its proprietary technologies, and realizing royalty
and milestone payments from the development and commercialization of drug
candidates identified by its collaborators using Aurora's technologies. To date,
the Company has entered into collaborative agreements with BMS, Lilly,
Warner-Lambert and Merck to license the Company's fluorescent assay technologies
for their internal discovery research, to collaborate on screen development and
as initial members of a syndicate to co-develop the UHTSS for collaborative
research and for installation of the UHTSS in their own research facilities. In
addition, Aurora has developed screens for and/or has provided screening
services to Allelix Biopharmaceuticals, Inc. ("Allelix") and Roche Bioscience
("Roche").
THE DISCOVERY OF NEW MEDICINES
Drug discovery methods generally involve the synthesis and testing of large
libraries of different compounds in relatively simple assays, or tests,
containing targets designed to mimic aspects of a disease process. Assays are
employed to determine the effect of a compound upon a particular target. When
applied methodically, assays can be used as screens to identify active
chemicals, referred to as "hits," that may produce a desired effect upon a
target's function. Lead compounds can be identified by additional screening of
hits and may then be optimized to generate candidate compounds for development
as potential medicines.
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TARGETS
Targets are specific biological molecules, often proteins such as receptors,
enzymes or ion channels, which are believed to play a role in the onset or
progression of disease. Most drugs are discovered through the identification of
compounds that modulate an established target's biological function. Recent
developments in molecular biology and genomics have led to a rapid increase in
the number of potential therapeutic targets available for drug discovery. The
chemical information required for cells to produce proteins is encoded in genes.
It is currently estimated that several thousand of the roughly 100,000 different
human genes encode potential targets. Functional genomics, the process of
determining the function of these genes and the proteins they encode, including
their evaluation as potential targets, can be a rate-limiting step in the
selection of novel targets for drug discovery. The large number of newly
discovered targets has created the need for faster screen development and higher
throughput screening.
COMPOUNDS
Traditionally, chemists laboriously synthesized new compounds one at a time, or
painstakingly isolated them from natural sources. During the last few years,
many industrial and academic groups have developed combinatorial chemistry
techniques to greatly increase the supply and diversity of small molecules for
screening. Already, many companies have used combinatorial chemistry to create
libraries of hundreds of thousands, or even millions, of small molecules
quickly. These large libraries are now available to be tested against both
established and novel targets to yield potential lead compounds for new
medicines. However, such vast numbers of compounds present a substantial
challenge to the drug discovery process and create a need for faster and more
efficient screening.
ASSAYS
Targets can be incorporated into either biochemical or cell-based assays.
Testing compounds on targets functioning in the environment of living human or
other mammalian cells may provide a number of advantages, including greater
predictive value of therapeutic effect and potential toxicity. In addition,
cell-based assays may be required to screen certain targets not readily amenable
to biochemical assays. However, cell-based assays have typically been more
difficult and time consuming both to develop and to perform due to difficulties
in detecting the activity of a target in a living cell and the inherent
technical complexities of using human or other mammalian cells in drug screens.
SCREENING
Screening is the process of methodically testing libraries of compounds for
potential therapeutic value by using assays to determine if one or more of the
compounds affect a selected target. Primary screening determines if any of the
compounds tested are hits. Re-testing confirms initial hits and secondary
screening refines the initial evaluation of hits. For example, secondary
screening may measure a hit's potency (the amount of the hit compound required
to exert its effect) and specificity (the degree to which the hit does not
affect unintended targets). These secondary screens help in selecting lead
compounds for further discovery efforts to identify candidate compounds for
development. Pharmaceutical and biotechnology companies with advanced drug
discovery programs use semi-automated or robotic high throughput screening
systems. Certain current best practice screening systems can operate at
throughputs of up to approximately 10,000 discrete compounds per day per system.
THE NEED TO IMPROVE THE DRUG DISCOVERY PROCESS
The discovery and development of new medicines remains an expensive,
time-consuming and often unsuccessful process. Although many pharmaceutical,
biotechnology and clinical research organizations have significantly improved
the efficiency of the drug development phase, only about five to ten percent of
candidate compounds entering development will ultimately be approved for
marketing. Candidate compounds that are identified in discovery frequently fail
in the development phase due to insufficient therapeutic benefit or unexpected
side effects. To date, efforts to improve the initial discovery process have not
been adequate to reduce development risks and bottlenecks.
The rapid increases in the number of potential targets and the size of compound
libraries resulting from advances in genomics and combinatorial chemistry,
respectively, have created a significant opportunity to discover greater
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numbers of higher quality lead compounds for development into medicines.
However, the increasing numbers of targets and compounds have created severe
bottlenecks in the drug discovery process. These bottlenecks result from the
difficulty of quickly analyzing function and disease relevance of newly
discovered targets, the complexity of incorporating the many different types of
targets into screens, and the inability to screen extensive compound libraries
quickly and at a reasonable cost.
If the discovery process were sufficiently improved, pharmaceutical and
biotechnology companies could more quickly and efficiently discover larger
numbers of higher quality candidate compounds that have a greater chance of
development into medicines that meet significant unmet needs.
AURORA'S APPROACH
TECHNOLOGY PLATFORM
To take advantage of the recent advances in genomics and combinatorial
chemistry, Aurora is developing an integrated technology platform consisting
principally of its proprietary fluorescent assay technologies and its highly
automated Ultra-high Throughput Screening System ("UHTSS"). Fluorescent assays
are currently being used to facilitate the drug discovery process through the
development of screens for its collaborators. These screens have either been
delivered to the collaborator or have been screened against hundreds of
thousands of compounds on Aurora's existing high throughput screening system. To
significantly advance current high throughput screening capabilities, Aurora is
developing the UHTSS which is expected to be fully operational within the next
two years. The system has been designed to screen over 100,000 discrete
compounds per day utilizing Aurora's miniaturized fluorescent assays. If
realized, this throughput would be over ten times faster than current
best-practice high throughput screening systems and would conserve expensive and
scarce compounds. The Company believes that this integrated technology platform
will allow Aurora and its collaborators to accelerate the drug discovery process
by shortening the time required to identify higher quality lead compounds and to
optimize those compounds into drug development candidates.
BUSINESS STRATEGY
Aurora's goal is to become the leader in the development and sale of
technologies, services and information to accelerate and enhance the discovery
of new medicines by the pharmaceutical and biopharmaceutical industries. The
Company intends to diversify business risk by exploiting Aurora's fluorescent
assay technologies and UHTSS in many different drug discovery programs with
multiple collaborators. To implement this strategy, the Company intends to:
Support and Enhance the Syndicate for the Co-development of Aurora's UHTSS.
Aurora has established a syndicate to co-develop Aurora's UHTSS. Each member
is scheduled to receive its own UHTSS over a specified period for use in its
internal drug discovery programs. Through the syndicate, Aurora is able to
fund the development of the UHTSS and offer to its syndicate members
co-exclusive access to the system. The Company believes that the payments
made by each syndicate member will be significantly lower than the cost for
any one company to develop a similar system on its own. The existing
syndicate agreements provide for certain collaborators to purchase additional
systems or components. The Company believes that these agreements represent a
customer base that may provide an opportunity for significant further revenue
generation as Aurora expands the UHTSS technology platform or develops
enhancements to the system.
Generate Revenue from Screen Development and Screening Services. Aurora
generates revenue from multiple collaborators by developing screens,
primarily on a non-exclusive basis, for diverse targets and providing
screening services. The Company develops screens with respect to specific
targets rather than for broad therapeutic areas. The developed screen is then
either transferred to the collaborator for internal research or is utilized
by Aurora to provide screening services. When Aurora provides such screening
services, it will use a high throughput screening system to screen the
compounds for and provide information and potential lead candidates to its
collaborators. Aurora expects revenue from screening services to increase as
its own UHTSS is brought on-line and additional compounds become available
for use in screening customers' targets. Additionally, the Company is
entitled to receive milestone payments and royalties with respect to
compounds discovered through such screening services that are developed and
commercialized.
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Form Functional Genomics Collaborations. The Company is seeking to establish
corporate collaborations based on its novel program for functional genomics
in human cells. This program is based primarily on the Company's
Beta-lactamase reporter system and utilizes human cell lines. These
collaborations could generate significant revenues for research services in
analyzing gene function and rapidly generating novel cell-based assays for
high throughput screening and lead identification in multiple therapeutic
areas. The Company expects to negotiate milestones and royalties on compounds
identified and developed through such research collaborations.
Expand Compound Libraries. In providing screening services, Aurora will
utilize compounds that are either supplied by its collaborators or from
compound libraries to which Aurora has access. In order to increase the
numbers of compounds available for Aurora and its collaborators, the Company
plans to enter into collaborations with companies specializing in
combinatorial chemistry that provide compound libraries and chemical
optimization expertise, and to purchase compounds from available commercial
sources.
Develop Information Tools and Databases. Utilizing the fluorescent assay
technologies and the UHTSS, the Company expects to have the ability to
generate and analyze large amounts of complex information on molecular and
genomic targets and large numbers of chemical structures. Aurora intends to
exploit these applications of its technology either directly or in
collaborations with leaders in the areas of informatics, genomics and drug
discovery. Ultimately, the Company plans to leverage this information to
create new revenue opportunities in the future.
Maintain Technology Leadership. The Company has assembled a unique
multi-disciplinary team of scientists from leading companies in the biology,
chemistry, instrumentation, automation and computer science industries.
Aurora intends to continue investing significantly in research and
development in order to make advances in its core technologies and expand its
technology platform in order to maintain its technology leadership. The
Company also intends to continue to form strategic technology alliances with
leading companies from each of these industries and with leading academic
institutions to provide the Company with access to those parties'
technologies and expertise.
AURORA'S TECHNOLOGY
The principal components of Aurora's integrated technology platform are its
proprietary fluorescent assay technologies, its human cell functional genomics
and its highly automated UHTSS that is being developed for screening
miniaturized assays. This unique platform results from the Company's innovative
integration of many different disciplines, including fluorescence chemistry,
biophysics, molecular biology, protein engineering, automation, process control,
optics, microfluidics, informatics and software development.
AURORA'S PROPRIETARY FLUORESCENT ASSAY TECHNOLOGIES
The Company has internally developed or licensed a broad range of proprietary
fluorescent assay technologies that the Company believes exhibit significant
advantages over existing screening assays. The Company's fluorescent assay
technologies utilize light glowing from fluorescent molecules to reveal
molecular and cellular activity with precision and sensitivity, generally
indicated by a change in color. Aurora's fluorescent assay technologies allow
monitoring of the function of tiny amounts of biomolecules in a non-destructive
manner. Therefore, many aspects of cell function can now be observed in single
living cells.
Aurora's portfolio of fluorescent assay technologies is designed to enable
screening of compounds against nearly all major classes of human drug targets,
including receptors, ion channels and enzymes, in most therapeutic areas. The
following chart summarizes several of Aurora's key fluorescent assay
technologies, together with examples of the classes of targets and therapeutic
areas to which they may be applicable:
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<TABLE>
<CAPTION>
ASSAY TECHNOLOGY TARGET CLASSES THERAPEUTIC AREA
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<S> <C> <C>
BETA-LACTAMASE REPORTER cell surface receptors, most areas, including
GENE SYSTEM intra-cellular receptors cardiovascular diseases,
(cell-based assays) and signaling proteins inflammation, cancer, central
nervous system diseases and
endocrine diseases
PROMISCUOUS G-PROTEINS G-protein coupled receptors most areas, including
(cell-based assays) cardiovascular diseases,
inflammation, cancer, central
nervous system diseases and
endocrine diseases
MEMBRANE VOLTAGE ion channels cardiac diseases, central nervous
REPORTERS (cell-based system conditions and
assays) gastro-intestinal diseases
GFP REPORTERS proteases, kinases and AIDS, cardiovascular diseases,
(biochemical and protein-protein degenerative brain diseases and
cell-based assays) interactions cancer
ADIFAB PROBE (biochemical lipid metabolism ischemia, inflammation, obesity,
assays) diabetes and immune dysfunction
</TABLE>
To date, only a limited number of targets have been incorporated into assays
utilizing the Company's fluorescent assay technologies. There can be no
assurance that the Company will be able to develop screening assays for each
target selected by its collaborators in a timely and cost-effective manner, or
if developed, that such assays will function as anticipated.
Beta-lactamase Reporter Gene System
The Company has successfully utilized an engineered bacterial enzyme,
Beta-lactamase, as a reporter gene in mammalian cells in assays suitable for
high throughput screening. The Company believes that its Beta-lactamase reporter
system is an important advance in reporter gene technology that can be used to
design drug screens for a number of major classes of drug targets as noted in
the chart above. Functional cell-based assays have a number of advantages over
the commonly used binding assays that detect interaction of test compounds with
targets isolated from their natural cellular environment. The Company's
Beta-lactamase reporter system allows drug screens to be constructed in the more
physiological environment of mammalian cells, does not require the use of
radioactivity and can readily distinguish between agonists and antagonists. In
addition, the Beta-lactamase reporter system can facilitate the search for
compounds acting on newly discovered target receptors where no natural ligands
have been identified, also known as orphan receptors. Certain aspects of the
Beta-lactamase reporter system were exclusively licensed from the Regents of the
University of California.
The Company believes that its Beta-lactamase reporter system has the potential
to greatly reduce both the time and cost of developing cell-based screens based
on the ability to measure activation responses in single living cells. Even with
modern techniques for making genetically engineered cells, cell line development
is an unpredictable process. Making cell lines for reporter gene assays with
current methods usually takes many months and involves testing hundreds or even
thousands of individual cell "clones" to generate a usable screening assay. In
contrast, the Beta-lactamase reporter system employs the power of
fluorescence-activated cell sorting, which can rapidly isolate the living cells
in which the reporter gene is connected to the right signaling elements. Thus,
with the Company's Beta-lactamase reporter system, development time for a target
into a cell-based assay can be reduced to weeks instead of months. The Company
has developed several screens using Beta-lactamase.
Promiscuous G-proteins
The Company has an exclusive license from the California Institute of Technology
to the use of novel "promiscuous" G-proteins, which are "universal adapters"
that couple to a wide range of receptors of this family of targets to a
signaling pathway that is well suited to certain of the Company's fluorescent
assays. Thus, the Company believes that its proprietary promiscuous G-protein
methods can be helpful in developing screens containing G-protein coupled
receptors previously difficult to incorporate into mammalian cell-based assays.
The promiscuous G-
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proteins may also be useful in constructing screens for orphan receptors that
can be used to search for compounds that activate such receptors as tools to
help analyze the function of these newly discovered genes.
Membrane Voltage Reporters
Membrane proteins control membrane voltage, a fundamental property of cells.
Unregulated membrane voltage can cause serious medical conditions. Thus,
membrane proteins, particularly ion channels, help regulate membrane voltage and
can be targets for drug discovery in major disease areas such as neurology and
cardiology. Important medicines acting on ion channels include certain
anti-epileptic and anti-arrhythmic medicines. However, screening in this area is
typically limited to testing compounds with an electrical measuring apparatus,
which requires skilled scientists and has a low throughput of only tens of
compounds per day. There has been some success in adapting an existing type of
fluorescent probe of membrane voltage for semi-automated screening. The Company
believes that this approach is likely to have too slow of a response to report
on many relevant ion channel targets, and can be susceptible to artifacts which
limit assay performance.
Aurora's proprietary membrane voltage reporters incorporate fluorescence
technology to permit more reliable detection of changes in membrane voltage and
should provide faster responses. The Company believes that assays incorporating
its membrane voltage reporters will be adaptable for sub-types of ion channels,
several of which are currently the targets of screening programs in
pharmaceutical company research departments and in certain specialized
biotechnology companies.
In 1997, the Company developed and provided for one of its collaborators, an
instrument designed to permit the use of the Company's fluorescent voltage
sensor technology for high throughput screening of ion channel targets in 96
well plates. In addition, the Company has developed and delivered a screen for
an ion channel subtype for this collaborator.
Proprietary Variants of Green Fluorescent Protein
Green Fluorescent Protein ("GFP") is a naturally fluorescent protein discovered
in light-producing jellyfish. The fluorescence of GFP is an intrinsic property
of the protein and, therefore, the protein requires no additional chemicals to
make it fluoresce. This feature of GFP allows it to be expressed within
genetically engineered mammalian cells and to provide an intracellular reporter
with its own fluorescence. Using various techniques of protein engineering,
Aurora has developed several mutants, or variants, of the naturally occurring
type of GFP, which are readily expressed in mammalian cells and provide much
brighter fluorescence than that of the naturally occurring GFP protein. Certain
aspects of Aurora's technology related to GFP reporters are exclusively licensed
from the Regents of the University of California and from the University of
Oregon. The Company has also engineered variants that have significantly
different excitation and emission wavelengths and hence they fluoresce with
different colors. At present, the Company utilizes four main proprietary GFP
variants: cyan, blue, green and yellow.
The Company believes that the main application for GFP in drug discovery
requires the further engineering of GFP variants to produce reporters of
important biologic modifications to proteins, such as protein cleavage by
proteases and protein phosphorylation by protein kinases. The Company has
developed certain GFP protease and kinase assays. Additionally, the Company has
obtained an exclusive worldwide license from the University of California for
the cameleon indicators reported in Nature (Vol. 388, pages 882-887). These
indicators consist of fusion of pairs of differently colored mutants of GFP,
together with calmodulin and a calmodulin binding peptide. Such chimeric
proteins can be versatile reporters of free calcium concentration, an important
regulator of cell function and gene expression. Changes in calcium concentration
are reported by conformational changes in the indicator proteins via a
fluorescent signal. This approach to measuring intracellular signaling has the
advantage of using a genetically coded indicator that can be targeted to
specific sites such as the nucleus and endoplasmic reticulum. The Company
believes that the cameleon reporters demonstrate how GFP mutants can report
changes in protein structure and protein-protein interactions from within living
cells.
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ADIFAB
Aurora has obtained an exclusive world-wide license from Lidak Pharmaceuticals
for the fluorescent reporter ADIFAB, for one-step determination of unbound free
fatty acids for screening for therapeutic compounds. The ADIFAB technology is
based on a genetically engineered fluorescent probe that provides a unique
method to measure unbound free fatty acid levels. The ADIFAB assay can provide
sensitive and reliable measurement that can be performed rapidly and is
amendable to high throughput screening to identify potential drug candidates
that modulate lipid pathways. Modulation of lipid metabolism may have
applications in many biological areas including signal transduction and energy
metabolism.
HUMAN CELL FUNCTIONAL GENOMICS
During 1997, the Company recruited a team of scientists to accelerate the
development of its functional genomics program. This program relies on the
proprietary Beta-lactamase gene reporter systems that enables quantitation of
transcription and clonal selection of single living cells without apparent
adverse effects (Science 279, 84-88, 1998). For functional analysis,
Beta-lactamase is introduced stochastically into the genome at saturating
frequencies in a range of immortalized human cell types. This results in a
living library of millions of individually tagged clones that can be used to
monitor real-time transcriptional responses to physiologic or pharmacologic
stimulation of human cells, and for sequence identification and molecular
cloning of the tagged genes.
This technology allows generation of information that can be used to elucidate
the signaling pathway(s) used by a specific target or molecule of interest
including: known or orphan GPCRs, cytokine receptors, transcription factors,
oncogenes, tumor suppressors genes, kinases, secreted proteins, ligands,
viruses, drugs or any other molecules that modulate signal transudation pathways
in human cells. A key advantage of this approach is that their sensitive and
reliable fluorescent readouts enable ultra-high throughput sorting, at rates
greater than 10 million cells per hour, of any desired clones by flow cytometry.
This "target set" of responsive cell clones can then be used for functional
analysis and cell-based high throughput screening.
AURORA'S ULTRA-HIGH THROUGHPUT SCREENING SYSTEM
The Company believes that because most current high throughput screening systems
have been developed without an adequately integrated design concept, it can be
challenging to improve performance at certain rate-limiting steps without
creating almost equally limiting bottlenecks elsewhere in the process. In
addition, the Company believes that many of these systems are designed to screen
only one class of target or one type of assay. To overcome these limitations and
to exploit the power of its fluorescent assay technologies, Aurora is developing
its UHTSS which is expected to be operational within the next two years. The
UHTSS is being designed using a fully integrated approach that combines a wide
array of expertise and technologies, key internally developed advances and the
technologies accessed through the Company's strategic technology alliances.
Automated Storage and Retrieval System
The UHTSS automated storage and retrieval component is designed to house over
1,500,000 compounds in solution for rapid access. The robotic systems for
storage and retrieval of compounds are being adapted from other industrial
settings where automated, rapid access to very large stores of small items has
been reliably deployed. Aurora's own proprietary innovations have been added to
adapt these advanced technologies to the UHTSS. The system is designed to
deliver and return over 100,000 selected compounds per day for primary screening
and over 2,000 hits for re-test and potency determination as well as allow ready
replenishment of the compound store from libraries in the master store. The
ability to deliver selected compounds to the screen at ultra-high rates under
computer control is a key advance offered by the Aurora platform. The automated
storage and retrieval system can facilitate high throughput screening in
conventional 96-well plates today, and has been accepted by both BMS and Lilly.
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NanoPlates for Miniaturized Screening Assays
Another key component of Aurora's UHTSS is the NanoPlate (NanoPlateTM is a
trademark of the Company) which has 3,456 miniaturized wells in which
fluorescent assay screens may be performed. The Company has developed prototype
proprietary NanoPlates and is developing a manufacturing system for disposable
NanoPlates with external collaborators. A key feature is the small assay volume,
approximately 100 times smaller than in conventional screening assays. This
volume reduction is critical for reducing the cost per test and conserving
compound libraries that often consist of only very small amounts of each test
compound. The Company has so far successfully addressed most of the problems
inherent in such small assay volumes. The Company is developing its NanoPlates
to be compatible with most of Aurora's fluorescent assay technologies. Certain
cell-based and biochemical assays, based on the Company's fluorescent reporters,
have already been shown to work in prototype NanoPlates.
Microfluidics: Compound and Assay Component Dispensing
The Company, together with Packard Instrument Company ("Packard") is developing
novel microfluidic technologies to accurately transfer microscopic volumes of
the compounds, into the miniature assay wells of the NanoPlates, at rates of up
to 10,000 wells per hour. While current screening systems can dispense volumes
down to a microliter (one millionth of a liter), Aurora is developing
miniaturized screening dispensers capable of volumes less than one billionth of
a liter. These dispensers are being designed to remove compounds from the
storage plates and dispense precise sub-nanoliter volumes into the appropriate
wells of the NanoPlates at high speed. The Company intends to incorporate these
devices into proprietary robotic platforms designed to enable the precise
location of the various components in a manner superior to available compound
dispensing technology. To date, the Company has used prototype nanoliter
dispensing devices to perform test assays in prototype NanoPlates. The Company
believes that its microfluidic systems suitable for ultra-high throughput
screening will be operational in 1999.
Fluorescence Detector for NanoPlates
There are a number of fluorescence plate readers presently available that enable
the use of Aurora's proprietary fluorescent assays for high throughput screening
in 96-well plates. However, none of these provide the necessary sensitivity and
precision to enable ultra-high throughput miniaturized screens. Aurora is
collaborating with Packard to develop highly sensitive fluorescence detectors
capable of measuring miniaturized fluorescent assays in NanoPlates. The detector
is designed to record and process, in real time, data from more than 100,000
assays in 24 hours. The Company believes that the resulting quality of the
fluorescent assays should minimize the number of replicates required compared to
traditional screening, thereby increasing throughput and decreasing costs.
Currently Packard and the Company are finalizing the development of its
detector. The Company believes that detectors operational with NanoPlates can be
produced in the second half of 1998.
Informatics and System Integration
The UHTSS is being designed to link the automated storage and retrieval system
to existing chemistry information databases and master compound store
inventories through a user-friendly computer control system. The fully
integrated UHTSS will be designed to efficiently capture, process and deposit in
a centralized database the large amount of screening data from the UHTSS using
advanced software tools and systems from leading providers. While the basic
software and hardware components for the UHTSS informatics system are being
acquired from leading suppliers, the supervisory control systems, the subsystem
controllers for the instruments, the data analysis tools and overall system
architecture and database structure for the UHTSS are being developed by the
Company's in-house informatics team. The Company's UHTSS is expected to be fully
integrated and operational within the next two years.
CORPORATE COLLABORATIONS
Aurora has entered into a number of corporate collaborations relating to the
co-development of the Company's UHTSS and for screen development and screening
services. The Company's material collaborations and their major features are
summarized below:
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Bristol-Myers Squibb. In November 1996, the Company and BMS entered into a
Collaborative Research and License Agreement (the "BMS Agreement") regarding the
development of the Company's UHTSS and the installation of a UHTSS at BMS. Under
the terms of the BMS Agreement, the Company is required to develop and
separately install three components to be integrated into one complete UHTSS. In
return, BMS is obligated to make certain payments to the Company in the form of
non-refundable upfront fees, installation payments and ongoing research and
co-development funding. The Company is obligated to provide service and support
for the UHTSS installed at BMS for a limited period of time. The first UHTSS
component, the storage and retrieval unit, was accepted by BMS in November 1997.
The Company and BMS will also co-develop high throughput screening assays for
use by BMS in exchange for specified fees from BMS. Certain target screens
developed by the Company for BMS will be exclusive for a limited period of time.
In exchange for certain additional payments to Aurora, BMS will also have the
right to use the Company's fluorescent assay technologies for internal research
and drug development, including the development of screening assays. BMS will
also make certain milestone and royalty payments to Aurora principally for
compounds developed and commercialized by BMS which were identified using a
screen developed by Aurora.
Under the terms of the BMS Agreement, subject to certain conditions, the UHTSS
syndicate is restricted to six members for a limited period. BMS may withdraw
from the development of the UHTSS at any time without cause, provided that
certain withdrawal payments have been made. BMS may also withdraw from the
development of the UHTSS for "good cause," as defined in the agreement, without
obligation to make further payments relating to development of the UHTSS. Each
party also has the right to terminate the agreement upon the material breach by
the other party of its obligations under the agreement. The BMS Agreement also
provides for penalties payable by the Company if it fails to deliver the
completed UHTSS by a specified time.
Eli Lilly and Company. In December 1996, the Company and Lilly entered into a
Collaborative Research and License Agreement (the "Lilly Agreement") regarding
the development of the Company's UHTSS and the installation of a UHTSS at Lilly.
Under the terms of the Lilly Agreement, the Company is required to develop and
separately install three components to be integrated into one complete UHTSS. In
return, Lilly is obligated to make certain payments to the Company in the form
of non-refundable upfront fees, delivery payments and ongoing co-development
funding. The Company is obligated to provide service and support for the UHTSS
installed at Lilly for a limited period. The first UHTSS component, the storage
and retrieval unit, was accepted by Lilly in December 1997.
The Company and Lilly will also co-develop high throughput screening assays for
use by Lilly in exchange for specified fees from Lilly. In exchange for certain
additional payments to Aurora, Lilly will also have the right to use the
Company's fluorescent assay technologies for internal research and drug
development, including the development of screening assays. Lilly will also make
certain milestone and royalty payments to Aurora principally for compounds
developed and commercialized by Lilly which were identified using a screen
developed by Aurora, subject to certain limitations on the royalties.
Under the terms of the Lilly Agreement, subject to certain conditions, the UHTSS
syndicate is restricted to six members for a limited period of time. Lilly may
terminate the agreement at any time without cause upon 45 days written notice to
Aurora, provided that certain withdrawal payments are made. Each party has the
right to terminate the agreement upon the material breach by the other party of
its obligations under the agreement. The Lilly Agreement also provides for
penalties payable by the Company if it fails to deliver the completed UHTSS by a
specified time.
Warner-Lambert Company. In September 1997, the Company and Warner-Lambert
entered into a Collaborative Research and License Agreement (the "Warner-Lambert
Agreement") regarding the development of the Company's UHTSS and the
installation of a UHTSS at Warner-Lambert. Under the terms of the Warner-Lambert
Agreement, the Company is required to develop and separately install three
components to be integrated into one complete UHTSS. In return, Warner-Lambert
is obligated to make certain payments to the Company in the form of
non-refundable upfront fees, milestone payments, delivery payments and ongoing
co-development funding. The Company is obligated to provide service and support
for the UHTSS installed at Warner-Lambert for a limited period.
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The Company and Warner-Lambert will also co-develop high throughput screening
assays for use by the Company on its current high throughput screening system
and for use by Warner-Lambert in exchange for specified fees from
Warner-Lambert. In exchange for certain additional payments to Aurora,
Warner-Lambert will also have the right to use the Company's fluorescent assay
technologies for internal research and drug development, including the
development of screening assays. Warner-Lambert will also make certain milestone
and royalty payments to Aurora for certain compounds developed and
commercialized by Warner-Lambert which were identified using a screen developed
by Aurora.
