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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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22669
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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 Identification No.)
incorporation or organization)
11010 Torreyana Road, San Diego, CA 92121
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(Address of principal executive offices) (Zip code)
(619) 404-6600
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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. [ X ]
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 19,
1999, was approximately $90.6 million*.
The number of shares of registrant's Common Stock outstanding as of March 19,
1999 was 17,042,549.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant's proxy statement filed in connection with the solicitation of
proxies for its 1999 Annual Meeting of Stockholders is incorporated by
reference into Part III of this Form 10-K. Certain Exhibits filed with the
Registrant's Registration Statement Form S-1 (333-23407), Form 10-Q for the
quarter ended September 30, 1997, Form 10-K for the year ended December
31, 1997, Form 10-Q for the quarter ended June 30, 1998 and Form 10-Q for the
quarter ended September 30, 1998 are incorporated by reference into Part IV
of this Form 10-K.
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*Excludes 4,763,513 shares of Common Stock held by directors, executive
officers and stockholders whose ownership exceeds ten percent of the shares
outstanding on March 19, 1999. 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
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 INCLUDING, WITHOUT LIMITATION, STATEMENTS
REGARDING THE COMPLETION OF THE COMPANY'S UHTSS-TM- PLATFORM, UTILIZATION AND
CAPABILITIES OF THE COMPANY'S TECHNOLOGIES AND THE COMPANY'S ABILITY TO
INCREASE REVENUE AND ACHIEVE PROFITABILITY. THESE STATEMENTS, WHICH SOMETIMES
INCLUDE WORDS SUCH AS "EXPECT", "GOAL" OR "WILL", REFLECT THE COMPANY'S
EXPECTATIONS AND ASSUMPTIONS AS OF THE DATE OF THIS ANNUAL REPORT BASED ON
CURRENTLY AVAILABLE OPERATING, FINANCIAL AND COMPETITIVE INFORMATION. THE
COMPANY'S ACTUAL RESULTS AND FINANCIAL PERFORMANCE MAY DIFFER MATERIALLY.
FACTORS THAT COULD CONTRIBUTE TO DIFFERENCES INCLUDE RISKS INVOLVED WITH THE
COMPANY'S NEW AND UNCERTAIN TECHNOLOGY, RISKS ASSOCIATED WITH THE DEPENDENCE
ON PATENTS AND PROPRIETARY RIGHTS, THE ABILITY TO ATTRACT ADDITIONAL
COLLABORATIVE PARTNERS, DEPENDENCE ON EXISTING PHARMACEUTICAL AND
BIOTECHNOLOGY COLLABORATIONS AND THE DEVELOPMENT OR AVAILABILITY OF COMPETING
SYSTEMS. THESE FACTORS AND OTHERS ARE MORE FULLY DESCRIBED IN "RISK FACTORS"
AND ELSEWHERE IN THIS FORM 10-K. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE
ANY FORWARD-LOOKING STATEMENTS.
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 highly automated ultra-high throughput screening system
(the "UHTSS" Platform) applicable to Aurora's miniaturized NanoWell-TM- Assay
Plate format. The Company believes that this platform will enable Aurora and
its collaborators 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's integrated platform is designed to 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 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 Platform which is
expected to be operational by the end of 1999. 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
approximately ten times faster than conventional high throughput screening
systems and would conserve expensive and scarce compounds.
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 Platform in many different drug
discovery programs. The Company generates revenue by developing screens,
providing screening services, providing functional genomics services,
developing and providing the UHTSS Platform to syndicate members, licensing
its proprietary technologies, and may ultimately realize royalty and
milestone payments from the development and commercialization of drug
candidates identified by its collaborators using Aurora's technologies. The
Company believes its ability to achieve profitability is not dependent on
receipt of milestone payments or royalties. To date, the Company has entered
into collaborative agreements with Bristol-Myers Squibb Pharmaceutical
Research Institute ("BMS"), Eli Lilly and Company ("Lilly"), Warner-Lambert
Company ("Warner-Lambert") and Merck & Co., Inc. ("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 Platform for collaborative research and for
installation of the UHTSS Platform in their own research facilities. In
addition, Aurora has developed screens for and/or has provided screening
services to Allelix Biopharmaceuticals, Inc. ("Allelix"), Roche Bioscience,
Cytovia, Inc. ("Cytovia"), Pharmacia & Upjohn, Inc. ("P&U") and
F.Hoffmann-LaRoche Ltd. ("Roche").
THE NEED TO IMPROVE THE DRUG DISCOVERY PROCESS
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
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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 and profiling of hits and
may then be optimized to generate candidate compounds for development as
potential medicines. Secondary testing may be performed to identify potential
side effects or undesirable pharmaceutical properties of the compounds.
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 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 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.
BUSINESS STRATEGY
Aurora's goal is to become the leader in the development and
commercialization of technologies, services, systems and information to
accelerate and enhance the discovery of new medicines by the pharmaceutical
and biopharmaceutical industries. The Company intends to continue to
diversify business risk by exploiting Aurora's fluorescent assay technologies
and UHTSS Platform in many different drug discovery programs with multiple
collaborators. To implement this strategy, the Company intends to:
GENERATE REVENUE FROM SCREEN DEVELOPMENT AND SCREENING SERVICES. Aurora
generates revenue from multiple collaborators by developing screens for
diverse targets, primarily on a non-exclusive basis, and providing screening
services. The Company develops screens with respect to specific targets
independent of therapeutic area. The developed screen is then either
transferred to the collaborator for internal research or is utilized by
Aurora to provide screening services. Currently, Aurora provides such
screening services using its 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 Platform is brought on-line by the end of 1999 and additional
compounds become available for use in screening customers' targets.
Additionally, the Company may receive milestone payments and royalties with
respect to compounds, discovered through such screening services, that are
developed and commercialized.
SUPPORT AND ENHANCE THE SYNDICATE FOR THE CO-DEVELOPMENT OF AURORA'S UHTSS
PLATFORM. Aurora established a syndicate to co-develop Aurora's UHTSS
Platform. Each member is scheduled to receive its own UHTSS Platform 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 Platform
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 that certain
collaborators may 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.
FORM FUNCTIONAL GENOMICS COLLABORATIONS. The Company is establishing
corporate collaborations based on its novel program for functional genomics
in human cells. This program is based primarily on the Company's
beta-lactamase ("beta-lactamase") reporter system and utilizes human cell
lines. The technology also allows for target identification and pathway
elucidation. These collaborations may 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
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therapeutic areas. Collaborations based on this technology were
established with Warner-Lambert in January 1999 and Beckton-Dickinson in
March 1999. The Company plans to continue to negotiate milestones and
royalties on compounds identified and developed through such collaborations.
In addition, two SBIR grants have been awarded to Aurora from the National
Cancer Institute for research using the technology.
INTELLECTUAL PROPERTY. Aurora has a broad portfolio of intellectual property
that has been developed by Aurora, licensed non-exclusively or licensed on
an exclusive basis with rights to sublicense. Aurora expanded the portfolio
during 1998 and plans to increase its license and sublicense activity to
provide additional revenue, as exemplified by the recent agreements with
Acacia, Inc. and Clontech Laboratories, Inc.
EXPAND COMPOUND LIBRARIES. In providing screening services, Aurora will
utilize compounds that are either supplied by its collaborators or from
compound libraries provided by Aurora. In addition to compounds Aurora has
purchased or licensed to date, the Company has entered into a collaboration
with SIDDCO, Inc., a company specializing in combinatorial chemistry, to
synthesize large numbers of compounds for Aurora's own use and to provide to
collaborators.
DEVELOP INFORMATION TOOLS AND DATABASES. Utilizing the fluorescent assay
technologies and the UHTSS Platform, 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 GenomeScreen-TM- technology and its highly automated UHTSS Platform
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, proteases, kinases and other
enzymes, in most therapeutic areas. The Company has developed numerous assays
in several target classes utilizing the Company's fluorescent assay
technologies. 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 GENE cell surface receptors, Most areas, including cardiovascular
SYSTEM intra-cellular receptors, diseases, inflammation, cancer, central
(cell-based assays) signaling proteins and proteases nervous system diseases, endocrine
diseases and viral infection
MEMBRANE VOLTAGE REPORTERS ion channels Cardiac diseases, central nervous
(cell-based assays) system conditions and gastro-intestinal
diseases
GFP REPORTERS (biochemical and proteases, kinases and Cardiovascular diseases, inflammation,
cell-based assays) protein-protein interactions degenerative brain diseases and cancer
PROMISCUOUS G-PROTEINS G-protein coupled receptors Most areas, including cardiovascular
(cell-based assays) diseases, inflammation, cancer, central
nervous system diseases and endocrine
diseases
FLASH signaling pathways, proteases Most areas, including cardiovascular
(biochemical and cell-based and protein-protein interactions diseases, inflammation, cancer, central
assays) nervous system diseases and endocrine
diseases
FLUORESCENT PROBES Cytochrome P450, Compound profiling for metabolism and
drug-metabolizing enzymes drug interactions
</TABLE>
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 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 beta-lactamase reporter system has demonstrated 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 numerous screens using
beta-lactamase.
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.
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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. The Company's scientists have developed
19 assays using Aurora's membrane voltage reporters. The Company has also
developed a proprietary ion probe reader that works in conjunction with this
assay technology called the VIPR-TM- voltage ion probe reader.
The Company is utilizing the VIPR, which is 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, at its own facilities to perform
high throughput screening services for customers and has provided the VIPR to
three collaborators.
PROPRIETARY ENHANCED FLUORESCENCE 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, and has a co-exclusive licensing agreement with Clontech Laboratories
to commercialize certain technology related to GFP reporters.
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 tandem GFP protease assays that can be used to monitor
protease activity in intact cells.
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, August 1997. These indicators consist of fusion of
pairs of differently colored mutants of GFP, together with calmodulin and a
calmodulin binding peptide. 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.
PROMISCUOUS G-PROTEINS (G-PROTEIN COUPLED RECEPTORS)
The Company has an exclusive license from the California Institute of
Technology to the use of "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-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. The Company has established a strong
G-protein coupled receptor ("GPCR") platform by developing a number of assays
for itself and others in several target classes and announced a collaboration
in February 1999 with Pharmacia & Upjohn, Inc. involving the development of
assays for a number of "orphan" GPCRs.
FLASH
The FLASH system provides a means of singling out a chosen protein from the
many others inside live cells by fluorescently staining it with small
non-fluorescent dye molecules added from outside the cells. Modification of
the target protein may be
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as subtle as changing only four of its amino acids. The new fluorescent label
is much smaller and thus potentially less perturbing of biological activity
than other labels, such as GFP, which have been widely used to genetically
tag proteins. Aurora has obtained an exclusive license to the FLASH
technology from the Regents of the University of California.
FLUORESCENT PROBES
Aurora scientists have invented novel fluorescent substrates that allow
sensitive assays suitable for miniaturization for the major classes of human
cytochrome P450 liver enzymes. Cytochrome P450 enzymes are responsible for
clearing foreign substances from the body, and are often involved in
restricting the amount of a drug within the body. Drug substances that
interact strongly with cytochrome P450 enzymes have the potential to either
require multiple daily dosing or to cause adverse effects or interactions
with other drugs being given concurrently. Currently available assays for
cytochrome P450 enzymes are relatively insensitive and are not suitable for
miniaturized assay formats. Aurora's new substrates should allow inexpensive
profiling of large libraries of compounds to help in the selection of
superior candidates for development as new medicines.
FUNCTIONAL GENOMICS
During 1998, the Company continued to build its functional genomics program
featuring the company's proprietary GenomeScreen-TM- technology. 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 can be introduced into the genome in a range of
immortalized human cell types, with one copy of the beta-lactamase gene per
cell and with a sufficient number of cells so that nearly every gene in the
genome is tagged with beta-lactamase. 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.
The first collaboration using the GenomeScreen technology was initiated in
January 1999 with one of Aurora's UHTSS syndicate members, Warner-Lambert.
The technology was highlighted in the cover article for NATURE BIOTECHNOLOGY,
Vol. 16, Number 13, December 1998, and is the focus of two SBIR grants
awarded to the Company by the National Cancer Institute. In March 1999, the
Company entered into a collaboration with Becton Dickinson to utilize the
GenomeScreen technology for identification of genes useful as drug screening
targets.
UHTSS PLATFORM
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. To overcome these limitations and to exploit the power of its
fluorescent assay technologies, Aurora's UHTSS Platform is being designed
using an integrated approach that combines a wide array of expertise and
technologies. The first UHTSS Platform is expected to be operational at
Aurora by the end of 1999.
AUTOMATED STORAGE AND RETRIEVAL SYSTEM
The UHTSS Compound Store is an automated storage and retrieval system
designed to house over 1,500,000 compounds in solution for rapid access. The
robotic systems for storage and retrieval of compounds have been 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
Platform. 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
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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 and 384-well plates today. This system, along with certain plate
handling and plate replication components such as the UHTSS High Capacity
Stacker System and the UHTSS Automated Plate Replication System, is referred
to as UHTSS Module 1 and has been delivered to BMS, Lilly and Warner-Lambert.
NANOWELL-TM- ASSAY PLATES FOR MINIATURIZED SCREENING ASSAYS
Another key component of Aurora's UHTSS Platform is the NanoWell Assay Plate
which has 3,456 miniaturized wells in which fluorescent assay screens may be
performed. The Company has developed a manufacturing system for disposable
NanoWell Assay Plates 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 NanoWell Assay Plates have been demonstrated to be
compatible with most of Aurora's fluorescent assay technologies.
MICROFLUIDICS: COMPOUND AND ASSAY COMPONENT DISPENSING
The Company has developed novel microfluidic technologies to accurately
transfer microscopic volumes of the compounds into the miniature assay wells
of the NanoWell Assay Plates, 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's miniaturized screening dispensers are capable
of volumes less than one billionth of a liter. These dispensers are designed
to remove compounds from the storage plates and dispense precise
sub-nanoliter volumes into the appropriate wells of the NanoWell Plates at
high speed. The Company is incorporating 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 NanoWell Plates. Major components include
the NanoPlate Piezo Sample Distribution Robot for dispensing selected
compounds into microplates, the NanoPlate Reagent Dispensing Robot for
dispensing reagents into microplates and the UHTSS Hit Profiling Robot for
retrieving and reformatting selected wells of multiple source microplates
into a single microplate for re-testing.
NANOPLATE FLUORESCENCE PLATE READER
Aurora has developed highly sensitive fluorescence detectors capable of
measuring miniaturized fluorescent assays in NanoWell Assay Plates. The
Company believes that other existing fluorescence plate readers would not
have the necessary sensitivity and precision to enable ultra-high throughput
miniaturized screens. The Aurora detector is designed to record and process,
in real time, data from more than 25,000 assays per hour. 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.
The previous three sections describe the miniaturization components of the
UHTSS Platform and are collectively referred to as Module 2. The Company is
currently manufacturing Module 2 components for shipment to BMS and Lilly in
the first half of 1999.
INFORMATICS AND SYSTEM INTEGRATION
The UHTSS Platform 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 integrated UHTSS Platform will be designed to efficiently capture,
process and deposit in a centralized database the large amount of screening
data from the UHTSS Platform using advanced software tools and systems from
leading providers. While some of 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 Platform are being developed by the
Company's in-house informatics team. This portion of the UHTSS Platform is
referred to as Module 3.
AMCS
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The Company is developing an automated master compound store ("AMCS") for its
own use and pursuant to an agreement with Warner-Lambert. The AMCS is a
modular storage assemblage designed for long-term frozen and solid storage of
chemical libraries under environmental control for over 9 million samples.
The design provides for monitoring systems to track compound utilization,
expiration and availability. The system will also handle and store various
types of containers such as vials, tubes, 96 and 384 well plates, and the
NanoWell Assay Plate. Other features of the AMCS will include a
semi-automated weighing subsystem to handle compounds in solid, powder and
frozen form, and automated subsystems for handling liquid samples, as well as
an automated storage and retrieval system.
