<PAGE> 1
FILED PURSUANT TO RULE 424(B)(4)
REG. NO. 333-2586
PROSPECTUS
2,100,000 SHARES LOGO
SIBIA NEUROSCIENCES, INC.
COMMON STOCK
($.001 PAR VALUE)
All of the 2,100,000 shares of Common Stock, $.001 par value (the "Common
Stock"), being offered hereby (the "Shares") are being sold by SIBIA
Neurosciences, Inc. ("SIBIA" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
CIBA-GEIGY Limited ("Ciba"), one of the Company's collaborative partners and an
existing stockholder, has committed to purchase an aggregate of $5,000,000 of
shares of Common Stock in a private placement at the initial public offering
price (454,545 shares at the initial public offering price of $11.00 per share)
(the "Ciba Shares"). The sale of the Ciba Shares by the Company will not be
registered in this offering, and such shares will be purchased upon the closing
of this offering. See "Business -- Strategic Alliances -- CIBA-GEIGY Limited"
and "Underwriting."
The Company's Common Stock has been approved for listing on the Nasdaq National
Market under the trading symbol "SIBI."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share........................................ $11.00 $0.77 $10.23
Total(2)......................................... $23,100,000 $1,617,000 $21,483,000
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses of this offering payable by the Company estimated
at $580,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 315,000 additional shares of Common Stock at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $26,565,000,
$1,859,550 and $24,705,450, respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about May 15, 1996.
SALOMON BROTHERS INC
NEEDHAM & COMPANY, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
The date of this Prospectus is May 9, 1996.
<PAGE> 2
[PICTURES]
The above diagram illustrates an example of communication between two nerve
cells, or neurons, and certain roles of calcium in this process. Calcium ions
enter neurons through specific receptor/ion channels, e.g., certain NAChRs and
EAARs, and VGCCs. This process regulates many essential functions in neurons,
such as the release of neurotransmitters, electrical activity, activation of
enzymes and transcription of genes. SIBIA has identified the control of calcium
levels within neurons as a key strategy for potential therapeutic intervention
in many central nervous system disorders. See "Business -- Human Receptor/Ion
Channel Subtype Technology."
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET
(INCLUDING THE NASDAQ NATIONAL MARKET) OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto contained
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under "Risk Factors." Except as otherwise noted, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option; (ii) assumes the automatic conversion of all outstanding
shares of the Company's convertible preferred stock, $.001 par value (the
"Convertible Preferred Stock"), into Common Stock; and (iii) reflects a
2.35-for-1 split of the outstanding Common Stock effected in March 1996. See
"Capitalization," "Description of Capital Stock," "Underwriting" and Notes 1, 9
and 12 of Notes to Financial Statements.
THE COMPANY
SIBIA Neurosciences, Inc. ("SIBIA" or the "Company") is engaged in the
discovery and development of novel, small molecule therapeutics for disorders of
the central nervous system ("CNS") based on the Company's unique approach to
characterizing the molecular processes involved in such disorders. SIBIA is
focusing its efforts on developing compounds for the treatment of Parkinson's
disease, Alzheimer's disease, stroke, head trauma, epilepsy, chronic pain,
schizophrenia and other neurological, psychiatric and neurodegenerative
disorders, many of which have large patient populations and represent critical
unmet medical needs. SIBIA's drug discovery platforms are based on two primary
technologies in which the Company has established a leading scientific and
proprietary position -- human receptor/ion channel subtype technology and human
protease technology. SIBIA holds nine issued U.S. patents and has one allowed
patent and 57 pending U.S. patent applications relating to these technologies.
The Company's strategy is to utilize its technologies to discover and develop
proprietary CNS drug candidates and collaborate with corporate partners for the
advanced development and commercialization of such candidates. SIBIA currently
has corporate collaborations with Eli Lilly and Company ("Lilly"), Ciba and
Bristol-Myers Squibb Company ("Bristol-Myers Squibb").
SIBIA believes that its human receptor/ion channel subtype technology will
enable the discovery and development of new classes of drugs for the treatment
of CNS disorders. The Company's technology permits the targeted identification
of compounds that are selective for specific receptor/ion channel subtypes.
Receptors and ion channels and the neurotransmitters that modulate them are key
components in the communication between neurons, or nerve cells. Such
communication is fundamental to many CNS functions, including cognition, memory,
sensory perception and motor control. These functions are mediated by cellular
processes dependent on calcium ions, which enter neurons through specific
receptor/ion channels. SIBIA has identified the control of calcium levels within
neurons as a key strategy for potential therapeutic intervention in many CNS
disorders. Compounds which selectively modulate cellular calcium levels, such as
calcium channel blockers used for the treatment of cardiovascular diseases, have
been developed into effective and well-tolerated drugs. However, these drugs
either have been ineffective or have significant side effects when evaluated for
CNS disorders, which is likely due to their lack of selectivity or activity on
specific neuronal subtypes. The Company believes that drugs developed with its
technology could be more effective and have fewer side effects than existing
drugs for the treatment of CNS disorders.
SIBIA has established a leading proprietary position in human receptor/ion
channel subtype technology. The Company has made significant scientific and
technological advances by cloning key human neuronal receptor/ion channels,
expressing them in stable cell lines and developing the resulting recombinant
cell lines into functional assays for drug screening. SIBIA is currently
focusing on three major receptor/ion channel classes involved in regulating
neuronal calcium levels -- nicotinic acetylcholine receptors ("NAChRs"),
excitatory amino acid receptors ("EAARs") and voltage-gated calcium channels
("VGCCs"). SIBIA has discovered, isolated and developed an extensive library of
more than 50 complete genes cloned from human brain tissue coding for multiple,
distinct subtypes of these three receptor/ion channel classes. Most of these
subtypes are multimeric (i.e., molecular complexes of two or more proteins). By
expressing the multiple complex genes necessary to form functional subtypes,
SIBIA has overcome a significant technical challenge which it believes provides
an important competitive advantage. To date, SIBIA has expressed more than 20
receptor/ion channel subtypes in the NAChR, EAAR and VGCC classes in stable cell
lines which have been shown to be physiologically functional. Each subtype
potentially represents a novel molecular target for developing therapeutic
compounds for
3
<PAGE> 4
CNS disorders. SIBIA has developed unique and proprietary functional cell-based
assays encompassing these molecular targets and uses these assays with its
proprietary high throughput screening technology to rapidly identify and select
compounds for further development. The Company believes that the integration of
its large proprietary collection of molecular targets with its proprietary assay
and screening technologies provides a powerful and original drug discovery
platform. SIBIA has established strategic alliances with Ciba in the area of
EAAR drug discovery and with Lilly in the area of VGCC drug discovery. SIBIA
recently extended its strategic alliance with Ciba and has entered into
discussions with Lilly to amend its collaboration agreement with Lilly.
Within SIBIA's NAChR program the Company has selected and characterized
SIB-1508Y as a compound for the treatment of Parkinson's disease based on its
receptor subtype selectivity and behavioral profile. In contrast to current
therapies which treat only motor dysfunction, the Company believes that
SIB-1508Y may be effective for the treatment of motor, affective and cognitive
dysfunctions of Parkinson's disease. If proven to be safe and effective,
SIB-1508Y would represent a new therapeutic approach for the treatment of
Parkinson's disease and may be useful as a stand-alone therapeutic agent as well
as in combination with L-dopa, the current standard therapy. The Company intends
to file an Investigational New Drug application ("IND") with respect to
SIB-1508Y by the end of 1996 or early in 1997. In addition, SIBIA plans to
establish corporate collaborations for advanced clinical trials and
commercialization of SIB-1508Y. However, there can be no assurance that the
indicated IND filing date will be achieved, if at all, or that SIB-1508Y will be
successfully developed and commercialized.
SIBIA's human protease technology is directed at the discovery and
development of therapeutic compounds for Alzheimer's and other neurodegenerative
diseases. Specifically, the Company's technology focuses on compounds that
control the degradative proteases which generate amyloid beta-protein
("A-beta"). A-beta is the neurotoxic fragment of the amyloid precursor protein
("APP") and is generally understood to be the major molecular key to Alzheimer's
disease. A-beta is found at autopsy in senile plaques and in deposits
surrounding the small blood vessels in brain tissue, both of which are
diagnostic for Alzheimer's disease. SIBIA believes the inhibition of A-beta
formation may be broadly applicable to early- and late-onset Alzheimer's
disease. SIBIA has established assays which identify the neurotoxic A-beta
fragment as well as a second critical APP processing fragment, neuroprotective
APP (s-alpha). SIBIA has identified several series of small molecules which
inhibit A-beta production and enhance APP(s-alpha) levels in vitro. These
proprietary compounds currently are being studied in vivo. In August 1995, SIBIA
entered into a four-year collaboration agreement with Bristol-Myers Squibb to
discover and develop compounds that are able to selectively modulate the
processing of APP for the treatment of Alzheimer's disease.
The Company's strategy is to utilize its two proprietary drug discovery
platforms to discover novel therapeutics for the treatment of CNS disorders. Key
elements of the Company's strategy include: (i) leveraging its leadership
position in its proprietary human receptor/ion channel subtype and human
protease technologies to discover and develop small molecule therapeutics; (ii)
utilizing its broad portfolio of proprietary molecular targets to develop
compounds that address the complete spectrum of CNS disorders; (iii)
establishing strategic alliances to advance compounds through clinical trials
and commercialization; and (iv) expanding its drug discovery platforms to
enhance its CNS drug discovery capabilities.