Under the terms of the Warner-Lambert Agreement, subject to certain conditions,
the UHTSS syndicate is restricted to six members for a limited period.
Warner-Lambert may terminate the agreement at any time without cause upon 45
days written notice to Aurora, provided that certain withdrawal payments are
made. Each party has the right to terminate the agreement upon the material
breach by the other party of its obligations under the agreement.
Merck & Co., Inc. In December 1997, the Company and Merck entered into a
Collaborative Research and License Agreement (the "Merck Agreement") regarding
the development of the Company's UHTSS and the installation of a UHTSS at Merck.
Under the terms of the Merck Agreement, the Company is required to develop and
separately install three components to be integrated into one complete UHTSS. In
return, Merck is obligated to make certain payments to the Company in the form
of non-refundable upfront fees, delivery payments and ongoing co-development
funding. The Company is obligated to provide service and support for the UHTSS
installed at Merck for a limited period. Merck also has certain options for
additional systems and certain system components.
The Company and Merck will also co-develop high throughput screening assays for
use by Merck in exchange for specified fees from Merck. In exchange for certain
additional payments to Aurora, Merck will also have the right to use the
Company's fluorescent assay technologies for internal research and drug
development, including the development of screening assays. Merck will also make
certain milestone and royalty payments to Aurora for certain compounds developed
and commercialized by Merck using a screen developed by Aurora.
Under the terms of the Merck Agreement, subject to certain conditions, the UHTSS
syndicate is restricted to six members for a limited period. Merck may terminate
the agreement at any time without cause upon 90 days written notice to Aurora,
provided that certain withdrawal payments are made. Each party has the right to
terminate the agreement upon the material breach by the other party of its
obligations under the agreement.
Roche Bioscience. In December 1996, the Company and Roche entered into a
Collaborative Research and License Agreement ("Roche Agreement") regarding the
development and delivery of a certain screening instrument by Aurora. Roche made
certain payments to the Company in the form of non-refundable upfront fees and
delivery payments. For a limited period of time specified in the agreement, the
Company provided service and support for any instrument delivered to Roche. The
Company and Roche also co-developed a screening assay for use with a target
identified in the Roche Agreement. In connection with such development, Roche
made certain payments to the Company in the form of non-refundable upfront fees
and ongoing research and co-development funding. Aurora is prohibited, for a
period of time specified in the agreement, from entering into any third-party
collaboration with respect to the specific target set forth in the Roche
Agreement.
Allelix Biopharmaceuticals, Inc. In February 1997, the Company and Allelix
entered into a Collaboration Agreement (the "Allelix Agreement") regarding the
development over a three-year period of screening assays for use with targets
identified by Allelix and agreed to by Aurora. Under the terms of the Allelix
Agreement, the Company is required to develop such screening assays and to
perform screening services, and Allelix is obligated to make certain payments to
the Company in the form of upfront fees, development payments and fees for
screening services. Allelix is also required to make certain milestone and
royalty payments to Aurora with respect to certain compounds identified using a
screen developed by Aurora.
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UHTSS TECHNOLOGY ALLIANCES
Aurora has entered into strategic technology alliances to design, develop and
implement its UHTSS with leading companies in the areas of instrumentation,
storage and retrieval systems and microfluidics, including the alliances
summarized below.
Packard Instrument Company. In April 1996, the Company entered into a
Collaboration and License Agreement with Packard (the "Packard Agreement")
regarding the joint development of certain components including microfluidics
devices, NanoPlates and fluorescence detectors for use, among other things, in
the UHTSS. Aurora was granted, for a period of two to three years from Aurora's
acceptance of each operational component, an exclusive right to use, market,
lease and sell, for use in certain applications defined in the agreement, such
component. Packard was granted a worldwide, exclusive sublicense under the
Company's license with the University of California Regents to make, have made
and sell certain fluorescent reagents covered by such license to non-profit
organizations for their internal, non-commercial research. In connection with
the execution of the Packard Agreement, Packard made a $1.0 million equity
investment in Aurora. Packard has also provided the Company with research
funding for the development of certain instrumentation.
In February 1998, Packard and the Company amended the agreement to redefine
certain aspects of market exclusivity for piezo-electric microfluidic devices
and fluorescent detection and to transfer responsibility for and manufacture of
NanoPlates to Aurora. The companies also entered into a supply agreement for the
manufacture by Packard of microfluidic devices and fluorescent detectors for
UHTS systems.
Carl Creative Systems, Inc. In November 1996, the Company entered into a
Development Agreement with Carl Creative regarding the development and sale of,
among other things, liquid handling components and robotics for use with the
UHTSS. Certain components provided for in the agreement have been delivered to
Aurora.
Universal Technology, Inc. In December 1996, the Company entered into a
Development Agreement with UTI regarding the development and sale of storage and
retrieval instrumentation for use with the Company's UHTS system. Such storage
and retrieval instrumentation has been incorporated into the storage and
retrieval components of the UHTSS that have been accepted by BMS and Lilly.
PATENTS AND PROPRIETARY RIGHTS
The Company's patent portfolio includes over 50 patent applications filed in the
United States and foreign patent jurisdictions. The Company is either the
assignee or exclusive licensee of these patent rights. The Company is the
exclusive licensee of four issued U.S. patents. Certain aspects of the Company's
technology related to GFP reporters, Beta-lactamase based reporters, protease
reporters, kinase reporters, and membrane voltage reporters are exclusively
licensed from The Regents of the University of California ("The Regents").
Pursuant to the terms of the Exclusive License Agreement between the Company and
The Regents, the Company is obligated to pay expenses associated with patent
prosecution and maintenance, certain license issue fees and royalties to the
Regents. Certain aspects of the Company's technology related to GFP reporters
are exclusively licensed from the University of Oregon ("UO"). Pursuant to the
terms of the License Agreement between the Company and UO, the Company is
obligated to pay to UO expenses associated with patent prosecution and
maintenance, certain annual payments and, upon the issuance of a patent related
to the subject technology, to issue shares of the Company's Common Stock to UO.
Certain aspects of the Company's technology related to G-protein coupled
receptor reporters are exclusively licensed from the California Institute of
Technology ("Cal Tech"). In connection with the execution of the License
Agreement between the Company and Cal Tech, the Company became obligated to pay
certain expenses associated with patent prosecution and maintenance, and the
Company issued shares of its Common Stock to Cal Tech.
Additionally, the Company has obtained a non-exclusive license from SIBIA
Neurosciences, Inc. ("SIBIA"), with limited rights to sublicense, under patent
rights covering certain transcription-based assay technology (which relates to
certain uses of reporter genes) for screening. Pursuant to the terms of the
Non-Exclusive Cross-License Agreement between the Company and SIBIA, the Company
granted SIBIA a non-exclusive license to certain of Aurora's technologies, and
the Company issued to SIBIA shares of the Company's Common Stock. The Company
and SIBIA are also obligated to pay each other certain royalties. The Company is
dependent on the rights licensed
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from such parties. Any challenge to, invalidation or loss of such rights could
have a material adverse effect on the business, financial condition and results
of operation of the Company.
EMPLOYEES
As of February 28, 1998, the Company had 102 full-time employees, 31 of whom
hold M.D. or Ph.D. degrees and 17 of whom hold other advanced degrees. Of these
employees, 77 were engaged in research and development activities, with the
remainder engaged in legal, business development, finance and general
administration activities. The Company's future success depends in significant
part upon the continued service of its key scientific, technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. None of the Company's employees is
represented by a labor union or covered by a collective bargaining agreement.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Timothy J. Rink..................... 51 Chairman of the Board, President and Chief
Executive Officer
J. Gordon Foulkes................... 44 Chief Technical Officer, Director
Paul A. Grayson..................... 33 Senior Vice President, Corporate
Development
John D. Mendlein.................... 38 Senior Legal Counsel and Vice President,
Intellectual Property
Deborah J. Tower.................... 36 Vice President, Finance and
Administration, Secretary and Treasurer
</TABLE>
Officers serve at the discretion of the Board of Directors. There are no family
relationships between any executive officers of the Company.
Timothy J. Rink has served as Chairman of the Board, President and Chief
Executive Officer of the Company since February 1996. From 1990 through 1995,
Dr. Rink served as President and Chief Technical Officer of Amylin
Pharmaceuticals, Inc., a publicly held biopharmaceutical company. Dr. Rink was
Vice President, Research at SmithKline Beecham in the U.K. from 1984 to 1989,
and previously was Lecturer in Physiology at the University of Cambridge. Dr.
Rink currently serves on the Scientific Advisory Board of Amylin, and he is a
director of CoCensys, Inc. and NPS Pharmaceuticals, Inc., all publicly held
biopharmaceutical companies. Dr. Rink received his M.A., M.D. and Sc.D. in
Medical Sciences from the University of Cambridge, England.
J. Gordon Foulkes has been Chief Technical Officer and a director of the Company
since November 1996. From 1987 to 1996, Dr. Foulkes served in several capacities
at OSI Pharmaceuticals, Inc. ("OSIP"), formerly known as Oncogene Science, Inc.,
where he was a director and most recently held the position of Chief Scientific
Officer. Prior to joining OSIP, Dr. Foulkes led a research group at National
Institute for Medical Research in the U.K., and was previously a post-doctoral
fellow in Dr. David Baltimore's laboratory at the Massachusetts Institute of
Technology. Dr. Foulkes obtained his B.Sc. in Biochemistry at the University
College, Cardiff, U.K. and his Ph.D. in Biochemistry in Professor Philip Cohen's
laboratory at the University of Dundee, Scotland.
Paul A. Grayson joined the Company in April 1996 and currently serves as Senior
Vice President, Corporate Development. From 1994 to 1996, Mr. Grayson served as
Director of Business Development for Advanced Tissue Sciences, Inc. From 1987 to
1994, Mr. Grayson held various research, marketing and business development
positions at Allergan Pharmaceuticals and Gensia Inc. Mr. Grayson received his
B.S. in Biochemistry and Computer Science from the University of California, Los
Angeles, and his M.B.A. from the University of California, Irvine.
John D. Mendlein joined the Company in August 1996 and currently serves as
Senior Legal Counsel and Vice President, Intellectual Property. From 1990 to
1996, Dr. Mendlein worked at Cooley Godward LLP, Palo Alto, California, where he
specialized in intellectual property law. Dr. Mendlein received his Ph.D. in
Physiology from
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the University of California, Los Angeles, and his J.D. from the University of
California, Hastings College of Law and his B.S. in Biology from the University
of Miami, Florida.
Deborah J. Tower joined the Company in May 1996 and currently serves as Vice
President, Finance and Administration, Secretary and Treasurer. From 1994 to
1996, Ms. Tower served as Director of Finance and Accounting of Sequana
Therapeutics, Inc. From 1989 to 1993, she served as Controller of Vical Inc. Ms.
Tower received a B.S. in Accounting, with honors, from San Diego State
University and is a Certified Public Accountant.
SCIENTIFIC ADVISORS
The Company's scientific advisors, who have demonstrated expertise in various
fields, advise the Company from time to time concerning long-term scientific
planning, research and development. The scientific advisors also evaluate the
Company's research programs, recommend personnel to the Company, and advise the
Company on specific scientific and technical issues. The scientific advisors are
compensated by retainer and on a time and expenses basis and have received
shares of Common Stock of the Company. The Company has entered into consulting
agreements with a number of the scientific advisors.
The Company does not employ any of the scientific advisors, and they may have
other commitments to or consulting or advisory contracts with their employers or
other entities that may conflict or compete with their obligations to the
Company. Accordingly, such persons are expected to devote only a small portion
of their time to the Company. The Company's scientific advisors are:
Burton G. Christensen, Ph.D. -- former Senior Vice President for Chemistry,
Merck Sharp & Dohme
Tom Curran, Ph.D. -- Chairman, Department of Developmental Neurobiology, St.
Jude's Hospital Medical Center, Memphis; formerly Associate Director, Roche
Institute of Molecular Biology
Michael Geoffrey Rosenfeld, M.D. -- Investigator, Howard Hughes Medical
Institute; Professor of Medicine, University of California, San Diego
Melvin I. Simon, Ph.D. -- Professor of Biological Sciences and Chairman of the
Biology Division, California Institute of Technology
Lubert Stryer, M.D. -- Winzer Professor in the School of Medicine and Professor
of Neurobiology, Stanford University
Roger Y. Tsien, Ph.D. -- Investigator, Howard Hughes Medical Institute;
Professor, Department of Pharmacology, School of Medicine, University of
California, San Diego; Professor, Department of Chemistry and Biochemistry,
University of California, San Diego
Charles S. Zuker, Ph.D. -- Investigator, Howard Hughes Medical Institute;
Professor, Departments of Biology and Neurosciences, School of Medicine,
University of California, San Diego
RISK FACTORS
This Form 10-K contains certain statements of a forward-looking nature relating
to future events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this Form 10-K, including the matters set forth below, which could
cause actual results to differ materially from those indicated by such
forward-looking statements.
Limited Operating History; Uncertainty of Future Profitability. The Company was
formed in May 1995, has a limited operating history and is at an early stage of
development. As of December 31, 1997, the Company had an accumulated deficit of
$3.1 million. The Company's expansion of its operations and continued
development of its UHTSS and fluorescent assay technologies will require a
substantial increase in expenditures and the Company
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expects to incur operating losses at least through 1998. The Company's ability
to achieve sustained profitability will depend in part on its ability to
successfully develop and install its UHTSS, provide screen development and
screening services to pharmaceutical and biotechnology companies, achieve
acceptable performance specifications for its UHTSS and gain industry acceptance
of its systems, services and technologies. Accordingly, the extent of future
losses and the time required to achieve sustained profitability is uncertain.
The Company is subject to the risks inherent in the operation of a new business,
such as the difficulties and delays often encountered in the development and
production of new, complex technologies. There can be no assurance that the
Company will be able to address these risks. Payments from corporate
collaborators and interest income are expected to be the only sources of revenue
for the foreseeable future. Royalties or other revenues from commercial sales of
products based upon any compound identified by using the Company's technologies
are not expected for at least several years, if at all. The time required to
reach or sustain profitability is uncertain, and there can be no assurance that
the Company will be able to achieve or maintain profitability. Moreover, if
profitability is achieved, the level of such profitability cannot be predicted
and may vary significantly from quarter to quarter.
New and Uncertain Technology. The Company's UHTSS technology and its methods of
screening molecular targets incorporate new and unproven approaches to the
identification of lead compounds with therapeutic potential. The Company intends
to use its UHTSS and fluorescent assay technologies to rapidly identify for
itself and its collaborators as many compounds with commercial potential as
possible. Historically, because of the highly proprietary nature of such
activities, the importance of these activities to drug discovery and development
efforts and the desire to obtain maximum patent and other proprietary protection
on the results of their programs, pharmaceutical and biotechnology companies
have conducted molecular target screening and lead compound identification
within their own internal research departments. The Company's ability to succeed
will be dependent, in part, upon the willingness of potential collaborators to
use the Company's systems, services and technologies as a tool in the discovery
and development of compounds with commercial potential.
The Company's fluorescent assay technologies are novel for use in the drug
discovery process and have never been utilized in the discovery of any compound
that has been commercialized. The Company has completed the development of only
limited numbers of screens for its collaborators. There can be no assurance that
the Company's fluorescent assay technologies will result in the discovery of
lead compounds that will be safe or efficacious. Furthermore, there can be no
assurance that the Company can consistently develop, validate or reproduce its
biochemical and cell-based assays or reagents or substrates required for their
use in volumes sufficient to fulfill the requirements of its collaborative
agreements or to meet the Company's needs for internal use. Development of new
pharmaceutical products is highly uncertain, and no assurance can be given that
the Company's drug discovery technology will result in any commercially
successful compound.
The Company's UHTSS technology has never been implemented as a fully operational
system. The UHTSS is not expected to be fully integrated and operational for at
least two years. The UHTSS will require significant additional investment and
research and development prior to commencement of full-scale commercial
operation, including integration of complex instrumentation and software and
testing to validate performance and cost effectiveness, and is subject to
substantial risks. Complex instrumentation systems that appear to be promising
at early stages of development may not become fully operational for a number of
reasons. These systems may be found ineffective, be difficult or uneconomical to
produce, fail to achieve expected performance levels or industry acceptance, or
be precluded from commercialization by the proprietary rights of third parties.
Some of the instrumentation and software expected to comprise the UHTSS are not
now and have not previously been used in commercial applications. Many of these
technologies have not been validated or developed at levels necessary to screen
miniaturized assays, and there can be no assurance that UHTSS technologies, if
developed, will achieve expected performance levels at these scales. The
successful implementation and operation of the UHTSS will be a complex process
requiring integration and coordination of a number of factors, including
integration of and successful interface between complex advanced robotics,
microfluidics, automated storage and retrieval systems, fluorescence detector
technologies and software and information systems. The liquid dispensing
requirements for the NanoPlates being designed for the UHTSS are far beyond
current high throughput screening practices for dispensing small volumes. The
development of microfluidics to accurately and rapidly aspirate and dispense the
microscopic volumes necessary for the UHTSS is particularly challenging. There
can be no assurance that the Company and its suppliers will be able to
successfully integrate or implement this microfluidics technology or all of the
other instrumentation needed for the UHTSS.
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As the UHTSS is developed, integrated and used, it is possible that previously
unanticipated limitations or defects may emerge. In addition, operators using
the system may require substantial new technical skills and training. There can
be no assurance that unforeseen complications will not arise in the development,
delivery and operation of the UHTSS that could materially delay or limit its use
by the Company and its corporate collaborators, substantially increase the
anticipated cost of development of the system, result in the breach by the
Company of its contractual obligations to its collaborators and others, or
render the system unable to perform at the quality and capacity levels required
for success. Such complications or delays could subject the Company to
litigation and have other material adverse effects on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to successfully develop its UHTSS, achieve anticipated
throughputs, gain industry acceptance of the Company's approach to the
identification of lead compounds or develop a sustainable profitable business.
Dependence on Pharmaceutical and Biotechnology Collaborations. The Company's
strategy for the development and commercialization of its integrated technology
platform involves the formation of multiple corporate collaborations. To date,
all revenue received by the Company has been from its collaborations and
technology alliances. The Company expects that substantially all revenue for the
foreseeable future will come from collaborators. Furthermore, the Company's
ability to achieve profitability will be dependent upon the ability of the
Company to enter into additional corporate collaborations for development of
screens and for screening services or its human cell functional genomics
program. Because pharmaceutical and biotechnology companies engaged in drug
discovery activities have historically conducted drug discovery and screening
activities through their own internal research departments, these companies must
be convinced that the Company's UHTSS technologies justify entering into
collaborative agreements with the Company. There can be no assurance that the
Company will be able to negotiate additional collaborative agreements in the
future on acceptable terms, if at all, that such current or future collaborative
agreements will be successful and provide the Company with expected benefits, or
that current or future collaborators will not pursue or develop alternative
technologies either on their own or in collaboration with others, including the
Company's competitors, as a means for identifying lead compounds or targets.
The Company's strategy for the development of the UHTSS includes the
establishment of a syndicate of collaborators to provide the Company with
development funding, technology and personnel resources and system validation.
To date, the Company's UHTSS co-development syndicate includes BMS, Lilly,
Warner-Lambert and Merck. The Company's agreements provide that the agreement
generally may be terminated by the collaborator without cause upon short notice,
which would result in loss of anticipated revenue. In addition, the amount and
timing of resources that current and future collaborators, if any, devote to
collaborations with the Company are not within the control of the Company. There
can be no assurance that such collaborators will perform their obligations as
expected or that the Company will derive any additional revenue from such
agreements. There can be no assurance that any one or more of the Company's
collaborators will not elect to terminate their agreements with the Company.
Termination of the Company's existing or future collaboration agreements, or the
failure to enter into a sufficient number of additional collaborative agreements
on favorable terms, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's strategy involves expanding its functional genomics programs and
obtaining access to libraries of compounds from third parties to be screened
against multiple targets. Because of the potential overlap of compounds and
targets provided by the Company's collaborators, there can be no assurance that
conflicts will not arise among collaborators as to rights to particular products
developed as a result of being identified through the use of the Company's
technologies. Failure to successfully manage existing and future collaborator
relationships, maintain confidentiality among such relationships or prevent the
occurrence of such conflicts could lead to disputes that result in, among other
things, a significant strain on management resources, legal claims involving
significant time and expense and loss of reputation, a loss of capital or a loss
of collaborators, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Technology Alliances. In order to further the development of its
UHTSS, the Company has formed and intends to continue to form technology
alliances with certain companies in the areas of informatics, robotics,
automated storage and retrieval, liquid handling systems, microfluidics and
detection devices. The Company relies on these companies, many of which are
single-source vendors, for the development, manufacture and supply of certain
components of the UHTSS. Although the Company believes that alternative sources
for UHTSS components could be made available, any interruption in the
development, manufacture or supply of a sole-sourced component
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could have a material adverse effect on the Company's ability to develop its
UHTSS until a new source of supply is qualified, could subject the Company to
penalties for delays in delivery of the UHTSS and, as a result, could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance the Company will be able to
enter into additional technology alliances on commercially reasonable terms, if
at all, or that the Company's current or future technology suppliers will meet
the Company's requirements for quality, quantity or timeliness. Failure of any
one of the Company's current or future technology suppliers to deliver
components (such as microfluidic dispensers or fluorescence detectors) that
meet required specifications in a timely manner, or at all, could significantly
affect the Company's ability to meet its contractual obligations to the UHTSS
syndicate members.
Management of Growth. The Company's success will depend on its ability to expand
and manage its operations and facilities. To be cost-effective and timely in the
development and installation of its systems, services and technologies, the
Company must coordinate the integration of multiple technologies in complex
systems, both internally and for its collaborators. There can be no assurance
that the Company will be able to manage its growth, to meet the staffing
requirements of additional collaborative relationships or to successfully
assimilate and train its new employees. If the Company continues to grow, there
can be no assurance that the management skills and systems currently in place
will be adequate or that the Company will be able to manage any additional
growth effectively. Failure to achieve any of these goals could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Future Capital Needs; Uncertainty of Additional Funding. The Company may be
required to raise additional capital over a period of several years in order to
conduct or expand its operations or acquire new technology. Such capital may be
raised through additional public or private equity financings, borrowings and
other available sources. No assurance can be given that the Company's business
or operations will not change in a manner that would consume available resources
more rapidly than anticipated, or that substantial additional funding will not
be required before the Company can achieve or sustain profitable operations.
There can be no assurance that the Company will continue to receive funding
under its existing collaborative agreements or that the Company's existing or
potential future collaborative agreements will be adequate to fund the Company's
operations.
Dependence on Patents and Proprietary Rights. The Company's success will depend
in part on its ability to obtain patent protection for its systems, services and
technologies, and to operate without infringing the proprietary rights of third
parties. The Company is dependent, in part, on the patent rights licensed from
third parties with respect to its fluorescent assay technologies. There can be
no assurance that patent applications filed by the Company or its licensors will
result in patents being issued, that the claims of such patents will offer
significant protection of the Company's technology, or that any patents issued
to, or licensed by, the Company will not be challenged, narrowed, invalidated,
or circumvented. The Company may also be subject to legal proceedings that
result in the revocation of patent rights previously owned by or licensed to the
Company, as a result of which the Company may be required to obtain licenses
from others to continue to develop, test or commercialize its systems, services
or technologies. There can be no assurance that the Company will be able to
obtain such licenses on acceptable terms, if at all.
The drug discovery industry, including screening technology companies, has a
history of patent litigation and will likely continue to have patent litigation
suits concerning drug discovery technologies. The patent positions of
pharmaceutical, biotechnology and drug discovery companies, including the
Company, are generally uncertain and involve complex legal and factual
questions. A number of patents have issued and may issue on certain targets or
their use in screening assays that could prevent the Company and its
collaborators from developing screens using such targets, or relate to certain
other aspects of technology utilized or expected to be utilized by the Company.
The Company has received invitations from third parties to license patents owned
or controlled by third parties. The Company evaluates these requests and intends
to obtain licenses that are compatible with its business objectives. There can
be no assurance, however, that the Company will be able to obtain any licenses
on acceptable terms, if at all. The Company's inability to obtain or maintain
patent protection or necessary licenses could have a material adverse effect on
the business, financial condition and results of operations of the Company.
The Company is aware of a third party Patent Cooperation Treaty application that
claims certain uses of green fluorescent protein including its use in protein
kinase assays. If a patent were to issue from such application that relates to
the Company's GFP kinase reporters, the Company believes that such patent would
be unlikely to require the Company to obtain a license. However, the Company may
need to obtain such a license and there can be no assurance that any such
license would be available on commercially reasonable terms, if at all. The
Company is also aware of third party patents and published patent applications
that contain issued or issuable claims that may cover certain aspects of the
Company's or its collaborators' technologies, including certain types of
fluorescent assay
17
<PAGE> 18
methods, certain assays for ligands to certain classes of targets such as
certain cell surface and intracellular receptors, and certain transcription
based assays for chemicals that modulate transcription of a gene encoding a
protein related to disease. There can be no assurance that the Company would not
be required to take a license under any such patents to practice certain aspects
of its fluorescent assay technologies or that such license would be available on
commercially reasonable terms, if at all. The Company could incur substantial
costs in defending patent infringement claims, obtaining patent licenses,
engaging in interference and opposition proceedings or other challenges to its
patent rights or intellectual property rights made by third parties, or in
bringing such proceedings or enforcing any patent rights against third parties.
The Company's inability to obtain necessary licenses or its involvement in
proceedings concerning patent rights could have a material adverse effect on the
business, financial condition and results of operations of the Company.
In addition to patent protection, Aurora also relies on copyright protection,
trade secrets, know-how, continuing technological innovation and licensing
opportunities. In an effort to maintain the confidentiality and ownership of
trade secrets and proprietary information, the Company requires employees,
consultants and certain collaborators to execute confidentiality and invention
assignment agreements upon commencement of a relationship with the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or other confidential
information in the event of unauthorized use or disclosure of such information
or that adequate remedies would exist in the event of such unauthorized use or
disclosure. The loss or exposure of trade secrets possessed by the Company could
adversely affect its business.
Competition and the Risk of Obsolescence of Technology. Competition among
pharmaceutical and biotechnology companies that attempt to identify compounds
for development is intense. Because the UHTSS is being designed to integrate a
number of different technologies, the Company competes in many areas, including
assay development, high throughput screening and functional genomics. In the
pharmaceutical industry, the Company competes with the research departments of
pharmaceutical and biotechnology companies and other commercial enterprises, as
well as numerous academic and research institutions. There can be no assurance
that pharmaceutical and biotechnology companies which currently compete with the
Company in specific areas will not merge or enter into joint ventures or other
alliances with one or more other such companies and become substantial
multi-point competitors or that the Company's collaborators will not assemble
their own ultra-high throughput screening systems by purchasing components or
contracting for services from competitors. Genomics and combinatorial chemistry
companies may also expand their business to include compound screening or screen
development, either alone or pursuant to alliances with others. The Company's
technological approaches, in particular its UHTSS, may be rendered obsolete or
uneconomical by advances in existing technological approaches or the development
of different approaches by one or more of the Company's current or future
competitors. Many of these pharmaceutical and biotechnology companies, which
represent the greatest potential market for the Company's systems, services and
technologies, have developed or are developing internal programs and other
methodologies to improve productivity, including major investments in robotics
technology to permit the automated screening of compounds.
Uncertainty of Milestone Payments on Pharmaceutical Products. The Company's
long-term revenue will depend in part on the realization of milestone payments
and royalties, if any, triggered by the successful development and
commercialization of lead compounds identified through the use of the Company's
technologies. The Company's screens may result in developed and commercialized
pharmaceutical products generating milestone payments and royalties only after
lengthy and costly pre-clinical and clinical development efforts, the receipt of
requisite regulatory approvals, and the integration of manufacturing
capabilities and successful marketing efforts, all of which must be performed by
the Company's collaborators. With the exception of certain aspects of
pre-clinical development, the Company does not currently intend to perform any
of these activities. The Company's agreements with its collaborators do not
obligate those parties to develop or commercialize lead compounds identified
through the use of the Company's technologies. Development and commercialization
of lead compounds will therefore depend not only on the achievement of research
objectives by the Company and its collaborators, which cannot be assured, but
also on each collaborator's own financial, competitive, marketing and strategic
considerations, all of which are outside the Company's control. There can be no
assurance that the interests and motivations of the Company's collaborators are,
or will remain, aligned with those of the Company, that current or future
collaborators will not pursue alternative technology in preference to that of
the Company or that such collaborators will successfully perform their
development, regulatory, compliance, manufacturing or marketing functions. In
addition, there can be no assurance that any product will be developed and
commercialized as a result of such collaborations,
18
<PAGE> 19
that any such development or commercialization would be successful or that
disputes will not arise over the application of payment provisions to such
drugs.
