<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AURORA BIOSCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 33-0669859
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
11010 TORREYANA ROAD
SAN DIEGO, CA 92121
(858) 404-6600
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STUART J.M. COLLINSON
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
AURORA BIOSCIENCES CORPORATION
11010 TORREYANA ROAD
SAN DIEGO, CA 92121
(858) 404-6600
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. COLL PATRICK T. SEAVER
DAVID B. BERGER CHARLES K. RUCK
COOLEY GODWARD LLP LATHAM & WATKINS
4365 EXECUTIVE DRIVE, SUITE 1100 650 TOWN CENTER DRIVE, 20TH FLOOR
SAN DIEGO, CA 92121 COSTA MESA, CA 92626
(858) 550-6000 (714) 540-1235
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as possible after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
REGISTERED BE REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE
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Common Stock, $.001 par
value per share........ 3,565,000 $69.625 $248,213,125 $65,529
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</TABLE>
(1) Includes 465,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the amount of the registration fee based on the average of the
high and low prices of the Registrant's Common Stock as reported on the
Nasdaq National Market on March 16, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 17, 2000
[AURORA LOGO]
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AURORA BIOSCIENCES CORPORATION
3,100,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
This is an offering of 3,100,000 shares of common stock of Aurora Biosciences
Corporation. We are offering 3,000,000 shares and a stockholder is selling
100,000 shares of our common stock. We will not receive any proceeds from the
sale of shares by the selling stockholder.
Our common stock is listed on the Nasdaq National Market under the symbol
"ABSC." The last reported sale price of the common stock on March 16, 2000 was
$72.88 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions......................
Proceeds, before expenses, to the selling stockholder.......
Proceeds, before expenses, to Aurora........................
</TABLE>
We have granted the underwriters the right to purchase up to 465,000 additional
shares to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
CHASE H&Q
ROBERTSON STEPHENS
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 3
[THIS ILLUSTRATION, CENTERED ON THE PAGE DEPICTS STEPS FOR THE DISCOVERY OF
POTENTIAL NEW MEDICINES. AT THE TOP OF THE ILLUSTRATION A PROCESS THAT STARTS
WITH A BOX LABELED "DISEASE TARGET IDENTIFICATION AND VALIDATION" ON THE LEFT
WITH AN ARROW POINTING TO THE BOX LABELED, "ASSAY DEVELOPMENT OF TARGET FOR
AUTOMATED SCREENING" WITH AN ARROW COMING OUT AND POINTING TO A BOX LABELED,
"THE SCREENING OF COMPOUNDS TO MODULATE TARGETS." IN THE BOTTOM OF THE
ILLUSTRATION, A SERIES OF LABELED BOXES WITH THE TITLES OF TECHNOLOGIES WRITTEN
IN EACH BOX ARE ILLUSTRATED. IN THE MIDDLE OF THE ILLUSTRATION A NUMBER OF
ARROWS POINTED FROM THE BOXES AT THE BOTTOM AT THE BOTTOM OF THE PAGE TO THE
MIDDLE BOX LABELED "ASSAY DEVELOPMENT OF TARGET FOR AUTOMATED SCREENING,"
DEPICTING HOW EACH OF THOSE TECHNOLOGIES CONTRIBUTES TO THIS STEP IN THE
DISCOVERY OF POTENTIAL NEW MEDICINES.]
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere or incorporated by
reference in this prospectus. This summary may not contain all of the
information that you should consider before deciding to invest in our common
stock. You should read this entire prospectus carefully, including the "Risk
Factors" Section, the financial statements and the notes to those statements and
the documents incorporated by reference in this prospectus.
AURORA BIOSCIENCES CORPORATION
We design, develop and commercialize advanced drug discovery technologies,
services and instrumentation to accelerate the discovery of new medicines. We
are developing a proprietary biology and high technology platform comprised of
genomic, assay and automated system technologies. We are launching a proprietary
large-scale biology program to identify proteins involved in disease, or
targets, rapidly incorporate these targets into tests that measure activity in
targets, or assays, and then rapidly screen hundreds of thousands of compounds
against these assays to identify compounds that act upon these targets. Our
ultra-high throughput screening system, known as the UHTSS, is designed to
screen over one hundred thousand compounds per day against targets. We believe
our technologies have been commercially validated by over fifteen major
pharmaceutical and biotechnology companies in the form of commercialization
agreements for discovery services, licenses or instrumentation.
We believe our technologies will enable us and our customers to take
advantage of recent advances in genomics and chemistry that have the potential
to alter fundamentally human medicine. Recent developments in the study of the
human genome have increased the focus on identifying targets to be used in
assays for the discovery of potential new medicines. It has been estimated that
the human genome contains at least 140,000 genes, of which approximately 10,000
may be important pharmaceutical targets in the treatment of diseases. We believe
that identifying the function of these genes is a key step in the discovery of
new medicines. However, an understanding of the function of each gene and its
role in disease may take many years of research using conventional methods.
Our assay development technologies can rapidly convert targets identified
through genomics into assays. We are able to incorporate targets from many
target classes into living human cells without the assay development delays
associated with conventional methods, Our technology also permits us to tag
genes in the genome inside of living human cells. Through this method we can
identify cells containing disease-related genes in less than one day in most
cases. The same technology also permits rapid assay development based on those
cells for testing against large numbers of compounds that alter the activity of
those genes. These technologies, combined with our existing and future automated
screening capabilities, will help us achieve our goal of offering gene-to-lead
discovery programs in a broad range of different therapeutic areas.
OUR TECHNOLOGY, PRODUCTS AND SERVICES
The principal components of our integrated proprietary technology platform
are our genomics, assay and automated system technologies. Our technology
platform provides an advanced way to identify commercially useful targets,
enable rapid assay development and rapidly test compounds for use as potential
new medicines that act upon those targets. Thus, our technology is designed to
address the most significant new bottlenecks in the drug discovery process.
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<PAGE> 5
We continue to develop and commercialize technologies that allow us to
provide genomics, assay development, and screening services and products:
- GeneBlazer(TM)Technology. Our patented GeneBlazer technology allows the
rapid development of assays to test targets. Using GeneBlazer, we have
developed over 50 assays to address several therapeutic areas.
- GenomeScreen(TM)Technology. Our patented Genome Screen system enables the
identification of targets by scanning the genome of living human cells
and rapid assay development in living cells.
- VIPR(TM)Technology. Our patented voltage ion probe reader, VIPR,
technology enables the rapid development of assays and the screening of
ion channel targets. Ion channels, or channels for molecules to enter and
exit cells, are a family of genes targeted for major diseases.
- Fluorescent Protein Technology. Our fluorescent protein technology allows
the monitoring of cellular processes and target activity using
fluorescent proteins.
- UHTSS. Our patented ultra-high throughput screening system, or UHTSS, is
a suite of instruments and software designed to enable rapid processing
and testing of large numbers of compounds in small volumes in an
automated fashion.
- AMCS. The automated master compound store, or AMCS, is a large-scale
automated, compound inventory system for the storage of compounds in
various formats under controlled environmental conditions.
OUR STRATEGY
Our goal is to be the leader in exploiting information derived from the
human genome for the discovery of potential new medicines. The key elements of
our strategy include the application of our expertise in biology, chemistry,
instrumentation and software in order to:
- launch a large scale biology program;
- provide innovative drug discovery services;
- expand informatics tools and databases;
- expand our intellectual property licensing program;
- support and enhance the UHTSS and AMCS; and
- maintain technology leadership.
We have commercial agreements with a number of the world's largest
pharmaceutical and biotechnology companies, including: American Home Products,
Becton Dickinson, Bristol-Myers Squibb Company, Eli Lilly and Company, F.
Hoffman-LaRoche, Genentech, Inc., Glaxo Wellcome plc, Merck & Co., Inc., Pfizer,
Inc., Pharmacia & Upjohn Company, and Warner Lambert Company.
Our executive offices are located at 11010 Torreyana Road, San Diego,
California 92121, and our telephone number is (858) 404-6600. Our website is
located at http://www.aurorabio.com. Information contained on our website is not
a part of this prospectus.
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THE OFFERING
Common stock offered by Aurora.................. 3,000,000 shares
Common stock offered by a stockholder........... 100,000 shares
Common stock to be outstanding after this
offering........................................ 22,633,183 shares
Use of proceeds................................. To fund research and
development and to provide
working capital for general
corporate purposes, including
possible acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol................... ABSC
The number of shares of our common stock that will be outstanding after
this offering is based on the number outstanding on March 1, 2000. It excludes
an aggregate of 5,620,307 shares, as follows:
- 5,025,274 shares reserved for issuance pursuant to our 1996 Stock Plan,
as amended and restated, including 3,155,433 shares subject to
outstanding options at a weighted-average exercise price of $8.32 per
share;
- 199,251 shares reserved for issuance pursuant to our Non-Employee
Directors' Stock Option Plan, including 67,250 shares subject to
outstanding options at a weighted-average exercise price of $6.53 per
share;
- 391,782 shares reserved for issuance under our Employee Stock Purchase
Plan; and
- 4,000 shares reserved for issuance outside of our stock plans.
Unless otherwise indicated, information in this prospectus assumes no
exercise of the underwriters' over-allotment option to purchase up to 465,000
shares of our common stock.
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<PAGE> 7
OUR SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 2,217 $14,908 $ 26,538 $50,324
Operating expenses:
Cost of revenue.......................... -- 6,983 23,777 27,779
Research and development................. 4,396 5,406 17,146 11,593
Selling, general and administrative...... 1,275 3,679 6,068 11,535
------- ------- -------- -------
Total operating expenses.............. 5,671 16,068 46,991 50,907
------- ------- -------- -------
Loss from operations....................... (3,454) (1,160) (20,453) (583)
Interest income............................ 580 1,793 2,445 1,543
Interest expense........................... (59) (346) (645) (691)
------- ------- -------- -------
Income (loss) before income taxes.......... (2,933) 287 (18,653) 269
Income taxes............................... -- (20) -- (117)
------- ------- -------- -------
Net income (loss).......................... $(2,933) $ 267 $(18,653) $ 152
======= ======= ======== =======
Basic income (loss) per share.............. $ (3.86) $ 0.03 $ (1.14) $ 0.01
======= ======= ======== =======
Diluted income (loss) per share............ $ (3.86) $ 0.02 $ (1.14) $ 0.01
======= ======= ======== =======
Shares used in computing:
Basic income (loss) per share............ 760 8,970 16,312 16,967
======= ======= ======== =======
Diluted income (loss) per share.......... 760 15,423 16,312 18,241
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO PRO FORMA AS
ACTUAL FORMA ADJUSTED
------- -------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments............. $36,618 $107,518 $314,863
Working capital.................................... 25,812 96,712 304,057
Total assets....................................... 63,862 134,762 342,107
Capital lease and loan obligations, net of current
portion.......................................... 4,343 4,343 4,343
Total stockholders' equity......................... 40,314 111,214 318,559
</TABLE>
Pro forma information gives effect to the sale of 1,800,000 shares of our
common stock in a private placement completed in February 2000 with net proceeds
of approximately $70.9 million. The pro forma as adjusted balance sheet data
above additionally reflects the receipt of net proceeds of approximately $207.3
million from the sale of the 3,000,000 shares of common stock we are offering in
this prospectus, after deducting the underwriting discounts and commissions and
estimated offering expenses.
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<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before deciding whether to
invest in our common stock. If any of the following risks actually occurs, our
business, financial condition or results of operations could be harmed. In this
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
WE MAY NOT BE ABLE TO COMMERCIALIZE SUCCESSFULLY OUR NEW TECHNOLOGIES OR
PRODUCTS, WHICH COULD CAUSE US TO BE UNPROFITABLE OR LEAD TO LOSS OF BUSINESS.
You should evaluate our business in light of the uncertainties and
complexities affecting a growing technology company. Our proprietary
technologies and products are new and in development. In particular, our UHTSS,
our AMCS, and our methods of assay development and screening targets incorporate
new and unproven approaches to the discovery of potential medicines. For
example:
- our fluorescent assay technologies and instruments have only recently
begun to be used in the drug discovery process and to our knowledge have
never been used in the discovery of any medicine that has been
commercialized;
- our UHTSS and AMCS technologies have yet to, and may never, be
implemented as fully operational systems;
- our UHTSS and AMCS will require significant additional investment and
development prior to commencement of full-scale commercial operation,
including software integration with complex instrumentation and testing
to validate performance; and
- some of the instrumentation and software expected to comprise our UHTSS
and AMCS have not yet been used in commercial applications.
Many of these technologies have not been validated or developed at levels
necessary to screen small volumes, and we cannot assure you that UHTSS and AMCS
technologies will achieve expected performance levels at these scales. If we are
unable to commercialize successfully the UHTSS or AMCS or if we are unable to
commercialize successfully our screening methods, we may not be able to achieve
our business objectives or build a sustainable or profitable business.
IF WE DO NOT TIMELY AND SUCCESSFULLY COMPLETE THE DEVELOPMENT OF OUR UHTSS OR
AMCS, OUR RELATIONSHIPS WITH OUR CUSTOMERS COULD BE HARMED, WE COULD BE SUBJECT
TO CONTRACTUAL DISPUTES AND WE COULD BE REQUIRED TO PAY FINANCIAL PENALTIES TO
OUR CUSTOMERS.
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 impossible 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.
The complexity of both the UHTSS and AMCS has led to unexpected delays in
their development that could lead to financial penalties and contractual
disputes regarding the delivery
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and acceptance of these instruments by our customers. The successful
implementation and operation of the UHTSS and AMCS will be a complex process
requiring integration and coordination of a number of factors, including
integration of and successful interface between complex advanced robotics,
microfluidics, automated storage and retrieval systems and software and
information systems. We may not be able to successfully integrate or implement
all of the instrumentation needed for the UHTSS and AMCS. In addition, because
we are also dependent in part on the performance of our customers and suppliers
in order to deliver these platforms, our ability to timely deliver these
platforms may be outside of our control.
Some of our agreements with our customers provide for penalties to be paid
by us if we do not meet development schedules contained in the agreements. Our
agreement with Bristol-Myers provides for penalty payments up to a maximum of
$1,000,000 if we fail to deliver the completed UHTSS by a specified time. In
addition, Bristol-Myers may be able to withdraw from further development of the
UHTSS without additional payment. Our agreement with Warner Lambert provides for
penalty payments up to a maximum of $888,300 if we fail to deliver the completed
AMCS according to a specified development schedule.