CORPORATE COLLABORATIONS
Aurora has entered into a number of corporate collaborations for the
co-development of the Company's UHTSS Platform and for screen development and
screening services. Customer-sponsored research and development expenses
totaled approximately $5.7 million and $1.8 million in 1998 and 1997,
respectively. Company-sponsored research and development expenses totaled
approximately $11.4 million, $3.6 million and $4.4 million in 1998, 1997 and
1996, respectively. The Company's material collaborations and their major
features are summarized below:
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 Platform and the installation of the
UHTSS Platform 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 Platform. 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 service and support the UHTSS Platform in accordance
with the BMS Agreement for twelve months following acceptance of the
operational UHTSS Platform. The UHTSS Module 1 was accepted by BMS in
November 1997, and individual microfluidics and miniaturization components of
the Module 2 were successfully demonstrated to BMS in December 1998. Those
components are scheduled for shipment in the first half of 1999.
The Company and BMS 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 also has 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 Platform for "good cause," as
defined in the agreement, without obligation to make further payments
relating to development of the UHTSS Platform. 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
Platform by a specified time. As of December 31, 1998, the Company expects to
meet the specified delivery dates.
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 Platform and the
installation of the UHTSS Platform 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 Platform. 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 service and support the UHTSS Platform
in accordance with the Lilly Agreement for twelve months following acceptance
of the operational UHTSS Platform. The UHTSS Module 1 was accepted by Lilly
in December 1997, and individual microfluidics and miniaturization components
of the Module 2 were successfully demonstrated to Lilly in December 1998.
Those components are scheduled for shipment in the first half of 1999.
The Company and Lilly 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 also has 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.
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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. As of December 31, 1998, the
Company expects to meet the specified delivery dates.
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
Platform and the installation of the UHTSS Platform 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 Platform. 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 service and support the UHTSS Platform in accordance with the
Warner-Lambert Agreement for twelve months following acceptance of the
operational UHTSS Platform. The UHTSS Module 1 was accepted by Warner-Lambert
in September 1998.
The Company and Warner-Lambert 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 also has 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.
Two additional agreements have been signed with Warner-Lambert. The first,
signed in September 1998, is for the development of an automated master
compound store for long-term storage of the company-wide sample inventory
under environmental control and in various formats. Under the second
agreement, signed in January 1999, Aurora and Warner-Lambert will utilize
aspects of Aurora's functional genomics GenomeScreen program to characterize
and profile effects of a number of compounds on gene expression in a human
cell line. Aurora will receive research funding, payment upon isolation and
delivery of cell clones with identified genes, and, potentially, milestones
and royalty payments if compounds for development are discovered as a result
of this work.
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 Platform and the
installation of the UHTSS Platform 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 Platform. 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 service and support the UHTSS Platform
in accordance with the Merck Agreement for twelve months following acceptance
of the operational UHTSS Platform.
The Company and Merck 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 also has 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.
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CYTOVIA, INC. In July 1998, Aurora and Cytovia entered into a collaboration
under which Aurora will provide its high throughput screening services,
compound library and informatics capabilities and Cytovia will provide its
proprietary fluorogenic protease substrates and live-cell screening
technology. The two companies will conduct screening programs to identify new
drug leads for cancer and degenerative diseases. Cytovia will receive rights
to develop and commercialize any new drug leads identified as a result of the
collaboration. Aurora receives fees from Cytovia for compound access and
screening services, and could receive development milestones as well as
royalties if compounds identified under the collaboration are developed and
commercialized.
PHARMACIA & UPJOHN, INC. In February 1999, the Company and Pharmacia & Upjohn
entered into an agreement for Aurora to provide assay development and
screening services to Pharmacia & Upjohn. Pharmacia & Upjohn will fund a
dedicated assay development team at Aurora that will utilize Aurora's high
sensitivity fluorescent assay technology to develop assays for a number of
orphan G-protein coupled receptors identified by Pharmacia & Upjohn's
genomics program. Aurora will also screen compound libraries provided by
Pharmacia & Upjohn to identify "hit" molecules, using Aurora's proprietary
screening systems, at a predetermined minimum level and for a separate fee.
Aurora could receive research and development milestones, as well as
royalties, on compounds identified by screens generated through the
collaboration.
F.HOFFMAN-LAROCHE. In February 1999, the Company and Roche entered into an
agreement for Aurora to provide a dedicated screen development and technology
transfer resource to Roche which will develop screens for up to 12 Roche
targets in the first year. Aurora will provide screen development and
technology transfer support for a team at Aurora and at Roche's research
facilities globally. In addition to the payments for screen development,
technology transfer services and licenses, Roche will make research and
development payments to Aurora for compounds identified through screens
generated under the collaboration, and royalties if compounds are
commercialized.
BECKTON DICKINSON. In March 1999, the Company entered into an agreement with
Becton Dickinson to utilize Aurora's GenomeScreen technology for the
identification of genes useful as drug screening targets. Aurora will receive
research funding in support of the collaborative effort, and the parties will
evaluate opportunities for future commercialization.
UHTSS TECHNOLOGY ALLIANCES
In 1996, the Company entered into strategic technology alliances with Packard
Instrument Company ("Packard") and Carl Creative Systems to design, develop
and implement certain instrumentation components of Aurora's UHTSS Platform,
including microfluidics devices and fluorescence detectors. 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 NanoWell
Plates to Aurora. In October 1998, the collaboration and license agreement
with Packard was concluded by mutual consent of the two companies. Aurora
assumed responsibility for development and production of the instrumentation
required for its UHTSS platform. The work conducted under the Company's
agreement with Carl Creative Systems is substantially completed.
In 1996, the Company entered into a technology alliance with Universal
Technologies, Inc. ("UTI") relating principally to automated storage and
retrieval systems which are significant components of the Company's UHTSS
platform and the AMCS project. Such storage and retrieval instrumentation has
been incorporated into the storage and retrieval components of the UHTSS
Platform that have been accepted by BMS, Lilly and Warner-Lambert.
PATENTS AND PROPRIETARY RIGHTS
The Company's patent portfolio includes over 110 patent applications filed in
the United States and foreign patent jurisdictions. The Company is either the
assignee or exclusive licensee of these patent rights, including issued
patents on the Company's GFP technology and beta-lactamase technology as
well as six allowed applications on other technologies. 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
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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.
The Company has obtained a non-exclusive license from SIBIA Neurosciences,
Inc. ("SIBIA"), with certain 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.
In May 1998, the Company obtained a non-exclusive license and certain
sub-licensing rights to OSI Pharmaceuticals, Inc.'s ("OSI") issued reporter
gene patent and options to OSI's Methods of Modulation patent, for which the
U.S. Patent Office has allowed claims. Pursuant to the terms of the
agreement, OSI received Aurora common stock and cash and OSI will also
receive revenues from any sub-licenses granted by Aurora to its
pharmaceutical partners, plus annual fees and milestone and royalty payments
under pre-agreed terms from any option taken by Aurora or its partners to
develop small molecule gene transcription modulators encompassed by the
Methods of Modulation claims.
In June 1998, the Company obtained a non-exclusive license to Xenometrix,
Inc.'s ("Xenometrix") gene expression profiling patents, giving Aurora
license to an issued European patent and a pending U.S. patent, and certain
rights of sub-license. The license covers gene expression profiling utilizing
methods other than high-density olligonucleotide microarrays.
The Company is dependent on the rights licensed 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 March 19, 1999, the Company had 167 full-time employees, 38 of whom
hold M.D. or Ph.D. degrees and 24 of whom hold other advanced degrees. 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> <S>
Timothy J. Rink 52 Chairman of the Board, President
and Chief Executive Officer
Paul J. England 55 Senior Vice President, Research
Paul A. Grayson 34 Senior Vice President, Corporate
Development
Thomas G. Klopack 47 Chief Operating Officer
John D. Mendlein 39 General Counsel and Vice
President, Intellectual Property
John R. Pashkowsky 42 Director, Finance and Treasurer
Harry Stylli 37 Senior Vice President, Screen
Technology and New Technology
Ventures
</TABLE>
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 is a director of CoCensys, Inc., a publicly
held biopharmaceutical company. Dr. Rink received his M.A., M.D., and Sc.D.
from the University of Cambridge, England.
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PAUL J. ENGLAND joined Aurora in February 1998 and currently serves as Senior
Vice President, Research. From 1984 to 1997, he served in various capacities
at SmithKline Beecham in the U.K., most recently serving as Vice President,
Molecular Screening Technologies, with worldwide responsibility for high
throughput screening. Dr. England received his B.S., Ph.D. and D.Sc. degrees
in biochemistry from the University of Bristol. After postdoctoral work at
the University of California, he held a lectureship in biochemistry at the
University of Bristol from 1973 to 1984.
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 Biocemistry and Computer Science from the University of
California, Los Angeles, and his M.B.A. from the University of California,
Irvine.
THOMAS G. KLOPACK joined the Company in July 1998 and currently serves as
Chief Operating Officer. He served the past 18 years as an executive with
Raychem Corporation in various capacities involving new product
commercialization, strategic planning, operations and logistics, most
recently as Director, Strategic Planning, in the Electronics Division. Prior
to joining Raychem, Mr. Klopack worked at Exxon Corporation in engineering
operations. Mr. Klopack obtained his B.S. in chemical engineering at
Carnegie-Mellon University and his M.B.A. at Harvard University.
JOHN D. MENDLEIN joined Aurora in August 1996 and currently serves as General
Counsel and Vice President, Intellectual Property. Prior to joining Aurora,
Dr. Mendlein worked with the law firm of Cooley Godward LLP in Palo Alto from
1990 to 1996, focusing on patent prosecution and litigation, and technology
licensing for a variety of biotechnology, medical device and diagnostic
companies. He received his Ph.D. from the University of California, Los
Angeles and his J.D. from the University of California, Hastings College of
the Law.
JOHN R. PASHKOWSKY joined the Company in December 1997 and currently serves
as Director, Finance and Treasurer. Prior to joining Aurora, he served from
1981 to 1997 in various positions at Senior Flexonics, Ketema, Inc. and
Ametek, Inc., most recently as Controller of the Ketema Division of Senior
Flexonics, and was employed by Rohr Industries Inc. from 1979 to 1981. Mr.
Pashkowsky received his B.S. in Business Administration from the State
University of New York and his M.B.A. in Finance from San Diego State
University.
HARRY STYLLI joined the Company in November 1995 and was appointed Senior
Vice President, Screen Technology and New Technology Ventures in August 1998.
From 1989 to 1995, Dr. Stylli held several positions at Glaxo Wellcome plc,
where he was integrally involved in the International Screening and
Technology program. He obtained a Ph.D. in Pharmaceutical Chemistry from
Kings College, London University, an M.B.A. from Open University, Milton
Keynes, UK and a B.Sc. in Biochemical Pharmacology, with honors, from the
University of East London.
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:
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
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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
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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. As of
December 31, 1998, the Company had an accumulated deficit of $21.7 million.
The Company's expansion of its operations and continued development of its
UHTSS Platform and fluorescent assay technologies will require continued
substantial expenditures and the Company does not expect revenue to exceed
such expenses until 2000. The Company's ability to achieve sustained
profitability will depend in part on its ability to successfully develop and
install its UHTSS Platform, successfully market and sell its screen
development and screening services to pharmaceutical and biotechnology
companies, achieve acceptable performance specifications for its UHTSS
Platform 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. Sales of services and technologies, license
fees, payments from its 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 Platform 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 have only recently begun to be
used in the drug discovery process and have never been utilized in the
discovery of any compound that has been commercialized. 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 Platform is not expected to be integrated and
operational until the end of 1999. The UHTSS Platform 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
Platform 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 Platform will be a complex process requiring
integration and coordination of a number of factors, including
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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 NanoWell Assay Plates designed for the UHTSS Platform
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
Platform 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 Platform.
As the UHTSS Platform 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 Platform 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 complete the development of its UHTSS Platform, 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
sales to corporate collaborators of services, technology, instruments and
intellectual property licenses. The Company expects that substantially all
revenue for the foreseeable future will come from such sales to existing and
new customers. 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, for screening services
and for its 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 ability to enter into agreements with additional collaborators
depends in part upon potential collaborators being convinced that Aurora's
technologies can help accelerate drug discovery efforts. This may require
substantial time and effort on the part of Aurora to educate potential
collaborators on the efficiencies presented by Aurora's services and
technologies. In addition, many of the collaborations involve the negotiation
of customized terms regarding licensing, scope of agreement and types of
services required. The Company may expend substantial funds and management
effort with no assurance that a collaboration will result.
The Company's strategy for the development of the UHTSS Platform 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
16
<PAGE>
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 CONTRACTORS AND VENDORS. The Company relies on a limited number
of contractors, suppliers and vendors for the development, manufacture and
supply of certain components in the areas of informatics, robotics, automated
storage and retrieval, liquid handling systems, microfluidics and detection
devices. Although the Company believes that alternative sources for these
components could be made available, any interruption in the development,
manufacture or supply of a sole-sourced component could have a material
adverse effect on the Company's ability to develop its UHTSS Platform or
other systems until a new source of supply is qualified, could subject the
Company to penalties for delays in delivery of the UHTSS Platform 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 NanoWell Assay Plates, or
various mechanical components of the UHTSS Platform or the AMCS) 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 revenues or 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 and
screening 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
17
<PAGE>
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 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 or support drug discovery efforts is intense. Because the
UHTSS instrumentation is being designed to integrate a number of different
technologies, the Company competes in many areas, including instrumentation,
assay development, high throughput screening and functional genomics. The
Company competes with instrumentation companies, 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 another technology provider will not develop a product to
compete with the Company's UHTSS Platform. There can be no assurance that
pharmaceutical, biotechnology and instrumentation 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 Platform, 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 may include revenues from 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. The Company does not
currently intend to perform any of these activities. The Company's
collaborators may decide not 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, that any such development or commercialization
would be successful or that disputes will not arise over the application of
payment provisions to such drugs.
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<PAGE>
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 sales of services, technology, instruments,
intellectual property licenses, and payment of research and co-development
funding paid pursuant to collaborative agreements. The Company expects that
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' UHTSS Platforms.
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. The Company's principal
stockholders, executive officers, directors and affiliated individuals and
entities together beneficially own approximately 28.0% of the outstanding
shares of Common Stock as of March 19, 1999. As a result, these stockholders,
if they act together, will be able to influence 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. 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 and the Company's principal stockholders, if they act
together, will be able to influence the election of the members of the Board
of Directors of the Company. Such a concentration of ownership could have an
adverse effect 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.
ANTI-TAKEOVER PROVISIONS. 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
19
<PAGE>
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>
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, through October 15, 1999, which is subleased to third-party
tenants. 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.
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<PAGE>
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
<CAPTION>
1998
----
<S> <C> <C>
First Quarter 14.38 10.25
Second Quarter 12.38 5.88
Third Quarter 9.25 3.75
Fourth Quarter 8.00 4.00
</TABLE>
As of March 19, 1999, there were approximately 217 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.