Government Regulation. Regulation by the U.S. Food and Drug Administration (the
"FDA") and other governmental entities in the United States and other countries
will be a significant factor in the production and marketing of any
pharmaceutical products that may be developed by a collaborator. It is not
currently anticipated that the Company will develop its own drugs through
clinical trials. However, pharmaceutical products, if any, developed by the
Company's collaborators will require lengthy and costly pre-clinical and
clinical trials and regulatory approval by governmental agencies prior to
commercialization. The process of obtaining these approvals and the subsequent
compliance with appropriate federal, state and foreign statutes and regulations
are time consuming and require the expenditure of substantial resources. Delays
in obtaining regulatory approvals would adversely affect the marketing of any
drugs developed by the Company's collaborators, diminish any competitive
advantages that the Company's collaborators may attain and therefore adversely
affect the Company's ability to receive royalties or milestone payments. These
testing and approval processes require substantial time and effort and there can
be no assurance that any approval will be granted on a timely basis, if at all.
Attraction and Retention of Key Employees and Consultants. The Company is highly
dependent on the principal members of its scientific and management staff, and
certain scientific advisors. The loss of key members of its staff could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not maintain "key person" insurance on
any of its employees. The Company's future success will also depend in part on
its ability to identify, recruit and retain additional qualified personnel,
including individuals holding doctoral degrees in the basic sciences. There is
intense competition for such personnel in the areas of the Company's activities,
and there can be no assurance that the Company will be able to continue to
attract and retain personnel with the advanced technical qualifications
necessary for the development of the Company's business. Failure to attract and
retain key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
Significant Fluctuations in Quarterly Results. To date, all revenue received by
the Company has been from the payment of license and upfront fees and research
and co-development funding paid pursuant to collaborative agreements. The
Company expects that a significant portion of its revenue for the foreseeable
future will be comprised of such payments. The timing of certain large payments
in the future will depend upon the completion of major deliverables in its
collaborators' UHTS Systems. Operating results may therefore vary substantially
from quarter to quarter and will not necessarily be indicative of results in
subsequent periods.
Possible Volatility of Stock Price. The market prices for securities of
comparable companies have been highly volatile and the market has experienced
significant price and volume fluctuations that are often unrelated to the
operating performance of particular companies. Announcements of technological
innovations or new commercial products by the Company or its competitors,
disputes or other developments concerning proprietary rights, including patents
and litigation matters, publicity regarding actual or potential results with
respect to systems, services or technologies under development by the Company,
its collaborative partners or its competitors, regulatory developments in both
the United States and foreign countries, public concern as to the efficacy of
new technologies, general market conditions, as well as quarterly fluctuations
in the Company's revenues and financial results and other factors, may have a
significant impact on the market price of the Common Stock. In particular, the
realization of any of the risks described in these "Risk Factors" could have a
dramatic and materially adverse impact on such market price.
Control By Management and Existing Stockholders; Anti-Takeover Provisions. The
Company's principal stockholders, executive officers, directors and affiliated
individuals and entities together beneficially own approximately 47% of the
outstanding shares of Common Stock as of March 17, 1998. As a result, these
stockholders, acting together, will be able to influence significantly and
possibly control most matters requiring approval by the stockholders of the
Company, including approvals of amendments to the Company's Certificate of
Incorporation, mergers, a sale of all or substantially all of the assets of the
Company and other fundamental transactions. In addition, the Company's
Certificate of Incorporation (the "Restated Certificate") does not provide for
cumulative voting with respect to the election of directors. Consequently, the
present directors and executive officers of the Company, together with the
Company's principal stockholders, will be able to control the election of the
members of the Board of Directors of the Company. Such a concentration of
ownership could have an adverse effect
19
<PAGE> 20
on the price of the Common Stock, and may have the effect of delaying or
preventing a change in control of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices.
The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and to
fix the rights, preferences and privileges of and issue up to 7,500,000 shares
of preferred stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of preferred stock, rights to purchase
preferred stock or additional shares of Common Stock may have the effect of
delaying or preventing a change in control of the Company. In addition, the
possible issuance of such preferred stock could make the acquisition of a
substantial block of the Company's Common Stock more difficult or limit the
price that investors might be willing to pay for shares of the Company's Common
Stock. Further, the Restated Certificate provides that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. Special meetings of the stockholders of the Company may be
called only by the Chairman of the Board of Directors, the President of the
Company, by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors, or by the holders of 10%
of the outstanding voting stock of the Company. These and other provisions
contained in the Restated Certificate and the Company's Bylaws, as well as
certain provisions of Delaware law, could delay or make more difficult certain
types of transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Company's
Common Stock.
20
<PAGE> 21
ITEM 2. PROPERTIES
The Company leases approximately 81,200 square feet of space used for laboratory
and administrative purposes in San Diego, California. These facilities are
leased through September 15, 2008. The Company also leases approximately 22,200
square feet of laboratory and office space in La Jolla, California, which is
subleased to third-party tenants. These facilities are leased through October
15, 1999. The Company believes these facilities will be adequate for its current
and projected needs and that additional space at a nearby location will be
available as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's common stock began trading on the Nasdaq National Market
under the symbol "ABSC" on June 19, 1997. The following table presents high
and low sales prices of the Company's common stock, as reported by Nasdaq,
for the periods indicated:
<TABLE>
<CAPTION>
1997 High Low
- ---- ---- ---
<S> <C> <C>
Second Quarter (beginning June 19, 1997 ) $ 12.25 $ 10.00
Third Quarter 15.63 9.38
Fourth Quarter 15.75 11.00
</TABLE>
As of March 17, 1998, there were approximately 104 stockholders of record
of the Company's common stock. The Company has never declared or paid any
cash dividends on its common stock and does not intend to pay any cash
dividends on its common stock in the foreseeable future.
(b) Expenses incurred by the Company through December 31, 1997 in connection
with the issuance and distribution of Common Stock in its initial public
offering in June 1997 included underwriting discounts and commissions of
$2,905,129 and other expenses of $852,460. Total offering expenses of
$3,757,589 resulted in net offering proceeds to the Company of $37,744,251.
No expenses were paid to directors, officers or affiliates of the Company
or 10% owners of any class of equity securities of the Company.
Of the net offering proceeds to the Company of $37.7 million, through
December 31, 1997 approximately $9.1 million was used for general corporate
purposes, approximately $1.7 million was used for enhancement of internal
research and development capabilities and approximately $1.6 million was
used for facilities expansion and improvements. No payments were made to
directors, officers or affiliates of the Company or 10% owners of any class
of equity securities of the Company, other than compensation payments to
officers of the Company. Approximately $25.3 million of the net offering
proceeds remain as working capital, with approximately $8.8 million held as
cash and cash equivalents and approximately $16.5 million held as temporary
investments.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with the financial
statements and accompanying notes included elsewhere in this document.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1995
YEARS ENDED DECEMBER 31, (INCEPTION) TO
------------------------------------ DECEMBER 31,
1997 1996 1995
------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: (in thousands, except per share and share amounts)
<S> <C> <C> <C>
Revenue:
Screening systems $ 8,802 $ 2,217 $ --
Screening services 3,856 -- --
License fees 2,250 -- --
------------------------------------------------------
Total revenue 14,908 2,217 --
Operating expenses:
Cost of screening systems 4,637 -- --
Cost of screening services 2,346 -- --
Research and development 5,406 4,396 366
Selling, general and administrative 3,679 1,275 46
------------------------------------------------------
Total operating expenses 16,068 5,671 412
------------------------------------------------------
Loss from operations (1,160) (3,454) (412)
Interest income 1,793 580 --
Interest expense (346) (59) --
------------------------------------------------------
Income (loss) before income taxes 287 (2,933) (412)
Income taxes (20) -- --
------------------------------------------------------
Net income (loss) $ 267 $ (2,933) $ (412)
======================================================
Basic income (loss) per share $ 0.02 $ (0.35) $ (5,146.59)
======================================================
Diluted income (loss) per share $ 0.02 $ (0.35) $ (5,146.59)
======================================================
Shares used in computing:
Basic income (loss) per share 13,561,414 8,346,650 80
======================================================
Diluted income (loss) per share 15,422,755 8,346,650 80
======================================================
DECEMBER 31,
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
BALANCE SHEETS DATA: (in thousands)
Cash, cash equivalents and investments $ 48,906 $ 13,167 $ 11
Total assets 63,036 17,515 115
Capital lease obligations, less 3,422 1,111 --
current portion
Accumulated deficit (3,078) (3,345) (412)
Total stockholders' equity 54,364 15,184 (412)
</TABLE>
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-K contains certain statements of a forward-looking nature relating
to future events or the future financial performance of the Company. Such
statements are only predictions and actual events or results may differ
materially. Factors that could cause or contribute to such differences include,
without limitation, those discussed in this Item 7, in "Business - Risk Factors"
and elsewhere in this Form 10-K.
OVERVIEW
Aurora Biosciences Corporation ("Aurora" or the "Company") designs and develops
proprietary drug discovery systems, services and technologies to accelerate and
enhance the discovery of new medicines. From May 8, 1995 (inception) to December
31, 1995, the Company's operating activities related primarily to recruitment of
personnel and raising capital. Operating activities since the beginning of 1996
have focused on the development of an integrated technology platform comprised
of a portfolio of proprietary fluorescent assay technologies and its Ultra-high
Throughput Screening System ("UHTSS") designed to allow assay miniaturization
and to overcome many of the limitations associated with the traditional drug
discovery process.
The Company had an accumulated deficit of $3.1 million as of December 31, 1997.
Although the Company was profitable for the first time in 1997, the Company
expects cost of screening systems to increase substantially and, accordingly,
does not expect to be profitable in 1998. The Company's ability to achieve
profitability will depend in part on its ability to successfully develop its
UHTSS, provide screen development and screening services to pharmaceutical and
biotechnology companies, achieve acceptable performance specifications for the
UHTSS and gain industry acceptance of its systems, services and technologies.
Payments from corporate collaborators and interest income are expected to be the
only sources of revenue for the foreseeable future. Royalties or other revenue
from commercial sales of products developed from any compounds identified by
using the Company's technologies are not expected for at least several years, if
at all. Payments under collaborative agreements will be subject to significant
fluctuation in both timing and amount. Furthermore, the Company will continue to
follow a strategy of investing in new technologies to expand its core drug
discovery capabilities. Accordingly, the Company's results of operations for any
period may not be comparable to the results of operations for any other period.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM MAY 8, 1995 (INCEPTION)
TO DECEMBER 31, 1995
Screening systems revenue totaled $8,802,000 and $2,217,000 in 1997 and 1996,
respectively. There was no screening systems revenue in the period from May 8,
1995 (inception) to December 31, 1995 ("the 1995 Period"). The increase in
screening systems revenue in 1997 resulted primarily from the Company's
collaborative agreements with Warner-Lambert Company ("Warner-Lambert") and
Merck & Co., Inc. ("Merck"), which were executed in 1997, as well as funding and
milestone payments under the Company's collaborative agreements with
Bristol-Myers Squibb Pharmaceutical Research Institute ("BMS") and Eli Lilly and
Company ("Lilly"). Screening systems revenue in 1996 primarily resulted from the
Company's collaborative agreements with BMS and Lilly.
Screening services revenue totaled $3,856,000 in 1997, primarily from the
Company's collaborative agreements with BMS, Lilly, Roche Bioscience Corporation
("Roche") and Allelix Biopharmaceuticals, Inc. ("Allelix"). There was no
screening services revenue in 1996 or the 1995 Period.
License fees revenue in 1997 of $2,250,000 resulted from the Company's
collaborative agreements with BMS, Lilly and Warner-Lambert. There was no
license fees revenue in 1996 or the 1995 Period.
Cost of screening systems totaled $4,637,000 in 1997, and was primarily related
to UHTSS development for BMS and Lilly. Because the Company's collaborative
agreements with BMS and Lilly were not entered into until late 1996, and called
for actual research and development to begin in January 1997, there was no cost
of screening systems recognized in 1996 or in the 1995 Period. All costs
associated with the Company's internal development of its screening systems
technology in 1996 and the 1995 Period are included in research and development
expenses for the applicable period. Cost of screening services totaled
$2,346,000 in 1997, and was primarily related to the
24
<PAGE> 25
development of screening assays for BMS, Lilly and Allelix, as well as screening
services performed for Allelix. There was no cost of screening services in 1996
or the 1995 Period.
Research and development expenses totaled $5,406,000, $4,396,000 and $366,000 in
1997, 1996 and the 1995 Period, respectively. The period-to-period increases
were primarily attributable to increased research and development personnel,
increased equipment, depreciation and facilities expenses in connection with the
expansion of operations, the purchase of laboratory supplies and payments under
technology development and license agreements related to continued investment in
new technology.
Selling, general and administrative expenses totaled $3,679,000, $1,275,000 and
$46,000 in 1997, 1996 and the 1995 Period, respectively. The period-to-period
increases were primarily attributable to increased management and administrative
personnel, increased depreciation and facilities expenses in connection with the
expansion of operations and legal and professional fees incurred in connection
with the overall scale-up of the Company's operations and business development
efforts.
Net interest income increased to $1,448,000 in 1997 from $521,000 in 1996,
reflecting interest income from increased cash and investment balances resulting
from receipts under collaborative agreements and the Company's initial public
offering in June 1997. Interest income was partially offset by interest expense
incurred on capital lease obligations entered into during the second half of
1996 and all of 1997. The Company did not earn interest income nor incur
interest expense in the 1995 Period.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Aurora held cash, cash equivalents and investment
securities available-for-sale of $48.9 million and working capital of $48.3
million. The Company has funded its operations to date primarily through the
issuance of equity securities with aggregate net proceeds of $56.8 million,
receipts from corporate collaborations and strategic technology alliances of
$16.3 million, capital equipment lease financing of $5.4 million and interest
income of $2.4 million through December 31, 1997.
The Company has entered into non-cancelable purchase commitments for certain
components which will be used in its screening systems. Such commitments total
approximately $8.4 million in 1998.
To date, all revenue received by the Company has been from collaborations,
interest earned on cash and investment balances and technology alliances. The
Company expects that substantially all revenue for the foreseeable future will
come from collaborators and interest income.
The Company has entered into collaborative agreements with BMS, Lilly,
Warner-Lambert, Merck, Roche and Allelix. The Company's ability to achieve
sustained profitability will be dependent in part upon its ability to enter into
additional corporate collaborations. Although the Company is actively seeking to
enter into additional collaborations, there can be no assurance that the Company
will be able to negotiate additional collaborative agreements on acceptable
terms, if at all, or that such current or future collaborative agreements will
be successful and provide the Company with expected benefits.
The Company may be required to raise additional capital over a period of several
years in order to conduct or expand its operations or acquire new technology.
Such capital may be raised through additional public or private equity
financings, borrowings and other available sources. No assurance can be given
that the Company's business or operations will not change in a manner that would
consume available resources more rapidly than anticipated, or that substantial
additional funding will not be required before the Company can achieve or
sustain profitable operations. There can be no assurance that the Company will
continue to receive funding under its existing collaborative agreements or that
the Company's existing or potential future agreements will be adequate to fund
the Company's operations. If additional funding becomes necessary, there can be
no assurance that additional funds will be available on favorable terms, if at
all. If adequate funds are not available, the Company may be required to curtail
operations significantly or to obtain funds by entering into arrangements with
others that may have a material adverse effect on the Company's business,
financial condition and results of operations.
25
<PAGE> 26
IMPACT OF YEAR 2000
Some older computer programs used by the Company were written using two digits,
rather than four, to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000 (the "Year 2000 Issue"). This could cause a
system failure or miscalculations causing disruption of the Company's
operations, including a temporary inability to process data or engage in similar
normal business activities.
The Company is completing an assessment of whether it will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 Issue cost is not expected to be material. Resolution of the Company's Year
2000 Issue is expected to be completed no later than December 31, 1998, which is
prior to any anticipated impact on the Company's operating systems. The Company
believes that, with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company's systems are vulnerable
to those third parties' failure to remediate their own Year 2000 Issues. There
can be no assurance that the systems of other companies on which the Company's
systems rely will be timely converted and will not have an adverse effect on the
Company's systems.
The costs of the project and the date on which the Company believes it will
complete the modifications necessary to resolve the Year 2000 Issue are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplemental data of the Company required by this
item are set forth at the pages indicated in Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
27
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to Directors is incorporated
by reference from the information under the caption "Election of Directors"
contained in the Company's proxy statement to be filed in connection with the
solicitation of proxies for its 1998 Annual Meeting of Stockholders (the "Proxy
Statement"). The required information concerning Executive Officers of the
Company is contained in Item 1 of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Transactions" in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the
required information is included in the financial statements or
the notes thereto.
(3) Exhibits
See Item 14 (c) below. Each management contract or compensatory
plan or arrangement is identified separately in Item 14 (c).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.4(1) Restated Certificate of Incorporation.
3.5(1) Restated Bylaws.
4.1 Reference is made to Exhibits 3.4 and 3.5.
4.2(1) Form of Common Stock Certificate.
4.3(1) Amended and Restated Investors' Rights Agreement dated as of
December 27, 1996 between the Registrant and the individuals and
entities listed in the signature pages thereto.
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
10.1(1) Form of Indemnity Agreement entered into between Registrant and
its directors and officers.
10.2(1)# Registrant's 1996 Stock Plan, as amended and restated (the "1996
Stock Plan").
10.3(1)# Form of Incentive Stock Option Agreement under the 1996 Stock
Plan.
10.4(1)# Form of Nonstatutory Stock Option Agreement under the 1996 Stock
Plan.
10.5(1)# Form of Restricted Stock Purchase Agreement under the 1996 Stock
Plan.
10.6(1)# Registrant's Employee Stock Purchase Plan and related offering
document.
10.7(1)# Registrant's Non-Employee Directors' Stock Option Plan.
10.8(1)# Form of Nonstatutory Stock Option under Registrant's
Non-Employee Directors' Stock Option Plan.
10.9(1)# Employment Agreement dated January 23, 1996 between the
Registrant and Timothy J. Rink, as subsequently amended on March
8, 1996.
10.10(1)# Employment Agreement dated August 6, 1996 between the Registrant
and J. Gordon Foulkes.
10.11(1) Preferred Stock Purchase Agreement dated as of March 8, 1996
between the Registrant and the individuals and entities listed
in the signature pages thereto.
10.12(1) Series D Preferred Stock Purchase Agreement dated as of December
27, 1996 between the Registrant and the individual and entities
listed in the signature pages thereto.
10.13(1) Sublease dated May 29, 1996 between the Registrant and Torrey
Pines Science Center Limited Partnership, as subsequently
amended on August 31, 1996.
10.14(1) Master Lease Agreement dated May 17, 1996 between the Registrant
and Lease Management Services Incorporated.
10.15(1) Equipment Financing Agreement dated May 17, 1996 between the
Registrant and Lease Management Services Incorporated.
10.16(1) Security Deposit Pledge Agreement dated May 17, 1996 between the
Registrant and Lease Management Services Incorporated.
10.17(1)* Exclusive License Agreement for Fluorescent Assay Technologies
dated June 17, 1996 between the Registrant and The Regents of
the University of California.
10.18(1)* License Agreement dated August 2, 1996 between the Registrant
and California Institute of Technology.
10.19(1)* License Agreement dated October 4, 1996 between the Registrant
and the State of Oregon, acting by and through the State Board
of Higher Education on behalf of the University of Oregon.
10.20(1)* Research Agreement dated April 2, 1996 between the Registrant
and Sequana Therapeutics, Inc.
10.21(1)* Collaboration and License Agreement effective as of April 24,
1996 between the Registrant and Packard Instrument Company, Inc.
10.22(1)* Collaborative Research and License Agreement dated November 26,
1996 between the Registrant and Bristol-Myers Squibb
Pharmaceutical Research Institute.
10.23(1)* Collaborative Research and License Agreement dated December 18,
1996 between the Registrant and Eli Lilly and Company.
10.24(1)* Collaboration Agreement effective as of February 1, 1997 between
the Registrant and Allelix Biopharmaceuticals Inc.
10.25(1) Multi-Tenant Industrial Lease dated April 7, 1997 between the
Registrant and AEW/LBA Acquisition Co. II, LLC., as subsequently
amended on June 12, 1997.
10.26(2) First Amendment dated September 1, 1997, to Multi-Tenant
Industrial Lease between the Registrant and AEW/LBA Acquisition
Co. II, LLC.
10.27(2)* Collaborative Research and License Agreement dated September 22,
1997 between the Registrant and Warner-Lambert Company.
10.28** Collaborative Research and License Agreement dated December 18,
1997 between the Registrant and Merck & Co., Inc.
10.29 Negative Covenant Pledge Agreement dated September 29, 1997
between the Registrant and Lease Management Services
Incorporated.
10.30 Collateral Security Agreement dated December 16, 1997 between
the Registrant and Lease Management Services Incorporated.
10.31** Packard Aurora Supply Agreement dated February 5, 1998 between
the Registrant and Packard Instrument Company, Inc.
10.32** Amendment to Collaboration and License Agreement dated February
7, 1998, to Collaboration and License Agreement effective as of
April 24, 1996 between the Registrant and Packard Instrument
Company, Inc.
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
10.33# Amendment dated January 2, 1998, to Employment Agreement between
the Registrant and J. Gordon Foulkes.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule related to the Financial Statements for
the fiscal year ended December 31, 1997.
27.2 Restated Financial Data Schedule related to the Financial
Statements for the period ended June 30, 1997.
27.3 Restated Financial Data Schedule related to the Financial
Statements for the period ended September 30, 1997.
- ----------
(1) Previously filed as exhibits of the same number with the
Registrant's Registration Statement on Form S-1 (No. 333-23407)
or amendments thereof, and incorporated herein by reference.
(2) Previously filed as an exhibit to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997 (No.
0-22669) and incorporated herein by reference.
* The Company has been granted confidential treatment with respect
to certain portions of this exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission.
** The Company has requested confidential treatment with respect to
certain portions of this exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission.
# Indicates management contract or compensatory plan or arrangement.
(d) Financial Statement Schedules
See Item 14(a)(2).
</TABLE>
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 27, 1998.
By: /s/ TIMOTHY J. RINK
------------------------------------
Timothy J. Rink
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ TIMOTHY J. RINK Chairman of the Board, March 27, 1998
- ---------------------------------------- President and Chief
Timothy J. Rink, M.A., M.D., Sc.D Executive
Officer (Principal
Executive Officer)
/s/ DEBORAH J. TOWER Vice President, Finance March 27, 1998
- ---------------------------------------- and Administration
Deborah J. Tower (Principal Financial and
Accounting Officer)
/s/ J. GORDON FOULKES Director March 27, 1998
- ----------------------------------------
J. Gordon Foulkes, Ph.D.
/s/ JAMES C. BLAIR Director March 27, 1998
- ----------------------------------------
James C. Blair, Ph.D.
/s/ KEVIN J. KINSELLA Director March 27, 1998
- ----------------------------------------
Kevin J. Kinsella
/s/ HUGH Y. RIENHOFF, JR. Director March 27, 1998
- ----------------------------------------
Hugh Y. Rienhoff, Jr., M.D.
/s/ LUBERT STRYER Director March 27, 1998
- ----------------------------------------
Lubert Stryer, M.D.
/s/ ROY A. WHITFIELD Director March 27, 1998
- ----------------------------------------
Roy A. Whitfield
/s/ TIMOTHY J. WOLLAEGER Director March 27, 1998
- ----------------------------------------
Timothy J. Wollaeger
</TABLE>
31
<PAGE> 32
AURORA BIOSCIENCES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................. F-2
Balance Sheets as of December 31, 1997 and 1996................................... F-3
Statements of Operations for the years ended December 31, 1997 and 1996, and
the period from May 8, 1995 (inception) to December 31, 1995.................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1997
and 1996, and the period from May 8, 1995 (inception) to December 31,
1995............................................................................ F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1996,
and the period from May 8, 1995 (inception) to December 31, 1995................ F-6
Notes to Financial Statements..................................................... F-7
</TABLE>
F-1
<PAGE> 33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Aurora Biosciences Corporation
We have audited the accompanying balance sheets of Aurora Biosciences
Corporation as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1997 and 1996 and for the period from May 8, 1995 (inception) to December 31,
1995. 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 Aurora Biosciences Corporation
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 and for the period from May
8, 1995 (inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 7, 1998
F-2
<PAGE> 34
AURORA BIOSCIENCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $23,168,690 $ 3,914,038
Investment securities, available-for-sale 25,737,734 9,252,870
Accounts receivable under collaborative agreements 3,207,166 1,116,523
Prepaid expenses 563,017 228,029
Other current assets 763,330 169,175
----------------------------
Total current assets 53,439,937 14,680,635
Equipment, furniture and leaseholds, net 6,691,939 1,901,515
Notes receivable from officers and employees 290,000 200,000
Restricted cash 1,311,923 -
Other assets 1,302,033 732,374
----------------------------
Total assets $63,035,832 $17,514,524
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,111,946 $ 299,819
Accrued compensation 278,852 319,770
Other current liabilities 227,778 -
Unearned revenue 2,324,001 250,000
Capital lease obligations, current portion 1,153,185 350,247
----------------------------
Total current liabilities 5,095,762 1,219,836
Capital lease obligations, less current portion 3,421,652 1,110,897
Other noncurrent liabilities 154,346 -
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par value;
7,500,000 and 25,000,000 shares authorized and
no shares and 9,915,973 shares issued and
outstanding at December 31, 1997 and 1996, respectively - 9,916
Common stock, $.001 par value, 50,000,000 shares
authorized, 17,032,885 and 2,865,156 shares issued and
outstanding at December 31, 1997 and 1996, respectively 17,033 2,865
Additional paid-in capital 60,497,472 18,887,790
Deferred compensation (3,072,560) (371,573)
Accumulated deficit (3,077,873) (3,345,207)
----------------------------
Total stockholders' equity 54,364,072 15,183,791
----------------------------
Total liabilities and stockholders' equity $63,035,832 $17,514,524
============================
</TABLE>
See accompanying notes.