The Company had an accumulated deficit of approximately $16.1 million as of
December 31, 1995. The Company has not yet received any revenues from product
sales, and it expects to incur substantial additional operating losses over the
next several years. Approximately $7.9 million of the Company's $14.1 million of
revenue and other income in fiscal 1995 were derived from non-recurring,
one-time payments which do not represent an increasing earnings trend.
The Company was incorporated in Delaware on April 15, 1981. The Company's
principal executive offices are located at 505 Coast Boulevard South, Suite 300,
La Jolla, CA 92037-4641, and its telephone number is (619) 452-5892.
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results or experience could differ significantly from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
as well as those discussed elsewhere in this Prospectus.
4
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................. 2,100,000 shares
Ciba Shares to be purchased........................... 454,545 shares(1)
Common Stock outstanding after this offering.......... 8,873,138 shares(2)
Use of proceeds....................................... For research and development activities,
working capital and general corporate
purposes, which may include capital
expenditures and acquisitions.
Nasdaq National Market symbol......................... SIBI
</TABLE>
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(1) Reflects Ciba's purchase of an aggregate of $5,000,000 of shares of Common
Stock in a private placement at the initial public offering price of $11.00
per share upon the closing of this offering. The sale of the Ciba Shares by
the Company will not be registered in this offering.
(2) Based on the number of shares outstanding as of March 19, 1996 as if the
conversion of the outstanding shares of Convertible Preferred Stock into
shares of Common Stock had occurred on that date and giving effect to the
2.35-for-1 split of the outstanding shares of Common Stock effected in March
1996. Also assumes no exercise of the Underwriters' over-allotment option
and includes the sale of the Ciba Shares by the Company. Excludes 3,085,000
shares of Common Stock reserved for issuance pursuant to the Company's stock
option plans, under which options to purchase 836,859 shares of Common Stock
were outstanding as of March 19, 1996 at a weighted average exercise price
of approximately $1.36 per share. Also excludes outstanding options to
purchase 387,750 shares of Common Stock as of March 19, 1996 under the
Company's Management Change of Control Plan (the "Change of Control Plan")
at an exercise price of $.85 per share. See "Management -- Change of Control
Arrangements," "-- Stock Plans" and Notes 10 and 12 of Notes to Financial
Statements.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue........................... $ 4,685 $ 3,196 $ 5,077 $4,852 $10,448(1)
Research and development expenses....... 6,418 5,446 7,713 8,663 8,949
General and administrative expenses..... 2,188 2,114 2,202 1,917 2,178
Other income............................ 318 366 288 5,701(2) 3,680(3)
Net (loss) income....................... (3,603) (3,998) (4,550) (27) 2,926
======== ======== ======== ====== ========
Net income per share(4)................. $ .41
========
Shares used in computing net income per
share(4)............................. 7,068
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------
ACTUAL AS ADJUSTED(5)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investment securities............... $ 16,488 $ 42,391
Working capital................................................ 14,338 40,241
Total assets................................................... 18,251 44,154
Long-term capital lease obligations............................ 721 721
Accumulated deficit............................................ (16,129) (16,129)
Total stockholders' equity..................................... 15,107 41,010
</TABLE>
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(1) Includes a one-time payment of $1,750,000 made by Cephalon, Inc.
("Cephalon") to the Company relating to Cephalon's exercise of its option to
buy-down its royalty percentage with respect to IGF-1. Also includes a
one-time license fee payment of $3,000,000 made by Bristol-Myers Squibb to
the Company in connection with the grant of a license to certain technology
to Bristol-Myers Squibb. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 4 and 5 of Notes to
Financial Statements.
(2) Includes a gain of $5,296,000 on the sale of the Company's interest in the
SISKA Diagnostics, Inc. joint venture. See Note 6 of Notes to Financial
Statements.
(3) Includes income (net of legal expenses) of $3,146,000 received by the
Company under settlement agreements with two law firms for failure to
properly file a foreign patent application. See Note 7 of Notes to Financial
Statements.
(4) See Note 1 of Notes to Financial Statements for information concerning the
computation of net income per share.
(5) As adjusted to give effect to the sale of the Shares by the Company pursuant
to this offering at the initial public offering price of $11.00 per share,
after deducting underwriting discounts and estimated offering expenses
payable by the Company, and the sale of the Ciba Shares by the Company at
the initial public offering price of $11.00 per share and the use of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 6
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing any shares
of Common Stock being offered hereby.
ABSENCE OF DEVELOPED PRODUCTS; EARLY STAGE OF DEVELOPMENT
SIBIA is an early-stage biotechnology company. The Company has no products
available for sale and does not expect to have any products resulting from its
research efforts, including its collaborations with others, commercially
available for at least several years, if at all. In addition, SIBIA has not yet
filed an Investigational New Drug ("IND") application with the U.S. Food and
Drug Administration ("FDA") on any of its compounds currently under research or
development, nor has an IND been filed by the Company's collaborative partners
on any compound in connection with their collaborations with the Company.
Although the Company plans to file an IND in the United States with respect to
SIB-1508Y for the treatment of Parkinson's disease by the end of 1996 or early
in 1997, there can be no assurance that the Company will be successful in
achieving the IND filing by this date, if at all. Moreover, SIB-1508Y is the
only compound for which the Company expects to file an IND in the foreseeable
future. Even if the Company files an IND with respect to SIB-1508Y or any other
compound, there can be no assurance that the Company will be permitted to
undertake clinical testing with respect to SIB-1508Y or any such other compound.
Failure to file or timely file an IND in respect of SIB-1508Y or any such other
compound or the inability to conduct clinical testing in respect of SIB-1508Y or
any such other compound could have a material adverse effect on the Company's
business. In addition, even if clinical trials in respect of SIB-1508Y are
commenced, SIB-1508Y may prove to be ineffective in the treatment of Parkinson's
disease, or have undesirable or unintended side effects or other characteristics
that prevent or limit its commercial use, either of which could have a material
adverse effect on the Company's business. Furthermore, there can be no assurance
that any products will be successfully discovered or developed by the Company or
its collaborative partners, be approved for clinical trials, prove to be safe
and efficacious in clinical trials, meet applicable regulatory standards, be
capable of being produced in commercial quantities at acceptable costs or be
marketed successfully. The failure of the Company or its collaborative partners
to discover or develop commercially viable products or successfully market such
products would have a material adverse effect on the Company's business. See
"Business -- Drug Discovery Platforms and Development Programs."
The Company's area of therapeutic focus, disorders of the central nervous
system ("CNS"), is not thoroughly understood and there can be no assurance that
the compounds the Company is seeking to develop will prove to be safe and
effective in treating CNS disorders. The development of such compounds will
require the commitment of substantial resources to continue research and to
conduct the preclinical development and clinical trials necessary to bring such
compounds to market and to establish production and marketing capabilities. Drug
research, discovery and development by its nature is uncertain. There is a risk
of delay or failure at any stage, and the time required and cost involved in
successfully accomplishing the Company's objectives cannot be predicted. Actual
drug research, discovery and development costs could exceed budgeted amounts,
which could have a material adverse effect on the Company's business.
The use of the Company's or its collaborative partners' compounds as
potential therapeutic compounds for CNS disorders, particularly those affecting
the brain or spinal cord, is hindered by, among other things, the inability of
such compounds to pass readily from the blood to the brain or spinal cord
through the blood-brain barrier. The Company believes that developing small
molecule therapeutics may allow passage through the blood-brain barrier;
however, to date the Company has not demonstrated in any clinical studies that
its small molecule therapeutics will pass through the blood-brain barrier. The
inability of a compound to pass readily through the blood-brain barrier would
require the development of a different drug delivery mechanism, which itself may
entail considerable cost and risks and would be time-consuming. Furthermore,
there can be no assurance that an effective drug delivery mechanism would be
developed. Failure to solve any such drug delivery problems or any other
problems that may develop would have a material adverse effect on the Company's
business.
6
<PAGE> 7
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company's strategy for the development, clinical testing, manufacturing
and commercialization of certain of its compounds includes entering into various
collaborations with corporate partners, licensors, licensees and others. The
Company has entered into collaborative arrangements with Lilly, Ciba and
Bristol-Myers Squibb and intends to enter into additional collaborations.
The Company's current collaborators have received from SIBIA certain
exclusive rights to commercialize any products developed under their respective
agreements. These collaborators have agreed to fund the research and development
of compounds discovered under their respective agreements, conduct clinical
testing of lead compounds, prepare and file submissions for regulatory approval,
make milestone payments to SIBIA upon the achievement of certain goals and pay
royalties on any resulting products. Under its agreements with these
collaborators, the Company is restricted in its ability to conduct research with
third parties with respect to the technology subject to the respective
agreement. Under their respective agreements, Lilly has rights of first
negotiation with respect to certain compounds discovered by the Company during
the term of its agreement with SIBIA, Ciba has exclusive rights to compounds
discovered by the Company during the term of its agreement with SIBIA and rights
of first negotiation to compounds discovered by the Company during the
three-year period following the term of such agreement and Bristol-Myers Squibb
has exclusive rights to compounds discovered by the Company during the term of
its agreement with SIBIA. There can be no assurance that these collaborations
will continue or be successful or that any products will be developed. Moreover,
Ciba and Bristol-Myers Squibb, under their respective agreements, have the sole
and exclusive right to select compounds for further development and halt or
delay the testing of any compounds selected for development. The amount and
timing of resources dedicated by these collaborators under their respective
agreements also is not within the control of the Company. There can be no
assurance that the Company will ever receive any milestone or royalty payments
under these agreements. In addition, if products that may be developed under
such agreements are approved for marketing, any revenues to the Company from
such products will be dependent on the marketing and sales efforts of these
collaborators.