22
<PAGE>
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,
1998 1997 1996 1995
---------------- ----------------- ---------------- -----------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 26,538 $ 14,908 $ 2,217 $ -
Operating expenses:
Cost of revenue 23,777 6,983 - -
Research and development 17,146 5,406 4,396 366
Selling, general and administrative 6,068 3,679 1,275 46
---------------- ----------------- ---------------- -----------------
Total operating expenses 46,991 16,068 5,671 412
---------------- ----------------- ---------------- -----------------
Loss from operations (20,453) (1,160) (3,454) (412)
Interest income 2,445 1,793 580 -
Interest expense (645) (346) (59) -
---------------- ----------------- ---------------- -----------------
Income (loss) before income taxes (18,653) 287 (2,933) (412)
Income taxes - (20) - -
---------------- ----------------- ---------------- -----------------
Net income (loss) $ (18,653) $ 267 $ (2,933) $ (412)
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Basic income (loss) per share $ (1.14) $ 0.03 $ (3.86) $ (5,146.59)
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Diluted income (loss) per share $ (1.14) $ 0.02 $ (3.86) $ (5,146.59)
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Shares used in computing:
Basic income (loss) per share 16,312 8,970 760 < 1
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Diluted income (loss) per share 16,312 15,423 760 < 1
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1998 1997 1996 1995
---------------- ----------------- ---------------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments $ 28,026 $ 48,906 $ 13,167 $ 11
Total assets 50,955 63,036 17,515 115
Capital lease obligations, less current portion 4,788 3,422 1,111 -
Accumulated deficit (21,731) (3,078) (3,345) (412)
Total stockholders' equity 37,542 54,364 15,184 (412)
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A NUMBER OF FACTORS INCLUDING THE ABILITY TO ATTRACT
ADDITIONAL COLLABORATIVE PARTNERS, DEVELOPMENT OR AVAILABILITY OF COMPETING
SYSTEMS, AND THE ABILITY TO MEET EXISTING COLLABORATIVE COMMITMENTS. READERS
ARE ENCOURAGED TO REVIEW THE RISK FACTORS DISCUSSED IN "BUSINESS - RISK
FACTORS" AND ELSEWHERE IN THIS FORM 10-K FOR A MORE COMPLETE DISCUSSION OF
THOSE RISKS AND UNCERTAINTIES.
OVERVIEW
Aurora Biosciences Corporation ("Aurora" or the "Company") designs, develops
and commercializes proprietary drug discovery systems, services and
technologies to accelerate and enhance the discovery of new medicines.
Operating activities in 1996 and 1997 focused on the development of an
integrated technology platform comprised of a portfolio of proprietary
fluorescent assay technologies and an ultra-high throughput screening system
("UHTSS-TM-" Platform) designed to allow assay miniaturization and to
overcome many of the limitations associated with the traditional drug
discovery process. In 1998, while continuing development and manufacture of
other UHTSS components, the Company delivered Module 1 of its UHTSS Platform
to three of its syndicate customers, continued to manufacture and deliver
certain subsystems to customers, and performed screening services for
collaborators, including screen development and screening.
The Company had an accumulated deficit of $21.7 million as of December 31,
1998. The Company's objective is to increase revenue substantially in 1999,
while controlling the growth of expenses. The Company's ability to achieve
profitability will depend in part on its ability to successfully complete
development, manufacture and delivery of UHTSS systems that meet contractual
specifications, continue to provide screen development and screening services
to pharmaceutical and biotechnology customers and achieve the required
further growth of sales of its systems, services and technologies.
Revenue recognized by the company is predominately sales to corporate
collaborators of services, technology, instruments and intellectual property
licenses. To date, the sales have been generated from a limited number of
collaborators in the biotechnology and pharmaceutical industries in the U.S.
and Europe.
Many of the Company's agreements provide for future milestone payments from
drug development achievements and royalties from the sale of products derived
from certain of Aurora's technologies. However, there can be no assurance
that any collaborators will ever generate products from technology provided
by Aurora and thus that the Company will ever receive milestone payments or
royalties. The Company believes its ability to achieve profitability is not
dependent on receipt of milestone payments or royalties.
The Company may encounter significant fluctuations in its quarterly financial
performance depending on factors such as revenue recognized from existing and
future contracts and collaborations, timing of expenditures to develop its
products or delivery of technologies and systems and the completion of
contracted service commitments to Aurora's collaborators. The Company will
also continue to invest 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, or predictive of, the results of operations for any
other period.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUE
Revenue increased 78% to $26.5 million in 1998 from $14.9 million in 1997,
which was an increase of 573% from $2.2 million in 1996. The increases in
revenue resulted primarily from the Company's collaborative agreements with
Warner-Lambert Company ("Warner-Lambert") and Merck & Co., Inc. ("Merck")
executed in 1997, and collaborative agreements with Bristol-Myers Squibb
Pharmaceutical Research Institute ("BMS") and Eli Lilly and Company ("Lilly")
executed in 1996. The increase in 1998 was also attributable in part to an
agreement with Warner-Lambert, executed in August 1998, to develop an
automated master compound storage ("AMCS-TM-") system.
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<PAGE>
EXPENSES
Total operating expenses increased 192% to $47.0 million in 1998 from $16.1
million in 1997, which was an increase of 183% from $5.7 million in 1996. The
increases in operating expenses resulted primarily from the growth of the
Company and its research and development programs. This growth was reflected
by the increase to 150 employees at December 31, 1998 from approximately 50
at December 31, 1996 and the expansion of the Company's facilities in October
1997 to 81,000 square feet from 22,000 square feet.
Cost of revenue increased 241% to $23.8 million in 1998 from $7.0 million in
1997. There was no cost of revenue in 1996. In addition to the growth of the
Company's operations as noted above, the increase in cost of revenue was
primarily a result of increased purchases of materials and increased
technology development expenses related to the development of the UHTSS
Platform, the AMCS system and screening subsystems for the Company's
collaborators.
Research and development increased 217% to $17.1 million in 1998 from $5.4
million in 1997, which was a 23% increase from $4.4 million in 1996. In
addition to the growth of the Company's operations as noted above, the
increases in research and development expenses were primarily attributable to
ongoing development of a UHTSS Platform and an AMCS for Aurora, and the
expansion of the Company's human cell functional genomics GenomeScreen-TM-
program. In addition, licensing of technology from OSI Pharmaceuticals, Inc.
and Xenometrix, Inc. and the costs of initiating a collaboration with SIDDCO,
Inc. to produce a large library of compounds for Aurora's UHTSS contributed
to the 1998 increase.
Selling, general and administrative expenses increased 65% to $6.1 million in
1998 from $3.7 million in 1997, which was a 189% increase from $1.3 million
in 1996. The increases were primarily attributable to the growth of the
Company's operations as noted above and legal and professional fees incurred
in connection with the overall scale-up of the Company's operations and
business development efforts.
INTEREST AND OTHER INCOME
Net interest income increased 24% to $1.8 million in 1998 from $1.4 million
in 1997, which was a 178% increase from $0.5 million in 1996. The increases
primarily reflected interest income from increased cash and investment
balances resulting from receipts under collaborative agreements and proceeds
from the Company's initial public offering in June 1997. Interest income was
partially offset by interest expense incurred on capital lease obligations
beginning in the second half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, Aurora held cash, cash equivalents and investment
securities available-for-sale of $28.0 million and working capital of $24.9
million. The Company has funded its operations through such date primarily
through the issuance of equity securities with aggregate net proceeds of
$57.3 million, receipts from corporate collaborations and strategic
technology alliances of $42.4 million, capital equipment lease financing of
$9.1 million and interest income of $4.8 million.
The Company's facility lease agreements are secured by letters of credit,
which are secured by certificates of deposit recorded as restricted cash. At
December 31, 1998, such restricted cash totaled $1.1 million. The letters of
credit will be reduced over the next two years on a predetermined schedule.
The Company has entered into certain contractual commitments, subject to
satisfactory performance by third parties, which obligate expenditures
totaling approximately $9.3 million over the next five years.
The Company expects significant cash expenditures to continue into 1999 as it
continues its development of screening technology and seeks access to new
technologies to expand its technology platform through investments, licensing
agreements, research and development alliances or acquisitions.
The Company's strategy for the development of the UHTSS Platform includes the
establishment of a syndicate of collaborators to provide the Company with
funding for development, technology and personnel resources and payments for
system validation. The Company's UHTSS Platform co-development syndicate
currently includes BMS, Lilly, Warner-Lambert and Merck. The Company has also
entered into an agreement with Warner-Lambert to develop an AMCS system. In
addition, the Company has entered into collaborations with Roche Bioscience
Corporation, Allelix Biopharmaceuticals, Inc., Cytovia, Inc., Pharmacia &
Upjohn, Inc. and F.Hoffman-LaRoche to provide screening services, and with
Warner-Lambert for a functional genomics program. Other collaborations
include a combinatorial chemistry agreement with SIDDCO, Inc. to synthesize
large libraries of chemical compounds for Aurora.
25
<PAGE>
The Company's ability to achieve sustained profitability will be dependent
upon its ability to sell new products and services, and to increase market
share of existing discovery services and technologies by agreements with new
collaborators and expansion of agreements with existing collaborators.
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 the Company's revenue goals will be met. Some of the Company's
current collaborative agreements provide that they may be terminated by the
collaborator without cause upon short notice, which would result in loss of
anticipated revenue. Although certain of the Company's collaborators would be
required to pay certain penalties in the event they terminate their
agreements without cause, 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. In addition, collaborators may terminate their agreements for
cause if the Company cannot deliver the technology in accordance with such
agreements. There can be no assurance that such collaborators will perform
their obligations as expected, that the Company will derive any additional
revenue from such agreements or that such current or future collaborative
agreements will be successful and provide the Company with expected benefits.
Termination of the Company's existing or future collaborative agreements, or
the failure to enter into a sufficient number of additional collaborative
agreements on favorable terms, or to generate sufficient revenues from the
Company's services and technologies, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company may be required to raise additional capital over the next 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 generate sales from and receive payments under its
existing collaborative agreements or that the Company's existing or potential
revenue 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.
IMPACT OF YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by the inability of computer systems to process data
having dates on or after January 1, 2000 (the "Year 2000" issue). The Company
has completed an assessment of whether it will have to modify or replace
portions of its software and certain hardware so that its systems will
function properly with respect to dates in the year 2000 and thereafter. As a
result of this assessment, the Company believes that no significant
modifications or conversions of existing software and certain hardware will
be required. All required modifications and conversions of existing software
and certain hardware are expected to be completed by June 30, 1999, which is
prior to any anticipated impact on the Company's systems. The Company
believes that, with relatively minor modifications and conversions of
existing software and certain hardware, the Year 2000 issue will not pose
significant operational problems for its 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 gathered information about its significant suppliers,
financial institutions and others with whom the Company does business to
determine the extent to which the Company's systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues. The Company
continues to monitor the Year 2000 compliance status of such third parties,
and no significant issues with third parties' systems have been identified to
date. While the Company has no material systems that interface directly with
those of third parties, there can be no assurance that any failure within
systems of third parties will not have a material impact on the operations of
the Company.
The Company does not expect expenditures related to new or upgraded software
and hardware required for Year 2000 compliance to be significant. In
addition, the Company does not expect to utilize significant external
resources to assess, test, modify or replace existing software and hardware
for Year 2000 issues. Accordingly, the total Year 2000 issue cost to the
Company is expected to be less than $100,000.
The costs of the assessment and remediation of the Year 2000 issue 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
26
<PAGE>
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.
The Company currently has no contingency plans in place in the event it does
not complete all phases of its Year 2000 program. The Company plans to
evaluate the status of completion in June 1999 and will develop contingency
plans by August 1999.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company invests its excess cash in interest-bearing investment-grade
securities that it holds for the duration of the term of the respective
instrument. The Company does not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions in any material fashion. Accordingly, the Company
believes that, while the investment-grade securities it holds are subject to
changes in the financial standing of the issuer of such securities, the
Company is not subject to any material risks arising from changes in interest
rates, foreign currency exchange rates, commodity prices, equity prices or
other market changes that affect market risk sensitive instruments.
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.
28
<PAGE>
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 1999 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,
1998.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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(3)* Collaborative Research and License Agreement dated December 18,
1997 between the Registrant and Merck & Co., Inc.
10.29(3) Negative Covenant Pledge Agreement dated September 29, 1997
between the Registrant and Lease Management Services
Incorporated.
10.30(3) Collateral Security Agreement dated December 16, 1997 between
the Registrant and Lease Management Services Incorporated.
10.31(3)* Packard Aurora Supply Agreement dated February 5, 1998 between
the Registrant and Packard Instrument Company, Inc.
10.32(3)* 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>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.33(3)# Amendment dated January 2, 1998, to Employment Agreement
between the Registrant and J. Gordon Foulkes.
10.34(4)* Combinatorial Chemistry Agreement dated April 25, 1998 between
the Registrant and SIDDCO, Inc.
10.35(4)* Agreement dated June 11, 1998 between the Registrant and J.
Gordon Foulkes.
10.36(4) Agreement dated July 16, 1998 between the Registrant and
Deborah J. Tower.
10.37(5)* Collaborative Research Agreement dated July 16, 1998 between
the Registrant and Cytovia, Inc.
10.38(5)* AMCS Development Agreement dated August 21, 1998 between the
Registrant and Warner-Lambert Company.
10.39# Promissory Note dated February 18, 1997 between the Registrant
and Harry Stylli.
10.40# Terms of employment dated December 3, 1997 between the
Registrant and Paul J. England.
10.41# Terms of employment dated June 9, 1998 between the Registrant
and Thomas G. Klopack.
10.42** Termination Agreement between the Registrant and Packard
Instrument Company, Inc.
10.43# Loan Agreement and Promissory Note dated December 23, 1998
between the Registrant and Thomas G. Klopack.
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, 1998.
</TABLE>
- ----------
(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 exhibits of the same number with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (No. 0-22669) and incorporated herein by
reference.
(3) Previously filed as exhibits of the same number with the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (No. 0-22669) and incorporated herein
by reference.
(4) Previously filed as exhibits of the same number with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (No. 0-22669) and incorporated herein by
reference.
(5) Previously filed as exhibits of the same number with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (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).
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 31,
1999.
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 31, 1999
- ------------------------------------------------- President and Chief Executive
Timothy J. Rink, M.A., M.D., Sc.D Officer (PRINCIPAL
EXECUTIVE OFFICER)
/s/ JOHN PASHKOWKSY Director of Finance March 31, 1999
- ------------------------------------------------- and Treasurer
John Pashkowsky (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ JAMES C. BLAIR Director March 31, 1999
- -------------------------------------------------
James C. Blair, Ph.D.
/s/KEVIN J. KINSELLA Director March 31, 1999
- -------------------------------------------------
Kevin J. Kinsella
/s/ HUGH Y. RIENHOFF, JR. Director March 31, 1999
- -------------------------------------------------
Hugh Y. Rienhoff, Jr., M.D.
/s/ LUBERT STRYER Director March 31, 1999
- -------------------------------------------------
Lubert Stryer, M.D.