We are currently behind schedule in the delivery and integration of Module
3, the software component of the UHTSS, under our agreement with Bristol-Myers
and the delivery of the AMCS under our agreement with Warner Lambert. We
currently expect to complete delivery and integration of Module 3 and delivery
of the AMCS in the second half of 2000. Although we are currently negotiating
with Bristol-Myers and Warner Lambert to modify the development schedules
contained in those agreements, we are currently in the penalty phase under the
Warner Lambert agreement. If we are unable to renegotiate the development
schedules in these agreements, we could be required to pay penalties or enter
into contractual disputes which could have a material adverse effect on our
business, financial condition or results of operations.
EVEN IF WE SUCCESSFULLY COMPLETE THE DEVELOPMENT OF OUR UHTSS AND AMCS, OTHER
LIMITATIONS OR DEFECTS MAY EMERGE LATER THAT COULD LIMIT THEIR UTILITY AND
REDUCE OUR FUTURE ABILITY TO GENERATE REVENUES.
As the UHTSS and AMCS are individually 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. Unforeseen complications may arise in the development,
delivery and operation of the UHTSS and AMCS that could materially delay or
limit their use by us and our customers, substantially increase the anticipated
cost of development of the systems, result in our breach of contractual
obligations to our customers and others, or render the systems unable to perform
at the quality and capacity levels required for success. We may not be able to
successfully complete the development of the UHTSS and AMCS and achieve
anticipated throughputs, gain industry acceptance of our approach to the
identification of lead compounds or develop a sustainable profitable business.
Any complications or delays could subject us to contractual disputes or
litigation, limit our ability to use the UHTSS and AMCS for research and
development as currently expected, reduce our future expected revenues from
these instruments and have other material adverse effects on our business,
financial condition or results of operations.
WE DEPEND ON COMMERCIAL RELATIONSHIPS WITH OTHER COMPANIES, AND OUR FAILURE TO
SUCCESSFULLY MANAGE OUR EXISTING AND FUTURE RELATIONSHIPS COULD PREVENT US FROM
COMMERCIALIZING MANY OF OUR PRODUCTS AND SUSTAINING PROFITABILITY OR REVENUE
GROWTH.
We have collaborative agreements with Bristol-Myers, Eli Lilly, Warner
Lambert, Merck, and Pfizer to license our fluorescence assay technologies for
their internal discovery research and to
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provide services on assay development. With the exception of Eli Lilly, these
companies also participate in the co-development of the UHTSS for installation
in their own facilities. In addition, we have developed or are developing assays
for and/or implemented or implementing screening programs for Pharmacia &
Upjohn, Inc., F.Hoffmann-LaRoche Ltd., American Home Products, Glaxo Wellcome,
Roche Bioscience, Becton Dickinson, Allelix Biopharmaceuticals, Inc., Cystic
Fibrosis Foundation, and Cytovia, Inc. Under these agreements, we have limited
or no control over the resources that any collaborator may devote to our
products or programs and we cannot assure you that our collaborators will
continue to devote the same resources to our collaboration in the future. Our
agreements generally may be terminated by the collaborator without cause upon
short notice and in many cases without payment to us, which would result in our
loss of anticipated revenue. In addition we cannot assure you that our
collaborators will perform their obligations as expected or that we will derive
any additional revenue from these agreements. Our present or future commercial
relationships could be harmed if:
- we do not deliver our services or systems when contractually specified;
- we do not achieve our research and development objectives under our
collaborative agreements;
- we develop products and processes or enter into additional collaborative
agreements that could conflict with the business objectives of our
existing collaborative partners;
- we disagree with our collaborative partners as to rights to intellectual
property we develop;
- we are unable to manage multiple simultaneous collaborative
relationships;
- our collaborative partners become competitors of ours or enter into
agreements with our competitors;
- consolidation in our target markets limits the number of potential
collaborative partners; or
- we are unable to negotiate additional agreements having terms
satisfactory to us.
Termination of our 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 our business,
financial condition or results of operations.
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
We earned small profits in 1997 and 1999 but had an accumulated deficit of
$21.6 million as of December 31, 1999. Our ability to sustain profitability will
depend in part on our ability to:
- successfully complete our UHTSS and AMCS on a timely basis;
- successfully commercialize drug discovery services to pharmaceutical and
biotechnology companies; and
- gain industry acceptance of our systems, services and technologies.
We expect to spend significant amounts of money to fund the expansion of
our operations and the continued development of our products, systems and
fluorescence assay and genomics technologies. As a result, we expect that our
operating expenses will increase in the near term and, consequently, we will
need to generate additional revenue to sustain profitability. Future revenue is
uncertain because our ability to generate revenue will depend upon our ability
to enter into new collaborative, service and license agreements, and to meet
research,
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development and commercialization objectives under new and existing agreements.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
OUR BUSINESS MODEL IS NEW, WHICH MAY DISCOURAGE THIRD PARTIES FROM USING OUR
TECHNOLOGIES AND SERVICES.
We intend to use our UHTSS and fluorescence assay technologies to rapidly
identify for ourselves and our collaborators as many therapeutically relevant
targets and compounds with as much commercial potential as possible.
Historically, pharmaceutical and biotechnology companies have conducted
molecular target screening and lead compound identification within their own
internal research departments because of the highly proprietary nature of these
discovery activities, due to 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 may choose not to outsource their drug discovery
services needs to us. Our ability to succeed will be dependent, in part, upon
the willingness of multiple pharmaceutical and biotechnology companies to accept
our business model and to use our systems, services and technologies as a tool
in the discovery and development of compounds with commercial potential.
Because of the potential overlap of compounds and targets provided to us by
our collaborators, conflicts may arise among collaborators as to rights to
particular products developed as a result of being identified through the use of
our technologies. Our 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
our business, financial condition or results of operations.
WE MAY EXPEND SUBSTANTIAL FUNDS AND MANAGEMENT EFFORT TO PURSUE ADDITIONAL
COLLABORATIVE ARRANGEMENTS WITH NO ASSURANCE OF SUCCESSFULLY SELLING OUR
PRODUCTS OR SERVICES OR ENTERING INTO A COLLABORATIVE AGREEMENT.
Our ability to enter into agreements with additional collaborators or to
expand our agreements with existing collaborators depends in part upon our
ability to convince potential collaborators that our technologies can help
accelerate drug discovery efforts. This may require substantial time and effort
on our part to educate potential collaborators and other users of our services
and technologies on the efficiencies and potential benefits presented by our
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. We cannot assure you that the expenditure of
substantial funds and management effort to pursue collaborative opportunities
will result in a collaboration yielding significant revenues to us.
OUR CURRENT AND POTENTIAL CUSTOMERS ARE PRIMARILY FROM, AND ARE SUBJECT TO RISKS
FACED BY, THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES.
We derive a substantial portion of our revenue from fees paid by
pharmaceutical companies and larger biotechnology companies for our products and
services. We expect that pharmaceutical companies and larger biotechnology
companies will be our primary source of revenues for the foreseeable future. As
a result, we are, and we expect to be, subject to risks and uncertainties that
affect the pharmaceutical and biotechnology industries and to possible reduction
and delays in research and development expenditures by companies in these
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industries. Our future revenues may also be adversely affected by mergers and
consolidation in the pharmaceutical and biotechnology industries, which will
reduce the number of our potential customers.
COMPETITION IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY RESULT IN
COMPETING PRODUCTS AND TECHNOLOGIES THAT MAKE OUR PRODUCTS AND TECHNOLOGIES
OBSOLETE.
The pharmaceutical and biotechnology industry is characterized by rapid
technological change. Competition is intense among pharmaceutical and
biotechnology industries that attempt to identify compounds for development or
support drug discovery efforts. Because we provide many types of technology, and
the UHTSS instrumentation is designed to integrate different technologies, we
compete in many areas, including instrumentation, software, assay development,
high throughput screening and genomics. We compete with instrumentation and
screening companies, the research departments of pharmaceutical and
biotechnology companies and other commercial enterprises, as well as numerous
academic and research institutions. Another technology provider may develop a
product to compete with the UHTSS or AMCS or our fluorescence assay technology.
Pharmaceutical, biotechnology and instrumentation companies that currently
compete with us may merge or enter into alliances with other companies and
become substantial multi-point competitors. Our collaborators or potential
collaborators may 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. Many of these pharmaceutical and
biotechnology companies, which represent the greatest potential market for our
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. Our technological approaches, in particular the UHTSS, AMCS and our
fluorescence assay technology, may be rendered obsolete or uneconomical by
advances in existing technological approaches or the development of different
approaches by our current or future competitors.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS OR OTHER
PROPRIETARY RIGHTS, WHICH WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO
LOSE SOME OF OUR INTELLECTUAL PROPERTY RIGHTS, WOULD REDUCE OUR ABILITY TO
COMPETE IN THE MARKET AND MAY CAUSE OUR STOCK PRICE TO DECLINE.
We rely on patents to protect a large part of our intellectual property and
our competitive position. Our patents, which have been or may be issued, may not
afford meaningful protection for our technology and products. Our competitors
may develop products and technologies similar to ours that do not conflict with
our patents. In order to protect or enforce our patent rights, we may initiate
patent litigation or proceedings against third parties, such as infringement
suits or interference proceedings. Future lawsuits or proceedings could be
expensive, take significant time, and could divert management's attention from
other business concerns. They would put our patents at risk of being invalidated
or interpreted narrowly and our patent applications at risk of not issuing. We
may also provoke these third parties to assert claims against us. The patent
position of biotechnology firms generally is highly uncertain, involves complex
legal and factual questions, and has recently been the subject of much
litigation. We cannot assure you that we will prevail in any of these suits or
that the damages or other remedies awarded to us, if any, will be commercially
valuable. During the course of these suits, there may be public announcements of
the results of hearings, motions and other interim proceedings or developments
in the litigation. If securities analysts or others perceive any of these
results to be negative, it could cause our stock price to decline.
9
<PAGE> 13
IF WE ENGAGE IN ANY MERGER OR ACQUISITION TRANSACTIONS, WE WILL INCUR A VARIETY
OF COSTS AND MAY POTENTIALLY FACE OTHER RISKS THAT COULD ADVERSELY AFFECT OUR
BUSINESS OPERATIONS.
If appropriate opportunities become available, we may consider acquiring
businesses, technologies or products that we believe are a strategic fit with
our business. We currently have no commitments or agreements with respect to any
material acquisitions. If we do pursue an acquisition strategy, we could:
- issue equity securities which could dilute current stockholders'
percentage ownership;
- incur substantial debt;
- incur substantial distraction from our current business objectives; or
- assume contingent liabilities.
We may not be able to integrate successfully any businesses, products,
technologies or personnel that we might acquire in the future without a
significant expenditure of operating, financial and management resources, if at
all. In addition, future acquisitions might negatively impact our business
relations with our collaborators. Further, recent proposed accounting changes
could result in a negative impact on our net income (loss) or results of
operations from amortization of goodwill and/or other intangible assets related
to any acquisition. Any of these adverse consequences could harm our business.
BECAUSE OUR PRODUCTS AND SERVICES CURRENTLY DEPEND ON COMPONENTS AND
TECHNOLOGIES LICENSED FROM THIRD PARTIES, A BREACH BY US OF ANY OF THE TERMS OF
THESE LICENSES, OR SHOULD ANY OF OUR LICENSORS LOSE THEIR RIGHTS UNDERLYING ANY
OF OUR LICENSES, IT COULD RESULT IN OUR LOSS OF ACCESS TO THESE COMPONENTS AND
TECHNOLOGIES AND COULD DELAY OR SUSPEND SEVERAL OF OUR RESEARCH AND DEVELOPMENT
PLANS.
Some aspects of our technology and products have been licensed from third
parties. If we fail to maintain the right to use these components it could
seriously harm our business, financial condition and results of operation. In
particular, we are dependent, in part, on the patent rights licensed from third
parties with respect to our fluorescence assay and screening technologies.
Patent applications filed by us or our licensors may not result in patents
being issued with respect to intellectual property we have licensed, claims of
those patents may not offer sufficient protection, and any patents licensed by
us may be challenged, narrowed, invalidated, or circumvented. We may also be
subject to legal proceedings that result in the revocation of patent rights
previously licensed to us, as a result of which we may be required to obtain
licenses from others to continue to develop, test or commercialize our systems,
services or technologies. We may not be able to obtain such licenses on
acceptable terms, if at all, which would result in delays or a suspension of
several of our research, development or commercialization plans.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.
We may be sued for infringing on the patent rights of others. We may have
to pay substantial damages, including treble damages, for past infringement if
it is ultimately determined that our products infringe a third party's
proprietary rights. Because we produce many different technologies, there is the
potential for patent infringement suits by a wide-range of companies that
control patents for assay technologies, genomic technologies, software and
instrumentation. 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. A number of
patents have issued and may issue on certain fluorescence
10
<PAGE> 14
technologies, targets or their use in screening assays that could prevent us and
our collaborators from developing assays using such technologies or targets, or
relate to certain other aspects of technology that we use or expect to use. From
time to time we receive invitations from third parties to license patents owned
or controlled by third parties. We evaluate these requests and attempt to obtain
licenses if they are compatible with our business objectives. We may not be able
to obtain any licenses on acceptable terms, if at all. Our inability to obtain
or maintain patent protection or necessary licenses could have a material
adverse effect on our business, financial condition or results of operations.
OTHER METHODS OF PROTECTING OUR TRADE SECRETS AND OTHER INTELLECTUAL PROPERTY,
INCLUDING CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES AND OTHERS, MAY NOT
ADEQUATELY PREVENT DISCLOSURE OF PROPRIETARY INFORMATION.
In addition to patent protection, we rely on a combination of copyright and
trademark laws, trade secrets, know-how, and other contractual provisions and
technical measures to protect our intellectual property rights. In an effort to
maintain the confidentiality and ownership of trade secrets and proprietary
information, we require employees, consultants and collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with us. These measures may not provide meaningful protection for
our trade secrets or other confidential information and technology. If these
measures do not protect our rights, third parties could use our technology, and
our ability to compete in our markets would be harmed. In the event of
unauthorized use or disclosure of our confidential and proprietary information,
we may not have adequate remedies. Despite our efforts, third parties may
independently discover trade secrets and proprietary information. Costly and
time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain and maintain trade secret
protection could adversely affect our competitive position.
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY IN WHICH WE
OPERATE.
The market prices for securities of comparable technology companies,
particularly life science 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. Factors that
could have a significant impact on the market price of our common stock include:
- announcements of technological innovations or new commercial products by
us or its competitors;
- disputes or other developments concerning proprietary rights, including
patents and litigation matters and the ability to patent genes and
targets;
- publicity regarding actual or potential results with respect to systems,
services or technologies under development by us, our collaborative
partners or our competitors;
- regulatory developments in both the United States and foreign countries;
- public concern as to the efficacy of new technologies;
- general market conditions; and
- quarterly fluctuations in our revenue and financial results.