Each of the collaborative parties has the right to terminate its respective
collaboration under certain circumstances, including upon the occurrence of a
material breach and, in certain cases, upon a change in control. Furthermore,
Lilly can terminate its collaboration with the Company upon six months' prior
written notice, which may be given at anytime after May 1, 1996, and Ciba can
terminate its collaboration with the Company upon six months' prior written
notice, which may be given at anytime beginning March 1997. There can be no
assurance that collaborators will not terminate their respective collaborations.
In addition, there can be no assurance that collaborators will not pursue
alternative technologies to develop treatments for the diseases targeted by the
respective collaborative programs. If any of the Company's collaborative
partners terminates or breaches its agreement with the Company or fails to
devote adequate resources to or to conduct in a timely manner its collaborative
activities, the research program under the applicable collaborative agreement or
the development and commercialization of drug candidates subject to such
collaboration would be materially adversely affected, which would have a
material adverse effect on the Company's business. In addition, because the
Company's collaborative agreements have accounted for 78%, 89% and 81% of total
revenues for the years ended December 31, 1993, 1994 and 1995, respectively,
such a termination or breach could materially adversely affect the Company's
results of operations and financial condition. Also, there can be no assurance
that a research program covered by a particular collaborative agreement does not
or will not conflict with any research programs covered by the Company's other
collaborations. The occurrence of any such conflict could have a material
adverse effect on the Company's business.
The Company has recently entered into discussions with Lilly regarding a
proposed amendment of its agreement with Lilly. As currently in effect, the
Company's agreement with Lilly expires pursuant to its terms in May 1997. The
Company anticipates that an amendment to the current agreement will be made that
would reduce the level of funding effective in November 1996, but may extend the
term of support one or more years. There can be no assurance that the Company
and Lilly will amend their current agreement or that they will amend it as
indicated above. Furthermore, until its current agreement with the Company is
amended, Lilly can terminate such agreement and its collaboration with the
Company upon six months' prior written notice, which may be given at any time
after May 1, 1996.
7
<PAGE> 8
SIB-1508Y is currently at the preclinical development stage. The Company
intends to rely on corporate partners for advanced development, clinical
testing, if permitted, and for the manufacturing, marketing and
commercialization of SIB-1508Y, if such stages are reached. To date, the Company
has not reached any agreement relating to the further development or
commercialization of SIB-1508Y and there can be no assurance that the Company
will reach such an agreement, that it will do so on acceptable terms or that the
Company's corporate partner under such agreement will be successful in its
efforts with respect to SIB-1508Y. Failure to reach such an agreement could
severely limit the Company's ability to further develop and commercialize
SIB-1508Y, which could have a material adverse effect on the Company's business.
In addition, failure of such corporate partner to successfully develop and
commercialize SIB-1508Y could have a material adverse effect on the Company's
business. See "Business -- Strategic Alliances."
The Company intends to enter into additional collaborative arrangements
with pharmaceutical and biotechnology companies to develop and commercialize
certain of its compounds in the future. There can be no assurance that the
Company will be able to negotiate collaborative arrangements in the future on
acceptable terms, if at all, or that such collaborative arrangements will be
successful. Most of the Company's competitors similarly are seeking to develop
or expand their collaborative relationships with pharmaceutical and
biotechnology companies. To the extent that the Company is not able to establish
such arrangements or any of its existing arrangements are terminated, it would
require significant capital to undertake development, regulatory, manufacturing
and marketing activities at its own expense and may be required to curtail
significantly or eliminate one or more of its research, discovery or development
programs, either of which could have a material adverse effect on the Company's
business. In addition, the Company may encounter significant delays in
introducing into certain markets products that it may develop or find that the
development, manufacture or sale of such products in such markets is adversely
affected by the absence of such collaborative arrangements. See
"Business -- Strategic Alliances," "-- Research Collaborations and Licenses,"
"-- Manufacturing" and "-- Sales and Marketing."
On March 7, 1996, Ciba and Sandoz Ltd. announced that they had reached an
agreement to merge. The Company cannot predict the impact such merger will have
on the Company's collaboration with Ciba, and there can be no assurance that the
new combined entity will continue its collaboration with the Company or that it
will continue its current level of commitment to such collaboration. The new
combined entity's termination of, or a reduction in the level of commitment to,
its collaboration with the Company could have a material adverse effect on the
Company's business.
NEW AND UNCERTAIN TECHNOLOGY
The Company's proprietary CNS technologies, which comprise the human
receptor/ion channel subtype technology and human protease technology, are
unproven and relatively new compared to traditional methods of drug discovery.
The Company uses its technologies to isolate and identify molecular targets that
it believes play an important role in CNS function and CNS disorders. The
ability of the Company to screen potential compounds, select product candidates
and develop products is dependent in large part upon the number of such targets
available for screening and whether the expected functionality of such targets
plays an important role in CNS function and CNS disorders. To date, no drug
based on the Company's technologies has been subject to clinical tests or
approved by the FDA as an effective treatment for any CNS disorder. There can be
no assurance that the use of such technologies will lead to the discovery or
development of commercial pharmaceutical products that are safe and efficacious
in treating any CNS disorder. Failure to develop any such product would have a
material adverse effect on the Company's business. See "Business -- Drug
Discovery Platforms and Development Programs."
HISTORY OF OPERATING LOSSES
The Company is at an early stage of development with respect to its CNS
technologies and its compounds. Except for 1995, the Company has incurred net
losses every year since it shifted its area of therapeutic focus to the central
nervous system in 1991. As of December 31, 1995, the Company had accumulated net
losses of approximately $16.1 million. The Company is continuing to incur losses
and expects to incur increasing operating losses over the next several years as
the Company's research and development expenditures increase. Approximately $7.9
million of the Company's $14.1 million of
8
<PAGE> 9
revenue and other income in fiscal 1995 were derived from non-recurring,
one-time payments which do not represent an income or earnings trend. The
Company's revenue for the short term will be limited to payments under its
existing or future strategic alliance agreements. There can be no assurance that
the Company will ever achieve or sustain significant revenues or profitable
operations. To achieve significant revenues or profitable operations, the
Company, alone or with its collaborators, must successfully develop, manufacture
and market safe and efficacious products and obtain the regulatory approvals
required for their testing, manufacture and sale. Failure to achieve significant
revenues or profitable operations could impair the Company's ability to sustain
operations. There can be no assurance that the Company will be successful in
entering into additional collaborative arrangements or that any such
arrangements will result in revenues or that the Company will receive additional
revenues under existing collaboration arrangements. The Company has not yet
received any revenues from the achievement of milestones from the discovery or
development of, or royalties from the sale of, commercial drugs by Lilly, Ciba
or Bristol-Myers Squibb, and such revenues, if any, are not expected to
represent a material amount of the Company's total revenues for several years,
if at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Government Regulation."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funds to conduct the
research and development and preclinical and clinical testing of its compounds
and to manufacture and market any products that may be developed. Although the
Company plans to contract with third parties to manufacture and market any
products that may be developed, to the extent the Company is unsuccessful and is
required to establish its own manufacturing capacity or marketing program, it
will require substantial additional capital. The Company anticipates that the
net proceeds of this offering and from the sale of the Ciba Shares by the
Company, together with its available cash reserves and funds from collaborative
research and development agreements, should be adequate to satisfy its capital
requirements through the end of 1998, although there can be no assurance that
the Company will not require additional funds prior to such date. The Company's
future capital needs will be dependent upon many factors, including progress in
its research and development activities, the magnitude and scope of these
activities, progress with preclinical and clinical trials, the cost of
preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, changes in or terminations of existing collaborative
arrangements, the establishment of additional collaborative arrangements, and
the cost of manufacturing scale-up and development of marketing activities, if
undertaken by the Company. The Company expects to expend substantial funds in
connection with research and development and in the area of intellectual
property. Funds generated from payments under existing collaborative agreements,
together with the net proceeds from this offering and from the sale of the Ciba
Shares by the Company, will be insufficient to fund the Company's operations
through the completion of any clinical trials and commercialization of its first
product, if developed. Although the Company will seek to obtain additional funds
through public or private equity or debt financings, collaborative or other
arrangements with corporate partners or from other sources, there can be no
assurance that additional financing will be available or, if available, that it
will be available on acceptable terms. If additional funds are raised by issuing
equity securities, further dilution to then existing stockholders would result.
If adequate funds are not available, the Company may be required to curtail
significantly or eliminate one or more of its research, discovery or development
programs or obtain funds through additional arrangements with corporate partners
or others which may require the Company to relinquish rights to certain of its
technologies or product candidates that the Company would not otherwise
relinquish, which could have a material adverse effect on the Company's
business. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
The field in which the Company is involved is characterized by extensive
research efforts, rapid technological change and intense competition from
numerous organizations including pharmaceutical companies, biotechnology
companies, universities and other research organizations. Products and therapies
currently exist on the market that will compete directly with the products that
the Company is seeking to develop and market to address CNS disorders. In
addition, new developments occur and are
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expected to continue to occur at a rapid pace. Competition from fully integrated
pharmaceutical companies and biotechnology companies is intense and is expected
to increase. Many of these companies have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical
and clinical testing, obtaining regulatory approvals and marketing than the
Company. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. Many of these competitors have significant CNS products approved or
in development and operate large, well-funded CNS research and development
programs. Academic institutions, governmental agencies and other public and
private research organizations also conduct research, seek patent protection and
establish collaborative arrangements for the clinical development of compounds
and marketing of products. The Company's competitors may succeed in discovering
and developing products more rapidly than the Company and its collaborative
partners or products that are more effective or more affordable than any that
may be developed by the Company and its collaborative partners and may also
prove to be more successful than the Company and its collaborative partners in
production and marketing. There can be no assurance that research, discoveries
or commercial developments by others will not render any of the Company's or its
collaborative partners' programs or potential products obsolete or
noncompetitive, any of which would have a material adverse effect on the
Company's business. Moreover, there can be no assurance that the Company's
competitors will not obtain patent protection or other intellectual property
rights that would limit the Company's or its collaborative partners' ability to
use the Company's technology or commercialize products that may be developed.