/s/ ROY A. WHITFIELD Director March 31, 1999
- -------------------------------------------------
Roy A. Whitfield
/s/ TIMOTHY J. WOLLAEGER Director March 31, 1999
- -------------------------------------------------
Timothy J. Wollaeger
</TABLE>
32
<PAGE>
AURORA BIOSCIENCES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................................... F-2
Balance Sheets as of December 31, 1998 and 1997.............................................. F-3
Statements of Operations for the years ended December 31, 1998, 1997 and 1996................ F-4
Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996...... F-5
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................ F-6
Notes to Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF 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, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 29, 1999
F-2
<PAGE>
AURORA BIOSCIENCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,477,916 $ 23,168,690
Investment securities, available-for-sale 18,547,991 25,737,734
Accounts receivable 3,750,291 3,207,166
Notes receivable from officers and employees 210,000 -
Prepaid expenses 475,927 563,017
Other current assets 1,104,249 763,330
---------------- -----------------
Total current assets 33,566,374 53,439,937
Equipment, furniture and leaseholds, net 10,863,357 6,691,939
Notes receivable from officers and employees 210,000 290,000
Restricted cash 1,096,034 1,311,923
Other assets 5,218,951 1,302,033
---------------- -----------------
Total assets $ 50,954,716 $ 63,035,832
---------------- -----------------
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,216,696 $ 1,111,946
Accrued compensation 550,770 278,852
Other current liabilities 391,694 227,778
Unearned revenue 2,440,833 2,324,001
Capital lease obligations, current portion 2,024,786 1,153,185
---------------- -----------------
Total current liabilities 8,624,779 5,095,762
Capital lease obligations, less current portion 4,787,667 3,421,652
Other noncurrent liabilities - 154,346
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 7,500,000 shares authorized and no
shares issued and outstanding - -
Common stock, $.001 par value; 50,000,000 shares authorized,
17,024,919 and 17,032,885 shares issued and outstanding at December
31, 1998 and 1997, respectively 17,025 17,033
Additional paid-in capital 61,496,842 60,497,472
Deferred compensation (2,240,606) (3,072,560)
Accumulated deficit (21,730,991) (3,077,873)
---------------- -----------------
Total stockholders' equity 37,542,270 54,364,072
---------------- -----------------
Total liabilities and stockholders' equity $ 50,954,716 $ 63,035,832
---------------- -----------------
---------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Revenue $ 26,537,888 $ 14,907,749 $ 2,216,523
Operating expenses:
Cost of revenue 23,777,215 6,982,875 -
Research and development 17,145,787 5,405,731 4,395,914
Selling, general and administrative 6,067,445 3,679,317 1,275,032
--------------------- ---------------------- ----------------------
Total operating expenses 46,990,447 16,067,923 5,670,946
--------------------- ---------------------- ----------------------
Loss from operations (20,452,559) (1,160,174) (3,454,423)
Interest income 2,444,836 1,793,691 580,382
Interest expense (645,395) (346,183) (59,439)
--------------------- ---------------------- ----------------------
Income (loss) before income taxes (18,653,118) 287,334 (2,933,480)
Income taxes - (20,000) -
--------------------- ---------------------- ----------------------
Net income (loss) $ (18,653,118) $ 267,334 $ (2,933,480)
--------------------- ---------------------- ----------------------
--------------------- ---------------------- ----------------------
Basic income (loss) per share $ (1.14) $ 0.03 $ (3.86)
--------------------- ---------------------- ----------------------
--------------------- ---------------------- ----------------------
Diluted income (loss) per share $ (1.14) $ 0.02 $ (3.86)
--------------------- ---------------------- ----------------------
--------------------- ---------------------- ----------------------
Shares used in computing:
Basic income (loss) per share 16,312,194 8,970,183 759,741
--------------------- ---------------------- ----------------------
--------------------- ---------------------- ----------------------
Diluted income (loss) per share 16,312,194 15,422,755 759,741
--------------------- ---------------------- ----------------------
--------------------- ---------------------- ----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ----------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 - $ - 80 $ - $ - $ -
Issuance of Series A preferred stock, 7,634,895 7,635 - - 12,617,058 -
net
Issuance of Series A preferred stock
for cancellation of notes payable 556,387 556 - - 924,441 -
Issuance of Series B preferred stock, 666,665 667 - - 1,494,889 -
net
Issuance of Series C preferred stock, 600,000 600 - - 1,496,800 -
net
Issuance of Series D preferred stock, 458,026 458 - - 2,054,943 -
net
Issuance of common stock, net - - 2,677,076 2,677 90,847 -
Issuance of common stock for acquired
technology - - 188,000 188 63,312 -
Deferred compensation related to
stock and stock options - - - - 145,500 (373,742)
Amortization of deferred compensation - - - - - 2,169
Net loss - - - - -
--
----------- ----------- ----------- ----------- ----------- -------------
Balance at December 31, 1996 9,915,973 9,916 2,865,156 2,865 18,887,790 (371,573)
Costs incurred in connection with
issuance of Series D preferred - - - - (37,485) -
stock
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 -
Deferred compensation related to
stock and stock options - - - - 3,741,944 (3,513,702)
Amortization of deferred compensation - - - - - 812,715
Net income - - - - - -
----------- ----------- ----------- ----------- ----------- --------------
Balance at December 31, 1997 - - 17,032,885 17,033 60,497,472 (3,072,560)
Issuance of common stock, net - - 125,369 125 511,510 -
Issuance of common stock for acquired
technology - - 75,000 75 569,456 -
Repurchases of common stock - - (208,335) (208) (24,436) -
Deferred compensation related to
stock and stock options - - - - (57,160) 57,160
Amortization of deferred compensation - - - - - 774,794
Net loss - - - - - -
----------- ----------- ----------- ----------- ----------- --------------
BALANCE AT DECEMBER 31, 1998 - $ - 17,024,919 $ 17,025 $61,496,842 $ (2,240,606)
----------- ----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- ----------- --------------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT
-------------- ---------------
<S> <C> <C>
Balance at December 31, 1995 $ (411,727) $ (411,727)
Issuance of Series A preferred stock, - 12,624,693
net
Issuance of Series A preferred stock
for cancellation of notes payable - 924,997
Issuance of Series B preferred stock, - 1,495,556
net
Issuance of Series C preferred stock, - 1,497,400
net
Issuance of Series D preferred stock, - 2,055,401
net
Issuance of common stock, net - 93,524
Issuance of common stock for acquired
technology - 63,500
Deferred compensation related to
stock and stock options - (228,242)
Amortization of deferred compensation - 2,169
Net loss (2,933,480) (2,933,480)
-------------- ---------------
Balance at December 31, 1996 (3,345,207) 15,183,791
Costs incurred in connection with
issuance of Series D preferred - (37,485)
stock
Conversion of Series A, B, C and D
preferred stock into common stock - -
Exercise of warrants to purchase
common stock - -
Issuance of common stock, net - 37,909,475
Deferred compensation related to
stock and stock options - 228,242
Amortization of deferred compensation - 812,715
Net income 267,334 267,334
------------- ---------------
Balance at December 31, 1997 (3,077,873) 54,364,072
Issuance of common stock, net - 511,635
Issuance of common stock for acquired
technology - 569,531
Repurchases of common stock - (24,644)
Deferred compensation related to
stock and stock options - -
Amortization of deferred compensation - 774,794
Net loss (18,653,118) (18,653,118)
-------------- ---------------
BALANCE AT DECEMBER 31, 1998 $(21,730,991) $ 37,542,270
-------------- ---------------
-------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (18,653,118) $ 267,334 $ (2,933,480)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,421,986 964,323 156,861
Forgiveness of notes receivable from officers and employees
- - 93,129
Issuance of common stock in exchange for acquired technology
569,531 - 63,500
Amortization of deferred compensation 774,794 812,715 2,169
Changes in operating assets and liabilities:
Accounts receivable (543,125) (2,090,643) (1,116,523)
Prepaid expenses and other current assets (253,829) (929,143) (378,871)
Other assets (1,480,639) (230,376) (106,625)
Accounts payable and accrued compensation 2,376,668 999,451 339,820
Other current liabilities 163,916 227,778 -
Unearned revenue 116,832 2,074,001 250,000
Other noncurrent liabilities (154,346) 154,346 -
----------------- ---------------- -----------------
Net cash provided by (used in) operating activities (14,661,330) 2,249,786 (3,630,020)
Investing activities:
Purchases of short-term investments (23,015,257) (24,459,286) (12,147,818)
Sales and maturities of short-term investments 30,205,000 7,974,422 2,894,948
Purchases of property and equipment (2,837,991) (1,951,776) (458,657)
Notes receivable from officers and employees (130,000) (90,000) (223,331)
Restricted cash 215,889 (1,311,923) -
Other assets (2,436,279) (339,283) (619,309)
----------------- ---------------- -----------------
Net cash provided by (used in) investing activities 2,001,362 (20,177,846) (10,554,167)
Financing activities:
Issuance of convertible preferred stock, net - (37,485) 17,673,050
Issuance of common stock, net 486,991 37,909,475 93,524
Issuance of notes payable - - 449,997
Principal payments on capital lease obligations (1,517,797) (689,278) (129,465)
----------------- ---------------- -----------------
Net cash provided by (used in) financing activities (1,030,806) 37,182,712 18,087,106
----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents (13,690,774) 19,254,652 3,902,919
Cash and cash equivalents at beginning of year 23,168,690 3,914,038 11,119
----------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 9,477,916 $ 23,168,690 $ 3,914,038
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Supplemental disclosure of cash flow information:
Interest paid $ 645,395 $ 346,183 $ 59,439
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Supplemental schedule of non-cash investing and
financing activities:
Property and equipment acquired under capital leases $ 3,755,413 $ 3,802,971 $ 1,590,609
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Conversion of notes payable to convertible preferred stock $ - $ - $ 924,997
----------------- ---------------- -----------------
----------------- ---------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Aurora Biosciences Corporation ("Aurora" or the "Company") was incorporated
in California on May 8, 1995 and subsequently re-incorporated in Delaware on
January 22, 1996. The Company designs, develops and commercializes
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 an ultra-high throughput screening system
("UHTSS-TM-") platform designed to allow assay miniaturization and to
overcome many of the limitations associated with the traditional drug
discovery process. To date, the Company's revenue has been generated from a
limited number of collaborators in the biotechnology and pharmaceutical
industries in the U.S. and Europe.
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 if material. 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 are
designed to 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.
OTHER ASSETS
Equity investments in closely-held companies are carried at cost. Patents are
carried at cost and amortized using the straight-line method over the
expected useful lives, which are estimated to be four to eight years.
Chemical compounds are carried at cost and amortized over the expected useful
lives, which are estimated to be five years.
WARRANTY LIABILITY
The Company records a liability for estimated future warranty costs related
to its contractual obligations to provide service and support for a limited
time for certain installed systems and instruments. To date, the Company's
warranty costs have been minimal.
STOCK OPTIONS
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("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.
F-7
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue under collaborative agreements with UHTSS syndicate customers
typically consists of non-refundable, non-creditable upfront fees, ongoing
research and co-development payments, and milestone, royalty and other
contingent payments. Revenue from non-refundable, non-creditable upfront fees
for past research and development efforts is recognized upon signing of the
agreement when there are no future performance obligations associated with
such upfront fees. 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. The Company does not have an
obligation to refund, nor does there exist the presumption of an obligation
to refund, ongoing research and co-development payments. Revenue from
milestone or other contingent payments is recognized upon satisfaction of the
contractual terms of the milestone or contingency. Revenue from equipment
sales under short-term production contracts is recognized using the completed
contract method. Revenue from equipment sales under long-term production
contracts is recognized using the percentage of completion method. License
revenue is recognized ratably over the term of the licensing agreement.
Revenue from royalty payments will be recognized upon applicable product
sales.
Revenue from screen development, screening and other services is recognized
as the services are performed or ratably over the service period if the
Company believes such method will approximate the expense being incurred.
Advance payments received in excess of amounts earned through performance 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
In accordance with Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE ("SFAS 128"), basic income (loss) per share is calculated
based upon the weighted average shares of common stock outstanding during the
period, and excludes any dilutive effects of options, warrants and
convertible securities. In 1997, diluted income per share also gives effect
to all potential dilutive common shares outstanding during the period. In
1998 and 1996, all potential dilutive common shares have been excluded from
the calculation of diluted loss per share as their inclusion would be
anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"),
which requires that all components of comprehensive income (loss), including
net income (loss), be reported in the financial statements in the period in
which they are recognized. Comprehensive income (loss) is defined as the
change in equity during a period from transactions and other events and
circumstances from non-owner sources. Net income (loss) and other
comprehensive income (loss), including unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income (loss). The Company has not reported comprehensive
income (loss) because there were no items of other comprehensive income
(loss) for the years ended December 31, 1998, 1997 and 1996.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, SEGMENT INFORMATION ("SFAS 131"), which
requires disclosure of certain financial information about operating
segments, products, services and geographic areas in which they operate. The
Company has not reported segment information because the Company operates in
only one business segment.
F-8
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECLASSIFICATION
Certain prior year amounts in the financial statements have been reclassified
to conform to the current year presentation.
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,
1998 1997
----------------- ----------------
<S> <C> <C>
Money market funds $ 1,627,317 $ 8,381,835
U.S. government and agency securities 14,134,679 18,498,884
U.S. corporate securities 12,263,312 22,235,157
----------------- ----------------
Total debt securities 28,025,308 49,115,876
Less amounts classified as cash equivalents (9,477,317) (23,378,142)
----------------- ----------------
----------------- ----------------
Total investment securities $ 18,547,991 $ 25,737,734
----------------- ----------------
----------------- ----------------
</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, 1998 or 1997. Realized gains or losses on sales of
available-for-sale securities in 1998 and 1997 were not significant. The
estimated fair value of available-for-sale debt securities as of December 31,
1998 by contractual maturity is as follows: $17.2 million due within one year
and $10.8 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 a deed of trust on the individual's principal
residence. Notes receivable as of December 31, 1998 include two $60,000 loans
to officers of the Company. One note bears interest payable monthly at
approximately 6% per annum and is due in 2001, following an extension granted
in February 1999. The other note is interest-free and is due in 2003.
4. EQUIPMENT, FURNITURE AND LEASEHOLDS
Equipment, furniture and leaseholds consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Scientific equipment $ 5,394,363 $ 3,358,521
Office furniture, computers and equipment 4,109,911 2,242,204
Leasehold improvements 4,887,714 2,197,860
------------------ -----------------
14,391,988 7,798,585
Less accumulated depreciation and amortization (3,528,631) (1,106,646)
------------------ -----------------
------------------ -----------------
$ 10,863,357 $ 6,691,939
------------------ -----------------
------------------ -----------------
</TABLE>
The cost of equipment, furniture and leaseholds under capital leases at
December 31, 1998 and 1997 was $9,148,994 and $5,393,580, respectively. The
accumulated depreciation and amortization of equipment, furniture and
leaseholds under capital leases at December 31, 1998 and 1997 was $2,693,324
and $915,155, respectively.
F-9
<PAGE>
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 $225,000 over the next four years. The agreements are
cancelable by either party upon 60 or 90 days written notice. During the
years ended December 31, 1998, 1997 and 1996, the Company expensed
approximately $250,000, $440,000 and $330,000, respectively, of fees and
expense reimbursements related to these agreements.
TECHNOLOGY AND LICENSE AGREEMENTS
The Company has entered into various strategic technology and license
agreements with third parties pursuant to the development of its screening
systems and the synthesis of chemical compounds. These agreements contain
varying terms and provisions which require the Company to make payments to
the third parties, subject to satisfactory performance by the third parties.
Pursuant to these agreements, the Company paid approximately $1,400,000,
$850,000 and $550,000 in 1998, 1997 and 1996, respectively, and is obligated
to pay a total of approximately $6.7 million over the next four years.
The Company has also entered into various license agreements with
corporations and academic institutions regarding rights to 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 $1,070,000, $140,000 and
$120,000 in 1998, 1997 and 1996, respectively, and is obligated to pay a
total of approximately $1.7 million over the next five years.
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 $1.1
million, which are secured by certificates of deposit. At December 31, 1998,
such restricted cash totaling $1,096,034 was included in noncurrent assets.
The letters of credit will be reduced over the next two years on a
predetermined schedule. Rent expense totaled approximately $1,593,000,
$1,205,000 and $462,000 in 1998, 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 1998 and 1997 included as a credit to expense is $935,000 and
$79,000, respectively. Scheduled aggregate future sublease income at December
31, 1998 is approximately $771,000.
The Company leases certain equipment and improvements under capital lease
agreements which expire at various dates through September 2003. Capital
lease agreements and uses under the lease line totaled approximately $9.1
million through December 31, 1998. There was no unused capital lease line
available at December 31, 1998.
Annual future minimum lease payments for operating and capital leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------------- ---------------------
<S> <C> <C>
Years ended December 31,
1999 $ 2,210,744 $ 2,636,676
2000 1,745,628 2,343,303
2001 1,797,515 1,605,173
2002 1,852,071 1,315,882
2003 1,907,633 172,069
Thereafter 9,863,676 -
--------------------------------------------
Total minimum lease payments $ 19,377,267 8,073,103
-----------------------
Less amounts representing interest ----------------------- (1,260,650)
-------------------
Present value of capital lease payments 6,812,453
Less current portion (2,024,786)
-------------------
Capital lease obligations, noncurrent $ 4,787,667
-------------------
---------------------
</TABLE>
F-10
<PAGE>
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
During 1996, the Company issued 9,915,973 shares of convertible preferred
stock with $.001 par value. In June 1997, as a result of the Company's
initial public offering ("IPO") 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 IPO. No shares of preferred stock were outstanding at December
31, 1998.
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, any unvested shares in the event of termination of
employment or engagement. Shares issued under these agreements generally vest
over four years. At December 31, 1998, 349,428 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 issuance.
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 IPO 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.