F-3
<PAGE> 35
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM MAY 8,
1995
YEARS ENDED DECEMBER 31, (INCEPTION) TO
-------------------------------------- DECEMBER 31,
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Screening systems $ 8,802,056 $ 2,216,523 $ -
Screening services 3,855,693 - -
License fees 2,250,000 - -
---------------------------------------------------------
Total revenue 14,907,749 2,216,523 -
Operating expenses:
Cost of screening systems 4,636,942 - -
Cost of screening services 2,345,933 - -
Research and development 5,405,731 4,395,914 365,548
Selling, general and
administrative 3,679,317 1,275,032 46,179
---------------------------------------------------------
Total operating expenses 16,067,923 5,670,946 411,727
---------------------------------------------------------
Loss from operations (1,160,174) (3,454,423) (411,727)
Interest income 1,793,691 580,382 -
Interest expense (346,183) (59,439) -
---------------------------------------------------------
Income (loss) before income taxes 287,334 (2,933,480) (411,727)
Income taxes (20,000) - -
---------------------------------------------------------
Net income (loss) $ 267,334 $ (2,933,480) $ (411,727)
=========================================================
Basic income (loss) per share $ 0.02 $ (0.35) $(5,146.59)
=========================================================
Diluted income (loss) per share $ 0.02 $ (0.35) $(5,146.59)
=========================================================
Shares used in computing:
Basic income (loss) per share 13,561,414 8,346,650 80
=========================================================
Diluted income (loss) per share 15,422,755 8,346,650 80
=========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 36
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED TOTAL
STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS'
---------------------- ---------------------- PAID-IN DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock -- $ -- 80 $ -- $ -- $ -- $ -- $ --
Net loss -- -- -- -- -- -- (411,727) (411,727)
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1995 -- -- 80 -- -- -- (411,727) (411,727)
Issuance of Series A
preferred stock, net 7,634,895 7,635 -- -- 12,617,058 -- -- 12,624,693
Issuance of Series A
preferred stock for
cancellation of notes
payable 556,387 556 -- -- 924,441 -- -- 924,997
Issuance of Series B
preferred stock, net 666,665 667 -- -- 1,494,889 -- -- 1,495,556
Issuance of Series C
preferred stock, net 600,000 600 -- -- 1,496,800 -- -- 1,497,400
Issuance of Series D
preferred stock, net 458,026 458 -- -- 2,054,943 -- -- 2,055,401
Issuance of common stock,
net -- -- 2,677,076 2,677 90,847 -- -- 93,524
Issuance of common stock
for acquired technology -- -- 188,000 188 63,312 -- -- 63,500
Deferred compensation
related to stock and
stock options -- -- -- -- 145,500 (373,742) -- (228,242)
Amortization of deferred
compensation -- -- -- -- -- 2,169 -- 2,169
Net loss -- -- -- -- -- (2,933,480) (2,933,480)
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1996 9,915,973 9,916 2,865,156 2,865 18,887,790 (371,573) (3,345,207) 15,183,791
Costs incurred in
connection with issuance
of Series D preferred
stock -- -- -- -- (37,485) -- -- (37,485)
Conversion of Series A, B,
C and D preferred stock
into common stock (9,915,973) (9,916) 9,915,973 9,916 -- -- -- --
Exercise of warrants to
purchase common stock -- -- 45,290 45 (45) -- -- --
Issuance of common stock,
net -- -- 4,206,466 4,207 37,905,268 -- -- 37,909,475
Deferred compensation
related to stock and
stock options -- -- -- -- 3,741,944 (3,513,702) -- 228,242
Amortization of deferred
compensation -- -- -- -- -- 812,715 -- 812,715
Net income -- -- -- -- -- -- 267,334 267,334
=====================================================================================================
Balance at December 31, 1997 -- $ -- 17,032,885 $ 17,033 $60,497,472 $ (3,072,560)$(3,077,873) $ 54,364,072
=====================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 37
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1995
YEARS ENDED DECEMBER 31, (INCEPTION) TO
---------------------------- DECEMBER 31,
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 267,334 $ (2,933,480) $ (411,727)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 964,323 156,861 1,822
Forgiveness of notes receivable from officers
and employees -- 93,129 --
Issuance of common stock in exchange for
acquired technology -- 63,500 --
Amortization of deferred compensation 812,715 2,169 --
Changes in operating assets and liabilities:
Accounts receivable under collaborative
agreements (2,090,643) (1,116,523) --
Prepaid expenses and other current assets (929,143) (378,871) (18,333)
Accounts payable and accrued compensation 771,209 339,820 51,527
Other current liabilities 227,778 -- --
Unearned revenue 2,074,001 250,000 --
Other noncurrent liabilities 154,346 -- --
-----------------------------------------------------
Net cash provided by (used in) operating
activities 2,251,920 (3,523,395) (376,711)
Investing activities:
Purchases of short-term investments (24,459,286) (12,147,818) --
Sales and maturities of short-term investments 7,974,422 2,894,948 --
Purchases of property and equipment (1,951,776) (458,657) (10,932)
Notes receivable from officers and employees (90,000) (223,331) (69,798)
Restricted cash (1,311,923) -- --
Other assets (569,659) (725,934) (6,440)
-----------------------------------------------------
Net cash used in investing activities (20,408,222) (10,660,792) (87,170)
Financing activities:
Issuance of convertible preferred stock, net (37,485) 17,673,050 --
Issuance of common stock, net 38,137,717 93,524 --
Issuance of notes payable -- 449,997 475,000
Principal payments on capital lease obligations (689,278) (129,465) --
-----------------------------------------------------
Net cash provided by financing activities 37,410,954 18,087,106 475,000
-----------------------------------------------------
Net increase in cash and cash equivalents 19,254,652 3,902,919 11,119
Cash and cash equivalents at beginning of period 3,914,038 11,119 --
-----------------------------------------------------
Cash and cash equivalents at end of period $ 23,168,690 $ 3,914,038 $ 11,119
====================================================
Supplemental disclosure of cash flow information:
Interest paid $ 346,183 $ 59,439 $ --
====================================================
Supplemental schedule of non-cash investing
And financing activities:
Property and equipment acquired under
capital leases $ 3,802,971 $ 1,590,609 $ --
====================================================
Conversion of notes payable to convertible
preferred stock $ -- $ 924,997 $ --
====================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 38
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Aurora Biosciences Corporation (the "Company" or "Aurora") was incorporated in
California on May 8, 1995 and subsequently re-incorporated in Delaware on
January 22, 1996. The Company designs and develops proprietary drug discovery
systems, services and technologies to accelerate and enhance the discovery of
new medicines. Aurora is developing an integrated technology platform comprised
of a portfolio of proprietary fluorescent assay technologies and its Ultra-high
Throughput Screening System ("UHTSS") designed to allow assay miniaturization
and to overcome many of the limitations associated with the traditional drug
discovery process.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
The Company considers all highly liquid investments with maturities of three
months or less from the date of purchase to be cash equivalents. Management
determines the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified the Company's cash equivalents and
investment securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported in a separate component of
stockholders' equity. The cost of debt securities classified as
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion, as well as interest and
dividends, are included in interest income. Realized gains and losses are also
included in interest income. The cost of securities sold is based on the
specific identification method.
The Company invests its excess cash in U.S. Government and agency securities,
debt instruments of financial institutions and corporations and money market
funds with strong credit ratings. The Company has established guidelines
regarding diversification of its investments and their maturities which should
maintain safety and liquidity.
EQUIPMENT, FURNITURE AND LEASEHOLDS
Equipment, including capitalized leased equipment, furniture and leaseholds is
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the shorter of
the estimated useful lives of the respective assets (generally three to five
years) or the term of the applicable lease.
STOCK OPTIONS
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In
accordance with the provisions of SFAS 123, the Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations in accounting for its employee
stock options. Under APB 25, if the purchase price of restricted stock or the
exercise price of the Company's employee stock options equals or exceeds the
fair value of the underlying stock on the date of issuance or grant, no
compensation expense is recognized.
REVENUE RECOGNITION
Revenue under collaborative agreements typically consists of non-refundable
upfront fees, ongoing research and co-development payments, and milestone,
royalty and other contingent payments. Revenue from non-refundable upfront fees
is recognized upon signing of the agreement. Revenue from ongoing research and
co-development payments is recognized ratably over the term of the agreement,
and the Company believes such payments will approximate the research and
development expense being incurred associated with the agreement. Revenue from
milestone, royalty and other contingent payments will be recognized as earned.
F-7
<PAGE> 39
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from screen development and screening and other services is recognized
as earned. Advance payments received under any agreements in excess of amounts
earned are classified as unearned revenue. Revenue under cost reimbursement
contracts is recognized as the related costs are incurred.
RESEARCH AND DEVELOPMENT EXPENSE
All research and development costs are expensed in the period incurred.
INCOME (LOSS) PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which replaced
the calculation of primary and fully diluted income (loss) per share with basic
and diluted income (loss) per share. Unlike primary income (loss) per share,
basic income (loss) per share excludes any dilutive effects of options, warrants
and convertible securities. Diluted income (loss) per share is very similar to
the previously reported fully diluted income (loss) per share. All income (loss)
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the requirements of SFAS 128, the recently effective
Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98 and
certain rules of the SEC for shares of convertible preferred stock that
converted into common stock in connection with the Company's initial public
offering as if the shares were converted into common stock as of the date of
original issuance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, Segment
Information ("SFAS 131"). Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments,
minimum pension accrual, and unrealized gains and losses on investments, shall
be reported, net of their related tax effect, to arrive at comprehensive income.
The Company intends to adopt SFAS 130 in 1998. Operating results of prior
periods will not be restated since the Company's only component of comprehensive
income has been unrealized gains and losses on investments, which were not
significant. Historically, the Company has operated in one business segment;
however, SFAS 131 redefines segments and in the future, the Company may be
required to disclose certain financial information about operating segments,
products, services and geographic areas in which they operate. The Company has
not determined how operating segments will be defined for disclosure purposes or
which segments will meet the quantitative requirements for disclosure. The
adoption of SFAS 131 is not expected to have a material impact on the Company's
future results of operations or financial position.
USE OF ESTIMATES
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
F-8
<PAGE> 40
2. CASH EQUIVALENTS AND INVESTMENT SECURITIES
A summary of the estimated fair value of cash equivalents and investment
securities is shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------------------------
<S> <C> <C>
Money market funds $ 8,381,835 $ 3,141,747
U.S. government and agency securities 18,498,884 3,738,755
U.S. corporate securities 22,235,157 5,012,834
Other debt securities - 1,000,241
---------------------------
Total debt securities 49,115,876 12,893,577
Less amounts classified as cash equivalents (23,378,142) (3,640,707)
---------------------------
Total investment securities $ 25,737,734 $ 9,252,870
===========================
</TABLE>
The estimated fair value of each cash equivalent and investment security
approximates cost and no unrealized gains or losses were reported as of December
31, 1997 or 1996. Realized gains or losses on sales of available-for-sale
securities in 1997 and 1996 were not significant. The estimated fair value of
available-for-sale debt securities as of December 31, 1997 by contractual
maturity is as follows: $39.4 million due within one year and $9.7 million due
in one to two years.
3. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES
Notes receivable from officers and employees generally consist of relocation and
housing loans to assist in the relocation of new employees. These notes are
generally secured by all shares of the Company's common stock owned by the
individual or by a deed of trust on the individual's principal residence. During
1996, notes totaling $93,129 were forgiven and recorded as research and
development expense. Notes receivable as of December 31, 1997 include an
interest-free $150,000 loan to an officer and director of the Company which is
secured by a deed of trust on the individual's principal residence.
4. EQUIPMENT, FURNITURE AND LEASEHOLDS
Equipment, furniture and leaseholds consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------------------------
<S> <C> <C>
Scientific equipment $3,358,521 $1,255,749
Office furniture, computers and equipment 2,242,204 731,423
Leasehold improvements 2,197,860 73,026
----------------------------
7,798,585 2,060,198
Less accumulated depreciation and amortization (1,106,646) (158,683)
----------------------------
$6,691,939 $1,901,515
============================
</TABLE>
The cost of equipment, furniture and leaseholds under capital leases at December
31, 1997 and 1996 was $5,393,580 and $1,590,609, respectively. The accumulated
depreciation and amortization of equipment, furniture and leaseholds under
capital leases at December 31, 1997 and 1996 was $915,155 and $120,550,
respectively.
At December 31, 1997, the Company had approximately $2.6 million available on an
$8 million capital lease line that expires in December 1998.
F-9
<PAGE> 41
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS
CONSULTING AGREEMENTS
The Company has entered into various consulting agreements with its Scientific
Advisors and others for aggregate minimum annual fees of approximately $215,000.
The agreements generally provide for four or five year terms and are cancelable
by either party upon 60 or 90 days written notice. During the years ended
December 31, 1997 and 1996 and the period from May 8, 1995 (inception) through
December 31, 1995, the Company expensed approximately $440,000, $332,000 and
$95,000, respectively, of fees and expense reimbursements related to these
agreements.
TECHNOLOGY AND LICENSE AGREEMENTS
The Company has entered into various strategic technology agreements with third
parties regarding the development of its screening systems. These agreements
contain varying terms and provisions which require the Company to make payments
to the third parties. Pursuant to these agreements, the Company paid
approximately $850,000 and $550,000 in 1997 and 1996, respectively, and is
obligated to pay approximately $8.4 million in 1998.
The Company has also entered into various license agreements with academic
institutions regarding certain inventions and technologies. Most such agreements
may be terminated by the Company with 60 days written notice without significant
financial penalty. Pursuant to these agreements, the Company paid approximately
$140,000 and $120,000 in 1997 and 1996, respectively.
LEASES
The Company leases its facilities and certain equipment under operating lease
agreements which expire at various dates through September 2008. The facilities
lease agreements are secured by letters of credit totaling $1.3 million, which
are secured by certificates of deposit. At December 31, 1997, such restricted
cash totaling $1,311,923 was included in noncurrent assets. The letters of
credit will be released over the next three years on a predetermined schedule.
Rent expense totaled approximately $1,205,000 and $462,000 in 1997 and 1996,
respectively.
In November 1997, the Company subleased certain of its facilities to a third
party under an operating lease which expires in October 1999. Total sublease
income in 1997 included in expenses is $79,000. Scheduled aggregate future
sublease income at December 31, 1997 is approximately $1,132,000.
Annual future minimum lease payments for operating and capital leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------------------------
<S> <C> <C>
Years ended December 31,
1998 $ 2,330,370 $ 1,648,464
1999 2,210,744 1,654,281
2000 1,745,628 1,360,911
2001 1,797,515 622,781
2002 1,852,071 360,538
Thereafter 11,771,309 -
-------------------------------
Total minimum lease payments $ 21,707,637 5,646,975
============
Less amounts representing interest (1,072,138)
-----------
Present value of capital lease payments 4,574,837
Less current portion (1,153,185)
-----------
Capital lease obligations, noncurrent $ 3,421,652
===========
</TABLE>
F-10
<PAGE> 42
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company issued shares of Series A, B and C preferred stock at $1.66, $2.25
and $2.50 per share, respectively, pursuant to March 1996 preferred stock
purchase agreements. The Company issued Series D preferred stock at $4.50 per
share pursuant to a December 1996 preferred stock purchase agreement.
In March 1996, the Company issued 556,389 shares of Series A preferred stock in
exchange for the cancellation of promissory notes payable totaling approximately
$925,000.
Convertible preferred stock issued and outstanding at December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND PREFERENCE IN
AUTHORIZED OUTSTANDING PAR VALUE LIQUIDATION
----------------- ----------------- --------------- ------------
<S> <C> <C> <C> <C>
Series A 10,500,000 8,191,282 $8,191 $13,618,006
Series B 833,332 666,665 667 1,499,996
Series C 800,000 600,000 600 1,500,000
Series D 572,536 458,026 458 2,061,117
----------------------------------------------
9,915,973 $9,916 $18,679,119
==============================================
</TABLE>
In June 1997, as a result of the Company's initial public offering of common
stock, all outstanding shares of convertible preferred stock were automatically
converted into 9,915,973 shares of common stock. In addition, the number of
authorized shares of the Company's preferred stock was decreased from 25,000,000
to 7,500,000 upon the closing of the initial public offering.
COMMON STOCK
Certain shares of common stock have been issued to founders, directors and
employees of, and consultants to, the Company. In connection with certain stock
purchase agreements, the Company has the option to repurchase, at the original
issue price, the unvested shares in the event of termination of employment or
engagement. Shares issued under these agreements generally vest over four years.
At December 31, 1997, 1,104,008 shares of common stock were subject to
repurchase by the Company.
During 1996, the Company issued 188,000 shares of common stock in exchange for
certain licenses and rights. Research and development expense of $63,500 was
recorded related to such issuances, representing the fair value of such shares
as determined by the Board of Directors on the date of grant.
In April 1997, the Company effected a four-for-five reverse split of its
outstanding common stock. All share and per share amounts, including those
relating to preferred stock, in the accompanying financial statements have been
retroactively restated to reflect the reverse stock split.
In June 1997, the Company completed an initial public offering of 4,000,000
shares of common stock at $10.00 per share, with the Company receiving net
proceeds of $36.3 million. In July 1997, the Company sold an additional 150,184
shares of common stock in connection with the partial exercise of an
over-allotment option granted to the underwriters for net proceeds of
approximately $1.4 million.
WARRANTS
In May 1996, the Company issued warrants to purchase 54,320 shares of Series A
preferred stock at $1.66 per share to a leasing company in connection with the
execution of a capital lease agreement. In June 1997, in connection with the
Company's initial public offering of common stock, the warrants were exercised
in a cashless transaction resulting in the issuance of 45,290 shares of common
stock. No warrants are outstanding at December 31, 1997.
F-11
<PAGE> 43
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
DEFERRED COMPENSATION
The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the price per share of
restricted stock issued or the exercise price of stock options granted and the
deemed fair value of the Company's common stock at the date of issuance or
grant. Shares included in the computation of deferred compensation at December
31, 1997 and 1996 include restricted stock issued and stock options granted
since April 1996. Gross deferred compensation at December 31, 1997 and 1996 was
$3,887,444 and $373,742, respectively, and related amortization expense totaled
$812,715 and $2,169 in 1997 and 1996, respectively.
STOCK OPTION AND PURCHASE PLANS
In January 1996, the Company adopted the 1996 Stock Plan (the "Stock Plan"),
under which, as amended, 2,000,000 shares of the Company's common stock were
reserved for future issuance. In November 1997, the Board of Directors approved,
subject to stockholder approval, an increase in the number of shares of common
stock available for issuance under the Stock Plan to 4,000,000 shares. The Stock
Plan provides for the grant of incentive stock options and stock appreciation
rights to employees and nonstatutory stock options and stock purchase rights to
employees, directors and consultants. All options and stock appreciation rights
granted under the Stock Plan expire not later than ten years from the date of
grant and vest and become fully exercisable after not more than five years of
continued employment or engagement. Options and stock purchase rights generally
vest over four years, with one-fourth of the shares vesting after one year and
the remainder vesting monthly over the next three years. The exercise price of
incentive stock options must be equal to at least the fair market value of the
Company's common stock on the date of grant, and the exercise price of
nonstatutory options may be no less than 85% of the fair market value of the
Company's common stock on the date of grant.
In 1997, the Company adopted a Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"), under which 240,000 shares of the Company's common stock
were reserved for future issuance. All options granted under the Directors' Plan
expire no later than ten years from the date of grant and vest and become fully
exercisable after not more than four years of continued service. Options issued
to date generally vest monthly over four years. The exercise price of each
option must be equal to the fair market value of the Company's common stock on
the date of grant.
In 1997, the Company adopted an Employee Stock Purchase Plan (the "Purchase
Plan"), under which 400,000 shares of the Company's common stock were reserved
for future issuance. The Purchase Plan provides for all eligible employees to
purchase the Company's common stock through payroll deductions at a price equal
to 85% of the lesser of the fair market value per share of the Company's common
stock on the start date of each overlapping two year offering period or on the
date on which each semi-annual purchase period ends. At December 31, 1997,
11,744 shares of common stock have been issued pursuant to the Purchase Plan.
In December 1997, the Board of Directors committed to grant options to purchase
113,075 shares of common stock to employees of the Company on January 1, 1998.
The shares were priced at $13.13 per share, representing the fair market value
of the Company's common stock at December 31, 1997.
During 1997 and 1996, the Company issued 113,472 and 353,960 shares,
respectively, of restricted common stock under the Stock Plan at prices ranging
from $.09 to $3.00 per share. Of the shares issued during 1997 and 1996, 113,472
and 52,800 shares, respectively, were issued at prices below the deemed fair
value of the Company's common stock on the date of issuance. The weighted
average deemed fair value of these issuances was $3.14 and $2.75 per share,
respectively, and the difference between the deemed fair value of such shares
and the fair value as determined by the Board of Directors has been included in
deferred compensation at December 31, 1997 and 1996.
Pro forma information regarding net income (loss) and income (loss) per share is
required by SFAS 123, and has been determined as set forth below as if the
Company had accounted for stock options and shares issued under the Purchase
Plan under the fair value method of that Statement. The fair value of stock
options was estimated at the
F-12
<PAGE> 44
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 1997 and 1996: risk-free interest rates of
5.44% and 6.22%, respectively; no annual dividends; volatility factor of the
expected market price of the Company's common stock price of 60%; and an
expected option life of five years. The weighted-average fair value of stock
options granted during 1997 and 1996 was $3.33 and $0.05, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
highly subjective assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
Shares issued under the Company's Purchase Plan were valued based upon the
difference between the market value of the stock and the 15% discounted purchase
price of the shares on the date of purchase. The weighted-average fair value on
the date of purchase for stock purchased under this plan was $5.19 in 1997.
For purposes of pro forma disclosures, the estimated fair value of stock options
is amortized to expense over the options' respective vesting periods and the
estimated fair value of shares issued under the Purchase Plan are amortized to
expense over the respective offering periods. If compensation cost for the
Company's stock option and stock purchase plans had been determined based on the
fair value at the grant date as defined by SFAS 123, the Company's pro forma
results for 1997 would have been a net loss of approximately $124,000, or $0.01
per share, based on basic and diluted weighted-average shares outstanding for
1997. The pro forma results for 1996 were not materially different from the
reported results for the year. The pro forma results for 1997 and 1996 are not
likely to be representative of the effects of applying SFAS 123 on the reported
net income or loss in future years as these amounts reflect the expense
associated with less than two years of vesting.
The following table summarizes stock option activity under the Stock and
Directors' Plans and related information through December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
------------- --------------
<S> <C> <C>
Outstanding at December 31, 1995 - -
Granted 4,000 $0.09
-------------
Outstanding at December 31, 1996 4,000 $0.09
Granted 1,119,120 $5.90
Exercised (4,000) $1.15
Cancelled (12,700) $5.02
=============
Outstanding at December 31, 1997 1,106,420 $5.90
=============
</TABLE>
At December 31, 1997, 726,588 shares remain available for grant under the Stock
and Directors' Plans.
The following table summarizes information about stock options outstanding under
the Company's Stock and Directors' Plans at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.09 - $ 5.00 657,720 9.16 $ 1.58 26,549 $ 1.51
$ 9.38 - $15.25 448,700 9.76 $12.24 1,000 $11.38
============= =============
$ 0.09 - $15.25 1,106,420 9.40 $ 5.90 27,549 $ 1.87
============= =============
</TABLE>
F-13
<PAGE> 45
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1997, the Company has reserved shares of common stock for future
issuance as follows:
<TABLE>
<CAPTION>
<S> <C>
Common stock and stock options under 1996 Stock Plan 1,593,008
Common stock under Employee Stock Purchase Plan 388,256
Stock options under Directors' Plan 240,000
Other 4,000
--------------
2,225,264
==============
</TABLE>
7. INCOME TAXES
The provision for income taxes on earnings subject to income taxes differs from
the statutory federal rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
------------------------------
<S> <C> <C>
Federal income taxes (benefit) at 35% $ 101,000 $(1,026,000)
State income tax, net of federal benefit 3,000 --
Tax effect on non-deductible expenses 301,000 62,000
Benefit of net operating loss carryforwards (402,000) --
Alternative minimum taxes 17,000 --
Increase in valuation allowance and other -- 964,000
------------------------------
$ 20,000 $ --
==============================
</TABLE>
At December 31, 1997, the Company had federal and California income tax net
operating loss carryforwards of approximately $2,351,000 and $2,374,000,
respectively. The federal and California tax loss carryforwards will begin to
expire in 2011 and 2003, respectively, unless previously utilized. The Company
also had federal and California research tax credit carryforwards of
approximately $311,000 and $234,000, respectively, which will begin to expire in
2010 unless previously utilized. The Company also had California manufactured
investment tax credit carryforwards of $228,000, which will begin to expire in
2005 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, use of these net
operating loss and credit carryforwards may be substantially limited because of
cumulative changes in the Company's ownership of more than 50%. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.
Significant components of the Company's net deferred tax assets as of December
31, 1997 and 1996 are shown below. A valuation allowance of $1,550,000 and
$1,548,000 at December 31, 1997 and 1996, respectively, have been recognized to
offset the net deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 965,000 $ 1,321,000
Tax credit carryforwards 704,000 223,000
Other 178,000 114,000
------------------------------
Total deferred tax assets 1,847,000 1,658,000
Deferred tax liability:
Depreciation (297,000) (110,000)
------------------------------
Net deferred tax assets 1,550,000 1,548,000
Valuation allowance for net deferred tax assets (1,550,000) (1,548,000)
------------------------------
Net deferred taxes $ -- $ --
==============================
</TABLE>
F-14
<PAGE> 46
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME (LOSS) PER SHARE
The following table details the computation of basic and diluted income (loss)
per share:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1995
(INCEPTION)
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 267,334 $(2,933,480) $ (411,727)
------------------------------------------------
Numerator for basic and diluted
income (loss) per share -- income
available to common stockholders $ 267,334 $(2,933,480) $ (411,727)
================================================
Denominator:
Weighted average common shares 8,970,183 759,741 80
Effect of assumed conversion of
convertible preferred stock to
common stock from the date of issuance 4,591,231 7,586,909 --
------------------------------------------------
Denominator for basic income (loss)
per share - adjusted weighted
average common shares 13,561,414 8,346,650 80
Effect of dilutive securities:
Nonvested common stock 1,452,820 -- --
Warrants 20,970 -- --
Common stock options 387,551 -- --
------------------------------------------------
1,861,341 -- --
------------------------------------------------
Denominator for diluted income
(loss) per share - adjusted
weighted average shares and
assumed conversions 15,422,755 8,346,650 80
================================================
Basic income (loss) per share $ 0.02 $ (0.35) $ (5,146.59)
================================================
Diluted income (loss) per share $ 0.02 $ (0.35) $ (5,146.59)
================================================
</TABLE>
For additional disclosures regarding convertible preferred stock, warrants and
common stock options, see Note 6.
Income (loss) per share information as presented on the statements of operations
has been presented because historical income (loss) per share information is not
indicative of the Company's capital structure following its June 1997 initial
public offering. Historical income (loss) per share, without an adjustment for
convertible preferred stock, would have been $0.03 in 1997 (basic) and ($3.86)
in 1996 (basic and diluted).
9. 401(k) RETIREMENT SAVINGS PLAN
In January 1996, the Company adopted a 401(k) Retirement Savings Plan covering
substantially all employees who have completed certain service requirements.
Participants may contribute a portion of their compensation to the Plan through
payroll deductions. Company matching contributions, if any, are determined by
the Company at its sole discretion. There have been no Company contributions
under the Plan through December 31, 1997. In November 1997, the Board of
Directors approved the initiation of Company matching contributions effective
January 1998.
F-15
<PAGE> 47
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COLLABORATIVE AGREEMENTS
The Company entered into the following collaborative agreements in 1996 and
1997:
ULTRA-HIGH THROUGHPUT SCREENING SYSTEM AND SCREEN DEVELOPMENT AGREEMENTS
The Company entered into collaborative agreements (the "Agreements") with
Bristol-Myers Squibb Company and Eli Lilly and Company, Inc. in 1996 and
Warner-Lambert Company and Merck & Co., Inc. in 1997 (collectively, the
"Collaborators") regarding the development and installation of the Company's
UHTSS at each of the Collaborators. Under the terms of the Agreements, the
Company is required to develop and separately install three components to be
integrated into one complete UHTSS. In return, the Collaborators are obligated
to make certain payments to the Company in the form of non-refundable upfront
fees, delivery or installation payments and ongoing research and co-development
funding. The Company is obligated to provide service and support for each
installed UHTSS for a limited period of time.
The Company and the Collaborators will also co-develop high throughout screening
assays for use by the Collaborators. In addition to certain payments to be made
by the Collaborators for the use of these assays and assay technologies, the
Collaborators will also make certain milestone and royalty payments to the
Company if the Collaborators develop and commercialize certain compounds
identified using a screen developed by the Company.
The Collaborators may terminate the Agreements at any time without cause upon
written notice, provided that certain withdrawal payments are made. Certain of
the Agreements provide for penalties, defined at $2,777 per day up to $1 million
per agreement, payable by the Company if it fails to deliver the completed UHTSS
by a specified time, as well as bonuses to the Company (up to $500,000 per
certain agreements) in the event of early delivery of the systems.
SCREENING SERVICES AGREEMENTS
In 1996, the Company entered into collaborative agreements with ArQule, Inc. and
Alanex Corporation to screen compound libraries provided by these companies
against diverse molecular and genetic targets using Aurora's novel fluorescent
assays. Any successful lead compounds identified in the screens may be developed
in a joint research collaboration. The partners would share ownership rights to
any compounds discovered and would share any revenues upon commercialization of
the compounds.
In February 1997, the Company and Allelix Biopharmaceuticals, Inc. ("Allelix")
entered into a collaborative agreement (the "Allelix Agreement") regarding the
development over a three-year period of screening assays for use with targets
identified by Allelix and agreed to by Aurora. Under the terms of the Allelix
Agreement, the Company is required to develop such screening assays and to
perform screening services, and Allelix is obligated to make certain payments to
the Company in the form of upfront fees, development payments and fees for
screening services. Allelix is also required to make certain milestones and
royalty payments to Aurora in the event of development and commercialization of
a compound identified using a screen developed by Aurora.
STRATEGIC TECHNOLOGY ALLIANCES
In 1996, the Company entered into strategic technology alliances with Packard
Instrument Company ("Packard"), Carl Creative Systems and Universal Technology,
Inc. to design, develop and implement certain instrumentation, storage and
retrieval systems and microfluidics. The alliances require the Company to make
certain payments for development work performed by these companies (Note 5).
Pursuant to the agreement with Packard, Aurora receives certain payments for
development work it performs and Packard receives certain sublicense rights. In
addition, Packard purchased $1 million of the Company's Series B preferred stock
in May 1996 in connection with the collaboration. The preferred stock was
automatically converted into common stock as a result of the Company's initial
public offering of common stock in June 1997.
F-16
<PAGE> 48
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
During the period from May 8, 1995 (inception) to December 31, 1995 and the year
ended December 31, 1996, one of the Company's founding stockholders and
affiliated venture funds loaned the Company $475,000 and $449,997, respectively.