See "Business -- Competition."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others, both in the United States and other countries. The patent positions
of biotechnology and pharmaceutical companies can be highly uncertain and
involve complex legal and factual questions, and therefore, the breadth of
claims allowed in biotechnology and pharmaceutical patents cannot be predicted.
There can be no assurance that patents issued to or licensed by the Company will
not be infringed or will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide proprietary protection to the
Company's technology or products that the Company may develop or other
competitive advantages to the Company.
Since inception, SIBIA has been granted 25 U.S. and foreign patents and it
has a total of approximately 120 pending U.S. and foreign applications. SIBIA
has 34 pending applications for U.S. patents on its technology relating to drug
discovery for various CNS disorders. To date, the Company has licensed three
U.S. patents from The Salk Institute for Biological Studies ("The Salk
Institute") related to SIBIA's human receptor/ion channel subtype technology, as
well as continuations-in-part and foreign counterparts of these patents. The
Company intends to file additional applications as appropriate for patents
covering its technologies, compounds and processes. There can be no assurance
that the Company will develop additional technologies, compounds or processes
that are patentable, that patents will issue from any patent application or that
claims allowed will be sufficient to protect the Company's technologies,
compounds or processes. Competitors may have filed applications, may have been
issued patents or may obtain additional patents and proprietary rights relating
to technologies, compounds or processes competitive with those of the Company.
The failure by the Company to adequately protect its technologies, compounds or
processes covered by issued patents or to obtain patents based on the
applications referred to herein or any future applications could have a material
adverse effect on the Company's business.
The success of the Company will also depend in part on SIBIA not infringing
patents issued to competitors and not breaching the technology licenses upon
which any Company compounds or processes are based. It is uncertain whether any
third-party patents will require the Company to alter its technologies,
compounds or processes, obtain licenses or cease certain activities. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions have filed patent applications or received patents in the field in
which the Company is involved. Some of these applications or patents may be
competitive with the Company's applications or conflict in certain respects with
claims made under the Company's applications. Such conflict could result in a
significant reduction of the coverage of the Company's patents, if issued. In
addition, if patents issued to other
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companies contain competitive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, there can be no assurance that the Company will be able
to obtain any such license on commercially favorable or acceptable terms, if at
all. The Company's breach of an existing license or failure to obtain a license
to any technology that it may require to develop and commercialize its compounds
would have a material adverse effect on the Company's business.
Litigation, which could result in substantial costs to the Company, may
also be necessary to enforce any patents issued to the Company or to determine
the scope and validity of third-party proprietary rights. Moreover, if
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office ("PTO") to determine priority of invention, which could
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. Similarly, the Company may have to participate in
opposition proceedings with respect to granted European patents. The Company is
aware of a third-party patent application that may elicit an interference
proceeding with one of the Company's patent applications in the PTO. In
addition, the Company believes that certain claims in three of its other patent
applications may elicit such proceedings. Further, the Company currently is
opposing an issued patent of a third party in Europe. There can be no assurance
that the Company will prevail in these proceedings. Also, there can be no
assurance that the validity of the Company's patents, if issued, would be upheld
by a court of competent jurisdiction. An adverse outcome in patent prosecution
or in litigation with respect to the validity of any of the Company's patents
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease using such technology, any of which could have a material adverse effect
on the Company's business.
In addition to patents, the Company relies on trade secret laws to protect
its technology, especially where patent protection is not believed to be
appropriate or obtainable. Thus, SIBIA relies on protecting its proprietary
technology and processes in part by confidentiality agreements with its
employees, consultants and certain contractors. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by competitors. See
"Business -- Patents and Proprietary Rights."
NO ASSURANCE OF REGULATORY APPROVAL; GOVERNMENT REGULATION
The production and marketing of products that the Company may develop and
its ongoing research and development activities are subject to extensive
regulation by numerous governmental authorities in the United States and other
countries. Prior to marketing in the United States, any drug developed by the
Company must undergo rigorous preclinical and clinical testing and an extensive
regulatory approval process implemented by the FDA under the federal Food, Drug
and Cosmetic Act. To market products abroad, the Company also would be subject
to foreign regulatory requirements, implemented by foreign health authorities,
governing clinical trials and marketing approval for drugs. Satisfaction of such
regulatory requirements, which includes demonstrating to the satisfaction of the
FDA that the product is both safe and effective, typically takes several years
or more depending upon the type, complexity and novelty of the product and
requires the expenditure of substantial resources. Preclinical studies must be
conducted, as appropriate, in conformance with the FDA's good laboratory
practice regulations. Clinical trials will be vigorously regulated and must meet
requirements for institutional review board oversight and informed consent as
well as FDA review and oversight and under good clinical practice regulations.
The Company has no experience in developing a product through the clinical trial
process, which is necessary to obtain regulatory approval. The Company intends
to establish collaborative relationships to conduct clinical trials and seek
regulatory approvals to market products that it may develop, although there can
be no assurance that such approvals will be received on a timely basis, if at
all. Clinical trials require the recruitment of large numbers of test subjects,
particularly for products that are intended to treat CNS disorders. There can be
no assurance that those conducting clinical trials for the Company will be able
to initiate such trials at preferred clinical test sites or recruit sufficient
test subjects, or that such trials will be started or completed successfully
within any specified time period, if at all, with respect to any of the products
that the Company may develop. Furthermore, the Company or the FDA may suspend
clinical
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trials at any time if it is determined that the subjects participating in such
trials are being exposed to unacceptable health risks. There can be no assurance
that the Company will not encounter problems in clinical trials (including with
respect to SIB-1508Y, if development reaches this stage) which would cause the
Company or the FDA to delay or suspend clinical trials. Any such delay or
suspension could have a material adverse effect on the Company's business. There
can be no assurance that any compound (including SIB-1508Y) that may be
developed by the Company alone or in conjunction with others will prove to be
safe and efficacious in clinical trials and meet all of the applicable
regulatory requirements needed to receive marketing approval. If regulatory
approval of a product is granted, such approval will be limited to those disease
states and conditions for which the product is useful, as demonstrated through
clinical studies.
There can be no assurance that delays or rejections will not be encountered
based upon additional government regulation from future legislation or
administrative action or that changes will not be made in FDA policy during the
period of product development and FDA regulatory review of each submitted new
drug application. Similar delays may also be encountered in foreign countries.
Furthermore, product approval may entail ongoing requirements for post-marketing
studies. Even if such regulatory approval is obtained, a marketed product and
its manufacturer and its manufacturing facilities are subject to continual
review and periodic inspections, and the regulatory standards for manufacturing
are currently being applied stringently by the FDA. Later discovery of
previously unknown problems with a product or a manufacturer or its facility may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market, which would have a material adverse effect on the
Company's business. See "Business -- Government Regulation."
NO MANUFACTURING OR MARKETING CAPABILITY; RELIANCE ON THIRD-PARTY MANUFACTURERS
AND MARKETERS; ABSENCE OF SALES AND MARKETING EXPERIENCE
The Company currently has no manufacturing facilities for clinical or
commercial production of any compounds currently under development or marketing
capability for the distribution of any products that may be developed. The
Company is currently relying on third-party manufacturers to produce its
compounds for preclinical and clinical purposes. The compounds under development
by the Company have never been manufactured on a commercial scale and there can
be no assurance that such compounds can be manufactured at a cost or in
quantities to make commercially viable products.
The Company intends to establish arrangements with third-party
manufacturers to supply compounds for preclinical and clinical trials and
commercial sales of products that may be developed, as well as for the
packaging, labeling and distribution of such products. If the Company is unable
to contract for a sufficient supply of its compounds on acceptable terms, the
Company's preclinical and clinical testing schedule would be delayed, resulting
in the delay of submission of compounds for regulatory approval and initiation
of new development programs, which would have a material adverse effect on the
Company's business. If the Company should encounter delays or difficulties in
establishing relationships with manufacturers to produce, package and distribute
products that the Company may develop, market introduction or penetration of
such products would be adversely affected. Moreover, third-party manufacturers
that the Company may use must adhere to good manufacturing practice ("GMP")
regulations enforced by the FDA through its facilities inspection program. If
facilities of third-party manufacturers cannot pass a pre-approval plant
inspection, the FDA approval of products that may be developed by the Company
will be adversely affected. See "Business -- Manufacturing."
The Company has no experience in sales, marketing or distribution. In order
to market directly any products that it may develop, the Company must develop or
obtain access to a substantial marketing staff and sales force with technical
expertise and supporting distribution capability. Alternatively, the Company may
seek to obtain the assistance of a pharmaceutical or biotechnology company with
a large distribution system and a large direct sales force. There can be no
assurance that the Company will be able to establish such a marketing staff or
sales force, that the Company's sales and marketing efforts will be successful,
or that the Company will be able to obtain the assistance of another
pharmaceutical or biotechnology company in these efforts. To the extent the
Company enters into arrangements with third parties for the marketing and sale
of products it may develop, any revenues received by the Company will be
dependent on the efforts of such third parties, and there can be no assurance
that such efforts will be successful. Failure to establish adequate sales,
marketing and distribution capabilities independently or
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with others would have a material adverse effect on the Company's business. See
"Business -- Sales and Marketing."