In particular, the realization of any of the risks described in these "Risk
Factors" could have a dramatic and materially adverse impact on the market price
of our common stock. In the past,
11
<PAGE> 15
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against those
companies. This type of litigation, if instituted, could result in substantial
costs and a diversion of management's attention and resources, which could
materially affect our business, financial condition or results of operations.
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ANY FAILURE TO MEET FINANCIAL
EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A
DECLINE IN OUR STOCK PRICE.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future as a result of many factors, many of which are out of our
control. For example, our revenues have varied dramatically as a result of the
timing of fees we obtain under our various collaborative, technology licensing
and services agreements, as these payments are frequently comparatively large
and are recognized unevenly over time. It is possible that in some future
quarter or quarters, our operating results will be below the expectations of
securities analysts or investors. In this event, the market price of our common
stock may fall abruptly and significantly. Because our revenue and operating
results are difficult to predict, we believe that period-to-period comparisons
of our results of operations are not a good indication of our future
performance. Some of the factors that could cause our operating results to
fluctuate include:
- termination of collaborative agreements;
- our ability to enter into new agreements with collaborative partners or
technology licensees;
- our ability to complete delivery requirements under existing
collaborative agreements;
- our acquisition of complementary businesses or technologies; and
- general and industry specific economic conditions, which may affect our
customers' research and development expenditures.
If revenue declines in a quarter, whether due to a delay in recognizing
expected revenue or otherwise, our earnings will decline because many of our
expenses are relatively fixed.
IF OUR CONTRACTORS AND VENDORS FAIL TO PROVIDE US WITH ESSENTIAL COMPONENTS THAT
WE NEED TO CONTINUE RESEARCH AND DEVELOPMENT, WE WOULD EXPERIENCE DELAYS AND
ADDITIONAL EXPENSES.
We rely 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 we believe that alternative
sources for these components are available, any interruption in the development,
manufacture or supply of a single-sourced component could have a material
adverse effect on our ability to develop the UHTSS or other systems until a new
source of supply is qualified. Any delay due to an interruption of this type
could subject us to penalties for delays in delivery of the UHTSS and, as a
result, could have a material adverse effect on our business, financial
condition or results of operations. In addition, our current or future
technology suppliers may not meet our requirements for quality, quantity or
timeliness. If any of our current or future technology suppliers fails to
deliver components, including mechanical components of the UHTSS or AMCS, that
meet required specifications in a timely manner, or at all, it could
significantly affect our ability to meet our contractual obligations to our
UHTSS syndicate members and expose us to significant potential liabilities.
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<PAGE> 16
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL AS NECESSARY, IT COULD HARM OUR RESEARCH AND DEVELOPMENT EFFORTS AND
WOULD IMPAIR OUR ABILITY TO COMPETE.
Our success depends to a significant degree upon the continued
contributions of our board of directors, executive officers, management and
staff. If we lose the services of one or more of these people, we may be unable
to achieve our business objectives, meet our commitments under existing
agreements and our stock price could decline. We may not be able to attract or
retain qualified employees or board members in the future due to intense
competition for qualified personnel among biotechnology and other
technology-based businesses, particularly in the San Diego area. If we are
unable to attract and retain the necessary personnel to accomplish our business
objectives, we may experience resource constraints that will adversely affect
our ability to meet the demands of our collaborative partners in a timely
fashion or to support our ability to attract and retain highly skilled
scientists, including individuals holding doctoral degrees in the basic sciences
and engineers. All of our employees are at-will employees, which means that
either we or an employee may terminate an employment relationship at any time.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH, WHICH COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
Our success will depend on our ability to expand and manage our operations
and facilities. To be cost-effective and timely in the development and
installation of our systems, services and technologies, we must coordinate the
integration of multiple technologies in complex systems, both internally and for
our collaborators. We may not be able to manage our growth, to meet the staffing
requirements of additional collaborative relationships or successfully
assimilate and train new employees. If we continue to grow, our existing
management skills and systems may not be adequate and we may not be able to
manage any additional growth effectively. If we fail to achieve any of these
goals, there could be a material adverse effect on our business, financial
condition or results of operations.
WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL REQUIRED TO FUND OUR OPERATIONS,
OR WE MAY NEED TO ENTER INTO FINANCING ARRANGEMENTS WITH UNFAVORABLE TERMS WHICH
COULD ADVERSELY AFFECT YOUR OWNERSHIP INTEREST AND RIGHTS AS COMPARED TO OTHER
STOCKHOLDERS.
We may be required to raise additional capital over a period of several
years in order to expand our operations or acquire new technology. We may raise
this additional capital through additional public or private equity financings,
borrowings and other available sources. Our business or operations may change in
a manner that would consume available resources more rapidly than anticipated,
or substantial additional funding may be required before we can sustain
profitable operations. If additional financing is required to operate our
business, we cannot assure you that additional financing will be available on
terms favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our operations, take
advantage of opportunities, develop products or technologies or otherwise
respond to competitive pressures could be significantly limited.
If we raise additional funds through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution or such equity securities may provide for rights,
preferences or privileges senior to those of the holders of our common stock. If
we raise additional funds through the issuance of debt securities, the debt
securities would have rights, preferences and privileges senior to holders of
common stock and the terms of that debt could impose restrictions on our
operations.
13
<PAGE> 17
OUR TECHNOLOGIES AND PRODUCTS MAY NOT RESULT IN THE DISCOVERY AND
COMMERCIALIZATION OF DRUG PRODUCTS AND WE MAY NOT GENERATE REVENUES FROM
MILESTONES OR ROYALTIES IN THE FUTURE.
Many of our agreements with collaborators and technology licensees provide
that we may receive milestone payments or royalties based on future sales of
drug products discovered through the use of our services, technologies and
products. Use of our services, technologies or products may not result in the
discovery of potential drug candidates that will be safe or effective. If our
services, technologies and products assist in the development of commercialized
pharmaceutical products, milestone payments and royalties would be generated
only after:
- lengthy and costly pre-clinical and clinical development efforts;
- the receipt of necessary regulatory approvals, including approvals by the
FDA and equivalent foreign authorities; and
- the integration of manufacturing capabilities and successful marketing
efforts, all of which must be performed by our collaborators.
We do not currently intend to perform any of these activities. We cannot
assure you that our collaborators will decide to develop or commercialize
potential drug candidates identified through the use of our technologies.
Development and commercialization of potential drug candidates depend not only
on the achievement of research objectives by us and our collaborators, but also
on each collaborator's own financial, competitive, marketing and strategic
considerations, all of which are outside our control. If commercialization of
lead compounds is successful, disputes may arise over payments to us. We do not
expect to receive royalties or other revenues from commercial sales of products
based upon any compound identified using our technologies for at least several
years, if at all.
DRUG PRODUCTS DEVELOPED AND COMMERCIALIZED BY OUR COLLABORATIVE PARTNERS WILL
LIKELY REQUIRE REGULATORY APPROVALS, WHICH MAY REDUCE OUR POTENTIAL REVENUES
FROM MILESTONES OR ROYALTIES.
If a collaborator successfully identifies a drug product for development
and commercialization, it will likely be subject to extensive government
regulation. Regulation by 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. We do not currently plan to develop our own pharmaceutical
products. Pharmaceutical products developed by our collaborators will require
lengthy and costly pre-clinical and clinical trials and regulatory approval by
governmental agencies prior to commercialization. Approvals may not be granted
despite the substantial time and resources required to obtain approvals and
comply with appropriate statutes and regulations. Delays in obtaining regulatory
approvals would adversely affect the marketing of any drugs developed by our
collaborators, diminish any competitive advantages that our collaborators may
attain and therefore adversely affect our ability to receive royalties or
milestone payments.
FUTURE SALES OF OUR COMMON STOCK BY EXISTING STOCKHOLDERS OR BY US COULD CAUSE
OUR STOCK PRICE TO DECLINE.
Sales by existing stockholders of a large number of shares of our common
stock in the public market or the perception that sales could occur could cause
the market price of our common stock to drop. Likewise, additional equity
financings or other share issuances by us could adversely affect the market
price of our common stock.
14
<PAGE> 18
WE MAY BE SUED FOR PRODUCT LIABILITY.
We may be held liable if any product we develop, or any product which is
made with the use of any of our technologies, causes injury or is found
otherwise unsuitable during product testing, manufacturing, marketing or sale.
Although we currently maintain product liability insurance, we may not have
sufficient insurance coverage against potential liabilities and we may not be
able to obtain sufficient coverage at a reasonable cost. Furthermore, product
liability insurance is becoming increasingly expensive. As a result, we may not
be able to maintain current amounts of insurance coverage, obtain additional
insurance, or obtain insurance at a reasonable cost, which could prevent or
inhibit the our commercialization of products or technologies. If we are sued
for any injury caused by our technology or products, our liability could exceed
our total assets.
OUR ACTIVITIES INVOLVE THE USE OF HAZARDOUS MATERIALS, WHICH SUBJECT US TO
REGULATION, RELATED COSTS AND DELAYS AND POTENTIAL LIABILITIES.
Our business involves the controlled storage, use and disposal of hazardous
materials, including chemical, biological and radioactive materials. We are
subject to federal, state and local regulations governing the use, manufacture,
storage, handling and disposal of materials and waste products. Although we
believe that our safety procedures for handling and disposing of these hazardous
materials comply with the standards prescribed by law and regulation, we cannot
completely eliminate the risk of accidental contamination or injury from those
hazardous materials. In the event of an accident, we could be held liable for
any damages that result, and any liability could exceed the limits or fall
outside the coverage of our insurance. We may not be able to maintain insurance
on acceptable terms, or at all. We could incur significant costs or impairment
of our research, development or production efforts in order to comply with
current or future environmental laws and regulations.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY, EVEN IF THE ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. These provisions could discourage
potential take-over attempts and could adversely affect the market price for our
common stock. Because of these provisions, you may not be able to receive a
premium on your investment.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING, AND OUR
INVESTMENT OF THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
Our management has broad discretion as to how to spend the proceeds from
this offering and may spend these proceeds in ways with which our stockholders
may not agree. Pending any such uses, we plan to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities. These
investments may not yield a favorable return.
15
<PAGE> 19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements incorporated by reference or contained in this prospectus
discuss our future expectations, contain projections of our results of
operations or financial condition, and include other "forward-looking"
information within the meaning of Section 27A of the Securities Act. Our actual
results may differ materially from those expressed in forward-looking statements
made or incorporated by reference in this prospectus. Forward-looking statements
that express our beliefs, plans, objectives and/or assumptions of future events
of performance may involve estimates, assumptions, risks and uncertainties.
Therefore, our actual results and performance may differ materially from those
expressed in the forward-looking statements. Forward-looking statements often,
although not always, include words or phrases such as "we believe," "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"intends," "plans," "projection," and "outlook" or the negative of those terms
or similar terms.
These forward-looking statements involve a number of risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those we discuss in:
- our most recent Annual Report on Form 10-K,
- the risk factors contained in this prospectus under the caption "Risk
Factors," and
- our other filings with the Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date on which that
statement is made. We will not update any forward-looking statement to reflect
events or circumstances that occur after the date on which the statement is
made.
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<PAGE> 20
USE OF PROCEEDS
The net proceeds to us from the sale of the 3,000,000 shares of common
stock offered by us are estimated to be $207.3 million, assuming a public
offering price of $72.88 per share and after deducting the estimated
underwriting discounts and commissions and our offering expenses. If the
underwriters' over-allotment option is exercised in full, our net proceeds are
estimated to be $239.6 million.
We intend to use the net proceeds from this offering primarily to fund our
research and development activities and for general corporate purposes,
including working capital. We may also use a portion of the net proceeds from
this offering to acquire or invest in businesses, technologies or services that
are complementary to our business. We have no present commitments or agreements
with respect to any material acquisitions.
We have not identified any specific uses for the net proceeds from this
offering, and we will have discretion over their use and investment. Pending use
of the net proceeds, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities. See "Risk
Factors -- We have broad discretion to use the proceeds from this offering, and
our investment of these proceeds may not yield a favorable return."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results and current and anticipated cash needs.
PRICE RANGE OF COMMON STOCK
Our 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 our common stock, as reported on the Nasdaq National Market, for the
periods indicated below:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
Second Quarter (beginning June 19, 1997).................. $12.25 $10.00
Third Quarter............................................. 15.63 9.38
Fourth Quarter............................................ 15.75 11.00
1998
First Quarter............................................. 14.38 10.25
Second Quarter............................................ 12.38 5.88
Third Quarter............................................. 9.25 3.75
Fourth Quarter............................................ 8.00 4.00
1999
First Quarter............................................. 9.63 6.00
Second Quarter............................................ 7.97 4.88
Third Quarter............................................. 17.38 6.63
Fourth Quarter............................................ 30.06 9.88
2000
First Quarter (through March 16, 2000).................... 140.00 21.50
</TABLE>
On March 15, 2000, there were approximately 151 stockholders of record of
our common stock.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth, as of December 31, 1999:
- our actual capitalization;
- our capitalization on a pro forma basis to give effect to our sale of
1,800,000 shares of common stock in February 2000 with net proceeds of
approximately $70.9 million; and
- our pro forma capitalization as adjusted to give effect to our receipt of
the net proceeds from the sale of 3,000,000 shares of common stock
offered by us hereby, after deducting estimated underwriting discounts
and commissions and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Capital lease and loan obligations, net of current
portion............................................ $ 4,343 $ 4,343 $ 4,343
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; 17,442,741 shares issued and
outstanding, actual; 19,242,741 shares issued
and outstanding, pro forma; and 22,242,741
shares issued and outstanding, pro forma as
adjusted........................................ 17 19 22
Additional paid-in capital......................... 62,754 133,652 340,994
Accumulated other comprehensive loss............... (48) (48) (48)
Deferred compensation.............................. (830) (830) (830)
Accumulated deficit................................ (21,579) (21,579) (21,579)
-------- -------- --------
Total stockholders' equity...................... 40,314 111,214 318,559
-------- -------- --------
Total capitalization....................... $ 44,657 $115,557 $322,902
======== ======== ========
</TABLE>
The outstanding share information in the table above is based on data as of
December 31, 1999 and excludes an aggregate of 6,010,749 shares, as follows:
- 5,386,966 shares reserved for issuance pursuant to our 1996 Stock Plan,
as amended and restated, including 3,423,003 shares subject to
outstanding options at a weighted-average exercise price of $6.40 per
share;
- 228,001 shares reserved for issuance pursuant to our Non-Employee
Directors' Stock Option Plan, including 96,000 shares subject to
outstanding options at a weighted-average exercise price of $5.45 per
share;
- 391,782 shares reserved for issuance under our Employee Stock Purchase
Plan; and
- 4,000 shares reserved for issuance outside our stock plans.