The notes were converted into 556,387 shares of Series A preferred stock in
March 1996. The general partner of the venture funds which made these loans was
the Company's Chairman of the Board and Acting Chief Executive Officer at the
time of these transactions. This individual and stockholder continues to serve
on the Company's Board of Directors.
F-17
<PAGE> 1
EXHIBIT 10.28
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
MERCK & CO., INC.
AND
AURORA BIOSCIENCES CORPORATION
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1 Definitions..............................................................3
2 System Development and Delivery..........................................9
3 Collaborative Screen Program............................................15
4 Service and Support.....................................................22
5 Intellectual Property Rights............................................22
6 Payments of Royalties, Accounting for Royalties, and Records............24
7 Intellectual Property Enforcement and Defense of Infringement Claims....25
8 Treatment of Confidential Information; Publicity........................26
9 Patent Prosecution and Copyrights.......................................29
10 Warranties and Indemnification..........................................29
11 Term, Partial Performance and Termination...............................31
12 Miscellaneous...........................................................32
</TABLE>
2
<PAGE> 3
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS AGREEMENT is entered into as of December 18, 1997 (the "Effective Date") by
and between MERCK & CO., INC., a New Jersey corporation, having offices at One
Merck Drive, White House Station, NJ 08889-0100 ("Merck"), and AURORA
BIOSCIENCES CORPORATION, a Delaware corporation having offices at 11010
Torreyana Rd., San Diego, California 92121 ("Aurora").
RECITALS
WHEREAS, Aurora has expertise in the development of automated ultra-high
throughput screening systems and screening biologies used therein and has rights
to certain intellectual property related thereto; and
WHEREAS, Aurora has the scientific expertise and capacity to undertake the
activities described below; and
WHEREAS, Merck has the capability to undertake screening and development of drug
products for the prevention and treatment of human and animal diseases and
disorders.
NOW, THEREFORE, in consideration of the foregoing premises and of the covenants,
representations and agreements set forth below, the parties agree as follows:
1 DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Affiliate" means any corporation, association or other entity,
which directly or indirectly controls, is controlled by or is under
common control with a party. As used in this definition, the term
control shall mean direct or indirect beneficial ownership of more
than *** of the voting or equity interest in such corporation or
other business entity.
1.2 "Agreement" means this agreement, together with all appendices,
exhibits and schedules hereto, and as the same may be amended or
supplemented from time to time hereafter by a written agreement duly
executed by authorized representatives of each party hereto.
1.3 "Annual Work Plan" means ***.
1.4 "Aurora Copyrights" means all ***.
1.5 "Aurora Patent Rights" means ***.
1.6 "Aurora Reporter" means ***.
*** CONFIDENTIAL TREATMENT REQUESTED
3
<PAGE> 4
1.7 "Aurora Reporter System" means the ***.
1.8 "Aurora Reporter System Technology" means all ***.
1.9 "Aurora Reporter System Patent Rights" means ***.
1.10 "Aurora Screening Program" shall have the meaning set forth in
Section 3.1.1.7.
1.11 "Aurora Technology" means ***.
1.12 "Aurora System Patent Rights" means ***.
1.13 "Aurora System Technology" means ***.
1.14 "Aurora VIPR Copyrights" means ***.
1.15 "Aurora VIPR Patent Rights" means ***.
1.16 "Aurora VIPR Technology" means ***.
1.17 "Authorized Affiliates" means the affiliates of Merck listed on
Exhibit 1.15.
1.18 "Automated Plate Replication System" or "APRS" shall have the
meaning set forth in Section 2.1.2.1.2, the features of which are
set forth in Exhibit 1.1 hereto.
1.19 "Collaborative Screen" means ***.
1.20 "Collaborative Screen Program" shall have the meanings set forth in
Section 3.1.
1.21 "Collaborative Period" shall have the meaning set forth in Section
3.1
1.22 "Combination Product" means a ***.
1.23 "Compound" means ***.
1.24 "Compound Supply" has the meaning set forth in Section 3.1.1.8.
1.25 "Confidential Information" means all information, data, and
Materials received by either party from the other party pursuant to
this Agreement and all information, data, and Materials developed in
the course of the collaboration and/or activities of the parties under
this Agreement, including, without limitation, Technology of each
party, subject to the exceptions set forth in Section 8.1.3.
1.26 "Control" or "Controlled" means, with respect to tangible and
intellectual property, possession by a party of the ability to grant a
license or sublicense in accordance with the
*** CONFIDENTIAL TREATMENT REQUESTED
4
<PAGE> 5
terms of this Agreement, and without violating the terms of any
agreement by such party with any Third Party.
1.27 "CSP Steering Committee" shall have the meaning set forth in Section
3.1.1.1.
1.28 "CSP Work Plan" shall have the meaning set forth in Section 3.1.1.4.
1.29 "Deliverables" has the meaning set forth in Section 2.1.2.1 hereof.
1.30 "Derivative" means ***.
1.31 "Development Candidate" means ***.
1.32 "Effective Date" means December 18, 1997.
1.33 "FDA" shall mean ***.
1.34 "FTE" shall have the meaning set forth in Section 3.1.1.5.
1.35 "Hit" means ***.
1.36 "IND" means an ***.
1.37 "Internal Research" means ***.
1.38 "Invention" means any new and useful idea or discovery, including
without limitation a new and useful process, machine, manufacture, or
composition of matter, or improvement thereto, whether or not
patentable.
1.39 "Know-How" means information and data that is not generally known to
the public, including, but not limited to : Inventions, designs,
concepts, algorithms, formulae, software, techniques, practices,
processes, methods, knowledge, skill, experience, expertise and
technical information.
1.40 "Licensee" means a Third Party to whom Merck grants a license,
sublicense or other right to manufacture, use, sell, offer for sale,
distribute and/or import one or more Products or Development
Candidates.
1.41 "Licensor" means a Third Party that grants Merck a license,
sublicense or other right to manufacture, use, sell, offer for sale,
distribute and/or import one or more Products or Development
Candidates.
1.42 "Manufacturing Cost" means ***.
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1.43 "Materials" means ***.
1.44 "Merck Copyrights" means ***.
1.45 "Merck Patent Rights" means ***.
1.46 "Merck Technology" means Technology owned or Controlled by Merck
which is necessary for the performance of Aurora's obligations in the
Collaborative Screen Program.
1.47 "Module 1" has the meaning set forth in Section 2.1.2.1.1 hereof.
1.48 "Module 2" has the meaning set forth in Section 2.1.2.1.4 hereof.
1.49 "Module 3" has the meaning set forth in Section 2.1.2.1.5 hereof.
1.50 "NDA" means a ***.
1.51 "Net Sales" shall mean, with respect to Product(s), *** less the
following items:
i) trade, and/or, quantity discounts, cash discounts,
bad debt, sales and excise taxes, freight or other
transportation costs, insurance charges,
additional special packaging, duties, tariffs, and
other governmental charges (other than and an
income tax), actually paid or allowed;
ii) the standard inventory cost of devices used for
dispensing or administering the Product(s) which
accompany the Product(s) as they are sold;
iii) credits, charge-back rebates, reimbursements or
similar payments granted or given to wholesalers
and other distributors, buying groups, health care
insurance carriers, governmental agencies and
other institutions, but only to the extent
actually allowed;
iv) credits or allowances for rejection or return of
Products previously sold; and
v) payment or rebates actually paid in connection
with government sponsored health insurance
programs.
Such amounts shall be determined from the books and records of Merck
maintained in accordance with GAAP consistently applied.
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***
1.52 "Optional Deliverable" shall have the meaning set forth in Section
2.1.5.5.
1.53 "Optional Module 1" shall have the meaning set forth in Section
2.1.5.1.
1.54 "Optional Module 2" shall have the meaning set forth in Section
2.1.5.2.
1.55 "Optional SDS" shall have the meaning set forth in Section 2.1.5.3.
1.56 "Optional VIPR" shall have the meaning set forth in Section 2.1.5.4.
1.57 "Patent Rights" means all ***.
1.58 "Product" means ***.
1.59 "Royalty Term" means, in the case of any Product and as to any
country, the period of time commencing on the first commercial sale for
use or consumption of such Product in such country and ending upon the
date that is *** after the date of such first commercial sale for use or
consumption of such Product in such country.
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1.60 "Screen Development Stage" shall have the meaning set forth in
Section 2.1.2.1.3, the features of which are set forth in Exhibit 1.1
hereto.
1.61 "Selection Procedure" of molecular targets shall have the meaning
set forth in Section 3.1.1.2 hereof.
1.62 ***.
1.63 "Specifications" of the System or the VIPR shall have the meaning
set forth in Section 2.1 hereof.
1.64 "Subsidiary" means any corporation, association or other entity in
which a party directly or indirectly beneficially owns 100% of the
voting or equity interest.
1.65 "System" means ***.
1.66 "System Steering Committee" shall have the meaning set forth in
Section 2.1.1.
1.67 "System Target Delivery Date" has the meaning set forth in Section
2.1.2.1 hereof.
1.68 "Technology" means Materials and Know-How.
1.69 "Term" means the period beginning on the Effective Date and
terminating in accordance with this Agreement, as set forth in Article
11.
1.70 "Third Party" means any entity other than Aurora, its Subsidiaries
or its Affiliates or Merck, its Subsidiaries or its Authorized
Affiliates.
1.71 "Tracking Record" shall have the meaning set forth in Section
6.4.2.1 hereof.
1.72 "Valid Claim" means: (a) an issued claim under an issued patent
within the Patent Rights, which has not (i) expired or been canceled,
(ii) been declared invalid by an unreversed and unappealable decision of
a court or other appropriate body of competent jurisdiction, (iii) been
admitted to be invalid or unenforceable through reissue, disclaimer or
otherwise, and/or (iv) been abandoned; or (b) a claim included in a
pending patent application within the Patent Rights that is being
actively prosecuted in accordance with this Agreement and which has not
been (i) canceled, (ii) withdrawn from consideration, (iii) finally
determined to be unallowable by the applicable governmental authority
for whatever reason (and from which no appeal is or can be taken), or
(iv) abandoned.
1.73 "Validation" has the meaning set forth in Section 2.1.3 and 2.1.5.6.
1.74 "VIPR" shall have the meaning set forth in Section 2.1.2.2, the
features of which are set forth in Exhibit 1.3 hereto.
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2 SYSTEM DEVELOPMENT AND DELIVERY
2.1 System Development. Aurora will use reasonable efforts to design,
develop, supply, and install the System and VIPRs within the time
periods and in accordance with the terms hereof. The Specifications for
the Deliverables and VIPRs to be provided by Aurora are set forth in
Exhibit 1.1 and Exhibit 1.3 hereto, respectively (the "Specifications").
2.1.1 Project Management. The parties shall establish a steering
committee to coordinate the development of the System and to perform
testing for the Validation of the Deliverables and VIPR(s) (the
"System Steering Committee"). The System Steering Committee will be
established not later than thirty (30) days after the Effective Date.
The System Steering Committee will consist of three (3)
representatives designated by Merck and three (3) representatives
designated by Aurora. Each representative will have one vote
resulting in each party having exactly three votes. Decisions by the
System Steering Committee shall be made by unanimous vote, requiring
a quorum of four (4) voting representatives. The System Steering
Committee will meet at least four times per year at mutually agreed
upon times and locations using mutually agreed upon meeting formats,
including tele- and video-conferencing provided, that the members of
the System Steering Committee shall use reasonable efforts to
schedule such meetings at least thirty (30) calendar days prior to
each payment date for the quarterly payments required pursuant to
Section 2.1.4.7. The System Steering Committee shall maintain
accurate records to document the discussions and decisions at each
meeting. Meeting minutes or summaries shall be prepared in accordance
with procedures established by the System Steering Committee at its
first meeting and shall be distributed to all members of the System
Steering Committee for review and approval. Aurora will also submit
progress reports to the System Steering Committee at such time(s) as
the System Steering Committee may reasonably request and no less than
twice per year. Each party shall bear its own expenses in connection
with attendance by its representatives at meetings of the System
Steering Committee.
2.1.2 Development and Delivery. During the term of this Agreement, Merck
representatives shall have the right, upon reasonable advance written
notice to Aurora, to visit the facilities where the System is being
developed. During the System development, Aurora shall provide Merck
with information regarding recommended facility specifications for
housing and operating the System and shall share information
regarding recommended operating conditions.
2.1.2.1 Development. Aurora will use reasonable efforts to develop
and install the deliverables for the System ("Deliverables")
according to the estimated delivery dates set forth below (each such
date referred to as a "System Target Delivery Date"):
2.1.2.1.1 Module 1 - Automated Storage and Retrieval - ***;
2.1.2.1.2 One Automated Plate Replication System ("APRS") - ***;
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2.1.2.1.3 One Screen Development Stage - ***(Screen Development
Stage);
2.1.2.1.4 Module 2 - Liquid handling, Screening Formats,
Detection and Three (3) Screen Development Stages - ***; and
2.1.2.1.5 Module 3 - Informatics, Integration, and Control System
("Module 3") - ***.
2.1.2.2 VIPR Development. In addition, Aurora will use reasonable
efforts to develop the voltage ion probe reader, as further
described in Exhibit 1.3 (the "VIPR") and ***. If such
installation includes integration of a VIPR into an existing
screening system, the parties will negotiate in good faith for
the terms of such integration.
2.1.2.3 Shipment, and Installation. Aurora will be responsible for
the appropriate packaging of all Deliverables and VIPRs to be
delivered to Merck. Aurora will provide Merck with written notice
at least thirty (30) days before the anticipated date that each
Deliverable or VIPR will be ready for shipping, and Merck will be
responsible for arranging the shipment and for paying associated
delivery charges, including insurance and sales tax, if
applicable. Aurora will provide Merck with written notice of
actual shipment for accounting purposes pursuant to Section
2.1.4. Aurora will begin installation of each Deliverable and
VIPR within fifteen (15) working days of delivery to Merck and
will use reasonable efforts to complete such installation
promptly thereafter and Merck will use reasonable efforts to
prepare in advance for such installation and to facilitate such
installation after delivery. Merck will provide Aurora with
written notice at least thirty (30) days before such installation
of any expected delays or problems with the installation site at
Merck. Aurora will install all Deliverables and VIPRs, unless
otherwise mutually agreed to in writing. Aurora will be
responsible for its employees or contractors performing such
installation including salaries, benefits and workers
compensation. Aurora shall provide Merck with timely notice of
any anticipated change in a System Target Delivery Date. Merck
may agree, but shall not be required, to accept delivery of a
Deliverable earlier than the relevant System Target Delivery
Date. Merck shall provide Aurora with timely notice of any
anticipated change in being able to accommodate the delivery of a
Deliverable on a System Target Delivery Date. If Merck is unable
to take of delivery of a Deliverable within sixty (60) days after
the relevant System Target Delivery Date, the System Steering
Committee may Validate such Deliverable pursuant to Section 2.1.3
at Aurora instead of at Merck; provided, however, that the
Deliverable will also be Validated by the System Steering
Committee at Merck and Merck will be entitled to the cure
provisions pursuant to Section 2.1.3 (i), (ii) or (iii).
2.1.3 Validation Testing. All Deliverables and VIPRs shall be subject to
testing by or for Aurora and by or for Merck. Within thirty days (30)
day after installation of a Deliverable or VIPR, the System Steering
Committee shall perform tests necessary to determine that a
Deliverable or a VIPR conforms to the Specifications for such
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Deliverable or VIPR ("Validation"). Upon such Validation Aurora shall
give Merck written notice. If the members of the System Steering
Committee, acting in good faith, cannot agree that a Deliverable or
VIPR satisfies the criteria for Validation within such thirty (30)
day period, Aurora shall have an additional sixty (60) days to cure
such Deliverable's or VIPR's inability to satisfy the Specifications.
If Aurora is unable to cure such Deliverable or VIPR within sixty
(60) days of such notice, Merck may elect to:
(i) accept such Deliverable or VIPR and such Deliverable or
VIPR will be considered Validated;
(ii) permit Aurora to cure such Deliverable's or VIPR's
inability to satisfy the Specifications during an
additional cure period determined by Merck; or
(iii) request, and receive from Aurora, a refund of the full
amount paid for such Deliverable (not including any
payments made as an entry payment paid under Section
2.1.4.1 or an ongoing quarterly payment paid under
Section 2.1.4.7) within thirty (30) days of the end of
such cure period(s).
If Merck elects to receive a refund pursuant to Section 2.1.3 (iii),
Merck must ship such Deliverable or VIPR to Aurora in substantially
its original condition within thirty (30) days of such election, and
Aurora shall bear all delivery risks and charges, including insurance
and sales tax, if applicable. Merck's rights under this Section 2.1.3
are in addition to it rights pursuant to Section 11.3.2 hereof.
2.1.4 Payments relating to System Deliverables and VIPR. Merck will make
the following payments to Aurora in consideration of the development,
delivery, and Validation of Deliverables and VIPRs:
2.1.4.1 An entry payment of *** shall be made within thirty (30)
business days after the Effective Date.
2.1.4.2 Module 1: A payment of *** shall be made in two equal
installments: one installment of *** within thirty (30) days
after *** and one installment of ***.
2.1.4.3 For the APRS of Section 2.1.2.1.2, a payment ***shall be made
in two equal installments: one installment of *** and one
installment of ***.
2.1.4.4 For the Screen Development Stage of Section 2.1.2.1.3, a
payment *** shall be made in two equal installments: one
installment of *** and one installment of ***.
2.1.4.5 Module 2: A payment *** shall be made in two equal
installments: one installment of ***.2.1.4 and one installment
***.
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2.1.4.6 Module 3: A payment of *** shall be made in two equal
installments: one installment of *** and one installment of ***.
2.1.4.7 As partial consideration for the design and development of
the System, Merck shall make payments to Aurora of *** each, the
first payment to be made on or before the first January 15, April
15, July 15 or October 15 occurring after the Effective Date and
then every three months thereafter, which payments shall cease
upon the first to occur of (i) the date that represents *** or
(ii) the date of Validation of Module 3 pursuant to Section
2.1.3; provided, however, that (subject to Section 2.1.2.3) if
the Validation of Module 3 pursuant to Section 2.1.3 occurs prior
to the date that Merck shall have ***hereunder, Merck shall pay
to Aurora in a lump sum, within thirty (30) days after Validation
of Module 3 pursuant to Section 2.1.3 those payments remaining
that would raise the total number of payments made under this
Section 2.1.4.7 by Merck ***.
2.1.4.8 For each VIPR developed pursuant to Section 2.1.2.2 a payment
of *** shall be made in two equal installments: one installment
of ***.
2.1.5 Option for Additional Deliverables.
2.1.5.1 Optional Module 1: Merck will have the option to obtain an
additional Module 1, *** during the period from the Effective
Date to twelve (12) months after the Validation of Module 1
pursuant to Section 2.1.3. To exercise such option, Merck will
notify Aurora in writing within such option period and pay to
Aurora *** within thirty (30) days of such election. The option
may be extended to the period from the Effective Date to twenty
*** during such initial option period. Such amount is
non-refundable ***. Aurora will use reasonable efforts to develop
and install the Optional Module 1 according to the estimated
delivery date of twelve (12) months after the receipt by Aurora
of the total payment for Optional Module 1. The parties
understand that the delivery date may vary due to availability of
supplies and components. Aurora will promptly notify Merck of
changes in the estimated delivery date for the Optional Module 1.
The Optional Module 1 shall be subject to Validation testing in
accordance with Section 2.1.5.6.
2.1.5.2 Optional Module 2: Merck will have the option to obtain an
additional Module 2 (the "Optional Module 2***. To exercise such
option, Merck will notify Aurora in writing within such option
period and pay to Aurora *** within thirty (30) days of such
election. Aurora will use reasonable efforts to develop and
install each Optional Module 2 according to the estimated
delivery date of Eighteen (18) months after the receipt by Aurora
of such payment for the first Optional Module 2. The estimated
delivery date of all subsequent Optional Modules 2(s), if any,
will be mutually agreed upon by the parties. The parties
understand that the delivery date may vary due to availability of
supplies and components. Aurora will promptly notify Merck of
changes in the estimated delivery date for an Optional Module 2.
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Each Optional Module 2 shall be subject to Validation testing in
accordance with Section 2.1.5.6.
2.1.5.3 Optional SDS: Merck will have the option to obtain an
additional Screen Development Stage (the "Optional SDS"), ***,
during the period from ***. To exercise such option, Merck will
notify Aurora in writing within such *** for each Optional SDS
within thirty (30) days of such election. Aurora will use
reasonable efforts to develop and install the first Optional SDS
according to the estimated delivery date of Twelve (12) months
after the receipt by Aurora of such payment for the first
Optional SDS. The estimated delivery date of all subsequent
Optional SDS(s) will be mutually agreed upon by the parties. The
parties understand that the delivery date may vary due to
availability of supplies and components. Aurora will promptly
notify Merck of changes in the estimated delivery date for an
Optional SDS. Each Optional SDS shall be subject to Validation
testing in accordance with Section 2.1.5.6.
2.1.5.4 Optional VIPRs: Merck will have the option to obtain an
additional VIPR (the "Optional VIPR"), or up to a total of ***
each, during the period from the Effective Date to twelve (12)
months after the first Validation of a VIPR pursuant to Section
2.1.3. To exercise such option, Merck will notify Aurora in
writing within such option period and pay to ***. Aurora will use
reasonable efforts to develop and install the first Optional VIPR
according to the estimated delivery date of twelve (12) months
after the receipt by Aurora of such payment for the first
Optional VIPR. The estimated delivery date of all subsequent
Optional VIPR(s) will be mutually agreed upon by the parties. The
parties understand that the delivery date may vary due to
availability of supplies and components. Aurora will promptly
notify Merck of changes in the estimated delivery date for an
Optional VIPR. Each Optional VIPR shall be subject to Validation
testing in accordance with Section 2.1.5.6.
2.1.5.5 Delivery of the Optional Deliverables: Aurora will be
responsible for the appropriate packaging of each Optional Module
1, Optional Module 2, Optional SDS, and Optional VIPR ("Optional
Deliverables") to be delivered to Merck. Aurora will provide
Merck with written notice at least thirty (30) days before the
anticipated date that each Optional Deliverable will be ready for
shipping, and Merck will be responsible for arranging the
shipment and for paying associated delivery charges, including
insurance and sales tax, if applicable. Aurora will begin
installation of each Optional Deliverable within fifteen (15)
working days of delivery to Merck and will use reasonable efforts
to complete such installation promptly thereafter and Merck will
use reasonable efforts to prepare in advance for such
installation and to facilitate such installation after delivery.
Merck will provide Aurora with written notice at least thirty
(30) days before such installation of any expected delays or
problems with the installation site at Merck. Aurora will install
all Optional Deliverables, unless otherwise mutually agreed to in
writing. Aurora will be responsible for its employees or
contractors performing such installation including salaries,
benefits and workers compensation. Aurora shall provide Merck
with timely notice of any anticipated change in a scheduled
delivery date for an
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Optional Deliverable. Merck may agree, but shall not be required,
to accept delivery of an Optional Deliverable earlier than the
relevant scheduled delivery date. Merck shall provide Aurora with
timely notice of any anticipated change in being able to
accommodate the delivery of an Optional Deliverable.
2.1.5.6 Validation Testing for Optional Deliverables. All Optional
Deliverables shall be subject to testing by or for Aurora and by
or for Merck. Within thirty days (30) day after installation of
an Optional Deliverable, the System Steering Committee shall
perform tests necessary to determine that an Optional Deliverable
conforms to the Specifications for such Optional Deliverable.
Upon such Validation Aurora shall give Merck written notice. If
the members of the System Steering Committee, acting in good
faith, cannot agree that an Optional Deliverable satisfies the
criteria for Validation within such thirty (30) day period,
Aurora shall have an additional sixty (60) days to cure such
Optional Deliverable's inability to satisfy the Specifications.
If Aurora is unable to cure such Optional Deliverable within
sixty (60) days of such notice, Merck may elect to:
(i) accept such Optional Deliverable and such Optional
Deliverable will be considered Validated;
(ii) permit Aurora to cure such Optional Deliverable's inability
to satisfy the Specifications during an additional cure
period determined by Merck; or
(iii) request, and receive from Aurora, a refund of the full
amount paid for such Optional Deliverable (not including
any payments made as an entry payment paid under Section
2.1.4.1 or an ongoing quarterly payment paid under Section
2.1.4.7) within thirty (30) days of the end of such cure
period(s).
If Merck elects to receive a refund from Aurora under Section 2.1.5.6
(iii), Merck must ship such Optional Deliverable to Aurora in
substantially its original condition within thirty (30) days of such
election, and Aurora shall bear all delivery risks and charges,
including insurance and sales tax, if applicable. Merck's rights
under this Section 2.1.5.6 are in addition to it rights pursuant to
Section 11.3.2 hereof.
2.1.6 Syndicate Formation, Limitations and Most Favored Nations.
2.1.6.1 Syndicate Formation and Limitations. It is understood that
Aurora may collaborate with, and supply to, and grant certain
license rights with respect to the use and supply of a system
substantially conforming to the specifications of the System and
the Aurora Reporter System to Third Parties.
2.1.6.1.1 System. Notwithstanding the foregoing, Aurora covenants
and agrees that, so long as Merck is not in default of a
payment obligation hereunder with respect to the System and
Aurora Reporter Systems for more than thirty (30) days after
receiving notice of such payment default, and Merck has not
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terminated its purchase of the System pursuant to Section
11.2, 11.3, or 11.4, then, ***.
2.1.6.1.2 Aurora Reporter Systems. Notwithstanding Section
2.1.6.1, Aurora covenants and agrees that, so long as Merck is
not in default of a payment obligation hereunder with respect
to the System or the Aurora Reporter System for more than
thirty (30) days after receiving notice of such payment
default and Merck has not terminated its purchase of the
System pursuant to Section 11.2, 11.3, or 11.4, then, ***.
2.1.6.2 Most Favored Nations. If, during the ***. Upon written
notification by Merck to Aurora, Aurora will select a consultant
reasonably acceptable to Merck who will perform a confidential
review of the value of the terms of such Third Party agreement.
If Merck chooses to substitute such terms, as a whole, and such
substituted terms would require payments from Merck that have not
then been made by Merck, then Merck shall promptly pay the same
to Aurora. If Merck chooses to substitute such terms, as a whole,
and such substituted terms exceed the amount owed to Aurora,
Aurora shall credit the difference of such overpayments to future
payments to be made hereunder by Merck under Article 2 or Article
3, as appropriate.
3 COLLABORATIVE PROGRAM
3.1 Collaborative Program. For a period of five (5) years following the
Effective Date (the "Collaborative Period") the parties will collaborate
in the development of Inventions and Technology and the development and
validation of Collaborative Screens as part of development programs (the
"Collaborative Screen Programs" or a "CSPs"), as follows:
3.1.1 Development Program. Merck and Aurora will use reasonable efforts
to identify targets for screen development, improvements to the
System, new instrumentation or new reporters for development as part
of an Annual Work Plan.
3.1.1.1 CSP Steering Committee. No later than thirty (30) days after
the Effective Date, the parties shall establish a CSP Steering
Committee (the "CSP Steering Committee"). The CSP Steering
Committee shall consist of three (3) representatives designated
by Merck and three (3) representatives designated by Aurora. Each
representative will have one vote resulting in each party having
exactly three votes. Decisions by the CSP Steering Committee will
be made by unanimous vote, requiring a quorum of four voting
representatives. The CSP Steering Committee will meet at least
three times per year at mutually agreed upon times and locations
using mutually agreed upon meeting formats, including tele- and
video-conferencing; provided, that the members of the CSP
Steering Committee shall use reasonable efforts to schedule such
meetings at least thirty (30) calendar days prior to each payment
date for the quarterly payments required pursuant to Section
3.1.1.5. The CSP Steering Committee shall maintain accurate
records to document the discussions and decisions at each
meeting. Meeting minutes or summaries shall
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be prepared in accordance with procedures established by the CSP
Steering Committee at its first meeting and shall be distributed
to all members of the CSP Steering Committee for review and
approval.