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND
RETAIN KEY EMPLOYEES AND CONSULTANTS
To expand its research and development programs and pursue its product
development plans, the Company will be required to hire additional qualified
scientific personnel to perform research and development, as well as personnel
with expertise in clinical testing and government regulation. These requirements
are also expected to necessitate the addition of management personnel and the
development of additional expertise by existing management personnel. The
failure to attract such personnel or to develop or acquire such expertise would
have a material adverse effect on the Company's business. As part of this
growth, the Company will be required to enter into additional collaborative
arrangements and successfully manage these, along with its current,
collaborative arrangements. To the extent the Company does not enter into
collaborative agreements with third parties, it will also be required to hire
manufacturing and marketing personnel. If the Company is unable to manage its
growth effectively, the Company's business would be materially adversely
affected.
The Company is highly dependent on the principal members of its scientific
and management staff, and the loss of any of these members might significantly
delay the achievement of the Company's development objectives. The Company does
not maintain "key man" insurance on any of its employees, nor does the Company
intend to secure such insurance. In addition, the Company relies on consultants
and advisors, including its scientific advisors, to assist the Company in
formulating its research and development strategy. Retaining and attracting
qualified personnel, consultants and advisors will be critical to the Company's
success. The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms or at all. The failure to
attract or retain such personnel would have a material adverse effect on the
Company's business. See "Business -- Competition," "-- Employees" and
"Management."
CONTROL BY PRINCIPAL STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS
Based upon the number of shares outstanding after the completion of this
offering and the sale of the Ciba Shares by the Company, The Salk Institute and
its affiliates will beneficially own approximately 22.4% of the outstanding
shares of Common Stock (21.6% if the Underwriters exercise their over-allotment
option in full). In addition, the present directors and executive officers of
the Company will beneficially own 8.5% of the outstanding shares of Common Stock
(8.2% if the Underwriters exercise their over-allotment option in full).
Accordingly, together with The Salk Institute, the present directors and
executive officers of the Company will have the ability to exercise substantial
influence over the outcome of most stockholders' actions. Moreover, the
Company's Certificate of Incorporation does not provide for cumulative voting
with respect to the election of directors. Consequently, the present directors
and executive officers, together with The Salk Institute, will be able to
exercise substantial influence over the election of the members of the Board of
Directors. Such concentration of ownership could have an adverse effect on the
price of the Common Stock. In addition, the Company's Certificate of
Incorporation provides that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing.
Special meetings of the stockholders of the Company may be called only by the
Chairman of the Board of Directors, the President of the Company, by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors, or by the holders of 10% of the outstanding voting
stock of the Company. These and other charter provisions, as well as certain
provisions of Delaware law, may discourage certain types of transactions
involving an actual or potential change in control of the Company or its
management (including transactions in which stockholders might otherwise receive
a premium for their shares over then current prices) and may limit the ability
of stockholders to remove current management of the Company or approve
transactions that stockholders may deem to be in their best interests. In
addition, the Board of Directors has the authority, without action by
stockholders, to issue additional shares of Common Stock and to fix the rights
and preferences of and
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issue shares of Preferred Stock, either of which may have the effect of delaying
or preventing a change in control of the Company. In addition, certain of the
Company's collaborative partners have the right to terminate their respective
agreements with the Company upon certain changes in control of the Company,
which may discourage acquisitions or other changes in control (including those
in which stockholders of the Company might otherwise receive a premium for their
shares over then current market prices). See "Business -- Strategic Alliances,"
"Management," "Principal Stockholders," "Description of Capital
Stock -- Preferred Stock" and "-- Certain Anti-takeover Effects of Provisions of
the Certificate of Incorporation, Bylaws and Delaware Law."
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT
There has been and the Company believes that there will continue to be a
number of federal and state proposals to implement government controls over the
pricing of and/or the profit margin attributable to prescription
pharmaceuticals. There can be no assurance that such legislation, if adopted,
will not materially adversely affect the Company's business. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services and they continue their efforts to contain or
reduce the costs of health care through various means. In both domestic and
foreign markets, sales of the Company's products, if any are developed, will be
dependent in part on the availability of reimbursement from third-party payors,
such as government health administration authorities, private health insurers
and other organizations. Significant uncertainty exists as to whether any
products that the Company may develop will be eligible for reimbursement by
third-party payors, or if eligible in part, whether the levels of reimbursement
will be sufficient to render the Company profitable. There can be no assurance
that the products that the Company may develop will be considered cost-effective
or that adequate third-party coverage will be available to enable SIBIA to
maintain price levels sufficient to realize an appropriate return on its
investment in product research and development.
PRODUCT LIABILITY EXPOSURE AND UNINSURED RISKS
The testing of compounds and the marketing and sale of commercial
pharmaceutical products involves unavoidable risks. The use of any of the
Company's compounds or its collaborative partners' compounds in clinical trials
and the sale of any products that may be developed may expose the Company to
potential liability resulting from the use of such compounds or products. Such
liability might result from claims made directly by consumers or by regulatory
agencies, pharmaceutical companies or others using or selling such compounds or
products. The Company is seeking to obtain insurance coverage for clinical
trials. The Company does not currently have product liability insurance
coverage. Although the Company intends to seek to obtain such insurance coverage
if and when the Company develops products that are ready to be commercialized,
there can be no assurance that the Company will be able to obtain or maintain
product liability insurance in the future on acceptable terms or that, if
obtained, the insurance coverage will be sufficient to cover any potential
claims or liabilities.
HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for storing, handling and disposing
of such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company.
ABSENCE OF PRIOR TRADING MARKET; VOLATILITY OF STOCK PRICE
Prior to this initial public offering, there has been no public market for
the Company's Common Stock. There can be no assurance that an active trading
market will develop or, if one does develop, that it will be maintained. The
public offering price of the Common Stock will be established by negotiation
between the Company and the representatives of the Underwriters and is not
necessarily indicative of the market price at which the Common Stock will trade
after this offering. See "Underwriting." The market price of the shares of
Common Stock, like that of the common stock of many other early-stage
biotechnology companies, is likely to be highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new commercial therapeutic products
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by the Company or its competitors, progress with clinical trials, governmental
regulation, developments in patent or other proprietary rights (including
litigation matters), developments in the Company's relationships with current or
future collaborative partners, if any, public concern as to the safety and
efficacy of products that may be developed by the Company (including SIB-1508Y)
and general market conditions may have a significant effect on the market price
of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
the offering made hereby could have an adverse effect on the price of the
Company's Common Stock. Upon completion of this offering and the sale of the
Ciba Shares by the Company, the Company will have outstanding 8,873,138 shares
of Common Stock (which amount does not include shares of Common Stock issuable
upon the exercise of outstanding options). The 2,100,000 shares being offered
hereby (except for shares that may be acquired by affiliates of the Company)
will be freely tradable in the public market without restriction or limitation
under the Securities Act of 1933, as amended (the "Securities Act"). In addition
to the 2,100,000 shares offered hereby, approximately 523,780 shares of Common
Stock will be eligible for sale in the public market from the effective date of
the Registration Statement (the "Effective Date") in reliance on Rule 144(k)
under the Securities Act. Beginning 90 days following the Effective Date, an
additional approximately 45,990 shares of Common Stock will be eligible for sale
in the public market in reliance on Rule 144 or Rule 701 of the Securities Act.
Beginning 180 days after the Effective Date upon the expiration of certain
agreements not to sell such shares, an additional approximately 5,106,614 shares
of Common Stock will become eligible for sale subject to compliance with Rule
144(k), Rule 144 or Rule 701 of the Securities Act. In addition, the holders of
approximately 4,582,844 shares of Common Stock are entitled to certain
piggy-back registration rights with respect to such shares. If the Company is
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggy-back registration rights, sales
made by such holders may have an adverse effect on the Company's ability to
raise needed capital and on the price of the Common Stock. In addition, Ciba and
Bristol-Myers Squibb hold demand registration rights which permit them to
request the Company to register the shares of Common Stock held by Ciba and
Bristol-Myers Squibb, except that Ciba may not demand registration of the Ciba
Shares within one year following the closing of this offering. If Ciba or
Bristol-Myers Squibb, by exercising its demand registration rights, causes a
large number of shares to be registered and sold in the public market, such
sales may have an adverse effect on the market price for the Common Stock. In
addition, shares of Common Stock that are issued by the Company to fund its
operations or in connection with an acquisition could also have an adverse
effect on the market price for the Common Stock. See "Description of Capital
Stock -- Registration Rights" and "Shares Eligible for Future Sale."
SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this offering will therefore incur immediate, substantial
dilution. In addition, investors purchasing shares of Common Stock in this
offering will incur additional dilution to the extent outstanding options are
exercised. Also, the Company may issue shares of Common Stock in connection with
a corporate collaboration, strategic alliance or technology licensing
transaction, which could result in dilution to investors purchasing shares of
Common Stock in this offering. See "Dilution."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of
Common Stock offered hereby are estimated to be approximately $20,903,000
($24,125,000 if the Underwriters' over-allotment option is exercised in full),
based on the initial public offering price of $11.00 per share after deducting
underwriting discounts and the estimated expenses of this offering payable by
the Company. In addition, the net proceeds to the Company from the sale of the
Ciba Shares by the Company will be $5,000,000.