In May 1998, the Company issued 75,000 shares of common stock in exchange for
certain licenses and rights. Research and development expense of $570,000 was
recorded related to such issuances based upon the fair market value of such
shares at the date of issuance.
WARRANTS
In 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 IPO, the warrants were exercised in a cashless transaction
resulting in the issuance of 45,290 shares of common stock. No warrants were
outstanding at December 31, 1998.
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 fair value of the Company's common stock at the date of issuance or
grant. Shares included in the computation of deferred compensation include
restricted stock issued and stock options granted since April 1996.
F-11
<PAGE>
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION AND PURCHASE PLANS
In 1996, the Company adopted the 1996 Stock Plan (the "Stock Plan"), under
which, as amended, 4,000,000 shares of the Company's common stock were
reserved for future issuance. 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 thirty-six months. 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. The fair value of options granted to
non-employee directors has been included in deferred compensation.
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, 1998, 106,697 shares of common stock have been issued
pursuant to the Purchase Plan.
In December 1998, the Board of Directors committed to grant options to
purchase 198,411 shares of common stock to employees of the Company on
January 1, 1999. The shares were priced at $6.44 per share, representing the
fair market value of the Company's common stock at December 31, 1998.
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 $0.09 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 fair value of the Company's common stock on the date of issuance. The
weighted average fair value of these issuances was $3.14 and $2.75 per share,
respectively, and the difference between the fair value and issue price of
such shares has been included in deferred compensation.
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 SFAS 123. The fair value of stock options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions for 1998, 1997 and 1996:
risk-free interest rates of 4.59%, 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 1998, 1997 and
1996 was $4.15, $3.33 and $0.05, respectively.
Shares issued under the Purchase Plan were valued based upon the difference,
if any, 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 $5.32 and
$5.19 in 1998 and 1997, respectively.
F-12
<PAGE>
6. STOCKHOLDERS' EQUITY (CONTINUED)
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 and 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 1998, 1997 and 1996 would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma loss $ (19,587,000) $ (124,000) $ (2,934,000)
Pro forma basic and diluted loss per share $ (1.20) $ (0.01) $ (3.86)
</TABLE>
The pro forma results for 1998, 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 three years of vesting.
The following table summarizes stock option activity under the Stock and
Directors' Plans and related information through December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
OPTIONS EXERCISE 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
Granted 2,945,830 $7.33
Exercised (30,409) $1.40
Cancelled (1,277,351) $10.78
-----------------
OUTSTANDING AT DECEMBER 31, 1998 2,744,490 $5.23
-----------------
-----------------
</TABLE>
At December 31, 1998, 1,094,278 shares remain available for grant under the
Stock and Directors' Plans.
In November 1998, the Board of Directors authorized a plan whereby employee
option holders could have exchanged all of his or her current vested and
unvested options on a one-for-one basis for new options priced at the market
value as of November 19, 1998. This plan was not available to members of the
Board of Directors and executive officers were not permitted to exchange
options with an exercise price of $10.00 or below, with the exception of one
officer who does not meet the criteria to be included as a "Named Executive
Officer" in the Company's Proxy Statement. Under this plan, an aggregate of
1,099,430 options having an average exercise price of $11.04 per share were
exchanged for options with an exercise price of $5.25 per share. The
replacement options vest and expire based on the original grant date. None of
the replacement options are exercisable until November 20, 1999. Under
certain circumstances and at the discretion of the Board of Directors, the
replacement options may be cancelled by the Company and the original options
reinstated with original terms of exercise, vesting and expiration. All
replacement options are included in grants and cancellations in the above
summary of stock option activity.
F-13
<PAGE>
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
under the Company's Stock and Directors' Plans at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------------
WEIGHTED-
AVERAGE
RANGE OF REMAINING WEIGHTED- WEIGHTED-
EXERCISE NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
PRICES OPTIONS LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.09 - $ 5.38 1,815,705 8.86 $ 4.06 271,878 $ 1.76
$ 6.00 - $13.38 928,785 9.64 $ 7.52 32,492 $ 11.91
----------------- -----------------
$ 0.09 - $13.38 2,744,490 9.12 $ 5.23 304,370 $ 2.85
----------------- -----------------
----------------- -----------------
</TABLE>
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1998, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Common stock and stock options under 1996 Stock Plan 3,598,768
Common stock under Employee Stock Purchase Plan 293,303
Stock options under Directors' Plan 240,000
Other 4,000
--------------------
4,136,071
--------------------
--------------------
</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,
1998 1997
----------------- -----------------
<S> <C> <C>
Federal income taxes (benefit) at 35% $ (6,528,000) $ 101,000
State income tax, net of federal benefit - 3,000
Tax effect on non-deductible expenses 414,000 301,000
Alternative minimum taxes - 17,000
Increase (decrease) in valuation allowance and other 6,114,000 (402,000)
----------------- -----------------
$ - $ 20,000
----------------- -----------------
----------------- -----------------
</TABLE>
At December 31, 1998, the Company had federal and California income tax net
operating loss carryforwards of approximately $19,564,000 and $3,351,000,
respectively. The difference between federal and California tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California tax loss carryforwards. 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 $657,000 and $424,000,
respectively, which will begin to expire in 2010 unless previously utilized.
The Company also had California manufactured investment tax credit
carryforwards of approximately $350,000, 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.
F-14
<PAGE>
7. INCOME TAXES (CONTINUED)
Significant components of the Company's net deferred tax assets as of
December 31, 1998 and 1997 are shown below. Valuation allowances of
$9,148,000 and $1,550,000 at December 31, 1998 and 1997, respectively, have
been recognized to offset the net deferred tax assets as realization of such
assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,048,000 $ 965,000
Tax credit carryforwards 1,184,000 704,000
Capitalized research and development 915,000 -
Other 346,000 178,000
--------------------------------------
Total deferred tax assets 9,493,000 1,847,000
Deferred tax liability:
Depreciation (345,000) (297,000)
--------------------------------------
Net deferred tax assets 9,148,000 1,550,000
Valuation allowance for net deferred tax assets (9,148,000) (1,550,000)
--------------------------------------
Net deferred taxes $ - $ -
--------------------------------------
--------------------------------------
</TABLE>
8. INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---------------- ------------------- ------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (18,653,118) $ 267,334 $ (2,933,480)
---------------- ------------------- ------------------
Numerator for basic and diluted income (loss)
per share - income available to common
stockholders $ (18,653,118) $ 267,334 $ (2,933,480)
---------------- ------------------- ------------------
---------------- ------------------- ------------------
Denominator:
Weighted average common shares 16,312,194 8,970,183 759,741
---------------- ------------------- ------------------
Denominator for basic income (loss) per share
- weighted average common shares 16,312,194 8,970,183 759,741
Effect of dilutive securities:
Convertible preferred stock - 4,591,231 -
Nonvested common stock - 1,452,820 -
Warrants - 20,970 -
Common stock options - 387,551 -
---------------- ------------------- ------------------
Dilutive potential common shares - 6,452,572 -
---------------- ------------------- ------------------
Denominator for diluted income (loss) per
share - adjusted weighted average common
shares and assumed conversions 16,312,194 15,422,755 759,741
---------------- ------------------- ------------------
---------------- ------------------- ------------------
Basic income (loss) per share $ (1.14) $ 0.03 $ (3.86)
---------------- ------------------- ------------------
---------------- ------------------- ------------------
Diluted income (loss) per share $ (1.14) $ 0.02 $ (3.86)
---------------- ------------------- ------------------
---------------- ------------------- ------------------
</TABLE>
For additional disclosures regarding convertible preferred stock, nonvested
common stock, warrants and common stock options, see Note 6.
F-15
<PAGE>
8. INCOME (LOSS) PER SHARE (CONTINUED)
Basic income (loss) per share excludes the weighted average effects of the
Company's nonvested common stock totaling 693,861, 1,452,820 and 1,254,917
shares for the years ended December 31, 1998, 1997 and 1996, respectively.
Nonvested common stock is not included in basic income (loss) per share until
the time-based vesting restrictions have lapsed.
Options to purchase 2,744,490 shares of common stock and 349,428 shares of
nonvested common stock were outstanding at December 31, 1998 but were not
included in the computation of diluted earnings per share because the effect
would be antidilutive.
In computing income (loss) per share for periods prior to the Company's IPO
in June 1997, the Company excluded the impact of convertible preferred stock
to conform to current interpretations by the Securities and Exchange
Commission. For comparative purposes, income (loss) per share under the
if-converted method would have been $0.02 in 1997 (basic) with 13,561,414
weighted average shares and $(0.35) in 1996 (basic and diluted) with
8,346,650 weighted average shares.
9. 401(K) RETIREMENT SAVINGS PLAN
In 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. The Company paid Plan expenses totaling $6,000
and $3,000 in 1998 and 1997, respectively. Company matching contributions, if
any, are determined by the Company at its sole discretion. Company
contributions under the Plan totaled $120,000 in 1998. No Company
contributions were made in 1997.
10. COLLABORATIVE AGREEMENTS
The Company has entered into the following collaborative agreements:
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 Platform at each of the Collaborators. Under the terms of each of the
Agreements, the Company is required to develop and separately install three
modules to be integrated into one complete UHTSS Platform. 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 Platform for a limited
period of time.
The Company and the Collaborators will also co-develop high thoughput
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 Platform 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. As of December 31, 1998, the Company expects to meet
the specified delivery dates, and accordingly, has not accrued for any
penalties.
In August 1998, the Company entered into an agreement with the Parke-Davis
Research Division of Warner-Lambert Company to develop an automated master
compound storage ("AMCS-TM-") system for long-term housing of chemical and
biological compounds. The agreement provides for Warner-Lambert to make
payments in excess of $9 million to the Company over a 15-month period.
F-16
<PAGE>
10. COLLABORATIVE AGREEMENTS (CONTINUED)
SCREENING SERVICES AGREEMENTS
In February 1997, the Company and Allelix Biopharmaceuticals, Inc.
("Allelix") entered into a collaborative agreement (the "Allelix Agreement")
regarding the development of screening assays and the provision of screening
services. In 1998, the Company entered into a collaboration with Cytovia,
Inc., to provide screening services and access to Aurora's compound library.
Since the beginning of 1999, Aurora has entered into agreements to develop
screening assays and/or provide screening services with Pharmacia & Upjohn,
Inc. and F.Hoffman-LaRoche Ltd. The Company also entered into an agreement
with Warner-Lambert to provide functional genomics services using the
Company's GenomeScreen-TM- technology. The Company intends to continue to
enter into such agreements to provide services. Such agreements vary in
length and size, however, under these agreements, the Company is required to
develop screening assays and to perform screening services. The customer is
obligated to make certain payments to the Company in the form of upfront
fees, development payments and fees for screening services. Generally, the
customer 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") and Carl Creative Systems to design, develop
and implement certain instrumentation components. The alliances required the
Company to make certain payments for development work performed by these
companies (Note 5). 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. In October 1998, the collaboration and license agreement with
Packard was concluded by mutual consent of the two companies. Aurora assumed
responsibility for development and production of the instrumentation required
for its UHTSS platform. The work conducted under the Company's agreement with
Carl Creative Systems is substantially completed.
In 1996, the Company entered into a technology alliance with Universal
Technologies, Inc. ("UTI") relating principally to automated storage and
retrieval systems which are significant components of the Company's UHTSS
platform and the AMCS project. This alliance requires the Company to make
certain payments to UTI for development work and the production of system
components.
11. RELATED PARTY TRANSACTIONS
During 1996, one of the Company's founding stockholders and affiliated
venture funds loaned the Company $449,997. The note was converted into shares
of Series A Preferred Stock in March 1996, which were subsequently converted
into common stock as a result of the IPO in June 1997. 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>
PROMISSORY NOTE
Promissory Note La Jolla, Califomia
$60,000 February 18, 1997
FOR VALUE RECEIVED, Hany Stylli (the "Employee"), hereby promises to pay
to the order of AURORA BIOSCIENCES CORPORATION (the "Company"), at 11149
North Torrey Pines Road, La Jolla, Califoniia, 92037, the principal sum of
Sixty Thousand Dollars ($60,000) plus interest accrued from the date hereof
on the unpaid principal at the rate of 5.66% per annum. Interest shall be
payable monthly.
The outstanding principal shall be due and payable upon the earlier
occurrence of any of the following events: (i) one year from the date of this
note, (ii) the sale by the Employee of any of the shares of the Company's
Common Stock issued to Employee (the "Shares") (but only to the extent of the
aggregate gross proceeds received by the Employee from such sale), (iii) any
transaction involving the acquisition of the Company (through merger, stock
purchase or otherwise) in which the holders of the Company's stock receive
cash or publicly traded shares, or (iv) ninety days following termination of
the Employee's employment with the Company for any reason.
This note is being made to assist Employee in making escrow deposits
related to his purchase of a home in San Diego, California. Employee agrees
that upon close of escrow of Employee's home purchase, Employee will execute
any and all documents reasonably requested by the Company to secure this note
by a deed of trust granting a second lien on the home so purchased unless the
outstanding principal and accrued interest have been paid in full prior to
such close.
The full amount of this note is secured by a pledge of all of the Shares
held by the Employee, including all Shares issued to the Employee as of the
date hereof and any Shares subsequently issued to the Employee. Employee
hereby agrees to execute all documents and take all actions necessary to
perfect such security interest in favor of the Company, including allowing
the Company to retain possession of the stock certificate(s) evidencing the
Shares until this Note is paid in full.
Other than with regard to the security interest in the Shares as set
forth above, and the security interest in Employee's home to be granted in
accordance with the provisions hereof, this Note shall be non-recourse to the
Employee.
Prepayment of this Note is permitted at any time without penalty or
premium. Payments on this Note shall be applied first to accrued and unpaid
interest and thereafter to the outstanding principal balance hereof.
<PAGE>
If action is instituted to collect the Note, the undersigned shall pay
all costs and expenses of collection, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
Employee, for himself and his successors and assigns, hereby waives
presentment, demand for payment, notice and protest and any defense by reason
of an extension of time for payment or other indulgences. The right to plead
any and all statutes of limitations as a defense to any demands hereunder is
hereby waived to the fullest extent permitted by law. Failure of the holder
hereof to assert any right herein shall not be deemed to be a waiver thereof.
This note shall be governed by, and construed and enforced in accordance
with the laws of the State of California, excluding conflicts of laws
principles that would cause the application of laws of any other jurisdiction.
The provisions of this Note shall inure to the benefit of and be binding
on the Company and Employee and their respective heirs, legal representatives
and successors and assigns, and shall extend to any holders hereof.
Employee acknowledges and agrees that this agreement does not constitute
an express or implied promise of continued engagement as an Employee and
shall not interfere with Employees right or the Company's right to terminate
Employee's employment at any time, with or without cause.
Executed as of the date first above written.
Harry Stylli
<PAGE>
December 3, 1997 (Revision)
Paul J. England, Ph.D.
37 Avenue Road
St. Albans
Herts AL 13 PY, England
Dear Paul:
This letter is a formal offer setting forth the principal terms for you to
join Aurora Biosciences Corporation (the "Company"), a Delaware corporation,
which is located in San Diego, California. This offer is subject to approval
by the Company's Compensation Committee of the Board of Directors.
POSITION: Vice President, Discovery Operations
REPORTING TO: J. Gordon Foulkes, Chief Technical Officer
BASE SALARY RATE: $15,000.00 per month
HIRING BONUS: $15,000, minus normal withholdings, payable with your first
paycheck. If you leave voluntarily before the end of the
first twelve months of employment, you agree to repay this
amount to Aurora Biosciences in full.
EQUITY: Upon commencement of your employment with the Company, you
will be entitled to an Incentive Stock Option to purchase
100,000 shares of the Common Stock of the Company. The
exercise price per share of the Incentive Stock Option is the
closing sales price for the stock on the last market trading
day prior to your date of employment as reported in the Wall
Street Journal.