3.1.1.2 Screen Selection. Within fifteen (15) days after the
Effective Date, and at least ninety (90) days prior to the first,
second, third and fourth anniversaries of the Effective Date,
Merck will propose in writing to Aurora molecular targets which
Merck believes are reasonably feasible for development of screens
for the next Annual Work Plan. For each proposed molecular
target, Merck shall provide Aurora with a written proposal
describing such molecular target. Within thirty (30) days after
the Effective Date, and in subsequent years, within forty-five
(45) days after receiving such information from Merck, and
further information as Aurora may reasonably request regarding a
proposed molecular target, Aurora shall provide to Merck an
estimate of the approximate resources required for such screen
development and shall notify Merck as to whether Aurora accepts
such proposed target; provided, however, that Aurora may only
reject a proposed target if it reasonably believes that the
development of a Collaborative Screen for such proposed target
(i) would be inconsistent with Aurora's Third Party obligations,
(ii) would cause Aurora to infringe the intellectual property
rights of a Third Party, (iii) would require more than two FTEs
for twelve months or (iv) would not be feasible in view of the
resources and expertise required to complete such Collaborative
Screen . Merck and Aurora will repeat the foregoing selection
procedure ("Selection Procedure") and will use reasonable
efforts, to select at least three (3) molecular targets, for the
Annual Work Plan for each year, for which screen development
shall be initiated ***.
3.1.1.3 Instrumentation and New Reporter Development. During the
Collaborative Period, Merck may also propose new instrumentation
(including improvements to the System) and new reporters that
Merck believes are reasonably feasible for development as part of
an Annual Work Plan. Within forty five (45) days of receiving
such proposal, and further information as Aurora may reasonably
request regarding such new instrumentation or new reporters,
Aurora shall notify Merck whether Aurora reasonably believes that
the development of such instrumentation or reporters are
reasonably feasible and if such development is consistent with
Aurora's Third Party obligations and will notify the CSP Steering
Committee of the following: (i) the approximate resources that
Aurora believes would be required to be provided by Merck through
the CSP Steering Committee and funded pursuant to Section 3.1.1.3
for the development of such new instrumentation or reporters; or
(ii) the approximate resources that Aurora believes would be
required to be provided by Merck through the CSP Steering
Committee and funded pursuant to Section 3.1.1.3 and the
resources that Aurora proposes to provide for the development of
such new instrumentation or reporters. Within thirty (30) days of
such notification, Merck, in its sole discretion, shall determine
whether to initiate such development of new instrumentation or
reporters under Sections 3.1.1.3(i) or 3.1.1.3(ii) and the CSP
Steering Committee will coordinate the preparation of a written
work plan for such
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development. Merck and Aurora may mutually agree upon additional
funding to be provided by Merck for such development.
3.1.1.4 Coordination of Development. The CSP Steering Committee will
coordinate the development of Collaborative Screens, new
instrumentation or new reporters during the Collaborative Period
(including the formation and management of a CSP Work Plan
described below in this Section 3.1.1.4 for each Collaborative
Screen within sixty (60) days of Aurora choosing to accept a
Merck proposed molecular target), generate (or modify) and
implement each CSP Work Plan, as defined below, and Annual Work
Plan, and approve the validation of each Collaborative Screen.
Promptly following mutual agreement on the selection of each
target, the CSP Steering Committee will coordinate the
preparation of a written work plan (a "CSP Work Plan"), which
shall set forth the respective responsibilities of the parties in
the development of each Collaborative Screen, and which must be
approved by the CSP Steering Committee. Each such CSP Work Plan
will also contain a description of the specific assay components
and documentation to be produced and proposed validation criteria
for each Collaborative Screen. Each CSP Work Plan will be adopted
from an Annual Work Plan on a target by target basis. Promptly
following the approval of each CSP Work Plan, the parties will
commence their respective duties under the CSP Work Plan for the
development of the applicable Collaborative Screen. All work
under a CSP Work Plan shall be performed in accordance with the
provisions of this Agreement, and each party will use its
reasonable efforts to complete its obligations under the CSP Work
Plan as expeditiously as practicable. ***.
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3.1.1.5 Payments for Development. As partial consideration for the
development of Inventions and Technology and the Collaborative
Screens to be developed by Aurora or by Aurora and Merck, Merck
shall pay *** per year for a period of *** beginning on the
Effective Date for such development. The fully-burdened rate for
each Aurora full time equivalent shall *** per year based on a
minimum *** per year, annually increased on the anniversary of
the Effective Date to reflect adjustment in the CPI, using
January 1, 1997 as the base year (a "FTE"). Such payments shall
be payable in quarterly payments ***, the first payment to be
made on or before the first January 15, April 15, July 15 or
October 15 occurring after the Effective Date and the subsequent
Nineteen (19) such quarterly payments made every three months
thereafter. Such payments shall be non-refundable and
non-creditable. In no event shall Merck be obligated to pay more
than *** under this Section 3.1.1.5 per year of the Collaborative
Period. The parties acknowledge that the total number of FTEs may
be reduced due to CPI adjustment. Of the Aurora FTEs funded by
Merck, Aurora will dedicate three (3) FTEs to ***. All other FTEs
each year will be allocated from a pool of Aurora personnel
resources that will contain individuals that may have expertise
or experience that can be applied to a particular Collaborative
Screen, new instrumentation or new reporter. The parties
understand and agree that Aurora is not obligated to enter into a
CSP Work Plan where more than two (2) FTEs for one year would
reasonably be needed to complete the work under such CSP Work
Plan.
3.1.1.6 Screen Validation. When Aurora completes the development of a
Collaborative Screen, it shall provide the CSP Steering Committee
with a written report describing the Collaborative Screen and the
data demonstrating compliance with the CSP Work Plan including
the validation criteria. Aurora will also permit Merck
representatives to visit the facilities of Aurora to test and
verify compliance of the Collaborative Screen with the validation
criteria. Merck, through the CSP Steering Committee, will approve
the report and accept the Collaborative Screen, or provide Aurora
a written explanation for declining such acceptance within thirty
(30) days of receipt of the report by committee members. Upon
acceptance of each Collaborative Screen to be developed by
Aurora, Aurora will submit to Merck an invoice for *** of the
date of such invoice.
3.1.1.7 Screening by Aurora. For the Collaborative Screens validated,
pursuant to Section 3.1.1.6, Merck may elect to have Aurora test,
using reasonable efforts, up to *** provided by Merck or agreed
to by the parties pursuant to Section 3.1.1.8. Aurora shall with
regard to each such Collaborative Screen, screen Compounds in a
manner determined by the CSP Steering Committee and provide
retests of Compounds for putative Hits, and determination of
crude IC50's or EC50's as determined by the CSP Steering
Committee (collectively referred to as an "Aurora Screening
Program"). At Merck's request, the parties will negotiate in good
faith the terms for alternative screening arrangements to be
provided by Aurora. The data resulting from such activities using
the Compound Supply shall be owned by Merck and shall be stored
in a separate file in the Aurora database. Merck employees or
agents shall have access to such data and shall have the right to
transfer such data to
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Merck's internal database. Aurora shall not have any right to use
such data for any purpose, for itself or for any Third Party.
3.1.1.8 Compound Supply. Merck shall, at its expense, supply Aurora
with Compounds selected by Merck for an Aurora Screening Program.
In the event that Merck desires to have Aurora test in an Aurora
Screening Program a chemical (including a library of chemicals)
owned, accessed or Controlled by Aurora, the parties agree to
negotiate in good faith the terms and conditions under which such
chemicals may be screened. Any Compound supplied by Merck for use
in an Aurora Screening Program will be provided in 96-well or
384-well-microtiter plates, in quantities, form and format as
agreed by the CSP Steering Committee ("Compound Supply"). Aurora
agrees not to transfer the Compound Supply to any Third Party,
attempt to analyze the Compound Supply for purposes of
determining structure, or to use the Compound Supply for purposes
not contemplated herein without Merck's prior written consent.
Aurora will return or destroy (at Merck's election) such Compound
Supply upon written notice by Merck.
3.1.1.9 Screening Payments. If Merck during the Collaborative Period
elects to have Aurora use a Collaborative Screen to screen
Compounds or other chemicals pursuant to Section 3.1.1.7, in
partial consideration for each such Aurora Screening Program
Merck will pay ***. Such payment shall be inclusive of all costs
incurred by Aurora relating to labor, screening equipment, and
supplies (other than chemicals or reagents unique to a
Collaborative Screen). If Aurora determines that the expenses
which would be incurred by Aurora with respect to any such Aurora
Screening Program would ***, Aurora shall notify Merck, and Merck
may in its sole discretion, elect to provide additional funding
in an amount to be determined by Merck.
3.1.2 Deployment of Collaborative Screen by Merck. For each
Collaborative Screen, upon receipt of the payment made by Merck to
Aurora pursuant to Section 3.1.1.6, Aurora will ship the
Collaborative Screen to Merck. For each such transferred
Collaborative Screen, Merck will use reasonable efforts to employ
such Collaborative Screen to screen Compounds, using Merck's then
current screening practices, consistent with Merck's usual drug
discovery and development practices. If after one hundred and eighty
(180) days after such shipment, Merck does not, or is unable to
successfully employ such Collaborative Screen to identify Hits, Merck
will notify Aurora. At Merck's sole discretion, Merck may request
that Aurora initiate an Aurora Screening Program for such
Collaborative Screen at Aurora as set forth in Section 3.1.1.7.
3.1.3 Additional Screens. Subject to the same terms and conditions set
forth in Sections 3.1.1, and 3.1.2 and Aurora's approval, such
approval shall not be unreasonably withheld, Merck may elect to
increase the number of Collaborative Screens initiated during any
year of the Collaborative Period to ***.
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3.1.4 Payments to Aurora. In addition to such payments as are made by
Merck to Aurora pursuant to Section 3.1.1 hereof, the following
payments shall be made to Aurora for each Collaborative Screen:
3.1.4.1Milestones. Merck will pay to Aurora:
For the first *** that reaches the following milestone events,
Merck will promptly provide Aurora with written notification and
will pay the following amounts to Aurora within thirty (30) days
following such notification from Merck.
<TABLE>
<CAPTION>
Milestone
Event Payment (US$)
--------- -------------
<S> <C>
i) ***
ii) ***
iii) ***
iv) ***
</TABLE>
Each of the foregoing payments shall only be made for ***
to reach the milestone event and ***
3.1.4.2 Royalties. For *** Merck shall pay Aurora a royalty with
respect to *** that become Products developed and marketed for
the activity of the kind and direction intended to be detected by
such Collaborative Screen. Such royalty shall be payable during
the Royalty Term in the amount of ***of worldwide Net Sales of
each such Product. Exhibit 3.1 sets forth examples for
determining Products on which royalties will be payable.
3.1.4.3 If Merck provides any Hit, Derivative, Development Candidate,
or Product as consideration to a Third Party, including as
consideration for another chemical or target from a Third Party
for development at Merck, Merck will: (i) remain obligated to the
payment to Aurora of any milestones and royalties provided for in
Article 3; or (ii) obligate such Third Party to pay to Aurora
directly any milestones and royalties provided for in Article 3;
or (iii) negotiate with Aurora in good faith alternative
compensation for any such Hits, Derivatives, Development
Candidates, or Products.
3.1.4.4 Exceptions. Notwithstanding the foregoing, Merck shall not be
obligated to pay Milestones or Royalties pursuant to 3.1.4.1 and
3.1.4.2 with respect to the following:
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(a) ***;
(b) ***
(c) Compounds identified by Merck without using a Collaborative
Screen.
3.2 Access to the Aurora Reporter System Technology and Aurora Reporter
System Patent Rights. Merck's right to use the Aurora Reporters and
Aurora Reporter System, as set forth in the license in Section 5.1.3,
requires that Merck pay to Aurora an up-front license payment of *** for
the first year following the Effective Date and an annual license
payment of *** following the first anniversary of the Effective Date.
The first annual payment will be made within ten (10) business days of
the Effective Date and the remaining four annual payments will be made
on the respective anniversaries of the first payment. ***, Merck may
elect to maintain the annual license, as set forth in Section 5.1.3, for
Aurora Reporters and the Aurora Reporter System for an annual payment of
*** for consecutive one-year periods thereafter; provided, however, that
any such obligation to pay such annual license payment shall terminate
when there is no longer a Valid Claim of an issued patent within Aurora
Reporter System Patent Rights. Upon expiration of such Valid Claim,
Merck shall retain a fully paid-up, royalty free license to use any
Aurora Reporter System Technology then in Merck's possession.
3.3 Supply of Materials. So long as Merck has made payments in accordance
with Section 3.2 hereof, then, at Merck's written request, Aurora will
use reasonable efforts to supply within thirty (30) days after receipt
of a written purchase order therefor, Materials pertaining to Aurora
Reporters and the Aurora Reporter System as Merck may require in order
to use the Aurora Reporters. Merck will be charged for all supplies so
delivered at Aurora's ***. Merck will pay for all Materials so ordered
within thirty (30) days after delivery to Merck. ***. The parties agree
that if Merck requests ***, Aurora may, at its sole discretion, develop
such cell lines and provide to ***shall be provided to Merck at ***.
3.4 Ownership of Data. Subject to Sections 5.3.2 and 5.3.3, all results and
data generated by or for Merck arising out of the use of the System,
development and use of any Collaborative Screen, the exercise of any of
the rights licensed under Section 5 hereof, or otherwise arising out of
this Agreement shall be owned exclusively by Merck and shall be treated
as Merck Confidential Information hereunder.
3.5 Development of Products. Merck will in its discretion determine which,
if any, Hit(s), or Derivative(s), will be approved as Development
Candidates. Merck will use reasonable efforts consistent with Merck's
usual drug development practices, for all pre-clinical and clinical
development, including all regulatory filings, of Hits and Development
Candidates arising out of this Agreement at no expense to Aurora. Merck
shall have discretion and control over the conduct of all activities
associated with the development or abandonment of any Hit, Derivative or
Development Candidate, all regulatory activities relating to the
manufacture, use or sale of any Development Candidate or Product, and
the commercialization and marketing of any Product in any country and
Merck will use its reasonable efforts, consistent with Merck's usual
practice in developing, commercializing
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<PAGE> 22
and marketing its other similar pharmaceutical products, to attain all
of the foregoing. All INDs, NDAs and other regulatory filings made or
filed by Merck for any Development Candidate or Product shall be owned
solely by Merck.
3.6 Laboratory Facilities and Personnel. Aurora and Merck shall each, at
their respective cost and expense, provide suitable and sufficient
laboratory facilities and equipment, and will devote sufficient,
experienced personnel, as is needed to carry out their respective
obligations under this Agreement. In performing their activities
hereunder, the parties shall maintain records in sufficient detail and
in good scientific manner appropriate for patent and regulatory
purposes, which shall be complete and accurate and shall fully and
properly reflect all work done and results achieved in the performance
of such work or activities. Where appropriate, such records shall be
written into research notebooks and countersigned.
4 SERVICE AND SUPPORT
4.1 Service and Support for the System. For the period commencing upon the
Validation of Module 1 and ending *** after the Validation of Module 3
pursuant to Section 2.1.3, Aurora will provide service and support for
the System and all system components, without additional charge to Merck
with the exception of reasonable travel expenses within limits
pre-approved by the parties. Service and support is more fully described
on Exhibit 4.1 attached hereto ("Service and Support"). Aurora will be
responsible for providing and paying for this Service and Support,
whether provided by Aurora itself or through Third Party contractors.
Aurora will designate an appropriate Aurora employee to coordinate such
Service and Support. Following such initial period, Merck and Aurora
will in good faith negotiate additional Service and Support.
4.2 Service and Support for the VIPR(s). For the period commencing upon the
Validation of a VIPR and ending *** after the Validation of such VIPR
pursuant to Section 2.1.3, Aurora will provide Service and Support for
such VIPR*** parties. After such ***, service and support for such VIPR
will be on terms to be negotiated by the parties.
4.3 Service and Support for Optional Deliverable. If Merck elects to
purchase an Optional Deliverable, Aurora will provide Service and
Support with respect ***, until twelve (12) months after the Validation
of such Optional Deliverable pursuant to Section 2.1.3. After ***,
service and support for such Optional Deliverable will be on terms to be
negotiated by the parties.
4.4 ***.
5 INTELLECTUAL PROPERTY RIGHTS
5.1 Grant of Rights from Aurora to Merck.
5.1.1 Intellectual Property Rights related to the System. Aurora hereby
grants to ***.
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<PAGE> 23
5.1.2 Intellectual Property Rights Related to Collaborative Screens.
Aurora, upon payment under Section 3.1.1.6, grants to Merck a
non-exclusive, ***.
5.1.3 Intellectual Property Rights related to Aurora Reporters. Aurora
grants to Merck a non-exclusive, non-transferable, ***.
5.1.4 Intellectual Property Rights Related to the VIPR. Aurora, hereby
grants to Merck a non-exclusive, non-transferable, ***.
5.1.5 Third Party Rights. The rights granted in Sections 5.1.1, 5.1.2,
5.1.3 and 5.1.4 do ***. If during the Term of this Agreement Merck
desires to obtain Third Party intellectual property rights that
relate to the following:
***
***.
5.1.6 During the Term of this Agreement, Merck will not enter into an
agreement with a Third Party under which Merck will use Aurora
Technology or Aurora Patent Rights in conjunction with such Third
Party's targets or chemicals where Merck does not have an obligation
in such agreement to develop and/or market pharmaceuticals to be
identified using such targets or chemicals.
5.1.7 Merck shall have ***; provided, however, that i) any ***of any of
its obligations hereunder, including its payment obligations and ii)
the rights of ***under Sections 5.1.1, 5.1.2, 5.1.3, and 5.1.4 will
*** under such section pursuant to this Agreement. ***.
5.1.8 ***.
5.2 ***.
5.3 Ownership of Intellectual Property and Property
5.3.1 ***.
5.3.2 ***Inventions and other Technology (including, without limitation,
the intellectual property rights associated with Collaborative
Screens, Compounds and Derivatives and pharmaceutical uses thereof)
conceived or reduced to practice by its employees and agents, ***.
Aurora agrees to execute any and all documentation necessary to
perfect Merck's rights in such Inventions and Technology. Merck will
grant to Aurora an irrevocable, worldwide, fully paid up,
sublicensable, unrestricted, non-exclusive license to any
improvements and associated intellectual property rights with respect
to any Aurora Reporter or the Aurora Reporter System Technology that
are conceived or made by the employees and agents of Merck, its
Subsidiaries and Authorized Affiliates.
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<PAGE> 24
5.3.3 ***.
5.3.4 Inventorship of patentable Inventions shall be determined in
accordance with U.S. patent law.
6 PAYMENTS OF ROYALTIES, ACCOUNTING FOR ROYALTIES, AND RECORDS
6.1 Payment and Reporting. The royalties due under Article 3 and as follows
in this Article 6, shall be paid within sixty (60) days after the end of
each calendar quarter period in which such royalties are earned during
the Royalty Term for each Product. With each such quarterly payment
Merck shall furnish Aurora a royalty statement, setting forth on a
country-by-country basis: (i) gross sales (less returns and on-invoice
allowances), (ii) deductions from gross sales, and (iii) Net Sales for
such Product.
6.2 Currency of Payment. All payments to be made under this Agreement,
including the royalties payable to Aurora by Merck, shall be paid in
U.S. dollars by wire transfer or other mutually acceptable means to a
bank account designated by the recipient. Royalties earned shall be
determined from the Net Sales in the currency of the country in which
they are earned and then converted into dollars using the rate of
exchange published by Reuters Ltd. for the spot purchase of U.S. dollars
at 7:15 a.m., Eastern Standard Time, on the third (3rd) banking day
preceding the end of the calendar quarter for which royalties are being
calculated.
6.3 Taxes Withheld. Any income or other tax that Merck, its Subsidiaries,
its Authorized Affiliates, Licensees, or Licensors is required by a
government agency to withhold and pay on behalf of Aurora with respect
to the royalties payable under this Agreement shall be deducted from and
offset against said royalties prior to remittance to the recipient;
provided, however, that in regard to any tax so deducted, Merck shall
give or cause to be given to Aurora such assistance as may reasonably be
necessary to enable Aurora to claim exemption therefrom or credit
therefor, and in each case shall furnish the recipient proper evidence
of the taxes paid on Aurora's behalf.
6.4 Records.
6.4.1 Net Sales and Royalty Calculations. During the Royalty Term and
for two (2) years from the date of each payment of royalties, Merck
shall keep complete and accurate records of sales and all other
information necessary to calculate Net Sales of each Product in
sufficient detail to allow the accrued royalties to be determined
accurately in accordance with GAAP. Aurora, with reasonable written
notice to Merck, shall have the right to cause Aurora's independent,
certified public accountant to audit such records not more than once
each year at the place or places of business where such records are
customarily kept in order to verify the accuracy of the reports of
Net Sales and royalty payments. Aurora shall bear the full cost of
such audit unless such audit discloses an underpayment of more than
ten percent (10%) from the amount of the royalties due under this
Agreement, in which event, Merck shall bear the reasonable cost of
such audit. Such accountant shall disclose only whether the royalty
reports are correct and
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<PAGE> 25
the details of any discrepancies. Aurora shall cause such accountant
to enter into a confidentiality agreement with Merck. Within thirty
(30) days of notification by Aurora of any underpayment of royalties,
Merck will notify Aurora whether it agrees with the conclusion of
such accountant. If Merck agrees with the conclusion of such account,
Merck will remit to Aurora the amount of any such underpayment. If
such accountant concludes that Merck has made an overpayment of
royalties, Aurora will so notify Merck. If Merck agrees with the
conclusion of overpayment, the amount of such overpayment will be
credited toward any future royalties payable hereunder.
6.4.2 Tracking Records for Collaborative Screens.
6.4.2.1 The compounds, screens and targets tested using a
Collaborative Screen will be recorded by Merck using its
customary means and in a computer searchable database on a
storage device. The information stored will include the target,
screen type, the concentration, structure and activity of the
compound tested, and date of testing. Records of any Hits or any
compound subject to additional screening will be stored by Merck
in a computer searchable database. Upon written request by
Aurora, Merck will create an annual written report of Hits or
Derivatives subjected to additional screening, in vivo testing,
computer modeling, medicinal chemistry or an IND to date. All the
records described in this Section 6.4.2.1 are collectively
referred to as tracking records (the "Tracking Records"). The
Tracking Records shall be securely retained for no less than ten
(10) years from the last use of a Collaborative Screen. Upon
reasonable request by Aurora and at a minimum once every six (6)
months, Merck will provide Aurora with a list of Development
Candidates and Products on which royalties or milestones will be
payable.
6.5 Trade Secret Royalty. The parties acknowledge that the principal value
contributed by Aurora under this Agreement is the enhanced probability
of identifying leads for Products, such as human pharmaceutical products
(or other products having commercial value), and the potential to
generate multiple leads, either or both of which the parties reasonably
believe will lessen the time required to bring pharmaceutical products
to market and increase the efficiency of drug discovery and development
processes and technologies. Additionally, the parties acknowledge that
Aurora may not own or Control patent applications or patents covering
the manufacture, sale, use, or importation of a particular Development
Candidate or Product. Merck acknowledges and agrees that the value it
receives hereunder is in the access and use of the System, Collaborative
Screens or Aurora Technology. Accordingly, Merck agrees to pay those
royalties and other amounts at the applicable rate specified under the
Agreement, regardless of whether a Product is covered by a patent
application or patent within the Aurora Patent Rights.
7 INTELLECTUAL PROPERTY ENFORCEMENT AND DEFENSE OF INFRINGEMENT CLAIMS
7.1 Intellectual Property Enforcement. Merck and Aurora shall have the
right, but not the obligation, to bring proceedings against any Third
Party for the inappropriate use, including patent infringement, of
Technology, Copyrights or Patent Rights solely owned or Controlled by
it, and at its own risk and expense. Such party shall be entitled to
retain any
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<PAGE> 26
and all awards or damages obtained in any such proceeding. At the
request of either party, the other party shall give the requesting
party, at the requesting party's expense, all reasonable assistance
required to file and conduct any such proceeding. For jointly owned
Technology, Copyrights or Patent Rights, Merck and Aurora shall use
their best efforts to coordinate pursuing a commercially reasonable
action to address inappropriate use, including patent infringement, by
Third Parties of such Technology, Copyrights and Patent Rights and to
determine how expenses and any recovery from such action shall be
allocated between the parties. Merck will make reasonable efforts to
provide Aurora with any information known to Merck relating to the
suspected or actual inappropriate use, including patent infringement, of
Aurora Technology and Aurora Patent Rights.
7.2 Defense of Infringement Claims Pertaining to Hits, Development
Candidates, and Products. Aurora will cooperate with Merck, at Merck's
expense, in the defense of any suit, action or proceeding against
Aurora, or Merck and its Affiliates alleging the infringement of the
intellectual property rights of a Third Party by reason of the
manufacture, use or sale of a Hit, Development Candidate, or Product by
Merck, its Subsidiaries or Authorized Affiliates. Merck shall give
Aurora prompt written notice of the commencement of any such suit,
action, proceeding or claim of infringement. Aurora shall give to Merck
all authority, information and assistance necessary to defend or settle
any such suit, action or proceeding; provided, however, that if Aurora
should join in any such suit, action or proceeding pursuant to this
Section 7.2 and at the request of Merck, Merck shall hold Aurora, free,
clear and harmless from any and all costs and expenses of such
litigation, including reasonable attorneys' fees, and Aurora shall
execute all documents, provide pertinent records, and take all other
actions, including requiring persons within its control to give
testimony, which may be reasonably required in connection with such
litigation.
7.3 Defense of Infringement Claims Pertaining to Aurora Technology and
Aurora Patent Rights. Merck will cooperate with Aurora, at Aurora's
expense, in the defense of any suit, action or proceeding against Aurora
alleging the infringement of the intellectual property rights of a Third
Party by reason of Aurora's use of any Aurora Patent Rights and Aurora
Technology in performing its obligations under this Agreement. Aurora
shall give Merck prompt written notice of the commencement of any such
suit, action, proceeding or claim of infringement. Merck shall give to
Aurora all authority, information and assistance necessary to defend or
settle any such suit, action or proceeding; provided, however, that if
Merck should join in any such suit, action or proceeding pursuant to
this Section 7.3 and at the request of Aurora, Aurora shall hold Merck,
free, clear and harmless from any and all costs and expenses of such
litigation, including reasonable attorneys' fees, and Merck shall
execute all documents, provide pertinent records, and take all other
actions, including requiring persons within its control to give
testimony, which may be reasonably required in connection with such
litigation.
8 TREATMENT OF CONFIDENTIAL INFORMATION; PUBLICITY
8.1 Confidentiality.
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<PAGE> 27
8.1.1 Subject to the terms and conditions of this Agreement, Merck and
Aurora each agree that, during the term of this Agreement and for
***, it will use best efforts to keep confidential all Confidential
Information that is disclosed to it or to any of its Affiliates by
the other party in connection with the performance of this Agreement.
Neither Merck nor Aurora nor any of their respective Affiliates shall
use the other party's Confidential Information except as expressly
permitted in this Agreement. Nor will either party disclose the other
party's Confidential Information to an Affiliate that is not a
Subsidiary or Authorized Affliliate, without the written consent of
such other party.
8.1.2 Merck and Aurora each agree that any disclosure of the other's
Confidential Information to any officer, employee, contractor,
consultant, sublicensee, or agent of the other party shall be made
only if and to the extent necessary to carry out its responsibilities
under this Agreement and to exercise the rights granted to it
hereunder, shall be limited to the extent consistent with such
responsibilities and rights, and shall be provided only to such
persons or entities who are bound to maintain same in confidence in a
like manner as the party receiving same hereunder is so required.
Each party shall use reasonable efforts to take such action, and to
cause its Affiliates to take such action, to preserve the
confidentiality of each other's Confidential Information, using
efforts which are not less than efforts it would customarily take to
preserve the confidentiality of its own Confidential Information.
***. Each party, upon the other's request, will return all the
Confidential Information disclosed to it by the other party pursuant
to this Agreement, including all copies and extracts of documents,
within sixty (60) days of the request of the other party following
any termination of this Agreement, except for one (1) copy which may
be kept for the purpose of ascertaining and complying with continuing
confidentiality obligations under this Agreement.
8.1.3 Confidential Information shall not include any information which
the receiving party can prove by competent evidence:
i) is now, or hereafter becomes, through no fault of the
receiving party, generally known or available;
ii) is known by the receiving party at the time of
receiving such information, as evidenced by its records;
iii) is hereafter furnished to the receiving party without
restriction as to disclosure or use by a Third Party
lawfully entitled to so furnish same;
iv) is independently developed by the employees, agents or
contractors of the receiving party without the aid,
application or use of the disclosing party's Confidential
Information;
v) is the subject of a written permission to disclose
provided by the disclosing party; or
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vi) is provided by the disclosing party to a Third Party
without restriction as to confidentiality.