The Company expects to use a majority of the net proceeds of this offering
and from the sale of the Ciba Shares by the Company to fund its research and
development activities, including expansion of its drug discovery capacities
(such as high throughput screening and combinatorial chemistry), for the
identification of lead compounds, and for preclinical and early clinical trials,
assuming necessary regulatory approvals are obtained. The amount and timing of
the net proceeds allocated to specific research and development activities will
depend upon numerous factors, such as the progress of the Company's drug
discovery and development programs, the receipt of necessary regulatory
approvals, the cost of preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims and other intellectual property rights, the status
of competitive products and technologies and the timing and availability of
alternative methods of financing for the Company, including existing or future
strategic alliances and joint ventures with third parties. The Company's
research and development expenditures will vary as product candidates, if any,
are added or abandoned or as additional collaborations are established. In
addition, the Company intends to use some of the proceeds of this offering and
from the sale of the Ciba Shares by the Company for working capital and general
corporate purposes, which may include capital expenditures for improvements to
the Company's facilities. The Company has not determined the amount it plans to
spend for each purpose or the timing of such expenditures. Pending such uses,
the Company intends to invest the net proceeds from this offering and from the
sale of the Ciba Shares by the Company in United States government securities
and investment grade, interest-bearing instruments. The Company expects to
continue to be able to avoid the registration requirements of the Investment
Company Act of 1940 (the "1940 Act"). If the Company were required to register
as an investment company under the 1940 Act, it would become subject to
substantial regulations with respect to its capital structure, management,
operations, transactions with affiliates (as defined in the 1940 Act), and other
matters. Application of the provisions of the 1940 Act would have a material
adverse effect on the Company.
In the ordinary course of business the Company investigates, evaluates and
discusses with others the potential acquisition of businesses, technologies and
products which complement the Company's business. Although the Company currently
has no understandings or agreements with respect to any such acquisition, net
proceeds from this offering and from the sale of the Ciba Shares by the Company
may be used for such purpose.
The Company believes that the net proceeds of this offering and from the
sale of the Ciba Shares by the Company, together with the Company's available
cash reserves and funds from collaborative research and development agreements,
should be adequate to satisfy its capital requirements through 1998, although
there can be no assurance that the Company will not require additional funds
prior to such date. The Company's future capital needs will be dependent upon
many factors, including progress in its research and development activities, the
magnitude and scope of these activities, progress with preclinical and clinical
trials, the cost of preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in or terminations of existing
collaborative arrangements, the establishment of additional collaborative
arrangements, and the cost of manufacturing scale-up and development of
marketing activities, if undertaken by the Company.
DIVIDEND POLICY
The Company has not paid any dividends on its capital stock since its
inception and does not anticipate paying any dividends in the foreseeable
future.
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CAPITALIZATION
The following table sets forth the actual and as adjusted capitalization of
the Company as of December 31, 1995. The as adjusted capitalization of the
Company gives effect to the sale of the 2,100,000 shares of Common Stock offered
hereby at the initial public offering price of $11.00 per share (after deducting
underwriting discounts and estimated offering expenses payable by the Company),
the sale of the Ciba Shares by the Company at the initial public offering price
and the application of the estimated net proceeds therefrom. The financial data
presented below should be read in conjunction with the Company's financial
statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
ACTUAL(1) AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term capital lease obligations................................. $ 721 $ 721
-------- --------
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares authorized,
none issued and outstanding....................................
Common Stock, $.001 par value, 25,000,000 shares authorized;
6,018,980 shares issued and outstanding; 8,573,525 shares
issued and outstanding, as adjusted(2)......................... 6 9
Additional paid-in capital........................................ 31,868 57,768
Deferred compensation............................................. (635) (635)
Notes receivable from stockholders................................ (82) (82)
Net unrealized gains on investment securities
available-for-sale............................................. 79 79
Accumulated deficit............................................... (16,129) (16,129)
-------- --------
Total stockholders' equity..................................... $ 15,107 $ 41,010
-------- --------
Total capitalization...................................... $ 15,828 $ 41,731
======== ========
</TABLE>
- ---------------
(1) Gives effect to the conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock and the 2.35-for-1 split of each
outstanding share of Common Stock effected in March 1996.
(2) Excludes 1,551,000 shares of Common Stock reserved for issuance under the
Company's stock option plans, pursuant to which options to purchase 981,266
shares of Common Stock were outstanding as of December 31, 1995 at a
weighted average exercise price of approximately $1.49 per share. Also
excludes outstanding options to purchase 387,750 shares of Common Stock at
an exercise price of $.85 per share granted under the Company's Change of
Control Plan. See "Management -- Change of Control Arrangements," "-- Stock
Plans," and Notes 10 and 12 of Notes to Financial Statements.
17
<PAGE> 18
DILUTION
The net tangible book value of the Company as of December 31, 1995, was
approximately $15,097,000, or $2.51 per share of Common Stock. Net tangible book
value per share is determined by dividing the amount of the Company's total
tangible assets less total liabilities by the number of shares of Common Stock
outstanding, and assumes the conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock and the 2.35-for-1 split of the outstanding
shares of Common Stock. After giving effect to the sale by the Company of the
2,100,000 shares of Common Stock offered hereby at the initial public offering
price of $11.00 per share, the sale of the Ciba Shares by the Company at the
initial public offering price, and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of December
31, 1995 would have been approximately $41,000,000, or $4.78 per share. This
represents an immediate dilution of $6.22 per share to new investors purchasing
shares of Common Stock in this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $11.00
Net tangible book value per share as of December 31, 1995................. $2.51
Increase per share attributable to new investors.......................... $2.27
------
Pro forma net tangible book value per share after this offering and the sale
of the Ciba Shares by the Company......................................... $ 4.78
------
Dilution per share to new investors......................................... $ 6.22
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1995, the differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 6,018,980 70.2% $30,502,000 52.0% $ 5.07
New investors..................... 2,554,545 29.8% $28,100,000 48.0% $ 11.00
------- --- ------- ---
Total........................ 8,573,525 100.0% $58,602,000 100.0%
======= === ======= ===
</TABLE>
The number of shares being purchased by "new investors" reflected in the
above tables includes the Ciba Shares, which are being purchased from the
Company upon the closing of this offering at the initial public offering price
pursuant to a private placement. Ciba also is an existing stockholder of the
Company. See "Principal Stockholders." The above tables and calculations assume
no exercise of options outstanding as of December 31, 1995. As of December 31,
1995, there were outstanding options to purchase 1,369,016 shares of Common
Stock (which amount includes outstanding options to purchase 387,750 shares of
Common Stock granted pursuant to the Company's Change of Control Plan at an
exercise price of $.85 per share) at a weighted average exercise price of
approximately $1.31 per share. Assuming the exercise of all outstanding options,
the total dilution in net tangible book value per share to new investors would
be $6.70. As of December 31, 1995, there were 357,412 shares reserved for future
grants under the Company's stock option plans. To the extent that any of these
shares are issued, there will be further dilution to new investors. See
"Management -- Stock Plans" and Notes 10 and 12 of Notes to Financial
Statements.
18
<PAGE> 19
SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
Company's financial statements which have been audited by Price Waterhouse LLP,
independent accountants. The balance sheet as of December 31, 1994 and 1995 and
the related statements of operations, stockholders' equity and cash flows for
the three years ended December 31, 1995 and notes thereto appear elsewhere in
this Prospectus. The selected financial data presented below should be read in
conjunction with the Company's financial statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Contract.................... $ 4,570 $ 2,314 $ 4,072 $ 4,454 $ 5,563
License and royalty......... 115 882 1,005 398 4,885(1)
-------- -------- -------- -------- --------
4,685 3,196 5,077 4,852 10,448
-------- -------- -------- -------- --------
Expenses:
Research and development.... 6,418 5,446 7,713 8,663 8,949
General and
administrative............ 2,188 2,114 2,202 1,917 2,178
-------- -------- -------- -------- --------
8,606 7,560 9,915 10,580 11,127
-------- -------- -------- -------- --------
(3,921) (4,364) (4,838) (5,728) (679)
Other income................... 318 366 288 5,701(2) 3,680(3)
-------- -------- -------- -------- --------
(Loss) income before provision
for income taxes............ (3,603) (3,998) (4,550) (27) 3,001
Provision for income taxes..... 75
-------- -------- -------- -------- --------
Net (loss) income.............. $ (3,603) $ (3,998) $ (4,550) $ (27) $ 2,926
======== ======== ======== ======== ========
Net income per share(4)........ $ .41
Shares used in computing net
income per share(4)......... 7,068
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investment securities....... $ 3,553 $ 7,820 $ 4,584 $ 5,944 $ 16,488
Working capital................ 3,539 6,614 2,016 4,523 14,338
Total assets................... 5,163 8,873 6,451 8,005 18,251
Long-term capital lease
obligations................. 151 761 860 721
Accumulated deficit............ (10,480) (14,478) (19,028) (19,055) (16,129)
Total stockholders' equity..... 4,247 6,986 2,588 5,166 15,107
</TABLE>
- ---------------
(1) Includes a one-time payment of $1,750,000 made by Cephalon to the Company
relating to Cephalon's exercise of its option to buy-down its royalty
percentage relating to IGF-1. Also includes a one-time license fee payment
of $3,000,000 made by Bristol-Myers Squibb to the Company in connection with
the grant of a license to certain technology to Bristol-Myers Squibb. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 4 and 5 of Notes to Financial Statements.
(2) Includes a gain of $5,296,000 on the sale of the Company's interest in the
SISKA Diagnostics, Inc. joint venture. See Note 6 of Notes to Financial
Statements.