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<PAGE> 22
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $110.3
million, or $5.73 per share of common stock. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities, divided by 19,242,741 shares of common stock outstanding as of
December 31, 1999, after giving effect to our sale of 1,800,000 shares of common
stock in February 2000 with net proceeds of $70.9 million. After giving effect
to the receipt of the net proceeds from the sale of 3,000,000 shares of our
common stock at an estimated offering price of $72.88 per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses, our pro forma net tangible book value as of December 31, 1999 would
have been approximately $317.7 million, or $14.28 per share. This represents an
immediate increase in pro forma net tangible book value of $8.55 per share to
existing stockholders and an immediate dilution of $58.60 per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Estimated public offering price per share................... $72.88
Pro forma net tangible book value per share as of December
31, 1999............................................... $5.73
Increase per share attributable to new investors.......... 8.55
-----
Pro forma net tangible book value per share after
offering............................................... 14.28
------
Dilution per share to new investors......................... $58.60
======
</TABLE>
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing stockholders and by new investors purchasing shares in this offering,
before deducting underwriting discounts and commissions and the estimated
offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 19,242,741 86.5% $138,094,182 38.7% $ 7.18
New investors................. 3,000,000 13.5 218,640,000 61.3 $72.88
---------- ----- ------------ -----
Total....................... 22,242,741 100.0% $356,734,182 100.0%
========== ===== ============ =====
</TABLE>
The above discussion and tables assume no exercise of any stock options
outstanding as of December 31, 1999. As of December 31, 1999, there were options
outstanding to purchase a total of 3,519,003 shares of our common stock with a
weighted-average exercise price of $6.38 per share, which decreased to 3,222,683
shares at a weighted-average exercise price of $8.29 per share as of March 1,
2000, primarily as a result of the exercise of options. If any of these options
are exercised, there will be further dilution to new public investors.
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<PAGE> 23
SELECTED FINANCIAL DATA
The following selected financial data with respect to our statements of
operations for each of the three years in the period ended December 31, 1999,
and with respect to the balance sheets at December 31, 1998 and 1999, are
derived from the audited financial statements that have been examined by Ernst &
Young LLP, independent auditors, which are incorporated by reference in this
prospectus and are qualified by reference to such financial statements. The
statement of operations data for the period from May 8, 1995 (inception) to
December 31, 1995 and the year ended December 31, 1996, and the balance sheet
data at December 31, 1995, 1996 and 1997, are derived from audited financial
statements not included or incorporated by reference in this prospectus. The
data set forth below should be read in conjunction with the financial statements
and related notes which are incorporated by reference in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1995
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1995 1996 1997 1998 1999
-------------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $ -- $ 2,217 $14,908 $ 26,538 $50,324
Operating expenses:
Cost of revenue............... -- -- 6,983 23,777 27,779
Research and development...... 366 4,396 5,406 17,146 11,593
Selling, general and
administrative............. 46 1,275 3,679 6,068 11,535
---------- ------- ------- -------- -------
Total operating
expenses.............. 412 5,671 16,068 46,991 50,907
---------- ------- ------- -------- -------
Loss from operations............ (412) (3,454) (1,160) (20,453) (583)
Interest income................. -- 580 1,793 2,445 1,543
Interest expense................ -- (59) (346) (645) (691)
---------- ------- ------- -------- -------
Income (loss) before income
taxes......................... (412) (2,933) 287 (18,653) 269
Income taxes.................... -- -- (20) -- (117)
---------- ------- ------- -------- -------
Net income (loss)............... $ (412) $(2,933) $ 267 $(18,653) $ 152
========== ======= ======= ======== =======
Basic income (loss) per share... $(5,146.59) $ (3.86) $ 0.03 $ (1.14) $ 0.01
========== ======= ======= ======== =======
Diluted income (loss) per
share......................... $(5,146.59) $ (3.86) $ 0.02 $ (1.14) $ 0.01
========== ======= ======= ======== =======
Shares used in computing:
Basic income (loss) per
share...................... <1 760 8,970 16,312 16,967
========== ======= ======= ======== =======
Diluted income (loss) per
share...................... <1 760 15,423 16,312 18,241
========== ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
----- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments....................... $ 11 $13,167 $48,906 $ 28,026 $ 36,618
Total assets........................ 115 17,515 63,036 50,955 63,862
Capital lease and loan obligations,
less current portion.............. -- 1,111 3,422 4,788 4,343
Accumulated deficit................. (412) (3,345) (3,078) (21,731) (21,579)
Total stockholders' equity.......... (412) 15,184 54,364 37,542 40,314
</TABLE>
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and our financial statements and related notes incorporated by reference
in this prospectus. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including but not limited to those set forth under
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We design, develop and commercialize advanced drug discovery technologies,
services and instrumentation to accelerate the discovery of new medicines. We
are developing a proprietary biology and high technology platform comprised of
genomic, assay and automated system technologies. We are launching a proprietary
large-scale biology program to identify targets, rapidly incorporate these
targets into assays, and then rapidly screen hundreds of thousands of compounds
against these assays to identify compounds that act upon these targets. Our
UHTSS is designed to screen over one hundred thousand compounds per day against
targets. We believe our technologies have been commercially validated by over
fifteen major pharmaceutical and biotechnology companies in the form of
commercialization agreements for discovery services, licenses or
instrumentation.
We had an accumulated deficit of $21.6 million as of December 31, 1999. Our
objective for 2000 is to continue increasing revenue, with modest expense
increases, and to maintain profitability for the full year. Our ability to
maintain profitability will depend in part on our ability to timely and
successfully complete development, manufacture and delivery of the UHTSS and
AMCS that meet contractual specifications and continue to provide drug discovery
services to pharmaceutical and biotechnology customers.
We generate revenue primarily through sales to corporate collaborators of
services, technology, instruments and intellectual property licenses. Sales to
date have been generated from a limited number of collaborators in the
biotechnology and pharmaceutical industries in the U.S. and Europe.
Many of our agreements provide for future milestone payments from drug
development achievements and royalties from the sale of products derived from
certain of our technologies. However, collaborators may not ever generate
products from technology provided by us and thus we may not ever receive
milestone payments or royalties from marketed drugs. We believe our ability to
maintain profitability is not dependent on receipt of milestone payments or
royalties.
We may encounter significant fluctuations in our quarterly financial
performance depending on factors such as revenue from existing and future
contracts and collaborations, timing of the delivery of technologies and systems
and the completion of contracted service commitments to our collaborators. We
will also continue to invest in new technologies to expand our core drug
discovery capabilities. Accordingly, our 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, 1999, 1998 AND 1997
Revenue. Revenue increased 90% to $50.3 million in 1999 from $26.5 million
in 1998, which was an increase of 78% from $14.9 million in 1997. The increase
in 1999 resulted
21
<PAGE> 25
primarily from new agreements executed during the year, including a services,
systems and technology access collaborative agreement with Pfizer drug discovery
services agreements with Pharmacia & Upjohn and F.Hoffman-LaRoche, and licensing
agreements with Clontech Laboratories, Inc. and ZymoGenetics, Inc. Increased
revenue under a collaborative agreement with Bristol-Myers executed in 1996 also
contributed to the overall increase in revenue in 1999. The increase in 1998
resulted primarily from increased revenues under our collaborative agreements
with Warner Lambert and Merck, both of which were executed in 1997, and an
agreement with Warner Lambert which was executed in 1998, to develop an AMCS.
Expenses. Total operating expenses increased 8% to $50.9 million in 1999
from $47.0 million in 1998, which was an increase of 192% from $16.1 million in
1997. The increases in operating expenses resulted primarily from our growth,
our product development efforts, drug discovery services offerings and research
and development programs. This growth was reflected by the increase to 187
employees at December 31, 1999 from 150 employees at December 31, 1998 and 88 at
December 31, 1997, and by the expansion of facilities in October 1997 to 81,000
square feet from 22,000 square feet.
Cost of revenue increased 17% to $27.8 million in 1999 from $23.8 million
in 1998, which was an increase of 241% from $7.0 million in 1997. In addition to
the growth of operations as noted above, the increases in cost of revenue were
primarily a result of increased purchases of materials and increased technology
development expenses related to the development of the UHTSS, the AMCS and
screening subsystems for our collaborators. Also contributing to the increase in
1999 were costs related to the completion of contracted service commitments
under new drug discovery services agreements.
Research and development decreased 32% to $11.6 million in 1999 from $17.1
million in 1998, which was a 217% increase from $5.4 million in 1997. The
decrease in 1999 reflects a shift in drug discovery services resources from
internal research and development to external customer-funded activities to
support new as well as ongoing drug discovery services agreements in 1999. In
addition, non-recurring items in 1998 such as 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 our
UHTSS contributed to the decrease in 1999 and the increase in 1998. The increase
in 1998 was also attributable to ongoing development of a UHTSS and an AMCS for
us, and the expansion of our human cell genomics GenomeScreen program.
Selling, general and administrative expenses increased 90% to $11.5 million
in 1999 from $6.1 million in 1998, which was a 65% increase from $3.7 million in
1997. The increases were primarily attributable to the growth of operations as
noted above, including increases in staffing of the executive, legal and
commercial development functions.
Interest and Other Income. Net interest income decreased 53% to $0.9
million in 1999 from $1.8 million in 1998, which was a 24% increase from $1.4
million in 1997. The decrease in 1999 primarily reflected interest income from
lower average cash and investment balances during the year. The increase in 1998
resulted from interest income from higher average cash and investment balances
due to receipts under collaborative agreements and proceeds from our initial
public offering in June 1997. Interest income was partially offset by interest
expense incurred on capital lease and loan obligations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we held cash, cash equivalents and investment
securities available-for-sale of $36.6 million and working capital of $25.8
million. We have funded operations through December 31, 1999 primarily through
receipts from corporate collaborations of
22
<PAGE> 26
$99 million, issuance of equity securities with aggregate net proceeds of $59
million, capital equipment lease financing of $12 million and interest income of
$6 million.
In February 2000, we completed a private placement of 1.8 million shares of
newly issued common stock to selected institutional and other accredited
investors. The purchase price was $42.00 per share, resulting in net proceeds of
approximately $71 million.
Our facility lease agreement is secured by a letter of credit, which is
secured by a certificate of deposit recorded as restricted cash. At December 31,
1999, restricted cash totaled $0.7 million. The letter of credit will be reduced
over the next two years on a predetermined schedule.
We have entered into certain contractual commitments, subject to
satisfactory performance by third parties, which obligate expenditures totaling
approximately $5.7 million over the next four years.
Our strategy for the development of the UHTSS includes the establishment of
a syndicate of collaborators to provide us with funding for development,
technology and personnel resources and payments for system validation. The UHTSS
co-development syndicate currently includes Bristol-Myers, Warner Lambert, Merck
and Pfizer. We have also entered into agreements with Warner Lambert and Pfizer
to develop AMCS systems. In addition, we have entered into collaborations with
Cytovia, Inc., Pharmacia & Upjohn, F.Hoffman-LaRoche and Cystic Fibrosis
Foundation to provide screen development and/or screening services, and with
Warner Lambert, Merck, Becton Dickinson and the National Cancer Institute for
genomics programs. We have entered into agreements for ion channel technology
with Bristol-Myers, Warner Lambert, Eli Lilly, Pfizer, Glaxo Wellcome, Roche
Bioscience, American Home Products and Merck. Other collaborations include a
combinatorial chemistry agreement with SIDDCO to synthesize large libraries of
chemical compounds for us.
Our ability to achieve sustained profitability will be dependent upon our
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. Our
revenue goals may not be met. Although we are actively seeking to enter into
additional collaborations, we may not be able to negotiate additional
collaborative agreements on acceptable terms, if at all. Some of our current
collaborative agreements may be terminated by the collaborator without cause
upon short notice, which would result in loss of anticipated revenue. Although
certain of our collaborators would be required to pay some penalties in the
event they terminate their agreements without cause, any of our collaborators
may elect to terminate their agreements with us. In addition, collaborators may
terminate their agreements for cause if we cannot deliver the technology in
accordance with the agreements. Our collaborators may not perform their
obligations as expected and we may not derive any additional revenue from the
agreements. Current or future collaborative agreements may not be successful and
provide us with expected benefits. Termination of our existing or future
collaborative agreements, or the failure to enter into a sufficient number of
additional collaborative agreements on favorable terms or generate sufficient
revenues from our services and technologies could have a material adverse effect
on our business, financial condition or results of operations.
The complexity of both the UHTSS and AMCS has led to unexpected delays in
their development that may lead to financial penalties and contractual disputes
regarding the delivery and acceptance of these instruments by our customers. The
successful implementation and operation of the UHTSS and AMCS will be a complex
process requiring integration and coordination of a number of factors, including
integration of and successful interface between complex advanced robotics,
microfluidics, automated storage and retrieval systems and software and
information systems. We may not be able to successfully integrate or implement
23
<PAGE> 27
all of the instrumentation needed for the UHTSS and AMCS. In addition, because
we are also dependent in part on the performance of our customers and suppliers
in order to deliver these platforms, our ability to timely deliver these
platforms may be outside of our control.
Some of our agreements with our customers provide for penalties to be paid
by us if we do not meet development schedules contained in the agreements. Our
agreement with Bristol-Myers provides for penalty payments up to a maximum of
$1,000,000 if we fail to deliver the completed UHTSS by a specified time. Our
agreement with Warner Lambert provides for penalty payments up to a maximum of
$888,300 if we fail to deliver the completed AMCS according to a specified
development schedule.
We are currently behind schedule in the delivery and integration of Module
3, the software component of the UHTSS, under our agreement with Bristol-Myers
and the delivery of the AMCS under our agreement with Warner Lambert. We
currently expect to complete delivery and integration of Module 3 and delivery
of the AMCS in the second half of 2000. Although we are currently negotiating
with Bristol-Myers and Warner Lambert to modify the development schedule
contained in those agreements, we are currently subject to penalty payments. If
we are unable to renegotiate the development schedules in those agreements, we
could be required to pay substantial penalties.
We may be required to raise additional capital over the next several years
in order to conduct or expand our operations or acquire new technology. This
capital may be raised through additional public or private equity financings,
borrowings and other available sources. Our business or operations may change in
a manner that would consume available resources more rapidly than anticipated
and substantial additional funding may be required before we can sustain
profitable operations. We may not continue to generate sales from and receive
payments under existing collaborative agreements and existing or potential
revenue may not be adequate to fund our operations. If additional funding
becomes necessary, it may not be available on favorable terms, if at all. If
adequate funds are not available, we 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 our business, financial condition or
results of operations.