The shares of Common Stock subject to your Incentive Stock
Option will vest according to the following schedule: 25%
will vest on the first anniversary of your start date; the
remainder of the shares will vest monthly thereafter over the
following three year period at the rate of one forty-eighth
(1/48) of such shares each month. If following a change in
control of Aurora you are terminated within 12 months, your
options will continue to vest, as they would have done
otherwise, for an additional 12 months.
The specific terms and conditions of your Incentive Stock
Option to purchase shares of the Common Stock of the Company
will be set forth in an Incentive Stock Option Agreement,
between you and the Company. This Agreement will be executed
after you commence your employment with the Company.
<PAGE>
RELOCATION: Reimbursed expenses to include reasonable and customary
closing costs for the sale of your house, including realtors'
fees, payment for movement of your household goods, including
packing, unpacking, and insurance from England to San Diego.
All expenses must be documented and paid either directly to
the vendor or reimbursed by normal means. The Company will
follow federal, state and local tax regulations with regards
to reporting reimbursements associated with the move. The
terms of this move package are valid for 18 months from your
date of employment. You agree to repay all relocation
expenses if you terminate employment voluntarily within 12
months of the date the expenses are submitted. (The
relocation expense associated with the initial move of your
basic personal belongings are exempt from this repayment
clause.)
TEMPORARY HOUSING: You will be reimbursed for temporary housing expenses for
six weeks' housing to a maximum of $3,000. This allowance
will be "grossed up" to minimize federal/state income tax
impact on you. You will need to furnish receipts documenting
actual expenses incurred.
TEMPORARY AUTO: You will be eligible for six weeks' auto rental to a maximum
of $1,200.
TRAVEL: You will be eligible for transatlantic airfare to a maximum
of $5,000.00.
BENEFITS: You will be entitled to receive standard medical, life and
dental insurance benefits for yourself and your dependents in
accordance with Company policy.
401(k) PLAN: You will be eligible to participate in the Aurora Biosciences
Corporation 401(K) Savings Plan on the first of the month
following your employment. You may contribute up to 20% of
your earnings or $10,000 whichever is less. Aurora
contributes $.5 on the dollar for the first 4% of your
earnings you contribute to a maximum matching contribution
of $1,600 per year. This matching contribution is subject to
a vesting schedule of four years' vesting service.
PAID PERSONAL Although our policy provides 17 days of Paid Personal Leave
LEAVE: (PPL),you will accrue, regardless of your length service, at
the rate of 25 days per year. If Aurora elects to close
operations between Christmas and New Year's, this time off
will be considered paid holiday time and will not count
against the 25 days of paid personal leave.
EMPLOYMENT AT Your employment will be at will, which means it may be
WILL: terminated at any time by you or the Company with or
without cause.
START DATE: Not later than March 1, 1998.
As a condition of your employment, you will be required to sign a copy of our
Employee Proprietary Information and Inventions Agreement when you begin your
employment. In
<PAGE>
addition, to conform with the Immigration Reform and Control Act of 1986, you
will be required to provide sufficient documentation to show proof of
employment eligibility in the United States. Please bring with you on your
start date, the original of one of the documents noted in List A or one
document from List B and one document from List C as itemized in the enclosed
"Lists of Acceptable Documents". If you do not have the originals of any of
these documents, please contact me immediately.
It is Aurora's policy to respect fully the rights of your previous employers
in their proprietary or confidential information. No employee is expected to
disclose, or is allowed to use for Aurora's purposes, any confidential or
proprietary information he or she may have acquired as a result of previous
employment.
I am pleased to extend this offer to you and look forward to your acceptance.
Please sign and return the enclosed copy of this offer letter as soon as
possible to indicate your agreement with the terms of this offer. This offer
will lapse if not signed and returned by fax to 619-452-5889 by December 10,
1997.
Once signed by you, this letter will constitute the complete agreement
between you and Aurora regarding employment matters and will supersede all
prior written or oral agreements or understandings on these matters.
I believe you will be able to make an immediate contribution to Aurora's
effort, and I think you will enjoy the rewards of working for an innovative,
fast-paced company. One of the keys to our accomplishments is good people. We
hope you accept our offer to be one of those people.
Yours sincerely,
/s/ J. GORDON FOULKES
J. Gordon Foulkes
Chief Technical Officer
JGF/pf
Enclosures
I ACCEPT THE TERMS OF EMPLOYMENT AS DESCRIBED IN THIS OFFER LETTER DATED
DECEMBER 3, 1997 AND WILL START MY EMPLOYMENT ON ________. I CONFIRM THAT BY
MY START DATE AT AURORA I WILL BE UNDER NO CONTRACT OR AGREEMENT WITH ANY
OTHER ENTITY WHICH WOULD IN ANY WAY RESTRICT MY ABILITY TO WORK AT AURORA OR
PERFORM THE FUNCTIONS OF MY JOB FOR AURORA, INCLUDING, BUT NOT LIMITED TO,
ANY EMPLOYMENT AGREEMENT AND/OR NON-COMPETE AGREEMENT.
/s/ PAUL J. ENGLAND DATE
- --------------------------------------- -------------------------
PAUL J. ENGLAND, PH.D
<PAGE>
June 9, 1998 (REVISION)
Thomas G. Klopack
707 Linden Avenue
Los Altos, CA 94022
Dear Tom:
This letter is a formal offer setting forth the principal terms for you to
join Aurora Biosciences Corporation (the "Company"), a Delaware corporation,
which is located in San Diego, California.
POSITION: Senior Vice President, Strategic Operations
REPORTING TO: President
BASE SALARY RATE: $15,000.00 per month
HIRING BONUS: $20,000.00, less normal withholdings, payable with your
first paycheck. If you leave voluntarily before the end
of the first twelve months of employment, you agree to
repay this amount to Aurora Biosciences in full.
1998 PERFORMANCE
BONUS: You will be guaranteed a year-end bonus in the amount of
$10,000 assuming your performance meets position
expectations. This bonus will be paid at the end of
1998 or the first pay period of 1999. (If your
board-approved bonus for 1998 would have been larger than
$10,000.00, you will receive this larger amount.)
EQUITY: Upon commencement of your employment with the Company,
you will be granted an Option to purchase 100,000 shares
of the Common Stock of the Company. The exercise price
per share of the Option is the closing sales price for
the stock on the last market trading day prior to your
date of employment as reported in the Wall Street
Journal.
The shares of Common Stock subject to your Option will
vest according to the following schedule: 25% will vest
on the first anniversary of your start date; the
remainder of the shares will vest monthly thereafter over
the following three year period at the rate of one
forty-eighth (1/48) of such shares each month.
The specific terms and conditions of your Option to
purchase shares of the Common Stock of the Company will
be set forth in an agreement between you and the Company.
This Agreement will be executed after you commence your
employment with the Company.
<PAGE>
RELOCATION: Reimbursed expenses to include reasonable and customary
closing costs for the sale of your house, including
realtors' fees (to a maximum of $35,000); or the
documented expenses associated with renting your current
home to a maximum of $7,500.00 and a housing allowance
of up to $5,000.00 per month to a maximum of $16,000.00
for your family's accommodations in San Diego in the
six-month period following your start date. In addition,
the Company will pay for the movement of your household
goods, including packing, unpacking, and insurance to San
Diego. Payment for the move of up to two vehicles will
also be included. All expenses must be documented and
paid either directly to the vendor or reimbursed by
normal means. The Company will follow federal, state and
local tax regulations with regards to reporting
reimbursements associated with the move. This allowance
will be "grossed up" to minimize federal/state income tax
impact on you. The terms of this move package are valid
for 12 months from your date of employment. You agree to
repay all relocation expenses if you terminate employment
voluntarily within 12 months of the date the expenses are
submitted.
TEMPORARY HOUSING: You will be reimbursed for temporary housing expenses for
sixty days to a maximum of $5,000. You will need to
furnish receipts documenting actual expenses incurred.
HOME PURCHASE LOAN: A loan in the amount of $60,000, secured by the primary
residence you purchase in San Diego County, will be made
to you by Aurora interest free. The loan will be
forgiven annually over four years beginning December 31,
1999 through December 31, 2002, at the rate of $15,000
per year. For each of the calendar years 1999, 2000,
2001, and 2002, any performance-based bonus that you
might receive under Aurora's Performance Bonus Plan will
be reduced by 50%, up to a maximum reduction of $10,000
for that Plan Year, to reduce the forgivable portion of
the housing loan. You must be employed by Aurora on
December 31 of any of these years to have the forgivable
portion forgiven in that year. Any unforgiven loan
balance will be payable within six months following
termination of your employment for any reason. The loan
will be evidenced by a promissory note to be executed by
you at the time of escrow closing of the San Diego
property. Such note would contain the terms set forth
herein, as well as other terms customary for such a loan.
BENEFITS: You will be entitled to receive standard medical, life
and dental insurance benefits for yourself and your
dependents in accordance with Company policy.
<PAGE>
TRAVEL: You will be eligible for airfares for you and your family
members for the move to San Diego plus one additional
house hunting trip, expenses for such house hunting trip
not to exceed $2,000, for you and your family.
SEVERANCE: You will be entitled to a cash severance payment equal to
twelve months' salary if your employment is terminated by
the Company for other than for cause within 12 months of
your employment, or equal to nine months pay if your
employment is terminated other than for cause between
twelve and eighteen months after your start date, or
equal to six months pay if your employment is terminated
other than for cause between eighteen and twenty four
months after your start date.
BENEFITS: You will be entitled to receive standard medical, life
and dental insurance benefits for yourself and your
dependents in accordance with Company policy.
401(K) PLAN: You will be eligible to participate in the Aurora
Biosciences Corporation 401(K) Savings Plan on the first
of the month following your employment. You may
contribute up to 18% of your earnings or $10,000
whichever is less. Aurora contributes $0.50 on the
dollar for the first 4% of your earnings contributed with
a maximum matching contribution of $1,600 per year. This
matching contribution is vested over four years of
service at Aurora.
PAID PERSONAL LEAVE: Although our policy provides 17 days of Paid Personal
Leave (PPL), you will accrue at the rate of 20 days per
year during your first year of service. At each
subsequent anniversary of your employment, an additional
day will be added to the accrual rate to a maximum
accrual of 25 days. If Aurora elects to close operations
between Christmas and New Year's, this time off will be
considered paid holiday time and will not count against
paid personal leave.
EMPLOYMENT AT WILL: Your employment will be at will, which means it may be
terminated at any time by you or the Company with or
without cause.
START DATE: July 13, 1998
As a condition of your employment, you will be required to sign a copy of our
Employee Proprietary Information and Inventions Agreement when you begin your
employment. In addition, to conform with the Immigration Reform and Control
Act of 1986, you will be required to provide sufficient documentation to show
proof of employment eligibility in the United States. PLEASE BRING WITH YOU
ON YOUR START DATE, THE ORIGINAL OF ONE OF THE DOCUMENTS NOTED IN LIST A OR
ONE DOCUMENT FROM LIST B AND ONE DOCUMENT FROM LIST C as itemized in the
enclosed "Lists of Acceptable Documents". If you do not have the originals of
any of these documents, please contact me immediately.
<PAGE>
It is Aurora's policy to respect fully the rights of your previous employers
in their proprietary or confidential information. No employee is expected to
disclose, or is allowed to use for Aurora's purposes, any confidential or
proprietary information he or she may have acquired as a result of previous
employment.
I am pleased to extend this offer to you and look forward to your acceptance.
Please sign and return the enclosed copy of this offer letter as soon as
possible to indicate your agreement with the terms of this offer. This offer
will lapse if not signed and returned by fax to 619-452-9940 by June 20, 1998.
Once signed by you, this letter will constitute the complete agreement
between you and Aurora regarding employment matters and will supersede all
prior written or oral agreements or understandings on these matters.
I believe you will be able to make an immediate contribution to Aurora's
effort, and I think you will enjoy the rewards of working for an innovative,
fast-paced company. One of the keys to our accomplishments is good people. We
hope you accept our offer to be one of those people.
Yours sincerely,
/s/ TIMOTHY J. RINK
Timothy J. Rink, M.D., Sc.D
Chairman, CEO & President
TJR/pf
Enclosures
I ACCEPT THE TERMS OF EMPLOYMENT AS DESCRIBED IN THIS OFFER LETTER DATED JUNE
9, 1998 AND WILL START MY EMPLOYMENT ON JULY 13, 1998. I CONFIRM THAT BY MY
START DATE AT AURORA I WILL BE UNDER NO CONTRACT OR AGREEMENT WITH ANY OTHER
ENTITY WHICH WOULD IN ANY WAY RESTRICT MY ABILITY TO WORK AT AURORA OR
PERFORM THE FUNCTIONS OF MY JOB FOR AURORA, INCLUDING, BUT NOT LIMITED TO,
ANY EMPLOYMENT AGREEMENT AND/OR NON-COMPETE AGREEMENT.
/s/ THOMAS G. KLOPACK DATE
- --------------------------------------- --------------------------
THOMAS G. KLOPACK
<PAGE>
EXECUTION COPY
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Agreement"), dated this *** ("Termination
Date"), is by and between AURORA BIOSCIENCES CORPORATION ("Aurora"), a
Delaware Corporation with principal offices at 11010 Torreyana Road, San
Diego, CA 92121 and PACKARD INSTRUMENT COMPANY ("Packard"), a Delaware
Corporation with principal offices at 800 Research Parkway, Meriden, CT
06450. Aurora and Packard together are sometimes referred to herein as, the
"Parties."
RECITALS
A. Aurora and Packard are parties to the Collaboration Agreement, the Supply
Agreement and the FluoroCount Agreement (each as defined herein).
B. Aurora and Packard have each determined that it is in their mutual best
interests to terminate the FluoroCount Agreement, the Collaboration
Agreement and the Supply Agreement, subject to the terms and conditions
contained in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the promises contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Aurora and Packard agree as follows:
1. DEFINITIONS.
1.1 "Collaboration Agreement" means that certain Collaboration and License
Agreement, dated April 24, 1996, by and between Aurora and Packard, as amended
by the Collaboration Agreement Amendment.
1.2 "Collaboration Agreement Amendment" means that certain Amendment to the
Collaboration and License Agreement, dated February 7, 1998, by and between
Aurora and Packard.
1.3 "Delivered Instruments" means those instruments set forth in Exhibit A.
1.4 "Detector Components" means the ***.
1.5 The "FluoroCount Agreement" means the Packard-Aurora FluoroCount R&D
Agreement, dated November 6, 1996, by and between Aurora and Packard.
*** CONFIDENTIAL INFORMATION
<PAGE>
1.6 "Instruments" means ***.
1.7 "Supply Agreement" means that certain Packard Aurora Supply Agreement,
dated February 7, 1998, by and between Aurora and Packard.
1.8 ***.
1.9 ***
1.10 "*** Patent Rights" means the patents and patent applications listed on
Exhibit C hereto, any patent applications filed prior or subsequent to the
Termination Date that claim the benefit of an earlier filing date to any of the
patent applications listed in Exhibit C, and any reissues, extensions,
substitutions, confirmations, re-registrations, re-examinations, continuations,
divisionals or continuations-in-part of the foregoing patents and patent
applications, as well as all foreign counterparts or equivalents thereof.
All capitalized terms used herein, and not otherwise defined, shall have the
meaning given to such terms in the Collaboration Agreement or the Supply
Agreement.
2. TERMINATION.
2.1 Aurora and Packard have each determined that it is in their mutual best
interests to terminate the FluoroCount Agreement, the Collaboration Agreement
and the Supply Agreement. Subject to the terms and conditions set forth herein,
and except as otherwise provided herein, Aurora and Packard hereby terminate the
FluoroCount Agreement, the Collaboration Agreement and the Supply Agreement,
effective as of the Termination Date, and hereby release each other from any and
all continuing liabilities, obligations, covenants and restrictions contained
therein, whether arising prior to or after the Termination Date, and each of the
Parties will obligate their respective AFFILIATES to release the other Party
from the same.