(3) Includes income (net of legal expenses) of $3,146,000 received by the
Company under settlement agreements with two law firms for failure to
properly file a foreign patent application. See Note 7 of Notes to Financial
Statements.
(4) See Note 1 of Notes to Financial Statements for information concerning the
computation of net income per share.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SIBIA, incorporated in Delaware in 1981, was established by The Salk
Institute for Biological Studies. Through 1990, SIBIA successfully developed
several proprietary life-sciences technologies in collaboration with corporate
partners. In 1987, SIBIA initiated research in the neuroscience field and in
1991 shifted its focus completely to the development of novel therapeutics to
treat CNS disorders.
SIBIA is engaged in the discovery and development of novel, small molecule
therapeutics for CNS disorders based on the Company's unique approach to
characterizing the molecular processes involved in such disorders. SIBIA is
focusing its efforts on developing compounds for the treatment of Parkinson's
disease, Alzheimer's disease, stroke, head trauma, epilepsy, chronic pain,
schizophrenia and other neurological, psychiatric and neurodegenerative
disorders, many of which have large patient populations and represent critical
unmet medical needs. SIBIA has financed its operations primarily through the
sale of Convertible Preferred Stock and Common Stock and through funds provided
by its collaborative partners under its collaborative agreements. In addition,
SIBIA has received funds from the sale of its interest in a corporate joint
venture and from the settlement of certain litigation, with which it has
purchased investment securities and which it expects to use to finance its
operations. See "Business -- Strategic Alliances" and Notes 6 and 7 of Notes to
Financial Statements.
The Company receives contract revenue and license and royalty revenue.
Contract revenue includes payments for research to support a specified number of
the Company's scientists and payments upon the achievement of specified research
and drug development milestones. Research contracts are generally conducted on a
best efforts basis. Contract revenue is recognized as the research is performed
using the percentage-of-completion method of accounting, primarily based on
contract costs incurred to date compared with total estimated costs at
completion. Revenues related to milestones are recognized upon the achievement
of the related milestone and when collection is probable. License revenue is
recognized when there is no material continuing performance obligation under the
agreement and collection is probable. Royalty revenue is recognized when earned
and collection is probable.
Research and development costs are expensed as incurred and include costs
associated with collaborative agreements. These costs consist of direct and
indirect costs related to specific projects as well as fees paid to other
entities which conduct certain research activities on behalf of the Company.
The Company has no products available for sale and does not expect to have
any products resulting from its research efforts, including its collaborations
with others, commercially available for at least several years, if at all.
Except for 1995, the Company has incurred net losses every year since shifting
its area of therapeutic focus to the central nervous system in 1991. The Company
is continuing to incur losses and expects to incur increasing operating losses
over the next several years as the Company's research and development
expenditures increase. The Company's revenue for the next several years will be
limited to payments under its collaborative relationships, license fees,
interest income and other miscellaneous income.
During the years ended December 31, 1993, 1994 and 1995, the Company had
two, two and three collaborative research agreements that accounted for 78%, 89%
and 81%, respectively, of total revenue.
20
<PAGE> 21
RESULTS OF OPERATIONS
The Company expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of future license agreements, the
timing of revenues earned under existing or future corporate collaborations or
joint ventures, if any, technological advances and determinations as to the
commercial potential of proposed compounds, the progress of the Company's drug
discovery and development programs, the receipt of necessary regulatory
approvals, the cost of preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims and other intellectual property rights, the status
of competitive products and technologies and the timing and availability of
financing for the Company, including existing or future strategic alliances and
joint ventures with third parties. In addition, because the Company is in the
early stage of development with respect to its CNS technologies and due to the
one-time nature of certain payments the Company has received, comparisons of its
historical results may not be meaningful.
To date, the majority of the Company's expenditures have been for research
and development activities. SIBIA expects to receive royalties on sales of
Myotrophin, a product based on the insulin-like growth factor-1 ("IGF-1")
molecule being developed by Cephalon, Inc. ("Cephalon"), if it receives FDA
approval, although there can be no assurances that Myotrophin will receive such
approval. With the exception of Myotrophin, the Company does not expect to
receive royalties based upon net sales of drugs that may be developed for a
significant number of years, if at all. SIBIA expects research and development
expenses to increase significantly over the next several years as its discovery
and development programs progress. In addition, general and administrative
expenses necessary to support such expanded programs are also expected to
increase over the next several years.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The Company recognized contract revenue of $4,072,000, $4,454,000 and
$5,563,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
The increases in the year-to-year contract revenue primarily reflect increases
in contract revenues recognized in the form of research payments received
pursuant to the Company's existing collaborative agreements as well as, from
1994 to 1995, the commencement of the Company's collaborative arrangement with
Bristol-Myers Squibb. The Company recognized license and royalty revenue of
$1,005,000, $398,000 and $4,885,000 for the years ended December 31, 1993, 1994
and 1995, respectively. In 1993, the Company recognized license revenue of
$500,000 related to a license agreement with Affymax Technologies, N.V. for
certain technology. Also in 1993, the Company recognized license revenue of
$250,000 and royalty revenue of $40,000 from Cephalon related to IGF-1
technology. In 1994, the Company recognized license revenue of $300,000 from
Zeneca, Limited for certain plant genetic engineering technology. In 1995, the
Company recognized license revenue of $3,000,000 related to the Company's grant
of an exclusive license of certain technology to Bristol-Myers Squibb. Also in
1995, the Company recognized license and royalty revenue of $1,750,000 from
Cephalon pursuant to its option to buy-down the royalty percentage relating to
IGF-1.
The Company's research and development expenses were $7,713,000, $8,663,000
and $8,949,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The approximate 12%, or $950,000, increase from 1993 to 1994 was
primarily due to an increase in research and development personnel and related
supply costs as a result of expanded programs in drug discovery and outside
preclinical and clinical expenses. The Company's research and development
expenses increased approximately 3%, or $286,000, from 1994 to 1995 due
primarily to an increase in preclinical development expenses.
The Company's general and administrative expenses were $2,202,000,
$1,917,000 and $2,178,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. Expenses declined in 1994 by 13%, or $285,000, primarily as a
result of a reduction in personnel and outside legal expenses. General and
administrative expenses increased approximately 14%, or $261,000, for the year
ended December 31, 1995 primarily due to higher outside patent legal expenses.
21
<PAGE> 22
The Company's other income includes interest income, interest expense and,
in 1994 and 1995, gain from the sale of its interest in a joint venture and
income from the settlement of certain litigation, respectively. Other income
increased by $5,413,000 from 1993 to 1994, primarily due to the gain on the sale
of the Company's interest in the SISKA Diagnostics, Inc. joint venture in 1994.
Other income decreased by 35%, or $2,021,000, from 1994 to 1995. The decrease
from 1994 to 1995 was primarily the result of a gain in 1994 (from the sale of
the Company's interest in the SISKA Diagnostics, Inc. joint venture) which
exceeded income in 1995 (from the settlement of certain litigation).
The Company's net loss was $4,550,000 and $27,000 for the years ended
December 31, 1993 and 1994, respectively, and its net income was $2,926,000 for
the year ended December 31, 1995. Net income for 1995 is primarily attributable
to the increase in revenue resulting from non-refundable license fees of
$3,000,000 received for certain SIBIA technology pursuant to SIBIA's
collaboration with Bristol-Myers Squibb, $3,146,000 from the settlement of
litigation and $1,750,000 from the license/royalty payment from Cephalon. As of
December 31, 1995, the Company had tax loss carryforwards of approximately
$14,600,000 for federal income tax purposes. As specified in the Internal
Revenue Code, a significant change in ownership of the Company may affect the
Company's ability to utilize its tax loss carryforwards. The completion of this
offering and the sale of the Ciba Shares by the Company is not expected to
affect the Company's ability to utilize its existing net operating loss
carryforwards for federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
SIBIA has financed its operations primarily through the sale of Convertible
Preferred Stock and Common Stock and through funds provided by its collaborative
partners under collaborative agreements. The Company has also received funds
from the sale of its interest in the SISKA Diagnostics, Inc. joint venture and
the settlement of certain litigation, with which it has invested in investment
securities and which it expects to use to finance its operations. Since 1991,
the Company has received approximately $16,000,000 in net proceeds from the sale
of Convertible Preferred Stock and Common Stock to investors and collaborative
partners and approximately $28,000,000 in contract, license and royalty revenue.
The Company is entitled to receive additional payments under the collaborative
agreements in the form of contract revenue, milestone payments, if milestones
are achieved, and royalties, if products are commercialized. As of December 31,
1995, the Company had an accumulated deficit of $16,129,000.
The Company anticipates that the cash, cash equivalents and investment
securities balance of $16,488,000 as of December 31, 1995 will be used to
support continued research and development of its technologies. The Company
leases laboratory and office facilities under an agreement expiring on December
31, 1997. The minimum annual payment under the lease is approximately
$1,290,000, before consideration of sublease income. The Company believes that
its present facility will be adequate to conduct its research activities through
December 1997. Management believes that it should be able to secure additional
space at commercially reasonable rates if necessary. The Company has an option
to extend its lease for an additional five years. Since 1991, the Company has
invested $2,374,000 in property and equipment. Included within this amount is
$1,976,000 of equipment under capital leases. The net present value of
obligations under such capital leases as of December 31, 1995 was $1,152,000. In
addition, the Company recently contracted for a fully automated functional high
throughput screening system and related equipment with an expected cost of
approximately $750,000, of which $500,000 will be provided by Ciba (which may be
credited against future milestone payments).