IMPACT OF YEAR 2000
The nature and progress of our plans to ensure our operations would not be
adversely impacted by the inability of computer systems to process data having
dates on or after January 1, 2000 have been discussed in prior years. In late
1999, we completed our modifications and conversions of existing software and
certain hardware. As a result of those planning and implementation efforts, we
experienced no significant disruptions in our computer systems and believe those
systems successfully responded to the Year 2000 date change. We expensed less
than $50,000 during 1999 in connection with the Year 2000 issue. We are not
aware of any material problems resulting from the Year 2000 issue, either with
our products, our internal systems, or the products and services of third
parties. We will continue to monitor our computer systems and those of our
suppliers to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
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<PAGE> 28
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We invest our excess cash in interest-bearing investment-grade securities
that we hold for the duration of the term of the respective instrument. We do
not utilize derivative financial instruments, derivative commodity instruments
or other market risk sensitive instruments, positions or transactions in any
material fashion. Accordingly, we believe that, while the investment-grade
securities we hold are subject to changes in the financial standing of the
issuer of such securities, we are 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. A hypothetical 1% adverse move in interest rates along the entire
interest rate yield curve would not materially affect the fair value of our
financial instruments that are exposed to changes in interest rates.
25
<PAGE> 29
BUSINESS
OVERVIEW
We design, develop and commercialize advanced drug discovery technologies,
services and instrumentation to accelerate the discovery of new medicines. We
are developing a proprietary biology and high technology platform comprised of
genomic, assay and automated system technologies. We are launching a proprietary
large-scale biology program to identify targets, rapidly incorporate these
targets into assays, and then rapidly screen hundreds of thousands of compounds
against these assays to identify compounds that act upon these targets. Our
UHTSS is designed to screen over one hundred thousand compounds per day against
targets. We believe our technologies have been commercially validated by over
fifteen major pharmaceutical and biotechnology companies in the form of
commercialization agreements for discovery services, licenses or
instrumentation.
We believe our technologies will enable us and our customers to take
advantage of recent advances in genomics and chemistry that have the potential
to alter fundamentally human medicine. Recent developments in the study of the
human genome have increased the focus on identifying targets to be used in
assays for the discovery of potential new medicines. We believe that identifying
the function of these genes is a key step in the discovery of new medicines.
However, an understanding of the function of each gene and its role in disease
may take many years of research using conventional methods.
Our assay development technologies can rapidly convert targets identified
through genomics into assays. Through this method we can identify cells
containing disease-related genes in less than one day in most cases. Our
genomics technologies, combined with our existing and future automated screening
and chemistry capabilities, will help us achieve our goal of offering
gene-to-lead discovery programs in a broad range of different therapeutic areas.
An important element of our strategy includes commercial acceptance of our
technologies through revenue generating relationships with major pharmaceutical
and biotechnology companies. We have commercial agreements for one or more of
our technologies through services, licenses or sale of systems with:
- - American Home Products
- - Becton Dickinson
- - Bristol-Myers Squibb Co.
- - Eli Lilly and Company
- - F. Hoffman-LaRoche Ltd.
- - Glaxo Wellcome plc
- - Merck & Co., Inc.
- - Pfizer, Inc.
- - Pharmacia & Upjohn, Inc.
- - Roche Bioscience
- - Warner Lambert Company
- - Acacia Bioscience
- - Allelix Biopharmaceuticals, Inc.
- - Anticancer, Inc.
- - Clontech Laboratories, Inc.
- - Cystic Fibrosis Foundation
- - Cytovia, Inc.
- - Exelixis, Inc.
- - Genentech, Inc.
- - National Cancer Institute
- - Rigel, Inc.
BACKGROUND
The discovery and development of new medicines can be expensive,
time-consuming and highly inefficient. The initial phase of the drug development
process, termed discovery, is the early stage prior to clinical development of a
drug candidate. Drug discovery is typically a serial process that involves:
- defining the disease of interest;
- identifying and validating a target or protein related to a disease;
- developing an assay that portrays a human disease for the target;
26
<PAGE> 30
- testing thousands of chemical compounds against the target, referred to
as screening; and
- identifying compounds, or hits, that affect target activity.
Recent advances in the study of the human genome have increased the focus
on identifying targets to be used in assays for the discovery of potential new
medicines. It has been estimated that the human genome contains at least 140,000
genes, of which approximately 10,000 may be important pharmaceutical targets in
the treatment of diseases. These targets are clustered in specific classes of
genes for major diseases, including:
- receptors, or proteins that recognize molecules that act as signals in
the human body; and
- ion channels, or proteins that create passages for electrically charged
molecules, to enter and exist cells.
While it is further estimated that at least 2,000 targets exist from the
receptor and ion channel family of genes alone, current commercially available
drugs are directed to less than 500 gene targets.
One of the major historical bottlenecks in the drug discovery process has
been the screening of compounds against targets to identify potential new
medicines. In recent years, however, this bottleneck has been slowly alleviated
as advances in screening technologies have enabled scientists to screen up to
100,000 compounds per day, a dramatic increase over conventional technologies
available only five years ago.
NEW PROBLEMS IN THE DISCOVERY PROCESS: ASSAY DEVELOPMENT
A new bottleneck has developed in the discovery process because of the
expanded number of genes available as potential targets. Pharmaceutical and
biotechnology companies now face the challenge of efficiently and effectively
converting targets into productive assays. For newly discovered targets, little
information is known about the protein and often no efficient technologies are
available to permit functional studies that are a prerequisite for conventional
assay development. For already established target classes, current assay
development technologies can be slow, cumbersome, or may require extensive
scientific training and complex instrumentation. When an assay system is
developed, it is frequently designed to apply only to a small target class or
even a single target and is often not suitable for high throughput screening.
The recent scale-up from testing thousands of samples per day to hundreds
of thousands of samples per day has created a logistical problem for sample
preparation and compound management. We believe many current approaches are
inefficient and wasteful. In addition, we believe when potential solutions exist
to these and other screening problems, they typically use assorted technologies
that are incompatible or difficult to use or integrate with existing screening
platforms. Since most potential solutions are not integrated and would require
continuing development to implement and integrate, many pharmaceutical companies
are reluctant to adopt new technologies, despite the potential for large
benefits. Furthermore, when assay technologies are adopted, they are typically
developed for a specific department or therapeutic area, so that when an assay
technology can be re-applied in a new area, it has to be re-adapted -- thus
gaining no operational leverage. Finally, some classes of targets, such as
receptors without a known function, ion channels, and enzymes controlling cell
activation, are inherently difficult for assay technologies to conveniently
address. As a result of all of these factors, we believe a key bottleneck in the
drug discovery process has shifted from screening for potential new medicines to
converting targets into assays.
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<PAGE> 31
THE AURORA SOLUTION
We believe that our technology portfolio provides a revolutionary way to
identify commercially useful targets and enables the rapid testing of compounds
to be used as potential new medicines against targets. Our key capabilities
include:
Cell-Based Assay Development for Therapeutically Relevant Target
Classes. Our expertise in this area allows us to develop many assays in a
matter of four to six weeks, rather than a period of months using
conventional methods, for classes such as receptors and ion channels.
Assays to Rapidly Measure Target Activity in Living Cells. In the ion
channel area we can detect the activity of ion channels in cells at sample
processing rates which exceed the current comparable standard by 100 to
1000 fold.
Advanced Screening Systems Incorporating Miniaturization, Microfluidics and
Compound Management. Our UHTSS is designed to test over 100,000 compounds
in individual small volume assays per day.
Integration of Our Proprietary Biology, Chemistry and Instrumentation to
Provide New Processes for Evaluating and Testing Targets. We provide
integrated solutions to our customers, such as our VIPR technology,
comprising biology, chemistry and instrumentation.
We believe that our technology offers significant advantages over
conventional approaches to discovering new medicines through the use of the
human genome. We believe these advantages include:
Speed. Our technologies enable rapid screen development and ultra-high
throughput screening. Technologies that accelerate drug discovery include
our GenomeScreen, GeneBlazer, VIPR, and UHTSS.
Commercial Validation. We have successfully completed the development of
over 100 assays. Over 15 leading pharmaceutical and biotechnology companies
use our services or technology.
Breadth. Our technologies support discovery programs for most of the
currently recognized major target classes that are treated with marketed
medicines.
Productivity. Our discovery processes can be very efficient, allowing for
reduced personnel and time requirements when compared to traditional
approaches that convert targets to assays.
Enabling. Several of our technologies facilitate drug discovery on targets
that are otherwise difficult to use in the discovery process. For example,
GeneBlazer technology enables scientists to work with difficult targets,
such as receptors with an unknown function.
Accuracy. We provide efficient and accurate solutions to assay development
issues. For example, our VIPR technology improves the accuracy and
efficiency of ion channel screens compared to conventional technologies.
STRATEGY
Our goal is to be the leader in exploiting the human genome for the
discovery of potential new medicines. The key elements of our strategy include:
Launch Large Scale Biology Program. We are initiating a large scale biology
program designed to use our patented assay technology to rapidly test a large
number of targets from
28
<PAGE> 32
the human genome against hundreds of thousands of our compounds. This program
will leverage many aspects of our existing business, including assay
development, genomics, compound collections, screening and systems. We intend to
commercialize this program by licensing access to information and leads and
entering into alliances for our discovery services with companies that develop
and sell medicines.
Provide Innovative Discovery Services. We will continue to establish target
identification and validation and drug discovery alliances utilizing our
proprietary human cell-based genomics technologies. Our GenomeScreen technology
allows us to tag genes in the human genome inside of living human cells and
identify cells with disease-related genes in most cases in less than one day.
The same technology also permits rapid assay development based on those
identified cells for testing against large numbers of compounds to alter the
activity of those genes. We also intend to focus on the commercialization of
specific classes of target assay development and screening technologies through
our VIPR and GeneBlazer Technologies. Our goal is to offer gene-to-lead
discovery programs in a broad range of different therapeutic areas.
Expand Informatics Tools and Databases. Utilizing our assay technologies
and the UHTSS, we expect to generate large amounts of complex information on
targets and chemical structures. The analysis of these datasets will require the
use of innovative database and data analysis tools. We intend to develop these
information technology applications either directly or in collaborations with
leaders in the areas of molecular imaging software development, datamining
applications, bioinformatics, and database architecture.
Maintain Technology Leadership. We intend to continue advancing our core
technologies and expanding our technology leadership position by continuing to
invest heavily in research and development and acquiring access to strategic
technologies or capabilities. We have assembled a unique multi-disciplinary team
of scientists from leading companies in the pharmaceutical, chemistry,
instrumentation, automation and computer science industries. We will also
continue to form strategic technology alliances with leading companies from
these industries and with leading academic institutions to provide us with
access to those parties' technologies and expertise.
Expand Licensing Program. We will continue to license our intellectual
property to generate revenues and obtain access to third parties' intellectual
property. To date we have granted non-exclusive licenses to our fluorescent
protein technology to over ten pharmaceutical and biotechnology companies. We
will continue to aggressively seek to license our fluorescent protein
technologies and other technologies, including for use in new, unlicensed fields
such as agriculture, diagnostics and environmental testing.
Support and Enhance the UHTSS Platform. We have established a group of
collaborators to co-develop our UHTSS. Our UHTSS collaborative partners
currently consist of Bristol-Myers, Merck, Pfizer and Warner Lambert. Our UHTSS
collaborators have provided funding for the development of the UHTSS and are
entitled to co-exclusive access to the system. We intend to seek as many as two
additional UHTSS collaborative partners and to continue to upgrade, enhance and
offer additional services based on our UHTSS. We believe we will be able to
leverage our base of collaborators by providing new products and services as we
expand the UHTSS technology or develop enhancements to the system.
PRODUCTS AND SERVICES
We are commercializing the following technologies that allow us to provide
genomics, assay development and screening services and products:
- GeneBlazer Technology. GeneBlazer is a patented technology that allows
the rapid development of assays to test targets, such as receptors, using
small samples. Using
29
<PAGE> 33
GeneBlazer, we have developed over 50 assays relating to therapeutic
areas, including metabolic and central nervous system diseases.
- GenomeScreen System. Our GenomeScreen system identifies targets by
scanning the genome of living human cells. This patented technology also
permits rapid assay development for testing large numbers of compounds to
determine their affect on the activity of those targets or genes.
- VIPR Technology. Our VIPR technology enables the rapid development of
assays and screening of ion channel targets. Using this patented assay
and screening technology, we have developed over 25 assays relating to
therapeutic areas including cardiac, metabolic and nervous system
diseases.
- Fluorescent Protein Technology. Our fluorescent protein technology allows
the monitoring of cellular processes and target activity using
fluorescent proteins.
- UHTSS Technology. The UHTSS is a suite of automated products designed to
enable rapid processing and testing of large numbers of compounds in
small volumes. In 1999, we received our first patent protecting the UHTSS
and we ran our first 100,000 data point cell-based assay in less than
twelve hours.
- AMCS Technology. The AMCS is a large-scale, automated, compound inventory
management system. The AMCS allows compounds to be stored in various
formats under controlled environmental conditions.
OUR TECHNOLOGY
The principal components of our integrated technology platform are our
proprietary genomics, assay and automated system technologies. This unique
platform results from our innovative integration of many different disciplines,
including:
<TABLE>
<S> <C>
- - chemistry - engineering
- - physics - microfluidics, movement
of small volumes of fluids
- - biology - software
</TABLE>
Assay Technologies.
We believe that our broad portfolio of proprietary assay technologies
provides significant advantages over existing screening assays. Our assay
technologies use light signals emitted from fluorescent molecules to reveal
molecular and cellular function and activity with precision and sensitivity. In
contrast to purely biochemical assays, these cell-based assays provide
information about compounds acting within the biologically relevant environment
within living cells.
Our assay technologies are designed to enable screening of compounds
against nearly all major classes of targets in most therapeutic areas. We have
developed numerous assays in several target classes utilizing our fluorescence
assay technologies. We expect to generate revenues with our fluorescent assay
technologies by providing services, instrumentation, licenses and consumables,
such as laboratory supplies.