2.2 Except as expressly provided herein, no provisions of the FluoroCount
Agreement, the Collaboration Agreement or the Supply Agreement shall survive the
termination of each agreement pursuant to Section 2.1 herein. The confidential
information provisions of Article XI of the Collaboration Agreement and Article
12 of the Supply Agreement shall survive as intended in accordance with each
such agreement and this Agreement.
2.3 Each Party hereby agrees to consider and treat the other Party and its
AFFILIATES as standard customers for its commercial activities, including the
ordering, delivering, marketing, pricing or servicing of products subsequent to
the Termination Date and not subject the other Party to delays or difficulties
in ordering, purchasing, delivering or servicing of products that are not
customary business practice. Each Party will obligate its respective AFFILIATES
to do the same.
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<PAGE>
3. ***.
3.1 Except as otherwise provided for herein:
3.1.1 Packard and its AFFILIATES hereby ***and their respective
shareholders, officers, directors, employees, agents, successors and
assigns, from any and all actions, causes of action, debts, sums of
money, damages, judgments, obligations, claims and demands whatsoever,
whether or not presently known, and whether or not presently capable
of being known, which have been, could have been, or may in the future
be, asserted against ***; and
3.1.2. Aurora and its AFFILIATES hereby ***and their respective
shareholders, officers, directors, employees, agents, successors and
assigns, from any and all actions, causes of action, debts, sums of
money, damages, judgments, obligations, claims and demands whatsoever,
whether or not presently known, and whether or not presently capable
of being known, which have been, could have been, or may in the future
be, asserted against ***.
3.1.3. Each Party shall obligate its respective AFFILIATES to *** in
Section 3.1.1 or Section 3.1.2 above, as applicable.
3.2. ***.
4. GRANT OF LICENSES.
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<PAGE>
4.1 Aurora grants Packard and its AFFILIATES a ***, to the extent that such
***, solely to the extent necessary to make, have made, use and sell ***.
4.2 Packard grants Aurora and its AFFILIATES ***, to the extent that ***,
solely to the extent necessary to make, have made, use and sell ***.
4.3 Aurora grants to Packard a ***. Upon execution of this Agreement, Packard
shall immediately *** rights granted in this Section 4.3. Packard and its
AFFILIATES ***.
4.4 ***this Agreement *** for the same.
4.5 ***.
4.6 ***.
4.7 Except as herein expressly provided, each party shall retain exclusive
rights to its proprietary technology and such rights will be determined in
accordance with applicable U.S. law; e.g., U.S. Patent law or California State
trade secret law.
4.8 All rights not expressly granted herein are retained by each respective
Party, and nothing in this Agreement shall grant, or be deemed to grant, (a) any
rights to intellectual property owned in whole or in part by any third party
which the granting party hereunder does not have the legal right to grant to the
other party, (b) any rights to proprietary technology, know-how or trade secrets
***.
5. PAYMENT OBLIGATIONS AND RELEASES.
5.1 Packard hereby ***Aurora from all further ***for such items.
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<PAGE>
5.2 Aurora ***, including without limitation any ***.
5.3 For clarification, and without limiting the generality of this Agreement,
Packard hereby ***under Sections 4.3.2 and 4.3.3 of the Collaboration Agreement
***.
5.4 Packard hereby ***.
5.5 Aurora ***, or to make *** previously licensed and provided under the
Collaboration Agreement.
5.6 Upon execution of this Agreement, Packard shall immediately ***.
6. ***.
On the Termination Date, Aurora shall ***. To the best of Aurora's knowledge,
and on or before the Termination Date, (a) Aurora ***to use and commercialize
technology in the ***, and (b) ***.
7. OWNERSHIP PROVISIONS AND LICENSES.
Notwithstanding the termination of the Fluorocount Agreement, the
Collaboration Agreement and the Supply Agreement as set forth herein, the
Parties' respective intellectual property rights set forth in Sections 8.1
and 8.2 of the Collaboration Agreement shall remain in full force and effect,
and such provisions are hereby incorporated into this Agreement. ***. Except
as otherwise provided herein, all licenses and rights granted to the parties
in the Collaboration Agreement, including, without limitation, those licenses
granted in Articles V, VI and X of the Collaboration Agreement and Sections
2.0 and 3.0 of the Collaboration Agreement Amendment, are terminated as of
the Termination Date. To the extent not inconsistent with the foregoing
ownership provisions, all ownership of inventions, designs and other
intangible rights shall continue to be governed by applicable U.S. law and
California law.
8. WARRANTIES.
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<PAGE>
8.1 Each party warrants and represents the following:
8.1.1 It has the right to enter into this Agreement; and
8.1.2. It has the right to grant the license set forth in Section 4.1 or
4.2 above, as applicable.
Except as expressly set forth in this Agreement, EACH PARTY MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE
OF THE LICENSED RIGHTS WILL NOT INFRINGE ANY PATENT, COPYRIGHT,
TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLED WARRANTIES.
8.2 With respect to rights licensed to Aurora by the ***, Packard agrees to
indemnify, defend and hold harmless ***, as appropriate, and *** resulting or
arising from *** to the extent that such indemnification by Packard is required
by *** pursuant to agreements between ***.
8.3 Packard warrants and represents that, on or before the Termination Date,
Packard and its AFFILIATES have exclusive license rights to certain proprietary
technology, know-how and trade secrets owned by ***.
9. NON-DISCLOSURE.
9.1 Each party hereto agrees not to disclose any terms of this Agreement, or
any of the discussions related hereto, to any third party without the prior
written consent of the other party; provided, however that disclosures may be
made to the extent required by securities or other applicable laws, or to actual
or prospective investors or corporate partners, or to a party's accountants,
attorneys and other professional advisors. Notwithstanding the foregoing,
however, if a party is required to disclose any such information, it will give
reasonable notice to the other party of such disclosure (except for disclosures
solely to a party's accountants, attorneys or other professional advisors), and
will use its best efforts to limit disclosures or secure confidential treatment
of such information prior to its disclosure.
9.2 The Parties hereby agree to issue public statements substantially in the
forms attached hereto as EXHIBIT B on the Termination Date, and to respond to
questions related to those public ***.
9.3 ***.
10. BINDING EFFECT; ASSIGNMENT.
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<PAGE>
This Agreement shall be binding upon the Parties' respective successors and
assigns. Neither party may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party,
and any attempted assignment without such prior written consent shall be
void; provided, that either party may assign this Agreement as part of a
merger or consolidation in which the surviving entity assumes all or
substantially all of such party's rights and obligations hereunder or a sale
of all or substantially all of the assets of such party.
11. ENTIRE AGREEMENT.
11.1 This Agreement (including the Exhibits and those portions of the
Collaboration Agreement and Supply Agreement specifically incorporated herein)
sets forth the entire understanding and agreement of the Parties as to the
subject matter hereof, and there are no other understandings, representations or
promises, written or verbal, not set forth herein or on which either party has
relied. No modification, supplement to or waiver of this Agreement or any
Exhibit hereto or any of their provisions shall be binding upon a party hereto
unless made in writing and duly signed by an authorized representative of both
Packard and Aurora. This Agreement controls the obligations and rights with
respect to any potential or actual conflict of terms between this Agreement and
the FluoroCount Agreement, the Collaboration Agreement or the Supply Agreement.
11.2 A failure of either party to exercise any right or remedy hereunder, in
whole or in part, or on one or more occasions, shall not be deemed either a
waiver of such right or remedy to the extent not exercised, or of any other
right or remedy, on such occasion, or a waiver of any right or remedy on any
succeeding occasion.
11.3 Neither party shall lose any rights hereunder or be liable to the other
party for damages or losses (except for payment obligations) on account of
failure of performance by the defaulting party if the failure is occasioned by
war, strike, fire, act of God(s), earthquake, flood, lockout, embargo,
governmental acts or orders or restrictions, failure of suppliers, or any other
reason where failure to perform is beyond the reasonable control and not caused
by the negligence or intentional conduct or misconduct of the nonperforming
party, and such party has exerted all reasonable efforts to avoid or remedy such
force majeure; provided, however, that in no event shall a party be required to
settle any labor dispute or disturbance.
11.4 All Notices under this Agreement shall be given in writing and shall be
addressed to the parties at the following addresses:
FOR PACKARD:
Richard T. McKernan
President
Packard Instrument Company
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<PAGE>
800 Research Parkway
Meriden, CT 06450
COPIES TO:
Tod O. White
General Counsel
Packard Instrument Company
800 Research Parkway
Meriden, CT 06450
FOR AURORA:
Timothy J. Rink
Chairman, CEO & President
Aurora Biosciences Corporation
11010 Torreyana Road
San Diego, CA. 92121
COPIES TO:
John D. Mendlein
General Counsel
Vice President, Intellectual Property
Aurora Biosciences Corporation
11010 Torreyana Road
San Diego, CA. 92121
Notices shall be in writing and shall be deemed delivered when received, if
delivered by a courier, or on the second business day following mailing, if sent
by first-class certified or registered mail, postage prepaid.
11.5 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. If either party breaches the terms of this Agreement, it shall
have sixty (60) days after written notice of such breach (the "Cure Period") to
cure the alleged breach, which notice shall specify the conditions of the
alleged breach and provide notice that the non-breaching party intends to pursue
a remedy under this Section 11.5 if the breach is not cured during the Cure
Period. If a breach is not cured within the applicable Cure Period, then prior
to any arbitration concerning this Agreement, Packard's president 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
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<PAGE>
good faith negotiations to begin within thirty (30) days after such notice is
received. If the Parties are not able to resolve a breach after such good
faith negotiations, any controversy or claim under this Agreement shall be
solely settled by arbitration by one arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association (the
"Association"); provided that the parties shall first use their best efforts
to resolve such dispute by negotiation. ***. The arbitrator shall be selected
by the joint agreement of the parties, but if they do not so agree within
twenty (20) days of the date of a request for arbitration, the selection
shall be made pursuant to the rules of the Association. The decision reached
by the arbitrator shall be conclusive and binding upon the parties hereto,
made within six (6) months of filing the arbitration request and may be filed
with the clerk of any court of competent jurisdiction, and a judgment
confirming such decision may, if desired by any party to the arbitration, be
entered in such court. Each of the parties shall pay its own expenses of
arbitration and the expenses of the arbitrator(s) shall be equally shared;
provided, however, that if in the opinion of the arbitrator(s) any claim
hereunder or any defense or objection thereto was unreasonable, the
arbitrator(s) may assess, as part of the award, all or any part of the
arbitration expenses (including reasonable attorneys' fees) against the party
raising such unreasonable claim, defense or objection. Nothing herein set
forth shall prevent the parties from settling any dispute by mutual agreement
at any time.
11.6 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.
11.7 This Agreement is intended to be severable. If any provision(s) of this
Agreement are or become invalid, are ruled illegal by a court of competent
jurisdiction or are deemed unenforceable under the current applicable law from
time to time in effect during the term hereof, it is the intention of the
parties that the remainder of the Agreement shall not be affected thereby and
shall continue to be construed to the maximum extent permitted by law at such
time. It is further the intention of the parties that in lieu of each such
provision which is invalid, illegal, or unenforceable, there shall be
substituted or added as part of this Agreement by such court of competent
jurisdiction a provision which shall be as similar as possible, in economic and
business objectives as intended by the parties to such invalid, illegal or
unenforceable provision, but shall be valid, legal and enforceable. Unless
expressly stated otherwise, all Articles and Sections and any other provision
intended by its meaning to survive, will survive the expiration or any other
termination of this Agreement, which is intended to have a term for at least as
long as the longer of twenty (20) years or the statute of limitations for any
cause of actions that may arise from the FluoroCount Agreement, the
Collaboration Agreement or the Supply Agreement.
11.8 Captions and paragraph headings are for convenience only and shall not form
an interpretative part of this Agreement. Unless otherwise specifically
provided, all references to an Article incorporate all Articles or subsections
thereunder.
11.9 This Agreement shall not be strictly construed against either party hereto
and
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<PAGE>
maybe executed in two or more counterparts, each of which will be deemed an
original and the same instrument. Counterparts may be signed and delivered
by facsimile, each of which shall be binding when sent, and in each case an
original shall be sent via overnight courier. IN WITNESS WHEREOF, as of the
date first above-written, the undersigned Parties, acting through their duly
authorized representatives, have executed this Termination Agreement in
multiple counterparts.
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<PAGE>
PACKARD INSTRUMENT COMPANY
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
AURORA BIOSCIENCES CORPORATION
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
11
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<PAGE>
EXHIBIT A
---------
***
12
***CONFIDENTIAL INFORMATION
<PAGE>
EXHIBIT B
---------
***
SEE ATTACHED.
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<PAGE>
Aurora Biosciences Corporation
11010 Torreyana Road
Contact: Angela Hartley
San Diego, CA
Director, Corporate Communications
Phone 619 404-6767
and Investor Relations
Fax 619 452-5723
E-mail : [email protected]
Website: http://www.aurorabio.com
AURORA BIOSCIENCES ANNOUNCES CONCLUSION OF
COLLABORATION WITH PACKARD INSTRUMENT
COMPANY
SAN DIEGO (OCTOBER 6, 1998) - Aurora Biosciences Corporation (Nasdaq:ABSC)
today announced that the collaboration and license agreement with Packard
Instrument Company initiated in April 1996, and its supply agreement with
Packard, have been concluded by mutual agreement.
The principal activities under the collaboration agreement were development
of a high density screening plate ("NanoPlate-TM-"), instrumentation for
fluorescence detection in NanoPlates and for nanoliter microfluidic
dispensing of compound samples. In February 1998, Aurora assumed
responsibility for the NanoPlate development and production. Aurora has now
also assumed responsibility for further development and production of
fluorescence detection and microfluidic dispensing instruments for its own
and syndicate members' Ultra-high Throughput Screening Systems (THE
"UHTSS-TM-").
HARRY STYLLI, Ph.D., M.B.A., AURORA'S SENIOR VICE PRESIDENT, SCREEN TECHNOLOGY
AND NEW TECHNOLOGY ventures, said, "We appreciate Packard's support in our
Company's initial development. Now, Aurora's own high technology team of over
60 engineers, biophysicists, computer scientists and automation experts has
grown to the point where we feel confident in taking charge of producing the key
UHTSS components. We plan to complete technical development for the
miniaturized screening components for the UHTSS by year end, and be positioned
to deliver these components to our first two syndicate members, Bristol-Myers
Squibb and Eli Lilly and Company, in the first half of 1999."
Aurora 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 an ultra-high
throughput screening system 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 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. Current collaborators include Merck & Co., Inc.,
Warner-Lambert, Bristol-
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<PAGE>
Myers Squibb, Eli Lilly and Company, Roche Bioscience, Allelix
Biopharmaceuticals, Inc., Cytovia, Inc. and SIDDCO, Inc.
Statements in this press release that are not strictly historical are
"forward-looking" statements which involve a high degree of technological and
competitive risks and uncertainties that exist in the Company's operations
and business environment. Such statements are only predictions and 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 differences include risks involved with the Company's new and uncertain
technology, the ability to meet technical milestones and timely deliver UHTSS
components to syndicate members, and uncertainties regarding production of
technologically complex instrumentation and components. These factors and
others are more fully described in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and subsequent Forms 10-Q, as
filed with the Securities and Exchange Commission. For additional corporate
information, visit the Aurora website at http://www.aurorabio.com.
###
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<PAGE>
CONTACT:
Richard T. McKernan, President
Packard Instrument Company
(203) 639-2400
FOR IMMEDIATE RELEASE
PACKARD INSTRUMENT COMPANY ANNOUNCES CONCLUSION
OF COLLABORATION WITH AURORA BIOSCIENCES CORPORATION
Meriden, Connecticut, USA - October 6, 1998 - Packard Instrument Company
announced today that its collaboration and license agreement with Aurora
Biosciences Corporation initiated in 1996 has been concluded by mutual
agreement.
The collaboration agreement provided for the development of certain
instrumentation for fluorescence detection and nanoliter microfluidic
dispensers of compound samples. The conclusion of the collaboration will
allow Packard to reallocate significant resources to the development and
production of new applications and new instruments for commercial
applications, and to pursue additional research and development programs
related to that technology.