A party may also disclose Confidential Information of the other where
required to do so by law or legal process, provided that, in such event,
the party required to so disclose shall give maximum practical advance
written notice of same to the other party and will cooperate with the
other party's efforts to seek, at the request and expense of the other
party, all confidential treatment and protection for such disclosure as
is permitted by applicable law. The parties agree that the material
financial terms of this Agreement will be considered Confidential
Information of both parties. A party shall have the further right to
disclose the material financial terms of this Agreement under strictures
of confidentiality to any potential acquirer, bona fide potential
strategic partner or collaborator, merger partner, bank, venture capital
firm, or other financial institution to obtain financing with the
consent of the other party hereto, not to be unreasonably withheld. The
parties agree that information developed during the course of a
Collaborative Screen Program or a Merck-funded project pursuant to
Section 3.1.1.3 (i) will be considered Confidential Information of Merck
and shall be subject to the confidentiality requirements of this Section
8.1. Notwithstanding the foregoing, Aurora may disclose and use such
information which is related to the improvements licensed to Aurora by
Merck pursuant to Section 5.3.2 in the course of screen development
under strictures of confidentiality to bona fide sublicensees. The
parties agree that information developed during a jointly funded project
pursuant to Section 3.1.1.3 (ii) will be considered Confidential
Information of both parties and shall be subject to the confidentiality
requirements of this Section 8.1.
8.2 Publication of Results. If either party desires to publish or otherwise
disclose the results and data obtained by the parties in the course of a
Collaborative Screen Program or in the course of a project pursuant to
Section 3.1.1.3, such party shall provide a copy of any such proposed
public disclosure to the other party at least sixty (60) calendar days
prior to such disclosure. The other party shall have forty-five (45)
calendar days from the receipt of such proposed public disclosure to
object to the proposed disclosure or any portion thereof (a) on the
basis that it contains or references unprotected patentable subject
matter or (b) violates any provision of this Agreement, including the
confidentiality provisions hereof or (c) is factually inaccurate.
Notwithstanding anything herein to the contrary, if such party objects
on the basis that the disclosure contains unprotected patentable subject
matter, the disclosing party shall refrain from making the disclosure
for ninety (90) calendar days from the date of the other party's
objection in order to allow the other party an opportunity to obtain
proper legal protection for the subject matter contained in the proposed
public disclosure. In the event that the other party objects to any
proposed public disclosure on the basis that some or all of said
disclosure violates the confidentiality terms of this Agreement, said
disclosure shall not be made. In addition the parties agree to credit
each other when a publication is based in whole or in significant part
of the other party's Technology.
8.3 Publicity. Neither party may make any public announcement or otherwise
disclose the terms of this Agreement without the prior written consent
of the other party, which consent shall not be unreasonably withheld.
Upon execution of this Agreement, the parties shall issue a press
release in the form mutually agreed upon variant thereof. Any additional
press
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releases or public announcements with respect to this Agreement or
the transactions and activities contemplated herein shall be at such
time and in such manner as the parties shall mutually agree upon.
9 PATENT PROSECUTION AND COPYRIGHTS
9.1 Patent Filing, Prosecution and Maintenance. Merck will have
responsibility and sole control, at Merck's expense, for the filing,
prosecution (including an opposition or interference) and maintenance of
patents and patent applications claiming Compounds, Derivatives, Hits
Development Candidates or Products and the pharmaceutical uses thereof
and any Inventions owned by Merck or assigned to Merck hereunder and
which are not licensed to Aurora pursuant to Sections 5.3.2. Aurora will
have responsibility and sole control, at Aurora's expense, for the
filing, prosecution (including an opposition or interference) and
maintenance of patents and patent applications relating to the System
and Aurora Reporters; provided, however, that with respect to patents or
patent applications claiming Inventions licensed by Merck to Aurora
pursuant to Sections 5.3.2 and jointly owned patents and patent
applications, Merck and Aurora will cooperate in the filing, prosecution
(including an opposition or interference), and maintenance of such
patents and patent applications and the parties will share equally in
the control and expenses (including attorney fees) for such patents and
such patent applications. Should one party choose not to share in the
control, filing, prosecution, expense or maintenance of such patents or
patent applications, the other party with thirty (30) days written
notice to the non-sharing party may choose either (i) to gain sole
control of the filing, prosecution (including an opposition or
interference) or maintenance of such patents or patent applications or
(ii) to abandon the same; provided, however, that the party that
proceeds with the filing, prosecution (including an opposition or
interference), and maintenance will have sole responsibility for, and
sole control of the same and expenses; further provided, however, that
the party that does not proceed with such filing, prosecution,
maintenance and expenses will perfect the assignment of rights to the
party proceeding with such filing, prosecution, maintenance and
expenses. At Merck's reasonable request, not to exceed one request per
year, Aurora will use reasonable efforts to provide Merck with copies of
patent applications related to Aurora Patent Rights licensed under
Section 5.1, including patent applications covering improvements to
Aurora Reporters.
9.2 Copyrights. The parties agree to treat and handle, to the maximum
practical extent, any copyrights owned or Controlled by a party or
parties in the same manner as Patent Rights owned or Controlled by such
party or the parties.
10 WARRANTIES AND INDEMNIFICATION
10.1 Mutual Representations and Warranties. The parties make the
following representations and warranties to each other:
10.1.1 Corporate Power. Each party hereby represents and warrants that
such party is duly organized and validly existing under the laws of
the state of its incorporation and has
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<PAGE> 30
full corporate power and authority to enter into this Agreement and
to perform its obligations under the Agreement.
10.1.2 Due Authorization. Each party hereby represents and warrants that
such party (a) has the requisite power and authority and the legal
right to enter into the Agreement and to perform its obligations
hereunder; and (b) has taken all necessary action on its part to
authorize the execution and delivery of the Agreement and to
authorize the performance of its obligations hereunder and the grant
of rights extended by it hereunder.
10.2 Warranties and Aurora Technology. Aurora represents and warrants to
Merck on and before the Effective Date that to the best knowledge of
Aurora:
***.
10.2.1 ***.
10.2.2 EXCEPT AS SET FORTH IN SECTION 10.2 ABOVE, AURORA (INCLUDING ITS
OFFICERS, EMPLOYEES AND AGENTS) EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, RELATING
TO AURORA PATENT RIGHTS, AURORA COPYRIGHTS AND AURORA TECHNOLOGY.
AURORA FURTHER DISCLAIMS I) ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF AURORA
TECHNOLOGY, A DELIVERABLE, A VIPR, AN OPTIONAL DELIVERABLE, AND
AURORA PATENT RIGHTS, II) ANY EXPRESS OR IMPLIED WARRANTY THAT THE
PRACTICE OF AURORA COPYRIGHTS, AURORA TECHNOLOGY OR AURORA PATENT
RIGHTS WILL NOT INFRINGE A PATENT, COPYRIGHT, TRADEMARK OR OTHER
RIGHT OF A THIRD PARTY, AND III) ANY EXPRESS OR IMPLIED WARRANTY
REGARDING THE PATENTABILITY OF ANY AURORA TECHNOLOGY, INCLUDING
AURORA TECHNOLOGY CLAIMED IN PATENT APPLICATIONS AS PART OF AURORA
PATENT RIGHTS.
10.3 Aurora Indemnification. Aurora hereby agrees to indemnify, defend and
hold Merck, and its officers, directors, employees, and agents
(collectively, the "Merck Indemnitees") harmless from and against all
damages or other amounts payable to a Third Party, including
reasonable attorneys' fees and costs of litigation, resulting from a
suit or ***.
10.4 Warranties and Merck Technology. Merck represents and warrants to
Aurora on and before the Effective Date that to the best knowledge of
Merck:
***.
10.4.1 EXCEPT AS SET FORTH IN SECTION 10.4 ABOVE, MERCK (INCLUDING ITS
OFFICERS, EMPLOYEES AND AGENTS) EXPRESSLY DISCLAIM ANY
REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED,
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<PAGE> 31
RELATING TO MERCK PATENT RIGHTS, MERCK COPYRIGHTS AND MERCK
TECHNOLOGY. MERCK FURTHER DISCLAIMS: I) ANY EXPRESS OR IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF
MERCK TECHNOLOGY OR MERCK PATENT RIGHTS; II) ANY EXPRESS OR IMPLIED
WARRANTY THAT THE PRACTICE OF MERCK COPYRIGHTS, MERCK TECHNOLOGY OR
MERCK PATENT RIGHTS WILL NOT INFRINGE A PATENT, COPYRIGHT, TRADEMARK
OR OTHER RIGHT OF A THIRD PARTY; AND III) THE PATENTABILITY OF ANY
MERCK TECHNOLOGY, INCLUDING MERCK TECHNOLOGY CLAIMED IN PATENT
APPLICATIONS AS PART OF MERCK PATENT RIGHTS.
10.5 Merck Indemnification. Merck hereby agrees to indemnify, defend and
hold Aurora, and its officers, directors, employees, and agents
(collectively, the "Aurora Indemnitees") harmless from and against all
damages or other amounts payable to a Third Party, including reasonable
attorneys' fees and costs of litigation, ***.
11 TERM, EARLY SYSTEM PURCHASE CONCLUSION AND TERMINATION
11.1 Term. The term of this Agreement will begin on the Effective Date
and shall continue until expiration of the ***.
11.2 Termination by Mutual Agreement. The parties may at any time
terminate this Agreement, in whole or in part, by written agreement
executed by both Aurora and Merck. In such event, the document effecting
such termination shall specify the continuation or termination of any
license rights granted hereunder, as well as any other terms agreed to
by both parties.
11.2.1 ***.
11.3 ***.
11.4 Effect of Expiration or Termination. Except as provided by Section
11.4, Expiration or termination of this Agreement shall not relieve the
parties of any obligation accruing prior to such expiration or
termination. The obligations and rights of the parties under Sections
3.1.4, 5.3, 5.1.8,, 10.2.2, 10.3, 10.4.1, 10.5, Articles 6, 7, 8, 9, and
12, thereof, as well as any provisions, which, by their intent or
meaning are intended to so survive, shall survive termination or
expiration of this Agreement. Except as otherwise expressly provided in
this Agreement, the rights and obligations of the parties under Sections
5.1.1, 5.1.2, 5.1.3 and 5.1.4 hereof shall terminate and be of no
further force or effect whatsoever upon any termination of this
Agreement.
11.5 Effect of Expiration or Termination. Except as provided by Section
11.4, Expiration or termination of this Agreement shall not relieve the
parties of any obligation accruing prior to such expiration or
termination. The obligations and rights of the parties under ***,
thereof, as well as any provisions, which, by their intent or meaning
are intended to so survive, shall survive termination or expiration of
this Agreement. Except as otherwise
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<PAGE> 32
expressly provided in this Agreement, the rights and obligations of the
parties under *** hereof shall terminate and be of no further force or
effect whatsoever upon any termination of this Agreement.
12 MISCELLANEOUS
12.1 Assignment. Notwithstanding any provision of this Agreement to the
contrary, ***.
12.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the successors and permitted assigns of the parties. Any
assignment not in accordance with this Agreement shall be void.
12.3 Force Majeure. Neither party shall lose any rights hereunder or be
liable to the other party for damages or losses on account of failure of
performance by the defaulting party if the failure is occasioned by war,
fire, explosion, flood (including but not limited to, floods caused by
El Nino), earthquake, strike, lockout, embargo, act of God, or any other
similar cause beyond the control of the defaulting party, provided that
the party claiming force majeure has exerted all reasonable efforts to
avoid or remedy such force majeure and thereafter takes all reasonable
steps to mitigate any such delay in performance hereunder and any
damages that may be incurred by the other party thereby.
12.4 Notices. Any notices or communications provided for in this
Agreement to be made by either of the parties to the other shall be in
writing, in English, and shall be made by prepaid air mail with return
receipt addressed to the other at its address set forth below. Any such
notice or communication may also be given by hand, by courier or by
facsimile to the appropriate designation. Notices shall be sent:
If to Merck, to: Merck & Co., Inc.
P.O. Box 100
One Merck Drive
Whitehouse Station, NJ 08889-0100
Attention: Vice President, Corporate Licensing
Copy: Office of Secretary
Fax: 908-735-1246
If to Aurora, to: Aurora Biosciences Corporation
11010 Torreyana Road
San Diego, CA 92121
Attention: Timothy J. Rink, M.D., Sc.D.
Chairman, CEO, and President
Copy: Paul A. Grayson
Senior Vice President, Corporate Development
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<PAGE> 33
Fax: 619-452-5723
provided that if such notice or communication relates to an amendment to
this Agreement or to any notice pursuant to Article 11 hereof, a copy
shall also be sent to:
If to Aurora, to: John Mendlein, Ph.D., J.D.
Vice President, Senior Legal Counsel
Aurora Biosciences Corporation
11010 Torreyana Road
San Diego, CA 92121
Either party may by like notice specify or change an address to which
notices and communications shall thereafter be sent. Notices sent by mail,
facsimile or courier shall be effective upon receipt and notices given by
hand shall be effective when delivered.
12.5 Governing Law and Jurisdiction. This Agreement shall be governed by
the laws of the State of California, without regard to its rules of
conflict of laws as such laws are applied to contracts entered into and
to be performed within such state.
12.6 Waiver. Except as specifically provided for herein, the waiver from
time to time by either of the parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a
continuing waiver of same or any of other of such party's rights or
remedies provided in this Agreement.
12.7 Severability. If any term, covenant or condition of this Agreement
or the application thereof to any party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then the remainder of
this Agreement, or the application of such term, covenant or condition
to parties or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and each term,
covenant or condition of this Agreement shall be valid and be enforced
to the fullest extent permitted by law; and the parties hereto covenant
and agree to renegotiate any such term, covenant or application thereof
in good faith in order to provide a reasonably acceptable alternative to
the term, covenant or condition of this Agreement or the application
thereof that is invalid or unenforceable, it being the intent of the
parties that the basic purposes of this Agreement are to effectuated.
12.8 Independent Contractors. It is expressly agreed that Aurora and
Merck shall be independent contractors and that the relationship between
the two parties shall not constitute a partnership or agency of any
kind. Neither Aurora nor Merck shall have the authority to make any
statements, representations or commitments of any kind, or to take any
action, which shall be binding on the other, without the prior written
authorization of the party to do so.
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<PAGE> 34
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.10 Entire Agreement. This Agreement between the parties sets forth all
of the covenants promises, agreements, warranties, representations,
conditions and understandings between the parties hereto, and supersedes
and terminates all prior agreements and understanding between the
parties, with respect to the subject matter hereof. There are no
covenants, promises, agreements, warranties, representation conditions
or understandings; either oral or written, between the parties other
than as set forth herein and therein. No subsequent alteration,
amendment, change or addition to this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by the
respective authorized officers of the parties. This Agreement shall not
be strictly construed against either party hereto. Any conflict between
the terms set forth in the text of this Agreement and the terms of any
Exhibit hereto shall be resolved in favor of the text of this Agreement.
12.11 No Third Party Beneficiaries. No Third Party, including any
employee of any party to this Agreement when acting within the scope of
his or her employment, shall have or acquire any rights by reason of
this Agreement. Nothing contained in this Agreement shall be deemed to
constitute the parties partners with each other or any third party.
12.12 Construction. The term "Article" or "Section" can refer to any
single paragraph level found herein or any collection of multiple
paragraphs.
12.13 Dispute Resolution. The parties recognize that disputes as to
certain matters may from time to time arise during the term of this
Agreement which relate to either party's rights and/or obligations
hereunder. It is the objective of the parties to establish procedures to
facilitate the resolution of disputes arising under this Agreement in an
expedient manner by mutual cooperation and without resort to
arbitration. The parties agree that prior to any arbitration concerning
this Agreement, a member of Merck's senior management and Aurora's
president will meet in person or by video-conferencing in a good faith
effort to resolve any disputes concerning this Agreement. Within thirty
(30) days of a formal request by either party to the other, any party
may, by written notice to the other, have such dispute referred to their
respective officers designated or their successors, for attempted
resolution by good faith negotiations, such good faith negotiations to
begin within thirty (30) days after such notice is received. Any dispute
arising out of or relating to this Agreement which is not resolved
between the parties or the designated officers of the parties pursuant
to Section 12.13 shall be resolved by final and binding arbitration
conducted in Denver, Colorado (unless the parties mutually agree to
another location) under the then current Licensing Agreement Arbitration
Rules of the American Arbitration Association ("AAA"). The arbitration
shall be conducted by three (3) arbitrators who are knowledgeable in the
subject matter which is at issue in the dispute. One arbitrator will be
selected by Merck and one arbitrator will be selected by Aurora and the
third arbitrator will be appointed by the AAA. In conducting the
arbitration, the arbitrator shall determine what discovery will be
permitted, consistent with the goal of limiting the cost and time which
the parties must expend for discovery (and provided that the arbitrators
shall permit such discovery they
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<PAGE> 35
deem necessary to permit an equitable resolution of the dispute), and
shall be able to decree any and all relief of an equitable nature,
including but not limited to such relief as a temporary restraining
order, a preliminary injunction, a permanent injunction, specific
performance or replevin of property. The arbitrators shall also be able
to award actual or general damages, but shall not award any other form
of damage (e.g., consequential, punitive or exemplary damages). The
parties shall share equally the arbitrator's fees and expenses pending
the resolution of the arbitration unless the arbitrators require the
non-prevailing party to bear all or any portion of the costs of the
prevailing party. The decision of the arbitrators shall be final and may
be sued on or enforced by the party in whose favor it runs in any court
of competent jurisdiction at the option of such party. Notwithstanding
anything to the contrary in this Section 12, either party may seek
immediate injunctive or other interim relief from any court of competent
jurisdiction with respect to any breach of Articles 5, or 8 hereof, or
otherwise to enforce and protect the patent rights, copyrights,
trademarks, or other intellectual property rights owned or Controlled by
such party. In no event shall a demand for arbitration be made after the
date when the institution of a legal or equitable proceeding based on
such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
MERCK & CO., INC. AURORA BIOSCIENCES CORPORATION
By: /s/ EDWARD M. SCOLNICK By: /s/ TIMOTHY J. RINK
----------------------------- ---------------------------------------
Name: Edward M. Scolnick Name: Timothy J. Rink
--------------------------- -------------------------------------
Title: President, Merck Research Title: President & Chief Executive Officer
-------------------------- ------------------------------------
Laboratories
--------------------------
*** CONFIDENTIAL TREATMENT REQUESTED
35
<PAGE> 36
LIST OF EXHIBITS
***
*** CONFIDENTIAL TREATMENT REQUESTED
36
<PAGE> 1
LEASE MANAGEMENT SERVICES, INC. EXHIBIT 10.29
NEGATIVE COVENANT PLEDGE AGREEMENT
Agreement made and entered into as of this 29 day of September 1997, by and
between Aurora Biosciences Corporation, a Delaware Corporation, with its
principal place of business at 1149 N. Torrey Pines Road, La Jolla, CA 92037
("Pledgor") and LEASE MANAGEMENT SERVICES, INC., a California Corporation, with
its principal place of business at 2500 Sand Hill Road, Suite #101, Menlo Park,
CA 94025 ("Pledgee").
In consideration of, and as an inducement for Pledgee to enter into Master Lease
Agreement Number 10494, Schedules 07 and subsequent, and Equipment Financing
Agreement Number 10794, Schedules 14 and subsequent, (referred to hereinafter as
the "Agreements") with Pledgor, and to secure the payment and performance of all
Pledgor's obligations under the Agreements, Pledgor and Pledgee agree as
follows:
1) If at any point in time from the date of this Agreement, Pledgor's
Unrestricted Cash (as defined below) falls below the greater of
$8,000,000 or 9 months' cash needs (defined as the cash burn for the 3
months just completed, multiplied by a factor of 3.3), or Pledgor is in
default of the Agreements, Pledgor will provide to Pledgee within ten
(10) days of such occurrence a cash security deposit in an amount equal
to fifteen percent (15%) of the total aggregate Equipment cost
(including any soft costs) which are financed under the Agreements
("Collateral Pledge"), but in no event to exceed the remaining gross
receivable.
Unrestricted Cash shall be defined as cash on hand, including
investments in marketable securities with maturities of less than one
(1) year, less all long-term debt which is not subordinated to Pledgee.
The failure to timely provide the Collateral Pledge to Pledgee shall
constitute an event of default under the Agreements.
2) Pledgor agrees to provide quarterly financial statements, including a
balance sheet, statement of operations, and cash flow statement, to
Pledgee within 45 days of each quarter end and an audited annual
statement within 120 days of Pledgor's fiscal year end. All such
statements are to be prepared using generally accepted accounting
principles and are to be in compliance with SEC requirements. Failure to
provide these statements as specified herein will constitute an event of
default under the Agreements.
Additionally, at any time that Pledgor's Unrestricted Cash is several
months from falling below the benchmark above, Pledgor's Chief Financial
Officer or other senior officer will, at Pledgee's request, provide
Pledgee with the monthly closing cash balance by not later than the 10th
business day following each month-end.
3) Pledgor agrees to keep all Unrestricted Cash within the following
financial institutions:
Financial Institution: __________________________
Account Number: __________________________
Officer Contact: __________________________
Phone Number: __________________________
<PAGE> 2
NEGATIVE COVENANT PLEDGE AGREEMENT
AURORA BIOSCIENCES CORPORATION
PAGE 2 OF 3
Financial Institution: __________________________
Account Number: __________________________
Officer Contact: __________________________
Phone Number: __________________________
Financial Institution: __________________________
Account Number: __________________________
Officer Contact: __________________________
Phone Number: __________________________
Any change in the above information shall be provided in writing by
Pledgor to Pledgee within five (5) days of such change.
Pledgor hereby authorizes these financial institutions to give specific
account balance information to Pledgee and agrees to execute any other
documents or take any other action required to provide verification of
Unrestricted Cash balances.
4) Pledgor agrees to recognize the Collateral Pledge as a contingent
liability and to establish the appropriate reserves.
5) Upon any default by Pledgor under the Agreements and while the same is
continuing, interest accrual on the Collateral Pledge shall cease and
Pledgee may, at its option, apply the Collateral Pledge toward the
satisfaction of Pledgor's obligations under the Agreements and the
payment of all reasonable costs and expenses incurred by Pledgee as a
result of such default, including reasonable attorney's fees. Pledgee is
liable to Pledgor only for any surplus remaining from said Collateral
Pledge after the full satisfaction of the foregoing obligations, costs
and expenses.
6) Pledgee shall have no duty to first commence an action against or seek
recourse from Pledgor, if an event of default occurs and is continuing
under the Agreements, before enforcing the provisions of, and proceeding
under the provisions of, this Negative Covenant Pledge Agreement. The
obligations of Pledgor under this Negative Covenant Pledge Agreement
shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released or discharged or in
any way affected by:
a) any amendment or modification of or supplement to the Agreements;
b) any exercise or non-exercise of any right, remedy or privilege
under or in respect to this Negative Covenant Pledge Agreement,
the Agreements, or any other instrument provided for in the
Agreement(s), or any waiver, consent, explanation, indulgency or
actions or inaction with respect to any such instrument; or
c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding of
Pledgor.
7) The entire Collateral Pledge will be returned to Pledgor when Pledgor's
Unrestricted Cash exceeds the benchmark defined above for a period of at
least one fiscal quarter and continues to remain greater than the
benchmark above and Pledgor is not in default under the Agreements or
under any material financial obligation. (Alternatively, the entire
Collateral Pledge will be returned immediately in the event Pledgor's
new equity or other non-refundable cash is great enough, in Pledgee's
reasonable judgement, to keep Pledgor's Unrestricted Cash above the
benchmark for at least three fiscal quarters and
<PAGE> 3
NEGATIVE COVENANT PLEDGE AGREEMENT
AURORA BIOSCIENCES CORPORATION
PAGE 3 OF 3
Pledgor is not in default under the Agreements or under any material
financial obligation).
Alternatively, in the event of an acquisition, if a credit worthy
acquiror executes an assignment or guarantee acceptable to Pledgee, any
deposits held will be returned to Pledgor.
Return of any required Collateral Pledge prior to the Termination of the
Agreements (as defined below) is contingent upon the following
additional conditions: (a) verification of all benchmarks is to be
acceptable to Pledgee; (b) Pledgor is not in default under the
Agreements, and c) Pledgor has not suffered any material adverse change
and is not aware of any prospective material adverse change.
The "Termination of the Agreements" shall be defined as the satisfaction
of all Pledgor's obligations under the Agreements.
If the Collateral Pledge is returned prior to the Termination of the
Agreements, this Negative Covenant Pledge Agreement shall remain in full
force and effect.
8) If the Collateral Pledge has not been previously returned, upon
Termination of the Agreements Pledgee shall deliver the Collateral
Pledge (less any portion of same cashed, sold, assigned or delivered
pursuant to, and under the circumstances specified in, Paragraph 5
hereof) promptly to Pledgor, and this Negative Covenant Pledge Agreement
shall thereupon be without further effect.
IN WITNESS WHEREOF, the parties hereto have caused this Negative Covenant Pledge
to be executed as of the date first written above.
PLEDGOR: PLEDGEE:
AURORA BIOSCIENCES CORPORATION LEASE MANAGEMENT SERVICES, INC.
By: /s/ DEBORAH J. TOWER By: /s/ BARBARA B. KAISER
Its: Senior Director, Its: EVP/General Manager
Finance and Administration
<PAGE> 1
EXHIBIT 10.30
LEASE MANAGEMENT SERVICES, INC.
COLLATERAL SECURITY AGREEMENT
Agreement made and entered into as of this 16 day of December, 1997, by and
between AURORA BIOSCIENCES CORPORATION, ("Lessee/Debtor") and LEASE MANAGEMENT
SERVICES, INC. ("Lessor/Secured Party").
As security for the payment and performance by AURORA BIOSCIENCES CORPORATION,
("Lessee/Debtor") to LEASE MANAGEMENT SERVICES, INC. ("Lessor/Secured Party");
(a) under Master Lease Agreement Number 10494, Equipment Financing Agreement
Number 10794, and all Schedules thereunder, between Lessee/Debtor and
Lessor/Secured Party (hereinafter collectively referred to as the "Agreements");
(b) any and all obligations of Lessee/Debtor to Lessor/Secured Party hereunder
and any and all indebtedness and obligations of Lessee/Debtor to Lessor/Secured
Party, direct, indirect or contingent, joint or several, whether or not
otherwise secured, and whether now existing or hereafter incurred; and (c) any
and all amounts advanced or expended by Secured Party for the maintenance or
preservation of the Collateral (as defined below); Lessee/Debtor hereby pledges,
assigns and grants to Lessor/Secured Party, a first security interest in:
All equipment (except computer equipment) which was previously leased or
financed or will be leased or financed under the Agreements, together with all
accessories, parts, upgrades, renewals and replacements of, and repairs,
improvements and accessions to the equipment assets and any insurance proceeds
or revenue derived from the sale or other disposition of the equipment
("Collateral"). This first security interest will remain in full force and
effect until all of Lessee/Debtor's obligations are fulfilled under the
Agreements.
Lessee/Debtor hereby warrants that it is the sole owner in possession of all
Collateral and that the Collateral is free and clear of all liens, encumbrances
and adverse claims, with the exception of the security interest herein created
and all other security interests previously granted to LESSOR/SECURED PARTY.
Lessee/Debtor agrees to execute and deliver to Lessor/Secured Party at any time
and from time to time such other security agreements or mortgages of chattel as
Lessor/Secured Party may reasonably request, covering the COLLATERAL.
Lessee/Debtor also agrees to appear in and defend any and all actions and
proceedings, at its own expense, affecting title to the Collateral or any part
thereof, or affecting the security interest of Lessor/Secured Party therein.
Lessee/Debtor also agrees to: do all acts which may be necessary to maintain,
preserve and protect the Collateral and to keep the Collateral in good condition
and repair; not to cause or permit any waste or unusual or unreasonable
depreciation thereof or any act for which the Collateral might be confiscated;
to pay before delinquency all taxes, assessments and liens now or hereafter
imposed upon the Collateral; not to sell, lease, encumber or dispose of all or
any part of the Collateral; at any time upon demand of Lessor/Secured Party to
exhibit to and allow inspection by Lessor/Secured Party of the Collateral; not
to remove or permit the removal of the Collateral from the premises where it is
now located without the prior written consent of Lessor/Secured Party; to
provide, maintain and deliver to Lessor/Secured Party policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms and
companies as Lessor/Secured Party reasonably requires and with loss payable to
Lessor/Secured Party. If Lessor/Secured Party takes possession of the Collateral
in the event of a Default, the insurance policy or policies of any unearned or
returned premium shall, at the option of Lessor/Secured Party, be assigned by
Lessee/Debtor to Lessor/Secured Party, upon Lessor/Secured Party crediting the
amount of any unearned premium upon the obligation secured hereby.