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<PAGE> 34
The following table summarizes many of our key fluorescence assay
technologies, together with examples of the classes of targets, therapeutic
areas and potential sources of revenue to which they may be applicable:
<TABLE>
- ---------------------------------------------------------------------------------------------------
POTENTIAL POTENTIAL
TECHNOLOGY TARGET CLASS THERAPEUTIC AREA REVENUE SOURCES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GENEBLAZER receptors cancer services
(cell-based assays and target enzymes cardiovascular licenses
identification) pain and inflammation consumables
nervous system
metabolic diseases
- ---------------------------------------------------------------------------------------------------
GENOMESCREEN receptors inflammation services
(cell-based assays) proteins cancer licenses
that metabolic diseases consumables
modulate
cell
function
- ---------------------------------------------------------------------------------------------------
VIPR ion channels cardiovascular services
(cell-based assays) nervous system licenses
pain and inflammation consumables
gastro-intestinal instrumentation
- ---------------------------------------------------------------------------------------------------
FLUORESCENT PROTEINS receptors cancer services
(cell-based assays) enzymes cardiovascular licenses
(biochemical assays) pain and inflammation consumables
nervous system
- ---------------------------------------------------------------------------------------------------
UNIVERSAL G-PROTEINS receptors cancer services
(cell-based assays) cardiovascular licenses
pain and inflammation consumables
nervous system
metabolic diseases
- ---------------------------------------------------------------------------------------------------
PHOSPHORYLIGHT(TM) enzymes cancer services
(biochemical assays) nervous system licenses
pain and inflammation consumables
metabolic diseases
- ---------------------------------------------------------------------------------------------------
</TABLE>
GeneBlazer Technology. GeneBlazer technology can be used to construct
assays within living cells for a number of major classes of targets. These
cell-based assays have a number of advantages over many conventional assays. For
example, GeneBlazer allows assays to be conducted in living mammalian cells
designed to mimic human biology and does not require the use of radioactivity.
GenomeScreen Technology. Our GenomeScreen technology is used to identify
disease-related genes in cells and rapidly create assays. Using GenomeScreen,
researchers randomly tag individual genes inside of living human cells. When a
tagged gene is active in the cell, it produces blue light from the GenomeScreen
tag. Inactive, tagged genes produce green light. Cells with tagged genes
producing blue and green light can be separated at ultra-high throughputs of
over 60 million cells an hour. These throughputs permit sorting up to 500
million cells in a single day to identify cells with disease-related genes. Thus
scientists can scan the entire human genome in less than one day most cases.
GenomeScreen also permits rapid assay development for testing of hundreds of
thousands of compounds and eliminates additional time-consuming steps required
to convert a gene into an assay suitable for automated ultra-high throughput
testing.
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<PAGE> 35
GeneBlazer has been commercialized in alliances by providing services and
licenses to seven pharmaceutical companies:
<TABLE>
<S> <C> <C>
- Bristol-Myers - Merck
- Eli Lilly - Pfizer
- F.Hoffman-LaRoche - Pharmacia & Upjohn
- Warner Lambert
</TABLE>
We believe GeneBlazer has the potential to greatly reduce both the time and
cost of developing cell-based screens because of its ability to measure the
function of a target in a single living cell. Even with modern techniques for
making genetically engineered cells, cell line development for assays can be
unpredictable and is often a rate limiting step in the discovery process.
Standard methods for making cell lines usually take many months and involve
testing hundreds or even thousands of identical cells to generate a usable
assay. In contrast, GeneBlazer uses fluorescence-based cell sorting, which can
rapidly isolate the living cells in which GeneBlazer measures target activity.
Thus, GeneBlazer may reduce assay development time from months to weeks. To
date, we have developed over 50 assays using GeneBlazer.
VIPR Technology. Our VIPR enables scientists to rapidly develop assays and
screen ion channels in living human cells. Quality screening in this area has
traditionally been limited to testing compounds with an electrical measuring
apparatus, which requires special skills and has a low throughput. We believe
the VIPR represents an important advance in the ability to find new medicines
for cardiac, metabolic and nervous system related diseases. Our patented VIPR
technology can increase the rate of identification of potential new medicines
100 to 1,000 fold compared to conventional technologies. To date, we have
developed 25 assays using this technology and have entered into alliances with
the following pharmaceutical companies relating to VIPR:
<TABLE>
<S> <C> <C>
- American Home Products - Merck
- Bristol-Myers - Pfizer
- Glaxo Wellcome
</TABLE>
Fluorescent Protein Technology. Our fluorescent protein technology is
derived from a fluorescent protein that occurs naturally in jellyfish. The
fluorescent protein can be used to monitor the activity of cellular processes
and proteins in mammalian cells. We have a co-exclusive licensing agreement with
Clontech Laboratories, Inc. to commercialize components of this technology,
including non-commercial academic research uses. We have licensed this
technology for specified drug discovery purposes to a number of major
pharmaceutical and biotechnology companies, including:
<TABLE>
<S> <C> <C>
- Exelixis - Rigel, Inc.
- Genentech
</TABLE>
Universal G-protein Technology. Our patented universal G-protein technology
enables scientists to measure the activity of different kinds of receptors in
living human cells. This technology can help identify the function of receptors
without previously known function. We believe this represents an important
advance in developing assays from human genome information. We announced a
genomics collaboration in 1999 with Pharmacia & Upjohn involving the development
of assays for a number of receptors without known function. We have entered into
a number of alliances with pharmaceutical companies relating to this technology,
including:
<TABLE>
<S> <C> <C>
- Bristol-Myers - Merck
- F.Hoffman-LaRoche - Pfizer
- Eli Lilly - Warner Lambert
</TABLE>
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<PAGE> 36
Phosphorylight(TM) Technology. Our patented Phosphorylight technology
enables the development of assays to measure the activity of enzymes controlling
cellular activity. These enzymes are significant therapeutic targets for a wide
range of diseases including cancer, inflammation, nervous system conditions and
metabolic diseases. We believe that this technology considerably expands the
range of assays that can be performed using the UHTSS.
MetaboLight(TM) Technology. We have developed a range of proprietary assays
to measure the activity of liver enzymes that can metabolize compounds
administered to humans. Our assays can be used for screening compounds in drug
discovery for potential interactions with human liver enzymes. We believe that
this screening can reduce the cost of drug discovery by early identification of
compounds which might have adverse side effects.
Automated Screening Technologies
Our ultra high-throughput screening system, or UHTSS, is designed as a
modular assembly of screening components to process and test hundreds of
thousands of compounds in small volume assays in an automated fashion. The UHTSS
technology is designed to provide a novel solution for the integration of
compound handling, storage and screening. In 1999 we ran our first 100,000
datapoint cell-based assay in less than twelve hours using individual components
of our UHTSS in a standalone fashion. We expect to have a fully integrated UHTSS
operational in 2000. We have developed and commercialized our UHTSS technology
through four multi-year alliances for licenses, the supply of consumables, and
supply of instrumentation to Bristol-Myers, Merck, Pfizer, and Warner Lambert.
The UHTSS components include:
- NanoPlate(TM) Technology. The NanoPlate is a patented small volume
screening format 36 times more dense than most conventional formats. We
believe the NanoPlate permits higher density screening, faster automated
processing and lower cost of consumables, such as reagents.
- NanoWell(TM) Plate Reader. The NanoWell Plate Reader is a proprietary
detector designed to measure fluorescence from small volumes with speed,
accuracy and sensitivity. When used with the NanoPlate, it can measure
over 200,000 small volume samples in less than one hour. Each sample may
contain as few as 100 living human cells. We believe that this is the
optimal sample size and that further miniaturization is unnecessary and
may reduce the accuracy and reliability of the tests. The NanoWell Plate
Reader is also designed to be used with other conventional plate formats.
- Compound Storage and Retrieval: UHTSS Compound Store. The UHTSS Compound
Store is an automated storage and retrieval system designed to house
compounds and provide in solution for rapid access and screening. The
system is designed to deliver and return over 100,000 selected compounds
per day for primary screening and over 2,000 hits for re-test and potency
determination.
- Microfluidics: Compound and Assay Component Dispensing. We have developed
proprietary dispensing technologies to accurately transfer microscopic
volumes of test compounds, reagents and living cells at rates of up to
10,000 wells per hour. While current screening systems can dispense
volumes down to a one millionth of a liter, our microscopic volume
screening dispensers are capable of volumes less than one billionth of a
liter. These dispensers use advanced robotics to remove compounds and
reagents from the storage plates and containers and dispense precise
volumes at high speed.
- Data Collection and System Integration. We are developing a user-friendly
computer control system to link the storage and retrieval component of
the UHTSS to chemistry
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<PAGE> 37
information databases and compound inventories. This proprietary software
is designed to efficiently capture, process and deposit in a centralized
database the large amount of screening data generated from the UHTSS.
Automated Master Compound Store and Compound Collection
We are developing an automated master compound store, or AMCS. The AMCS is
a modular storage system designed for long-term storage and retrieval of
chemical libraries under environmental control. The design provides for
monitoring systems to track compound utilization, expiration and availability of
individual compounds. Other features of the AMCS include a semi-automated
weighing subsystem to handle compounds in solid, powder and frozen form, and
automated subsystems for handling liquid samples. These systems are currently
being developed for delivery to Pfizer and Warner Lambert.
We currently have a growing proprietary library containing over 400,000
chemical compounds for screening against our targets and our customers' targets.
The library is composed of individually stored and accessed compounds that will
be stored in our AMCS. These compounds have been carefully selected to maximize
chemical diversity and to increase the likelihood of identifying therapeutic
leads. Approximately 100,000 of our existing compounds are conventionally
synthesized compounds, while the remaining 300,000 compounds are produced by
combinatorial chemistry methodologies.
CORPORATE COLLABORATIONS
We have entered into a number of corporate collaborations for the
co-development of our UHTSS and AMCS and for assay development, genomics and
screening services and technology. Our material collaborations are discussed
below:
Services and Platform System Agreements
We have entered into four agreements for the development of the UHTSS and
two agreements for the development and delivery of our AMCS. Our UHTSS
agreements provide in general that we will deliver and install three separate
modules of the UHTSS system and provide service and support of the system for a
period following acceptance of the UHTSS. In return, our UHTSS collaborative
partners are obligated to make specified fees to us in the form of
non-refundable fees, installation payments, and ongoing research and
co-development funding. Some of our UHTSS agreements restrict our UHTSS
syndicate to six members for a limited period. In some cases, members of our
UHTSS syndicate may withdraw from the development of the UHTSS at any time
without cause. The complexity of developing the UHTSS has led to unexpected
delays in the delivery of integration software to Bristol-Myers. Similarly, the
complexity of the AMCS has led to delays in the delivery of the AMCS to Warner
Lambert.
We have UHTSS syndicate agreements with Bristol-Myers, Warner Lambert,
Merck and Pfizer and AMCS development agreements with Warner Lambert and Pfizer.
Bristol-Myers. In November 1996, we entered into a Collaborative Research
and License Agreement with Bristol-Myers regarding the development of the UHTSS
and the installation of the UHTSS at Bristol-Myers. In addition, the
collaboration includes co-development of high throughput screening assays for
use by Bristol-Myers in exchange for specified fees from Bristol-Myers and we
have licensed to Bristol-Myers the right to use our fluorescence assay
technologies for internal research and drug development, including the
development of screening assays. Bristol-Myers will make specified milestone and
royalty payments to us principally for compounds developed and commercialized by
Bristol-Myers, which are identified using a screen that we developed.
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<PAGE> 38
Warner Lambert Company. In September 1997, we entered into a Collaborative
Research and License Agreement with Warner Lambert regarding the development of
the UHTSS and the installation of the UHTSS at Warner Lambert. The collaboration
includes co-development of high throughput screening assays for use by Warner
Lambert in exchange for specified fees from Warner Lambert. In addition, we have
licensed to Warner Lambert the right to use specified aspects of our
fluorescence assay technologies for internal research and drug development,
including the development of assays. Warner Lambert will also make specified
milestone and royalty payments to us for selected compounds developed and
commercialized by Warner-Lambert which were identified using an assay employing
the licensed technologies.
In September 1998, we entered into a separate agreement with Warner Lambert
for the development of an AMCS. In January 1999, we entered into an amendment of
the Collaborative Research and License agreement with Warner Lambert for
services and licenses for specified aspects of our GenomeScreen technology.
Merck & Co., Inc. In December 1997, we entered into a Collaborative
Research and License Agreement with Merck for the development of the UHTSS and
the installation of the UHTSS at Merck. The collaboration includes
co-development of high throughput screening assays for use by Merck in exchange
for specified fees from Merck. We have also licensed to Merck the right to use
specified aspects of our fluorescence assay technologies for internal research
and drug development, including the development of assays.
In December 1999, we entered into two additional collaborations with Merck
in the area of genomics. Under each collaboration agreement, we will utilize
aspects of our GenomeScreen technology to investigate cell processes and gene
function related to selected Merck therapeutic programs. Merck will receive a
license to use the data and materials resulting from the program in basic
research and drug discovery. We received upfront payments from Merck for the new
collaborations, with the potential for additional research support fees, as well
as provisions for additional revenues in the event that drugs developed are
commercialized as a result of the collaboration.
Pfizer, Inc. In June 1999, we entered into a Collaborative Research and
License Agreement with Pfizer regarding the development of the UHTSS and the
installation of the UHTSS at Pfizer. The agreement also calls for the
development and installation of an AMCS. The collaboration includes the
co-development of high throughput screening assays for use by Pfizer and we have
also licensed to Pfizer the right to use specified aspects of our fluorescence
assay technologies for internal research and drug development, including the
development of assays.
Services and Focused Discovery Systems Agreements
Glaxo Wellcome. In December 1999, we entered into a three-year agreement
with Glaxo Wellcome in the area of ion channel drug discovery. We will provide
Glaxo Wellcome access to our ion channel technology, including our VIPR
instrument, our proprietary voltage sensor dyes and related assay technology. We
will develop assays, deliver instrumentation and provide ongoing scientific and
technical support to Glaxo Wellcome in exchange for specified payments, as well
as provisions for additional revenues in the event that drugs developed as a
result of the collaboration are commercialized.
American Home Products. In December 1999, we announced a five-year
agreement with Wyeth-Ayerst Laboratories, the Pharmaceutical Division of
American Home Products Corporation, in the area of ion channel drug discovery.
We will provide Wyeth-Ayerst access to our ion channel technology, including our
VIPR instrument, our proprietary voltage sensor dyes and related assay
technology. We will develop assays, deliver instrumentation and provide ongoing
scientific and technical support to Wyeth-Ayerst in exchange for specified
payments.
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<PAGE> 39
The agreement also provides for additional revenues in the event that drugs
developed are commercialized as a result of the collaboration.
Pharmacia & Upjohn, Inc. In February 1999, we entered into an agreement
with Pharmacia & Upjohn to provide assay development and screening services to
Pharmacia & Upjohn. Pharmacia & Upjohn funds an assay development team at our
facilities that utilizes our fluorescence assay technology to develop assays for
a number of receptors identified by Pharmacia & Upjohn's genomics program but
which have no known function. We also screen compound libraries provided by
Pharmacia & Upjohn to identify compounds, using our proprietary screening
systems for a separate fee. We could receive research and development
milestones, as well as royalties, on compounds identified by assays generated
through the collaboration.