Staf Van Cauter, Packard's Vice President of Business Development, said, "The
collaboration has benefited both companies in the development of new
technology and new products. We expect to offer new fluorescence detection
and microfluidics dispensing instruments through early access programs within
the next six months, and hope to make these instruments generally available
to our customers sometime in 1999. These products combined with technologies
acquired through our recent acquisitions of CCS Packard (formerly Carl
Creative Systems), BioSignal, Inc. and the Argonne/Motorola biochips will
allow Packard to meet the growing needs for miniaturization and higher
throughput in the drug discovery and genomic market segments."
For over forty years, Packard has been a leading supplier of instrumentation
and reagents for general life sciences research applications. Over the last
few years, Packard has introduced various microplate readers, liquid handling
products and proprietary reagents that have enabled researchers to accelerate
high-throughput screening. So far, more than 1,000 units have been installed
in the major pharmaceutical companies worldwide. Packard believes that its
new imaging, microfluidics dispensing and assay technologies will permit its
customer base to meet the increasing needs for more efficiency and lower cost
in drug discovery and genomics research.
Statements in this press release that are not strictly historical are
"forward-looking" statements which involve a high degree of technological and
competitive risks and uncertainties that exist in the Company's operations
and business environment. Such
16
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<PAGE>
statements are only predictions and 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 differences include
risks associated with the dependence on patents and proprietary rights, the
ability to attract additional collaborative partners, risks involved with the
Company's new and uncertain technology, and dependence on existing
collaborations. These risks and uncertainties are discussed from time to
time in the reports filed by Packard BioScience Company with the Securities
and Exchange Commission.
17
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<PAGE>
CONFIDENTIAL
***
18
***CONFIDENTIAL INFORMATION
<PAGE>
EXHIBIT C
---------
***
19
***CONFIDENTIAL INFORMATION
<PAGE>
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT") is entered into as of
December 23, 1998 by and between AURORA BIOSCIENCES CORPORATION, a Delaware
corporation (the "COMPANY"), and THOMAS G. KLOPACK, an individual (the
"EMPLOYEE").
WHEREAS, the Employee has agreed to serve as Senior Vice President,
Strategic Operations, of the Company;
WHEREAS, the Employee has requested that the Company make a loan to
the Employee of up to Sixty Thousand Dollars ($60,000); and
WHEREAS, the Company has agreed to provide the Employee with the
loan as a portion of the consideration for the Employee's services as an
employee of the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. LOAN. The Company shall lend to the Employee an aggregate of
Sixty Thousand Dollars ($60,000) upon the terms and conditions, and in
reliance upon the representations and warranties, contained herein (the
"LOAN").
2. METHOD OF FUNDING. The Loan proceeds shall be advanced to the
Employee by a check payable to the Employee.
3. PROMISSORY NOTE. The Loan shall be made pursuant to that
certain Promissory Note Secured By Deed of Trust dated the date hereof, in
the stated principal amount of $60,000, in the form attached as EXHIBIT A
(the "NOTE"). The Employee shall execute the Note concurrently with the
execution of this Agreement. All repayments of principal with respect to the
Loan shall be evidenced by notations made by the Company on the Note;
PROVIDED, HOWEVER, that the failure by the Company to make such notations
shall not limit or otherwise diminish the obligations of the Employee with
respect to the Note, including, without limitation, the repayment of
principal or payments of interest or other amounts, if any, on the Loan.
4. INTEREST FREE LOAN. The Company and the Employee agree that,
so long as Employee is not in default under the Note, the Loan shall not bear
interest.
5. DEED OF TRUST. The Employee hereby agrees to secure the Loan
by executing a deed of trust granting a second lien on Employee's principal
residence located at 864 Chelsea Lane, Encinitas, in the County of San Diego,
California (the "PROPERTY"), in the form attached hereto as EXHIBIT B (the
"DEED OF TRUST"), which Deed of Trust shall be executed concurrently herewith
by Employee and Employee's spouse and shall be duly recorded in the official
records of the County of San Diego, California. Upon such recordation of the
Deed of Trust, the Employee
<PAGE>
hereby represents and warrants that, at such time, the Deed of Trust shall
remain a second lien on the Property, junior only to a Deed of Trust securing
a note in the stated principal amount $618,300.00 which has been recorded in
the official records of San Diego County, California. The Employee covenants
and agrees to promptly execute and deliver all such instruments, agreements
or other documents as the Company shall reasonably require to obtain the full
benefits of this Agreement.
6. REPAYMENT OF PRINCIPAL; ANNUAL REDUCTION OF PRINCIPAL. The
outstanding principal amount of the Loan shall become due and payable in a
single payment immediately upon the earliest to occur of (the "Maturity
Date"): (i) January 1, 2003; (ii) the sale or other transfer of any interest
in the Property; or (iii) the business day prior to the six-month anniversary
of any termination, for any reason, of Employee's employment with the
Company. Notwithstanding the foregoing, the Company agrees that, on each of
December 31, 1999, December 31, 2000, December 31, 2001 and December 31,
2002, the principal amount of the Loan shall be reduced (but not below $0.00)
by an amount equal to $15,000, PROVIDED that Employee's employment with the
Company has not been terminated prior to each such date. Employee agrees
that, as consideration for such reductions in principal, any
performance-based bonus that Employee might otherwise be eligible to receive
under the Company's Performance Bonus Plan with respect to each of the
calendar years 1999, 2000, 2001 and 2002 shall be reduced by fifty percent
(50%), up to a maximum reduction of $10,000 for each such calendar year.
7. PREPAYMENT. The Employee may prepay the unpaid principal in
whole or in part, without penalty, at any time.
8. ITEMIZATION OF DEDUCTIONS. The Employee represents and
warrants to the Company that he reasonably expects to be entitled to, and
will, if so entitled, itemize deductions for each year the Loan is
outstanding.
9. NON-TRANSFERABLE. Neither this Agreement nor the rights
hereunder may be assigned by the Employee without the Company's prior written
consent.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the laws of the
State of California applicable to contracts made and performed in such state,
without regard to principles of conflicts of laws.
(b) This Agreement and its Exhibits constitute the entire
agreement between the Employee and the Company, and is the complete, final,
and exclusive embodiment of their agreement with regard to this subject
matter. The Employee and the Company each acknowledge
and represent that this Agreement is entered into without reliance on any
promise or representation other than those expressly contained herein and
that this Agreement cannot be modified except in a writing signed by both
parties.
<PAGE>
(c) Except as otherwise specified herein, any notice, demand
or request required or permitted to be given by either the Company or the
Employee pursuant to the terms of this Agreement shall be in writing and
shall be deemed given when delivered personally, three days after being
deposited in the U.S. Mail, registered mail, return receipt requested,
postage prepaid, or one business day after delivery to an overnight carrier
service and addressed to the Company at its then current principal office and
to the Employee at the address listed for him on the Company's payroll.
(d) Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights
granted both parties herein are cumulative and shall not constitute a waiver
of either party's right to assert all other legal remedies available to it
under the circumstances.
(e) the Employee agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purpose or
intent of this Agreement.
(f) In the event of any litigation concerning this
Agreement, the prevailing party shall be entitled to a reasonable sum for
attorneys' fees, costs, and litigation expenses, whether or not such action
is prosecuted to judgment. "Prevailing Party" includes, without limitation, a
party who agrees to dismiss an action upon payment by the other party of sums
allegedly due or performance of the covenants allegedly breached, or who
obtains substantially the relief sought by that party. In the event that the
Company is the Prevailing Party, the Company shall also be entitled to
reasonable costs associated with the collection of the Loan.
(g) This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first set forth above.
AURORA BIOSCIENCES CORPORATION
By: /s/ TIMOTHY J. RINK
---------------------------------------------
Timothy J. Rink, M.D., Sc.D.
Chairman, Chief Executive Officer & President
/s/THOMAS G. KLOPACK
- ---------------------------------------
THOMAS G. KLOPACK
<PAGE>
EXHIBIT A
PROMISSORY NOTE
<PAGE>
DO NOT DESTROY THIS NOTE: WHEN PAID, THIS NOTE AND THE DEED OF
TRUST SECURING IT MUST BE SURRENDERED TO TRUSTEE FOR
CANCELLATION BEFORE RECONVEYANCE WILL BE MADE.
PROMISSORY NOTE SECURED
BY SECOND DEED OF TRUST
December 23, 1998
FOR VALUE RECEIVED, THOMAS G. KLOPACK, an individual ("Maker"),
promises to pay AURORA BIOSCIENCES CORPORATION, A DELAWARE CORPORATION
("Holder") at 11010 Torreyana Road, San Diego, California, 92121, or such
other place as Holder may from time to time designate, in lawful money of the
United States, the principal sum SIXTY THOUSAND DOLLARS AND NO CENTS
($60,000.00), together with any interest or other amounts due thereon (the
"Loan"), payable in the manner set forth below and in accordance with the
terms and conditions of that certain Loan Agreement of even date herewith
between Holder and Maker (as such may from time to time be amended, modified,
restated or supplemented, the "Loan Agreement"):
11. PRINCIPAL REPAYMENT/MATURITY DATE. Principal shall be due and
payable in full on the Maturity Date, which date shall be determined pursuant
to the Loan Agreement. Other repayments of principal shall be due and payable
in accordance with the Loan Agreement.
12. PREPAYMENT. This Note may be prepaid in whole or in part, at
any time, without penalty or premium, on any date prior to the Maturity Date.
13. PAYMENTS/ADMINISTRATION. Any amounts payable hereunder shall
be due and payable without set-off, deduction, or counterclaim, except as
otherwise provided herein. The Loan, and all repayments and reductions of
principal and interest, if any, shall be evidenced by notations made by
Holder in its books and records regarding the date and amount of each payment
or reduction of principal and interest made by Maker with respect thereto;
PROVIDED, HOWEVER, that the failure by Holder to make such notations shall
not limit or otherwise diminish the obligations of Maker with respect to the
repayments or reductions of principal or payments of interest, if any, on the
Loan. The aggregate unpaid amount of the Loan set forth on the books and
records of Holder shall be presumptive evidence of the principal amount owing
an unpaid hereunder.
14. SECURITY. This Note is secured by a second deed of trust of
even date herewith from Maker and Adrienne Klopack ("Spouse"), as trustor,
naming Holder as beneficiary (the "Deed of Trust"), granting a security
interest in certain real property located in the City of Encinitas, County of
San Diego, California, as more particularly described therein (the
"Property"). Maker hereby represents and warrants that, after giving effect
to Maker's purchase of the Property, Maker and Spouse will be the sole and
lawful fee owner of the Property.
<PAGE>
15. DEFAULT AND REMEDIES.
(a) DEFAULT. Maker will be in default under this Note upon
the occurrence of any one or more of the following events: (i) the failure of
Maker to make any payment required hereunder when due, (ii) the breach by
Maker of any other covenant or agreement under this Note, (iii) the default
by Maker of its obligations under the Deed of Trust, the Loan Agreement, or
any other instrument evidencing or securing this Note, (iv) the default by
Maker of its obligations under any mortgage, deed of trust, encumbrance or
lien respecting the Property, which encumbrance is senior to the Deed of
Trust, (v) the appointment of a receiver for any part of the property of, or
an assignment for the benefit of creditors by, or the commencement of any
proceedings under any bankruptcy or insolvency laws by or against any maker,
endorser or guarantor, or (vi) the transfer, directly or indirectly, of all
or any part of any interest in the Property, whether by sale, lease,
assignment, mortgage or otherwise, voluntarily or involuntarily.
(b) REMEDIES. Upon Maker's default, Holder may, with notice
to Maker, declare the entire principal sum and any amounts due thereon
immediately due and payable and exercise any and all of the remedies provided
under the Deed of Trust or at law or in equity.
(c) DEFAULT INTEREST. If any amount payable hereunder shall
not be paid within forty-five (45) days after the Maturity Date, at the
option of Holder, the unpaid principal balance shall immediately begin to
accrue interest at a rate of 8.0%, and Holder shall have all remedies
available to it by law as a creditor hereunder.
16. WAIVERS. Maker, and any endorsers or guarantors hereof,
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor, acceleration, intent to accelerate, and nonpayment
of this Note, and expressly agree that this Note, or any payment hereunder,
may be extended from time to time without notice, and consent to the
acceptance of further security or the release of any security for this Note,
all without in any way affecting the liability of Maker or any endorsers or
guarantors hereof. No extension of time for the payment of this Note, or any
installment hereof, agreed to by Holder with any person now or hereafter
liable for the payment of this Note, shall affect the original liability of
Maker under this Note, even if Maker is not a party to such agreement.
17. MAXIMUM LEGAL RATE OF INTEREST. All agreements between Maker
and Holder, whether now existing or hereafter arising, are hereby limited so
that in no event shall the interest charged hereunder or agreed to be paid to
Holder exceed the maximum amount permissible under applicable law. Holder
shall be entitled to amortize, prorate and spread throughout the full term of
this Note all interest paid or payable so that the interest paid does not
exceed the maximum amount permitted by law. If Holder ever receives interest
or anything deemed interest in excess of the maximum lawful amount, an amount
equal to the excessive interest shall be applied to the reduction of the
principal, and if it exceeds the unpaid balance of principal hereof, such
excess shall be refunded to Maker. If interest otherwise payable to Holder
would exceed the maximum lawful amount, the interest payable shall be reduced
to the maximum amount permitted under applicable law. This paragraph shall
control all agreements between Maker and Holder in connection with the
indebtedness evidenced hereby.
<PAGE>
18. NOTICE. All notices or other communications required or given
hereunder shall be in writing and shall be deemed given when delivered
personally, three days after being deposited in the U.S. Mail, registered
mail, return receipt requested, postage prepaid, or one business day after
delivery to an overnight carrier service and addressed to Holder at its then
current principal office and to Maker at the address listed for him in the
Company's payroll records.
19. MISCELLANEOUS.
(a) Maker shall pay all costs, including, without
limitation, reasonable attorneys' fees incurred by Holder in collecting the
sums due hereunder or in connection with the release of any security for this
Note.
(b) This Note may be modified only by a written agreement
executed by Maker and Holder.
(c) This Note shall be governed by California law without
regard to principals of conflicts of laws.
(d) Time is of the essence with respect to all matters set
forth in this Note.
(e) The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
(f) If this Note is destroyed, lost or stolen, Maker will
deliver a new note to Holder on the same terms and conditions as this Note
with a notation of the unpaid principal in substitution of the prior Note.
Holder shall furnish to Maker reasonable evidence that the Note was
destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
(g) If any provision of this Note shall be held to be
invalid or unenforceable, such determination shall not affect the remaining
provisions of this Note.
(h) If this Note is now, or hereinafter shall be, signed by
more than one party or person, it shall be the joint and several obligation
of such parties or persons and shall be binding upon such parties and upon
their respective successors and assigns.
(i) In the event an action is commenced to interpret or
enforce this Note or to collect any sums due hereunder, the prevailing party
shall be entitled to receive from the other party, attorneys' fees and costs
as determined by the court in which such action is pending.
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
MAKER:
/s/ THOMAS G. KLOPACK
-----------------------------------
THOMAS G. KLOPACK
<PAGE>
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 January 29, 1999, with respect to
the financial statements of Aurora Biosciences Corporation included in this
Annual Report (Form 10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
San Diego, California
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,477,916
<SECURITIES> 18,547,991
<RECEIVABLES> 3,750,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,566,374
<PP&E> 14,391,988
<DEPRECIATION> 3,528,631
<TOTAL-ASSETS> 50,954,716
<CURRENT-LIABILITIES> 8,624,779
<BONDS> 0
0
0
<COMMON> 17,025
<OTHER-SE> 37,525,245
<TOTAL-LIABILITY-AND-EQUITY> 50,954,716
<SALES> 0
<TOTAL-REVENUES> 26,537,888
<CGS> 0
<TOTAL-COSTS> 23,777,215
<OTHER-EXPENSES> 23,213,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 645,395
<INCOME-PRETAX> (18,653,118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,653,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,653,118)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