In the event the Collateral or an item thereof is destroyed and payment upon
such policies of insurance is made to Lessee/Debtor and Lessee/Debtor chooses
not to replace the Collateral with
<PAGE> 2
COLLATERAL SECURITY AGREEMENT
AURORA BIOSCIENCES CORPORATION
PAGE 2 OF 3
equipment of like kind or value, Lessor/Secured Party will retain all insurance
proceeds except to the extent that the proceeds exceed the remaining obligation
of Lessee/Debtor to Lessor/Secured Party. If Lessee/Debtor chooses to replace
the Collateral or any item thereof with equipment of like kind and value, the
replacement must be completed within 35 days of loss, unless otherwise agreed by
Lessor/Secured Party, Lessee/Debtor must acquire title to the replacement free
and clear of liens and encumbrances and grant to Lessor/Secured Party a first
priority perfected security interest therein; otherwise Lessor/Secured Party
shall be entitled to the insurance proceeds. The provisions of this paragraph
shall not apply to Collateral specifically covered by any schedules to an
Equipment Financing Agreement between Lessee/Debtor and Lessor/Secured Party
which shall be governed by the provisions of the applicable Equipment Financing
Agreement.
If Lessee/Debtor fails to make any payment or do any act as herein required,
then Lessor/Secured Party may, but without obligation to do so, and without
notice to or demand upon Lessee/Debtor, make such payments and do such acts as
Lessor/Secured Party may deem necessary to protect its security interest in the
Collateral. Lessor/Secured Party is hereby authorized (without limiting the
general nature of the authority hereinabove conferred) to take possession of the
Collateral; to pay, purchase, contest, and compromise any encumbrance, charge or
lien which in the judgment of Lessor/Secured Party appears to be prior or
superior to its security interest; and, in exercising any such powers and
authority, to pay necessary expenses, employ counsel and pay reasonable fees
therefor. Lessee/Debtor hereby agrees to repay immediately, and without demand,
all sums so expended by Lessor/Secured Party, with interest from date of
expenditure at the rate of Eighteen Percent (18%), but never to exceed any legal
limit for such interest.
Any officer of Lessor/Secured Party is hereby irrevocably appointed the
attorney-in-fact of Lessee/Debtor, with full power of substitution, to sign any
certificate of ownership, registration card, application therefor, affidavits or
documents necessary to transfer title to any of the Collateral, to receive and
give receipt for all licenses, registration cards and certificates of ownership,
and to do all acts necessary or incident to the powers granted to Lessor/Secured
Party herein, as full as Lessee/Debtor might.
Should Lessee/Debtor default under the Equipment Financing Agreement,, upon
written notice, pursuant to the terms and conditions of the Agreements,
Lessor/Secured Party may (a) immediately take possession of the Collateral
wherever it may be found, using all necessary force to do so or require
Lessee/Debtor to assemble the Collateral and make it available to Lessor/Secured
Party at a place designated by Lessor/Secured Party which is reasonably
convenient to Lessor/Secured Party, and Lessee/Debtor waives all claims for
damages due to or arising from or connected with any such taking; (b) proceed in
the foreclosure of Lessor/Secured Party 's security interest and the sale of the
Collateral in any manner permitted by law, or provided for herein; (c) sell,
lease or otherwise dispose of the Collateral at public or private sale, with or
without having the Collateral at the place of sale, and upon terms and in such
manner as Lessor/Secured Party may determine, and Lessor/Secured Party may
purchase the same at any such sale; (d) retain the Collateral in full
satisfaction of the obligations secured thereby; (e) exercise any remedies of
Lessor/Secured Party under the Uniform Commercial Code.
Prior to any such disposition, Lessor/Secured Party may, at its option, cause
any of the Collateral to be repaired or reconditioned in such manner and to such
extent as Lessor/Secured Party may deem advisable, and any sums expended
therefor by Lessor/Secured Party shall be repaid by Lessee/Debtor and secured
hereby; Lessor/Secured Party shall have the right to enforce one or more
remedies hereunder successively or concurrently, and any such action shall not
stop or prevent Lessor/Secured Party from pursuing any further remedy which it
may have hereunder or by law. If a sufficient sum is not realized from any such
disposition of Collateral to pay all
<PAGE> 3
COLLATERAL SECURITY AGREEMENT
AURORA BIOSCIENCES CORPORATION
PAGE 3 OF 3
obligations secured by this agreement, Lessee/Debtor hereby promises and agrees
to pay Lessor/Secured Party any deficiency.
Time and exactitude of each of the terms, obligations, covenants and conditions
are hereby declared to be the essence hereof. No waiver by Lessor/Secured Party
of any breach or default shall be deemed a waiver of any breach or default
thereafter occurring and the taking of any action by Lessor/Secured Party shall
not be deemed to be an election of that action but rather the rights and
privileges and options granted to Lessor/Secured Party under the terms hereof
shall be deemed cumulative, the one with the other and not alternative.
Should the Collateral be sold, with or without the consent of Lessor/Secured
Party, then it is expressly agreed that the proceeds from said sale are hereby
assigned to Lessor/Secured Party who shall immediately receive the entire
proceeds.
Lessee/Debtor agrees to execute any additional documents deemed necessary by
Lessor/Secured Party to assure the perfection of the security interest created
hereunder and to pay any fees or charges paid by Lessor/Secured Party in
connection with the perfection of, or continue the perfection of, the security
interest created hereunder.
Upon termination of the Agreements and the satisfaction of all obligations of
Lessee/Debtor thereunder, Lessor/Secured Party shall release its security
interest in the Collateral, and this Collateral Security Agreement shall
thereupon be without further effect.
IN WITNESS WHEREOF, the parties have caused this Collateral Security Agreement
to be executed as of this 16 day of December, 1997.
LESSEE/DEBTOR: LESSOR/SECURED PARTY:
AURORA BIOSCIENCES LEASE MANAGEMENT SERVICES, INC.
CORPORATION
By: /s/ DEBORAH J. TOWER By: /s/ BARBARA B. KAISER
Title: Vice President, Title: EVP/General Manager
Finance and Administration
<PAGE> 1
EXHIBIT 10.31
PACKARD AURORA SUPPLY AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the
Effective Date (wherein the "EFFECTIVE DATE" means the date that this Agreement
is executed by the last party to so execute) by and between Packard Instrument
Company, Inc., a State of Delaware corporation with its principal office at 800
Research Parkway, Meriden, Connecticut 06450 and Affiliates ("PIC"), and Aurora
Biosciences Corporation, a State of Delaware corporation with its principal
office at 11010 Torreyana Road, San Diego, California, 92121 and Affiliates
("ABSC"). This Agreement is entered into as agreed in the Collaboration and
License Agreement between ABC and PIC dated April 24, 1996 ("COLLABORATION
AGREEMENT"), Section 6.2.
RECITALS
ABSC and PIC (the "PARTIES") desire to enter into an agreement pursuant
to which *** therefor (the "PRODUCTS"), described in *** (the "***")*** (the
"PRODUCT DESIGN"), and (ii) *** (the "STANDARD INSTRUMENTS"), the Products and
Standard Instruments being referred to collectively in this Agreement as the
"COMPONENTS*** (the "SYSTEMS"). ***.
TERMS
1. SUPPLY OF PRODUCTS
*** the Products ordered in purchase orders submitted by *** pursuant to Article
3 and as set forth in this Agreement. *** will supply and manufacture such
Products in accordance with the Product Specifications and delivery times as set
forth herein. *** will allocate sufficient resources, capital equipment,
materials, tools and labor to accomplish its obligations herein.
2. SPECIFICATIONS AND PRODUCT DESIGN
2.1 Specifications. The Product Specifications set forth in Exhibit A may be
modified from time to time by written agreement of the Parties. Products
supplied after such modification will conform to such modified Product
Specifications.
2.2 ***.
3. PURCHASE ORDERS
3.1 Purchase Orders by ***. This Agreement shall not be construed as a purchase
order or as
*** CONFIDENTIAL TREATMENT REQUESTED 1
<PAGE> 2
authority to ship. Any such order or authority shall be evidenced by specific
and separate purchase orders issued by *** pursuant to this Section 3. All
purchase orders shall be governed exclusively by the terms and conditions of
this Agreement. In the event of a conflict between any terms or conditions in
this Agreement and those contained in the purchase orders, the terms and
conditions of this Agreement shall prevail.
3.2 Purchase and Supply Commitment for 1998*** a minimum ***, as described in
Exhibit A) and ***", as described in Exhibit A), subject to delivery by *** and
acceptance by *** under the terms of this Agreement. Purchase orders for such
Products will be submitted by *** in accordance with Section 3.3.
3.3 Quarterly Orders and Forecasts. During the Term of this Agreement (as set
forth in Section 11.1) ***, specifying the required delivery dates. At such time
***, provided that such forecast shall not constitute any commitment or
obligation whatsoever on the part ***.
3.4 Purchase Orders. In addition to the Quarterly Orders, ***. Such purchase ***
in advance of the required delivery date, unless a shorter lead-time is mutually
agreed to by the Parties.
4. DELIVERY
4.1 Time of Delivery. Subject to Section 4.2 below, ***. Such delivery dates
shall not vary by more than ***, unless mutually agreed upon in writing by the
parties.
4.2 Acceptance. *** shall inspect, ***.
4.3 Defective Products. Within thirty (30) working days of receiving
notification of defective Products from *** shall (i) correct the defects, (ii)
replace the defective Products or (iii) grant *** a credit for such rejected
Products equal to the price paid therefor.
4.4 Late Delivery. If PIC is unable to deliver the Products on the date
specified in purchase orders where such purchase order is accepted and confirmed
in writing by PIC, PIC shall have thirty (30) days to cure late delivery. In the
event PIC fails to deliver Products within thirty (30) days of the date
specified on such purchase order, ABSC may, at ABSC sole discretion: (i)
reschedule shipment or (ii) be released from its obligation to purchase said
late Products.
4.5 Repeated Late Delivery. If, after delivery of *** and *** fails to deliver
on more than ***, a Product within the thirty day grace period, *** may, at its
sole discretion: (i) reschedule shipment, (ii) be released from its obligation
to purchase said late Products and/or (iii) ***, plus the length of time
required to manufacture such Products, and be provided promptly with all
drawings and documentation required thereto. The royalty to be paid by *** in
option (iii) above will be between *** of sales for such Products, the exact
percentage to be negotiated by the Parties. If *** cures the reason for the
delay to the reasonable satisfaction of *** and provides written notification of
the cure to ***, any remaining Product needed by *** at the time of such
notification will be purchased from *** subject to the terms of this Agreement,
the non-exclusive license provided for within this section 4.5 shall terminate
and all drawings and documentation
*** CONFIDENTIAL TREATMENT REQUESTED 2
<PAGE> 3
provided to *** under this section 4.5 shall be returned to ***.
5. LICENSE GRANT
PIC hereby grants to ABSC ***.
***.
6. FIELD REPAIR SERVICES
6.1 Services to ABSC by PIC. *** will provide at *** request field repair
services at ABSC's facilities. Such services will be provided by *** at no
charge to ABSC for one *** acceptance of a Component by ***. After the one
(1)-year period following acceptance of any Component, such services will be
provided by *** customary charges for servicing comparable equipment at
comparable customer locations.
6.2 Services to ABSC's Customers by PIC. *** will provide at *** request field
repair services for *** customers. PIC will provide such services for *** at
charges comparable to PIC's customary charges for servicing comparable equipment
at comparable locations for *** following acceptance of a Component by ***.
After the *** following acceptance of any Component, PIC will provide such
services for *** at *** customary charges on an annual service contract basis
for servicing comparable equipment at comparable customer locations.
7. PRICES AND PAYMENTS
7.1 Price Basis for Products.
(a) The prices to *** plus the product of the cost of goods sold ***
times *** is less than or equal to *** or (ii) *** when *** is greater than ***.
The price to ABSC for all subsequent *** shall be (i) *** times *** when *** is
less than or equal to ***, or (ii) *** plus ***, when *** is greater than ***.
After the first six production quality units for a particular ***, in no case
will the price to *** be greater than the lowest price PIC charges to a third
party for such *** or a substantially similar ***. Supplied with each ***.
(b) The prices to *** shall be (i) *** times *** when *** is less than
or equal to *** or (ii) *** plus *** when *** is greater than ***. The price to
ABSC for all subsequent *** shall be (i) *** times *** when *** is less than or
equal to ***, or (ii) *** plus *** when *** is greater than ***. After the first
six production quality units for a particular ***, in no case will the price to
*** be greater than the lowest price PIC charges to a third party for such ***
or a substantially similar ***.
*** CONFIDENTIAL TREATMENT REQUESTED 3
<PAGE> 4
7.2 Inclusions to Prices. The prices for the Products are inclusive of all (i)
boxing, crating, containerizing, carting, drayage, storage, and packaging; (ii)
shipping to ABSC's facilities located in the United States including insurance
during shipment and (iii) spare parts as specified ***.
7.3 Time of Payment. Payment of *** of the total price will be made by ***
within *** after delivery of Product to *** facility. The remaining *** of the
total price will paid by *** within *** after acceptance by *** as set forth in
Section 4.2.
7.4 Payment Does Not Constitute Acceptance. Payment shall not constitute
acceptance of Products and shall be subject to adjustment for errors, shortage,
defects in Products or other failure of PIC to comply with the terms of this
Agreement. Acceptance shall be deemed to have taken place as set forth in
Section 4.2.
7.5 Audits. PIC shall maintain for *** from the date of manufacturing complete
and accurate records of the information necessary to determine the COGS and
calculate the pricing for each Product. ABSC shall have the right at ABSC's
expense to audit or have audited by an independent third party such records in
order to verify compliance of the pricing with terms of this Agreement. If such
an audit reveals an overcharge in excess of *** in a given ***, PIC shall adjust
the price to comply with this Agreement, credit *** for any overcharges paid by
*** during the applicable period and reimburse *** for the reasonable, direct
and necessary costs of the audit.
8. REPRESENTATIONS AND WARRANTIES
8.1 Warranty on Products. PIC represents and warrants that all Products
including all parts, components and materials incorporated therein, will be ***.
All Products will be produced in accordance with and will conform to the Product
Specifications.
8.2 General Warranties of PIC. PIC further represents and warrants that:
(a) PIC is free to enter into and perform this Agreement in all
respects;
(b) in designing, manufacturing, assembling and otherwise producing
Products, PIC, to the best of PIC's knowledge, will not be in violation of or
infringing upon the rights of any third parties;
(c) PIC 's entering into this Agreement does not violate any agreement,
right or obligation existing between PIC and any other person or entity.
8.3 General Warranties of ABSC. ABSC further represents and warrants that:
(a) ABSC is free to enter into and perform this Agreement in all
respects; and
*** CONFIDENTIAL TREATMENT REQUESTED 4
<PAGE> 5
(b) ABSC 's entering into this Agreement does not violate any agreement,
right or obligation existing between ABSC and any other person or entity.
9. INTELLECTUAL PROPERTY RIGHTS
Except as set forth in Article 5., intellectual property rights shall be
retained as set forth in Article VIII of the Collaboration Agreement.
10. INDEMNITY
Indemnification shall be retained as set forth in Article IX of the
Collaboration Agreement.
11. TERM AND TERMINATION
11.1 Term of Agreement. This Agreement shall have an ***.
11.2 Material Breach. Except as expressly set forth in this Agreement, either
party may terminate this Agreement if the other party breaches any of the terms
and provisions of this Agreement in a manner that is materially adverse to the
other party, and the breaching party fails to cure the breach within thirty (30)
business days after receiving notice from the other party specifying the
particulars of the breach; if such breach is not curable within thirty (30)
business days, the non-breaching party may terminate this Agreement as provided
above by giving written notice to the breaching party.
11.3 Survival of Rights. Termination of this Agreement shall be without
prejudice to any rights or claims which the nonbreaching party may otherwise
have against the other party. Sections 5, 6, 7.4, 8, 9, 10 and 11 shall survive
termination or expiration of the Agreement.
11.4 License to Manufacture. In the event PIC is unable to supply Products to
ABSC for a period of more than ***.
12. CONFIDENTIAL INFORMATION
The terms for Confidentiality shall be retained as set forth in Article XI. of
the Collaboration Agreement.
13. MISCELLANEOUS
13.1 Assignment and Binding Effect. Terms for assignment and binding effect of
this Agreement shall be as set forth in Section 12.2 of the Collaboration
Agreement.
*** CONFIDENTIAL TREATMENT REQUESTED 5
<PAGE> 6
13.2 Independent Contractors. The Parties are acting as independent contractors
as set forth in Section 12.8 of the Collaboration Agreement.
13.3 Severability. The terms for severability are as set forth in Section 12.7
of the Collaboration Agreement.
13.4 Notices. The terms for notices are as set forth in Section 12.3 of the
Collaboration Agreement.
13.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard or giving
effect to its principles of conflict of laws.
13.6 Force Majeure. The terms for Force Majeure are as set forth in Section 10.5
of the Collaboration Agreement.
13.7 Arbitration. Any dispute shall be settled as set forth in Section 12.1 of
the Collaboration Agreement.
*** CONFIDENTIAL TREATMENT REQUESTED 6
<PAGE> 7
13.8 Entire Agreement and Amendments. The terms for the entire agreement and
amendments of the Agreement are as set forth in Sections 12.6 and 12.5,
respectively, in the Collaboration Agreement.
IN WITNESS whereof the parties hereto have this day caused this Agreement to be
executed by their duly authorized officers.
AURORA BIOSCIENCES PACKARD INSTRUMENT
CORPORATION COMPANY, INC.
By: /s/ CHARI STYLLI By: /s/ RICHARD T. MCKERNAN
-------------------------------- ---------------------------------
Title: Vice President Title: President
----------------------------- ------------------------------
Date: February 5, 1998 Date: February 5, 1998
------------------------------ -------------------------------
***
***
*** CONFIDENTIAL TREATMENT REQUESTED 7
<PAGE> 8
*** CONFIDENTIAL TREATMENT REQUESTED 8
<PAGE> 1
EXHIBIT 10.32
AMENDMENT TO COLLABORATION AND LICENSE AGREEMENT
This Amendment ("Amendment") is entered into by and between PACKARD INSTRUMENT
COMPANY, INC., a Delaware corporation, having offices at 800 Research Parkway,
Meriden, Connecticut, 06459, and AURORA BIOSCIENCES CORPORATION, a Delaware
corporation having offices at 11010 Torreyana Road, San Diego, California 92121.
The parties hereto agree as follows:
1.0 DEFINITIONS
1.1 "Affiliates" has the meaning set forth in Collaboration Agreement
for AFFILIATE.
1.2 "Amendment Date" means the date of the last party to sign hereto.
1.3 ***.
1.4 "Aurora" has the meaning set forth in Collaboration Agreement for
AURORA.
1.5 ***.
1.6 "Collaboration Agreement" means the Collaboration and License
Agreement of April 24, 1996 between Aurora and Packard.
1.7 ***.
1.8 "Control" means, with respect to intellectual property or licenses,
a party's ability to grant a license or sublicense as provided for
herein without violating the terms of any agreement with or other
arrangement with a third party.
1.9 "Packard" has the meaning set forth in Collaboration Agreement for
PACKARD.
1.10 ***.
Unless expressly defined in the Amendment, all defined terms shall have the
meaning expressly set forth in the Collaboration Agreement.
2.0 NANO-PLATES
2.1 NANO-PLATE DEVELOPMENT
2.1.1 After the Amendment Date, Aurora will be responsible for ***. Packard's
obligations and rights under the Collaboration Agreement concerning all future
***. In addition, Packard's rights associated with the ***. Packard will *** to
Aurora as necessary. In addition, Packard will pay to Aurora *** within thirty
days of the Amendment Date. All rights ***. In Addition, Packard, at its expense
***.
2.1.2 As of the Amendment Date, Aurora grants to Packard and its Affiliates ***.
Packard agrees to use ***. The use of such trademarks ***.
*** CONFIDENTIAL TREATMENT REQUESTED 1
<PAGE> 2
2.2 SUPPLY TO PACKARD OF ***
2.2.1 Beginning on ***, Aurora will use reasonable efforts to supply Packard and
its Affiliates with *** are to be used ***, and limited in quantities suitable
***. Packard will pay Aurora for such ***of such ***.
2.2.2 Beginning on ***, Aurora will use reasonable efforts to supply Packard and
its Affiliates with ***. Such ***may be delivered subject to the terms of a
supply agreement negotiated by the parties in good faith, similar in scope and
nature to the *** by Aurora and Packard. In such supply *** at a price equal to
***.
2.2.3 Beginning on ***, Aurora will use reasonable efforts to supply Packard and
its Affiliates ***. Such plates may be delivered subject to the terms of a
supply agreement negotiated by the parties in good faith, similar in scope and
nature to the *** by Aurora and Packard. In such supply agreement ***
2.2.4 Beginning on ***Aurora grants Packard and its Affiliates a ***.
***.
3.0 ***
3.1 LICENSES AND ROYALTIES
3.1.1 Aurora hereby grants to Packard and its Affiliates ***.
3.1.2 As of January 1, 1999, Aurora grants to Packard and Affiliates ***.
3.1.3 As of July 1, 1999, Aurora grants to Packard and its ***.
3.1.4 The licenses granted under Section 3.1.1, 3.1.2 and 3.1.3 are not subject
to an ***; provided, however that all such licenses are subject to the payment
of royalties by Packard to Aurora and Packard will begin ***. Such royalties are
calculated *** (calculated in the same manner as NET SALES) by Packard and its
Affiliates for plates sold under such licenses. Beginning one year after the
Amendment Date, Packard will pay Aurora a maintenance fee for such licenses,
creditable against any royalties paid by Packard or its Affiliates under this
Section 3.1.4, *** per year within thirty (30) days of the respective
anniversary of the Amendment Date. Further the licenses granted under Sections
3.1.1, 3.1.2, and 3.1.3 of the Amendment will ***, and July 1, 2005,
respectively, and each license may be extended by the mutual written agreement
of the parties. Except as expressly set forth herein, Packard agrees not to, and
not permit to any Affiliate to***. Packard further agrees ***. In addition,
Packard will supply ***.
*** CONFIDENTIAL TREATMENT REQUESTED 2
<PAGE> 3
4.0 PIEZO-DEVICES
4.1 DISTRIBUTION OF MARKETING RIGHTS
4.1.1 From the Amendment Date through ***, Packard agrees not to, and not to
permit an Affiliate to, market or sell in any market any device containing
greater than ***.
4.1.2 From *** through ***, Packard agrees not to, and not to permit any
Affiliate to, market or sell in any *** market any device containing *** Packard
agrees to supply and sell devices containing *** to Aurora for sale by Aurora or
its use during or after such period.
After ***.
4.1.3 ***.
4.1.4 Beginning on ***, Packard and its Affiliates will not be restricted ***,
and Packard and its Affiliates will ***.
4.1.5 Beginning on ***or, if Aurora satisfies its synthesis obligations
described in Section 4.1.3, ***, Packard and its Affiliates will be restricted
from selling devices as set forth in Sections 4.1.3 for ***.
4.1.6 From the Amendment Date, Packard ***.
4.1.7 ***.
5.0 ***
***
5.1.3 Beginning on ***, Packard and its Affiliates will not be restricted from
selling devices as set forth in Sections 5.1.1 and 5.1.2 herein and Packard and
its Affiliates will be free to operate according to its normal business
practices, except as provided Section 5.1.4 herein.
5.1.4 From the Amendment Date through ***.
5.1.5 Beginning on ***, Packard and its Affiliates will not be restricted from
selling devices as set forth in Section 5.1.4 and Packard and its Affiliates
will be free to operate according to normal business practices.
5.1.6 Aurora and Packard agree that *** of the Collaboration Agreement will no
longer be in force and shall have no effect as of the Amendment Date.
5.1.7 Licenses granted by Packard to Aurora and its Affiliates under this ***.
*** CONFIDENTIAL TREATMENT REQUESTED 3
<PAGE> 4
6.0 ENTIRE AGREEMENT AND TERMINATION
The Amendment and the Collaboration Agreement represent the parties entire
understanding and agreement on the subject matter herein and supersedes all
other oral or written understandings not set forth in the Amendment and the
Collaboration Agreement. Any further amendment must be made by the mutual
written consent of the parties. Unless otherwise stated herein, termination of
the Amendment will be controlled by the Collaboration Agreement and all licenses
granted in the Amendment will terminate upon such termination.
IN WITNESS WHEREOF, the parties has caused this Amendment to be executed in
multiple counterparts by their duly authorized representatives.
PACKARD INSTRUMENT AURORA BIOSCIENCES
COMPANY CORPORATION
By: /s/ BEN D. KAPLAN By: /s/ CHARI STYLLI
------------------------------ ---------------------------------
Name: Ben D. Kaplan Name: Harry Stylli
---------------------------- -------------------------------
Title: Treasurer Title: Vice President
--------------------------- ------------------------------
Date: February 7, 1998 Date: February 7, 1998
---------------------------- -------------------------------
*** CONFIDENTIAL TREATMENT REQUESTED 4
<PAGE> 5
***
*** CONFIDENTIAL TREATMENT REQUESTED 5
<PAGE> 1
EXHIBIT 10.33
[ON COMPANY LETTERHEAD]
January 2, 1998
J. Gordon Foulkes, Ph.D.
1220 Rancho Encinitas Drive
Encinitas, CA 92024
RE: Amendment to Offer Letter dated August 6, 1996
Dear Gordon:
Pursuant to the decision of the Compensation Committee of Aurora's Board of
Directors, this letter amends the offer letter dated August 6, 1996 and signed
by you on August 14, 1996, as it relates to the payment of a $150,000 bonus at
the completion of four years of service by you. In consideration of Aurora's
payment to you of a bonus of $50,000, this amount will be reduced by $25,000
(representing 50% of your bonus award) to a payment of $125,000 on your fourth
anniversary at Aurora. All other terms and condition of the August 6, 1996 offer
remain unchanged.
Sincerely,
/s/ TIMOTHY J. RINK
Timothy J. Rink, M.D., Sc.D.
Chairman, CEO and President
Agreed and accepted:
/s/ J. GORDON FOULKES
January 7, 1998
- ------------------------------- ---------------
J. Gordon Foulkes, Ph.D. Date
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-30039) pertaining to the 1996 Stock Plan, Employee Stock
Purchase Plan and Non-Employee Directors' Stock Option Plan of Aurora
Biosciences Corporation of our report dated February 7, 1998, with respect to
the financial statements of Aurora Biosciences Corporation included in the
Annual Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
San Diego, California
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AT DECEMBER 31, 1997 (AUDITED) AND THE STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1997 (AUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,168,690
<SECURITIES> 25,737,734
<RECEIVABLES> 3,207,166
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,439,937
<PP&E> 7,798,585
<DEPRECIATION> 1,106,646
<TOTAL-ASSETS> 63,035,832
<CURRENT-LIABILITIES> 5,095,762
<BONDS> 0
0
0
<COMMON> 17,033
<OTHER-SE> 54,347,039
<TOTAL-LIABILITY-AND-EQUITY> 63,035,832
<SALES> 0
<TOTAL-REVENUES> 14,907,749
<CGS> 0
<TOTAL-COSTS> 6,982,875
<OTHER-EXPENSES> 9,085,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346,183
<INCOME-PRETAX> 287,334
<INCOME-TAX> 20,000
<INCOME-CONTINUING> 267,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267,334
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 42,761,531
<SECURITIES> 5,016,618
<RECEIVABLES> 748,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,688,053
<PP&E> 3,538,422
<DEPRECIATION> 505,285
<TOTAL-ASSETS> 54,115,024
<CURRENT-LIABILITIES> 2,246,202
<BONDS> 0
0
0
<COMMON> 16,891
<OTHER-SE> 49,952,671
<TOTAL-LIABILITY-AND-EQUITY> 54,115,024
<SALES> 0
<TOTAL-REVENUES> 3,570,500
<CGS> 0
<TOTAL-COSTS> 3,073,244
<OTHER-EXPENSES> 3,237,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,821
<INCOME-PRETAX> (2,444,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,444,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,444,174)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AT SEPTEMBER 30, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 29,346,325
<SECURITIES> 16,255,344
<RECEIVABLES> 2,615,694
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,744,737
<PP&E> 4,569,448
<DEPRECIATION> 775,660
<TOTAL-ASSETS> 56,857,139
<CURRENT-LIABILITIES> 2,322,112
<BONDS> 0
0
0
<COMMON> 17,018
<OTHER-SE> 52,224,320
<TOTAL-LIABILITY-AND-EQUITY> 56,857,139
<SALES> 0
<TOTAL-REVENUES> 7,584,963
<CGS> 0
<TOTAL-COSTS> 4,637,452
<OTHER-EXPENSES> 5,356,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,374
<INCOME-PRETAX> (1,547,415)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,547,415)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,547,415)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