F. Hoffman-LaRoche. In February 1999, we entered into an agreement with
Hoffman-LaRoche to provide an assay development and technology transfer to
Hoffman-LaRoche for up to twelve Hoffman-LaRoche targets for assay development
in the first year. Hoffman-LaRoche is obligated to make the payments for assay
development and technology transfer services and licenses, milestone payments
for compounds identified through assays generated under the collaboration, and
royalties if compounds are commercialized.
Becton Dickinson. In March 1999, we entered into an agreement with Becton
Dickinson to utilize our GenomeScreen technology for the identification of genes
useful as drug screening targets. We receive research funding and Becton
Dickinson instrumentation in support of our services, and the parties will
evaluate opportunities for future commercialization.
Cytovia, Inc. In July 1998, we entered into a collaboration with Cytovia
under which we will provide our high throughput proprietary screens, compound
library and informatics capabilities and Cytovia will provide its proprietary
fluorogenic protease substrates for screening. We will conduct screening
programs to identify new drug leads. Cytovia will receive rights to develop and
commercialize any new drug leads identified as a result of the collaboration. We
receive fees from Cytovia for compound access and screening, and could receive
development milestones as well as royalties if compounds identified under the
collaboration are developed and commercialized. We also purchased shares of
Cytovia preferred stock.
Eli Lilly. In December 1996, we entered into a Collaborative Research and
License Agreement with Eli Lilly regarding the development of the UHTSS and the
installation of the UHTSS at Eli Lilly. In November 1999, both parties agreed to
amend the agreement to refocus the collaboration on our assay technology and
focused discovery systems and discontinue further development and delivery of
Eli Lilly's customized UHTSS. The collaboration includes the co-development of
high throughput screening assays for use by Eli Lilly in exchange for specified
fees from Eli Lilly and we have licensed to Eli Lilly the right to use specified
aspects of our fluorescence assay technologies for internal research and drug
development, including the development of screening assays. Eli Lilly will also
make specified milestone and royalty payments to us principally for compounds
developed and commercialized by Eli Lilly which were identified using a screen
developed under the agreement.
TECHNOLOGY LICENSING
In 1999, we entered into five technology licensing agreements under aspects
of our fluorescent protein patents, including one settlement agreement with
AntiCancer, Inc. concerning a patent infringement suit that we initiated. We
also granted licenses to:
- Clontech Laboratories, for the right to sell certain fluorescent protein
products as a research reagent;
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<PAGE> 40
- Exelixis Pharmaceuticals, for the right to use fluorescent protein
technology in certain pharmaceutical, animal health and non-plant
agricultural applications;
- Genentech, Inc., for certain research applications and the right to use
fluorescent protein technology for the manufacture of therapeutic
proteins; and
- ZymoGenetics, Inc., for the right to use fluorescent protein technology
for certain internal applications.
In February 2000, we also granted Rigel, Inc. a license to use our
fluorescent protein technology for applications in connection with their own
proprietary technologies. In addition to an upfront payment, shares of Rigel
Preferred Stock and an option to a suite of Rigel's genomics technologies,
Aurora receives annual license payments from Rigel.
PATENTS AND PROPRIETARY RIGHTS
Our patent portfolio includes over 120 patent applications filed in the
United States and foreign patent jurisdictions. We are either the assignee or
exclusive licensee of these patent rights, including 21 issued patents on our
instrumentation and plate technology, fluorescent protein technology,
ion-channel technology, GenomeScreen and GeneBlazer technology, as well as 14
allowed applications on these and other technologies. Aspects of our technology
related to fluorescent protein reporters and ion channel technologies are
exclusively licensed from The Regents of the University of California. Pursuant
to the terms of the Exclusive License Agreement between us and The Regents of
the University of California, we are obligated to pay expenses associated with
patent prosecution and maintenance, specified license issue fees and royalties
to The Regents. Aspects of our technology related to fluorescent protein
reporters are exclusively licensed from the University of Oregon. Pursuant to
the terms of the License Agreement between us and the University of Oregon, we
are obligated to pay to the University expenses associated with patent
prosecution and maintenance, specified annual payments and, upon the issuance of
a patent related to the subject technology, to issue shares of our common stock
to the University of Oregon. Aspects of our technology related to universal
G-protein technology reporters are exclusively licensed from the California
Institute of Technology for our payment of certain expenses associated with
patent prosecution and maintenance, and issuance of shares of our common stock.
In March 1999, we filed an action against AntiCancer, Inc. alleging that
AntiCancer infringed specific patents by employing our patented fluorescent
protein technology in their business. The suit was settled in September 1999.
Under the terms of the settlement agreement, we received an upfront payment and
will receive annual payments, as well as specified royalty payments, from
AntiCancer in exchange for granting AntiCancer specified rights to use our
fluorescent protein technology.
We have a non-exclusive license from SIBIA Neurosciences, Inc., with
specified rights to sublicense, under patent rights covering transcription-based
assay technology for screening. Pursuant to the terms of the Non-Exclusive
Cross-License Agreement between us and SIBIA, we granted SIBIA a non-exclusive
license to certain of our technologies, and we issued shares of our common stock
to SIBIA. We and SIBIA are also obligated to pay each other specified royalties.
In September 1999, SIBIA was acquired by Merck.
We have a non-exclusive license and certain sub-licensing rights to OSI
Pharmaceuticals, Inc.'s issued reporter gene patent and options to OSI's Methods
of Modulation patent, for which the U.S. Patent Office has allowed claims. Under
the agreement, OSI received shares of our common stock and a cash payment and
OSI will also receive revenues from any sub-licenses granted by us to our
pharmaceutical partners, plus annual fees and milestone and royalty payments
under pre-agreed terms from any option taken by us or our partners to
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<PAGE> 41
develop small molecule gene transcription modulators encompassed by the Methods
of Modulation claims.
We are dependent on the rights licensed from these parties. Any challenge
to, invalidation or loss of our licensed rights could have a material adverse
effect on our business, financial condition or results of operations.
EMPLOYEES
As of February 29, 2000, we had 197 full-time employees, 42 of whom hold
Ph.D. degrees and 35 of whom hold other advanced degrees. Our future success
depends in significant part upon the continued service of our key scientific,
technical and senior management personnel and our continuing ability to attract
and retain highly qualified technical and managerial personnel. None of our
employees is represented by a labor union or covered by a collective bargaining
agreement. We have not experienced any work stoppages and we consider our
relations with employees to be good. In addition to full-time employees, we use
the services of contractors, part-time and temporary staff. As of February 29,
2000, we had a total of 69 contractors, part-time and temporary staff.
SCIENTIFIC ADVISORS
Our scientific advisors, who have demonstrated expertise in various fields,
advise us from time to time concerning long-term scientific planning, research
and development. The scientific advisors also evaluate our research programs,
recommend personnel to us, and advise us on specific scientific and technical
issues. The scientific advisors are compensated by retainer and on a time and
expenses basis and have received shares and options to purchase shares of our
common stock. We have consulting agreements with a number of the scientific
advisors.
We do 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 us. Accordingly,
such persons are expected to devote only a small portion of their time to us.
Our scientific advisors are:
Timothy J. Rink, M.D., Sc.D. -- Former President and Chief Executive
Officer and Chairman of Aurora. Previously President and Chief Technical Officer
of Amylin Pharmaceuticals, Inc. and Vice President, Research at SmithKline
Beecham in U.K.
Michael Geoffrey Rosenfeld, M.D. -- Investigator, Howard Hughes Medical
Institute; Professor of Medicine, University of California, San Diego
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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<PAGE> 42
MANAGEMENT
The following table shows the name, age and position of each of our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stuart J.M. Collinson................ 40 President, Chief Executive Officer and Chairman
of the Board
Paul J. England...................... 56 Senior Vice President, Research
Thomas G. Klopack.................... 48 Senior Vice President and Chief Operating Officer
John D. Mendlein..................... 40 Senior Vice President, Intellectual Property,
General Counsel and Chief Knowledge Officer
John R. Pashkowsky................... 43 Vice President, Finance
Harry Stylli......................... 38 Senior Vice President, Commercial Development
James C. Blair....................... 60 Director
Hugh Y. Reinhoff, Jr. ............... 47 Director
Timothy J. Rink...................... 53 Director
Roy A. Whitfield..................... 45 Director
Timothy J. Wollaeger................. 56 Director
</TABLE>
Stuart J.M. Collinson joined us in May 1999 as President and a member of
the Board of Directors and was elected to the position of Chief Executive
Officer in November 1999. He was appointed as Chairman of the Board in March
2000. Prior to joining Aurora, Dr. Collinson served as a consultant to us from
December 1998 to May 1999 and as Chief Executive Officer of Andaris, Ltd., a
privately held biopharmaceutical company, from June 1998 to November 1998. Prior
to Andaris, Dr. Collinson held several positions with Glaxo Wellcome from
December 1994 through June 1998, most recently serving as Co-Chairman, Hospital
and Critical Care Therapy Management Team and Director of Hospital and Critical
Care. Dr. Collinson previously held several positions with Baxter International,
Inc. and the Boston Consulting Group. Dr. Collinson received his Ph.D. in
physical chemistry from the University of Oxford, England and his M.B.A. from
Harvard University.
Paul J. England joined us in February 1998 and currently serves as our
Senior Vice President, Research. From 1984 to 1997, he served in various
capacities at SmithKline Beecham in the United Kingdom, 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. We expect Dr. England to transition to
part-time employment with us in the near future.
Thomas G. Klopack joined us in July 1998 and currently serves as our Senior
Vice President and 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 us in August 1996 and currently serves as our
Senior Vice President, Intellectual Property, General Counsel and Chief
Knowledge Officer. 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
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<PAGE> 43
California, Los Angeles and his J.D. from the University of California, Hastings
College of the Law.
John R. Pashkowsky joined us in December 1997 and currently serves as our
Vice President, Finance. From December 1997 through March 2000 Mr. Pashkowsky
held various financial positions, most recently Senior Director, Finance and
Treasurer. From 1981 to 1997 he served 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 us in November 1995 and currently serves as our Senior
Vice President, Commercial Development. From 1989 to 1995, Dr. Stylli held
several positions at Glaxo Wellcome, 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, United Kingdom and a B.Sc. in Biochemical
Pharmacology, with honors, from the University of East London.
James C. Blair has been a director since March 1996. Dr. Blair has been a
managing member of Domain Associates, L.L.C., a venture capital investment firm,
since 1985. From 1969 to 1985, Dr. Blair was an officer of three investment
banking and venture capital firms. Dr. Blair is a director of Amylin
Pharmaceuticals, Inc., CoCensys, Inc., Dura Pharmaceuticals, Inc., Trega
Biosciences, Inc. and Vista Medical Technologies, Inc. Dr. Blair received a
B.S.E. from Princeton University and M.S.E. and Ph.D. degrees in Electrical
Engineering from the University of Pennsylvania.
Hugh Y. Rienhoff, Jr. has been a director since March 1996. Dr. Rienhoff is
currently Chief Executive Officer of Kiva Genetics, Inc., which he founded in
September 1998. Until April 1998, Dr. Rienhoff served as a director of
Abingworth Management Limited, a venture capital investment firm. From 1992 to
1997, Dr. Rienhoff held various positions at New Enterprise Associates
Development Corporation, where he most recently served as Partner. He is a
director of Microcide Pharmaceuticals, Inc. Dr. Rienhoff received an M.D. from
The Johns Hopkins University School of Medicine and a B.A. in English Literature
and Biology, with honors, from Williams College.
Timothy J. Rink has been a director since January 1996. Dr. Rink previously
served as our President from January 1996 through May 1999 and as our Chief
Executive Officer from January 1996 through November 1999. He also served as
Chairman of our board of directors until March 2000. 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 United Kingdom from 1984 to 1989, and
previously was Lecturer in Physiology at the University of Cambridge. Dr. Rink
currently serves as 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. Dr. Rink currently does not anticipate that he
will stand for re-election at our 2000 annual meeting of stockholders.
Roy A. Whitfield has been a director since September 1997. Mr. Whitfield is
the Chief Executive Officer of Incyte Pharmaceuticals, Inc., a position he has
held since June 1993, and has been a director of Incyte since 1991. Mr.
Whitfield served as President of Incyte from June 1991 until January 1997 and as
Treasurer from April 1991 until October 1995. Previously, Mr. Whitfield served
as the President of Ideon Corporation, which was a majority owned subsidiary of
Invitron Corporation, a biotechnology company, from October 1989 until April
1991. From 1984 to 1989, Mr. Whitfield held senior operating and business
development positions with Technicon Instruments Corporation, a medical
instrumentation company, and its
40
<PAGE> 44
predecessor company, CooperBiomedical, Inc., a biotechnology and medical
diagnostics company. Prior to his work at Technicon, Mr. Whitfield spent seven
years with the Boston Consulting Group's international consulting practice. Mr.
Whitfield received a B.S. with First Class Honors in mathematics from Oxford
University, and an M.B.A. with Distinction from Stanford University.
Timothy J. Wollaeger has been a director since March 1996. He has been the
general partner of Kingsbury Associates, Kingsbury Capital Partners, L.P.,
Kingsbury Capital Partners, L.P. II and Kingsbury Capital Partners, L.P. III
venture capital investment partnerships since 1993. From 1990 to 1993, Mr.
Wollaeger served as Senior Vice President and was a director of Columbia
Hospital Corporation, a hospital management company now known as Columbia/ HCA
Healthcare Corporation. From 1986 until 1993, he was a general partner of the
general partner of Biovest Associates, a venture capital investment firm. He is
Chairman of the Board of Biosite Diagnostics, Inc. He received an M.B.A. from
Stanford University and a B.A. in economics from Yale University.
41
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 1, 2000, and after the sale of shares
in this offering, by:
- each person who we know owns beneficially more than 5% of our outstanding
common stock;
- our chief executive officer and our four other most highly-compensated
executive officers for the fiscal year ended December 31, 1999;
- each of our current directors;
- all of our current directors and executive officers as a group; and
- the selling stockholder.
Except as indicated below, the persons named in the table have sole voting
and investment power with respect to all shares of common stock as beneficially
owned by them, subject to community property laws where applicable. Unless
otherwise indicated, the address for each stockholder is c/o Aurora Biosciences
Corporation, 11010 Torreyana Road, San Diego, California 92121. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Percentage of
beneficial ownership is based on 19,633,183 shares of common stock outstanding
as of March 1, 2000 and 22,633,183 shares of common stock outstanding after
completion of this offering.
The table assumes no exercise of the underwriters' over-allotment option.
If the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of 465,000 shares of our common stock, and up to 23,098,183
shares of common stock will be outstanding after completion of this offering.
42
<PAGE> 46
The sole selling stockholder is a family trust of which Dr. Timothy Rink is
the trustee. Dr. Rink is one of our directors and our former President and Chief
Executive Officer. Prior to the offering he beneficially owned an aggregate of
593,349 shares of our common stock, which represents approximately 3.0% of the
shares outstanding at that time. Dr. Rink disclaims beneficial ownership of
475,034 of those shares that are held in a trust and in custody on behalf of one
of Dr. Rink's children. The trust, of which Dr. Rink is a trustee, is offering
100,000 shares pursuant to this prospectus. Following the offering, Dr. Rink
will beneficially own an aggregate of 493,349 shares of our common stock, which
will represent approximately 2.2% of the shares to be outstanding at that time.
Dr. Rink disclaims beneficial ownership of the shares that will be held by the
trust and in custody for his child following this offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
-------------------------------
SHARES ISSUABLE
PURSUANT TO
NUMBER OF OPTIONS PERCENTAGE OF SHARES
SHARES EXERCISABLE BENEFICIALLY OWNED
BENEFICIALLY WITHIN 60 DAYS --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OF MARCH 1, 2000 BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------ ---------------- --------------- --------------
<S> <C> <C> <C> <C>
5% OR GREATER STOCKHOLDERS
Entities affiliated with BB Biotech...... 1,383,000 -- 7.0% 6.1%
Vordergasse 3
8200 Schaffhausen
CH/Switzerland
Biotech Target
Swiss Bank Tower
Funds Managed by Janus Capital
Corporation............................ 1,300,000 -- 6.6% 5.7%
100 Filmore Street
Denver, CO 80206
The Kaufmann Fund, Inc................... 1,000,000 -- 5.1% 4.4%
140 East 45th Street
New York, NY 10017
DIRECTORS AND OFFICERS
James C. Blair........................... 12,347 1,417 * *
Hugh Y. Rienhoff, Jr..................... 10,008 7,001 * *
Timothy J. Rink.......................... 593,349 31,179 3.0% 2.2%
Roy A. Whitfield......................... 13,250 13,250 * *
Timothy J. Wollaeger..................... 4,893 1,001 * *
Stuart J.M. Collinson.................... 107,496 107,496 * *
Paul J. England.......................... 40,542 40,542 * *
Thomas G. Klopack........................ 43,411 34,671 * *
John D. Mendlein......................... 99,931 63,108 * *
Harry Stylli............................. 116,969 33,960 * *
All directors and executive officers as a
group (11 persons)..................... 1,055,809 340,905 5.3% 4.2%(2)
</TABLE>
- -------------------------
* Less than one percent.
(1) Includes shares issuable pursuant to options and other rights to purchase
our shares exercisable within 60 days of March 1, 2000.
(2) Reflects the sale of 100,000 shares by a family trust of which Dr. Rink is
the trustee, as part of this offering. After the offering, all directors and
officers as a group will beneficially own an aggregate of 955,809 shares of
our common stock.
43
<PAGE> 47
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representative Deutsche Bank Securities
Inc. have severally agreed to purchase from us and the selling stockholder the
following respective number of shares of common stock at an offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ..............................
Chase Securities Inc. ......................................
FleetBoston Robertson Stephens Inc..........................
Thomas Weisel Partners LLC..................................
Warburg Dillon Read LLC.....................................
---------
Total............................................. 3,100,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to conditions precedent and that the underwriters will
purchase all shares of the common stock offered hereby, other than those covered
by the over-allotment option described below, if any of these shares are
purchased.
We have been advised by the representatives to the underwriters that the
underwriters propose to offer the shares of our common stock to the public at
the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share. The underwriters may allow to some other dealers, and those other dealers
may reallow, a concession in excess of $ per share to other dealers. After
the offering, representatives of the underwriters may change the offering price
and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 465,000 additional
shares of common stock at the offering price, less the underwriting discounts
and commissions set forth on the cover page of this prospectus. The underwriters
may exercise this option only to cover over-allotments made in connection with
the sale of the common stock offered hereby. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment,
subject to conditions, to purchase approximately the same percentage of
additional shares of common stock as the number of shares of common stock to be
purchased by it in the above table bears to 3,100,000. We will be obligated,
pursuant to the option, to sell these additional shares of common stock to the
underwriters to the extent the option is exercised. If any additional shares of
common stock are purchased, the underwriters will offer the additional shares on
the same terms as those on which the 3,100,000 shares are being offered.
We and the selling stockholder have agreed to indemnify the underwriters
against some specified types of liabilities, including liabilities under the
Securities Act and to contribute to payments the underwriters may be required to
make in respect of any of these liabilities.
We, each of our officers and directors and the selling stockholder have
each agreed not to directly or indirectly offer, sell, sell short, transfer,
hypothecate, pledge, contract to sell or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or derivatives of our common stock
held by these persons prior to this offering or common stock issuable upon
exercise of options held by these persons for a period of 90 days after the
effective date of the registration statement of which this prospectus is a part,
without the prior written consent of Deutsche Bank Securities Inc. This consent
may be given at any time without public notice.
44
<PAGE> 48
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
To facilitate this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of our common
stock. Specifically, the underwriters may over-allot shares of our common stock
in connection with this offering, creating a short position in the underwriters'
syndicate account. A short position results when an underwriter sells more
shares of common stock than that underwriter is committed to purchase.
Additionally, to cover the over-allotments or to stabilize the market price of
our common stock, the underwriters may bid for, and purchase, shares of our
common stock in the open market. Any of these activities may maintain the market
price of our common stock at a level above that which might otherwise prevail in
the open market. These transactions may be effected on the Nasdaq National
Market or otherwise. The representatives, on behalf of the underwriters, may
also reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 142
filed public offerings of equity securities, of which 104 have been completed,
and has acted as a syndicate member in an additional 76 offerings of equity
securities. Thomas Weisel Partners LLC does not have any material relationship
with us or any of our officers, directors or other controlling persons, except
with respect to its contractual relationship with us pursuant to the
underwriting agreement entered into in connection with this offering.
From time to time, Deutsche Bank Securities Inc. or its affiliates have
provided, and may continue to provide, financial advisory services to us.
LEGAL MATTERS
Cooley Godward LLP, San Diego, California, will pass upon the validity of
the common stock offered by this prospectus. Latham & Watkins, Costa Mesa,
California, will pass upon certain legal matters on behalf of the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our annual report on Form 10-K for the year ended
December 31, 1999, as set forth in their report, which is incorporated by
reference in this prospectus and registration statement. Our financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934 and in accordance file annual and quarterly reports, proxy statements
and other information with the Securities and Exchange Commission. These
reports, proxy statements and other information may be inspected and copies of
these materials may be obtained upon payment of fees at the public reference
facilities maintained by the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549, as well as the regional offices of the Commission located at 500
West Madison
45
<PAGE> 49
Street, Chicago, Illinois, and Seven World Trade Center, New York, New York. You
may obtain information on the operation of the public reference facilities by
calling the Commission at 1-800-SEC-0330. In addition, we are required to file
electronic versions of these materials with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Our common
stock is quoted on the Nasdaq National Market, and reports and other information
concerning us may be inspected at the National Association of Securities
Dealers, Inc. at 1725 K Street, NW, Washington, D.C. 20006-1500.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act of 1933 with respect to the common stock offered in
this prospectus. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto. For
further information with respect to us and our common stock, you should read the
registration statement and its exhibits and schedules. Statements contained in
this prospectus as to the contents of any contract or any other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference. Copies of
the registration statement, including all exhibits thereto, may be obtained from
the Commission's principal office in Washington, D.C. upon the payment of the
fees prescribed by the Commission, or may be examined without charge at the
offices of the Commission described above. Copies of these materials may also be
obtained from the EDGAR database.
46
<PAGE> 50
INCORPORATION BY REFERENCE
The Commission allows us to incorporate by reference information into this
prospectus. This means we can disclose important information to you by referring
you to another document filed separately with the Commission. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in this prospectus.
This prospectus incorporates by reference the documents set forth below that we
have previously filed with the Commission. These documents contain important
information about us and our financial condition.
The following documents previously filed with the Commission are hereby
incorporated by reference into this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Proxy Statement for our 1999 Annual Meeting of Stockholders; and
- Description of our common stock contained in our registration statement
on Form 8-A filed with the Commission on June 6, 1997.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this prospectus and prior to the
completion of the offering of the common stock will be deemed to be incorporated
by reference into this prospectus and to be part of this prospectus from the
date of filing of these documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this prospectus and
the registration statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which is also
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this prospectus or such registration statement.
We will provide without charge to each person to whom a copy of the
prospectus has been delivered, and who makes a written or oral request, a copy
of any and all of the information that has been incorporated by reference in the
registration statement (other than exhibits unless such exhibits are
specifically incorporated by reference therein). Requests should be submitted in
writing or by telephone to Investor Relations, Aurora Biosciences Corporation,
at our offices located at 11010 Torreyana Road, San Diego, CA 92101, telephone
(858) 404-6600.
47
<PAGE> 51
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 5
Special Note Regarding Forward-Looking
Statements........................... 16
Use of Proceeds........................ 17
Dividend Policy........................ 17
Price Range of Common Stock............ 17
Capitalization......................... 18
Dilution............................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 26
Management............................. 39
Principal and Selling Stockholders..... 42
Plan of Distribution................... 44
Legal Matters.......................... 45
Experts................................ 45
Where You Can Find More
Information.......................... 45
Incorporation by Reference............. 47
</TABLE>
[AURORA LOGO]
3,100,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
CHASE H&Q
ROBERTSON STEPHENS
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
Prospectus
, 2000
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Securities being registered. All the amounts
shown are estimates except for the SEC registration fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 65,529
NASD filing fee............................................. 25,322
Nasdaq National Market listing application fee.............. 17,500
Legal fees and expenses..................................... 585,000
Accounting fees and expenses................................ 75,000
Printing and engraving expenses............................. 125,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 6,649
--------
Total..................................................... $910,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the DGCL and (ii) require the Registrant to indemnify its
directors and officers to the fullest extent permitted by applicable law,
including circumstances in which indemnification is otherwise discretionary.
Pursuant to Section 145 of the DGCL, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
These provisions do not eliminate the directors' or officers' duty of care, and,
in appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under the DGCL. In addition,
each director will continue to be subject to liability pursuant to Section 174
of the DGCL, for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the director believes to
be contrary to the best interests of the Registrant or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the director's duty to the
Registrant or its stockholders when the director was aware or should have been
aware of a risk of serious injury to the Registrant or its stockholders, for
acts or omission that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Registrant or its
stockholders, for improper transactions between the director and the Registrant
and for improper loans to directors and officers. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities law or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
directors and executive officers that require the Registrant to indemnify such
persons against expenses,
II-1
<PAGE> 53
judgments, fines, settlements and other amounts incurred (including expenses of
a derivative action) in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was a director or an executive officer of the Registrant
or any of its affiliated enterprises, provided such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Registrant has an insurance policy covering the officers and directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of underwriting agreement.*
4.1 Restated Certificate of Incorporation.(1)
4.2 Restated Bylaws.(1)
4.3 Specimen stock certificate.(1)
5.1 Opinion of Cooley Godward LLP.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to page II-4.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-37317), filed October 7, 1997, as amended, and incorporated herein by
reference.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and executive officers of the Registrant pursuant
to provisions described in Item 15 or otherwise, the Registrant has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director or
executive officer of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director or executive officer in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration
II-2
<PAGE> 54
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(2)(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective;
(ii) For purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(3) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-3
<PAGE> 55
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized on March 17, 2000.
AURORA BIOSCIENCES CORPORATION
By: /s/ STUART J.M. COLLINSON
------------------------------------
Stuart J.M. Collinson, Ph.D.
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, Stuart J.M. Collinson and John R.
Pashkowsky jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement, and to file the same, with exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STUART J.M. COLLINSON President, Chief Executive March 17, 2000
- -------------------------------------------------------- Officer and Chairman of the
Stuart J.M. Collinson, Ph.D. Board (Principal Executive
Officer)
/s/ JOHN R. PASHKOWKSY Vice President, Finance March 17, 2000
- -------------------------------------------------------- (Principal Financial and
John R. Pashkowksy Accounting Officer)
Director March 17, 2000
- --------------------------------------------------------
Timothy J. Rink, M.A., M.D., Sc.D.
/s/ JAMES C. BLAIR Director March 17, 2000
- --------------------------------------------------------
James C. Blair, Ph.D.
/s/ HUGH Y. RIENHOFF, JR. Director March 17, 2000
- --------------------------------------------------------
Hugh Y. Rienhoff, Jr.
/s/ ROY A. WHITFIELD Director March 17, 2000
- --------------------------------------------------------
Roy A. Whitfield
/s/ TIMOTHY J. WOLLAEGER Director March 17, 2000
- --------------------------------------------------------
Timothy J. Wollaeger
</TABLE>
II-4
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of underwriting agreement.*
4.1 Amended and Restated Certificate of Incorporation.(1)
4.2 By-Laws, as amended and restated.(1)
4.3 Specimen stock certificate.(1)
5.1 Opinion of Cooley Godward LLP.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-4.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-37317), filed October 7, 1997, as amended, and incorporated herein by
reference.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" in the Registration Statement (Form S-3) and related
Prospectus of Aurora Biosciences Corporation for the registration of 3,565,000
shares of its common stock and to the incorporation by reference therein of our
report dated February 10, 2000, with respect to the financial statements for
Aurora Biosciences Corporation included in its Annual Report (Form 10-K) for the
year ended December 31, 1999, filed with the Securities Exchange Commission.
/S/ ERNST & YOUNG LLP
San Diego, California
March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1999 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,934,352
<SECURITIES> 20,683,695
<RECEIVABLES> 5,282,485
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,017,674
<PP&E> 18,408,595
<DEPRECIATION> 6,516,197
<TOTAL-ASSETS> 63,862,460
<CURRENT-LIABILITIES> 19,205,694
<BONDS> 0
0
0
<COMMON> 17,443
<OTHER-SE> 40,296,597
<TOTAL-LIABILITY-AND-EQUITY> 63,862,460
<SALES> 0
<TOTAL-REVENUES> 50,324,301
<CGS> 0
<TOTAL-COSTS> 27,778,868
<OTHER-EXPENSES> 23,128,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 690,869
<INCOME-PRETAX> 268,919
<INCOME-TAX> 117,000
<INCOME-CONTINUING> 151,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,919
<EPS-BASIC> .01
<EPS-DILUTED> .01
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