The Company expects to incur substantial research and development expenses
including continued increases in personnel costs and costs related to
preclinical testing and clinical trials, if any. The Company's future capital
needs will be dependent upon many factors, including progress in its research
and development activities, the magnitude and scope of these activities,
progress with preclinical and clinical trials, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in or terminations of existing collaborative arrangements, the
establishment of additional collaborative arrangements, and the cost of
manufacturing scale-up and development of marketing
22
<PAGE> 23
activities, if undertaken by the Company. The Company intends to seek additional
funding through research and development relationships with suitable corporate
collaborators or through public or private financing. There can be no assurance
that the Company will be successful in its efforts to collaborate with
additional partners or that additional financing from other sources will be
available on favorable terms, if at all.
The Company believes that its existing capital resources, together with the
net proceeds from this offering and from the sale of the Ciba Shares by the
Company, interest income and payments under the collaborative agreements, should
be adequate to satisfy its capital requirements through the end of 1998,
although there can be no assurance that the Company will not require additional
funds prior to such date. These funding requirements include continued
expenditures for research and development activities and in the area of
intellectual property, as well as expenditures relating to leasehold
improvements to the Company's facilities and the purchase of additional
laboratory equipment. See "Risk Factors -- Future Capital Needs; Uncertainty of
Additional Funding."
23
<PAGE> 24
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
SIBIA Neurosciences, Inc. ("SIBIA" or the "Company") is engaged in the
discovery and development of novel, small molecule therapeutics for disorders of
the central nervous system ("CNS") based on the Company's unique approach to
characterizing the molecular processes involved in such disorders. SIBIA is
focusing its efforts on developing compounds for the treatment of Parkinson's
disease, Alzheimer's disease, stroke, head trauma, epilepsy, chronic pain,
schizophrenia and other neurological, psychiatric and neurodegenerative
disorders, many of which have large patient populations and represent critical
unmet medical needs. SIBIA's drug discovery platforms are based on two primary
technologies in which the Company has established a leading scientific and
proprietary position -- human receptor/ion channel subtype technology and human
protease technology. SIBIA holds nine issued U.S. patents and has one allowed
patent and 57 pending U.S. patent applications relating to these technologies.
The Company's strategy is to utilize its technologies to discover and develop
proprietary CNS drug candidates and collaborate with corporate partners for the
advanced development and commercialization of such candidates. SIBIA currently
has corporate collaborations with Eli Lilly and Company ("Lilly"), Ciba and
Bristol-Myers Squibb Company ("Bristol-Myers Squibb").
SIBIA believes that its human receptor/ion channel subtype technology will
enable the discovery and development of new classes of drugs for the treatment
of CNS disorders. The Company's technology permits the targeted identification
of compounds that are selective for specific receptor/ion channel subtypes.
Receptors and ion channels and the neurotransmitters that modulate them are key
components in the communication between neurons, or nerve cells. Such
communication is fundamental to many CNS functions, including cognition, memory,
sensory perception and motor control. These functions are mediated by cellular
processes dependent on calcium ions, which enter neurons through specific
receptor/ion channels. SIBIA has identified the control of calcium levels within
neurons as a key strategy for potential therapeutic intervention in many CNS
disorders. Compounds which selectively modulate cellular calcium levels, such as
calcium channel blockers used for the treatment of cardiovascular diseases, have
been developed into effective and well-tolerated drugs. However, these drugs
either have been ineffective or have significant side effects when evaluated for
CNS disorders, which is likely due to their lack of selectivity or activity on
specific neuronal subtypes. The Company believes that drugs developed with its
technology could be more effective and have fewer side effects than existing
drugs for the treatment of CNS disorders.
SIBIA has established a leading proprietary position in human receptor/ion
channel subtype technology. The Company has made significant scientific and
technological advances by cloning key human neuronal receptor/ion channels,
expressing them in stable cell lines and developing the resulting recombinant
cell lines into functional assays for drug screening. SIBIA is currently
focusing on three major receptor/ion channel classes involved in regulating
neuronal calcium levels -- nicotinic acetylcholine receptors ("NAChRs"),
excitatory amino acid receptors ("EAARs") and voltage-gated calcium channels
("VGCCs"). SIBIA has discovered, isolated and developed an extensive library of
more than 50 complete genes cloned from human brain tissue coding for multiple,
distinct subtypes of these three receptor/ion channel classes. Most of these
subtypes are multimeric (i.e., molecular complexes of two or more proteins). By
expressing the multiple complex genes necessary to form functional subtypes,
SIBIA has overcome a significant technical challenge which it believes provides
an important competitive advantage. To date, SIBIA has expressed more than 20
receptor/ion channel subtypes in the NAChR, EAAR and VGCC classes in stable cell
lines which have been shown to be physiologically functional. Each subtype
potentially represents a novel molecular target for developing therapeutic
compounds for CNS disorders. SIBIA has developed unique and proprietary
functional cell-based assays encompassing
24
<PAGE> 25
these molecular targets and uses these assays with its proprietary high
throughput screening technology to rapidly identify and select compounds for
further development. The Company believes that the integration of its large
proprietary collection of molecular targets with its proprietary assay and
screening technologies provides a powerful and original drug discovery platform.
SIBIA has established strategic alliances with Ciba in the area of EAAR drug
discovery and with Lilly in the area of VGCC drug discovery. SIBIA recently
extended its strategic alliance with CIBA and has entered into discussions with
Lilly to amend its collaboration agreement with Lilly.
Within SIBIA's NAChR program the Company has selected and characterized
SIB-1508Y as a compound for the treatment of Parkinson's disease based on its
receptor subtype selectivity and behavioral profile. In contrast to current
therapies which treat only motor dysfunction, the Company believes that
SIB-1508Y may be effective for the treatment of motor, affective and cognitive
dysfunctions of Parkinson's disease. If proven to be safe and effective,
SIB-1508Y would represent a new therapeutic approach for the treatment of
Parkinson's disease and may be useful as a stand-alone therapeutic agent as well
as in combination with L-dopa, the current standard therapy. The Company intends
to file an Investigational New Drug application ("IND") with respect to
SIB-1508Y by the end of 1996 or early in 1997. In addition, SIBIA plans to
establish corporate collaborations for advanced clinical trials and
commercialization of SIB-1508Y. However, there can be no assurance that the
indicated IND filing date will be achieved, if at all, or that SIB-1508Y will be
successfully developed and commercialized.
SIBIA's human protease technology is directed at the discovery and
development of therapeutic compounds for Alzheimer's and other neurodegenerative
diseases. Specifically, the Company's technology focuses on the compounds that
control the degradative proteases which generate amyloid -protein ("A"). A is
the neurotoxic fragment of the amyloid precursor protein ("APP") and is
generally understood to be the major molecular key to Alzheimer's disease. A is
found at autopsy in senile plaques and in deposits surrounding the small blood
vessels in brain tissue, both of which are diagnostic for Alzheimer's disease.
SIBIA believes the inhibition of A formation may be broadly applicable to early-
and late-onset Alzheimer's disease. SIBIA has established assays which identify
the neurotoxic A fragment as well as a second critical APP processing fragment,
neuroprotective APP (s). SIBIA has identified several series of small molecules
which inhibit A production and enhance APP(s) levels in vitro. These proprietary
compounds currently are being studied in vivo. In August 1995, SIBIA entered
into a four-year collaboration agreement with Bristol-Myers Squibb to discover
and develop compounds that are able to selectively modulate the processing of
APP for the treatment of Alzheimer's disease.
COMPANY STRATEGY
The Company's strategy is to utilize its two proprietary drug discovery
platforms -- the human receptor/ion channel subtype technology and the human
protease technology -- to discover novel, small molecule therapeutics for the
treatment of CNS disorders. Key elements of the Company's strategy include:
- Leveraging its leadership position in its proprietary human receptor/ion
channel subtype and human protease technologies to discover and develop
small molecule therapeutics. SIBIA pioneered the development of molecular
and cellular approaches to drug discovery based on human neuronal
receptor/ion channels and human proteases and has established a leadership
position in these areas. SIBIA uses its advanced drug discovery
technologies, including its proprietary functional assays, high throughput
screening systems and combinatorial chemistry, to identify compounds for
preclinical development and provide new opportunities for strategic
alliances. For example, SIBIA has designed and selected SIB-1508Y for
development for the treatment of Parkinson's disease.
- Utilizing its broad portfolio of proprietary molecular targets to develop
compounds that address the complete spectrum of CNS disorders. To date,
SIBIA has identified over 20 human receptor/ion channel subtypes and
several neuronal proteases as molecular targets and has developed
corresponding cell-based functional assays for high throughput drug
screening. SIBIA believes that compounds acting on these targets may have
application to the treatment of a broad range of neurological, psychiatric
and neurodegenerative disorders, many of which represent
25
<PAGE> 26
critical unmet medical needs. By targeting a broad range of disorders
having significant market potential, the Company seeks to reduce reliance
on any single program and increase its potential for successful
development efforts.
- Establishing strategic alliances to advance compounds through clinical
trials and commercialization. The Company focuses on drug discovery and
development and establishes collaborations with pharmaceutical or
biotechnology companies for advanced development and commercialization of
its drug candidates to gain access to its partners' development,
regulatory and marketing expertise and resources. Currently, the Company
has strategic alliances with Lilly, Ciba and Bristol-Myers Squibb.
- Expanding its drug discovery platforms to enhance its CNS drug discovery
capabilities. The Company continues to expand its portfolio of molecular
targets through internal research, collaborations and, if appropriate,
licensing. The Company is acquiring additional instrumentation that will
increase its high throughput screening capacity several fold and is
increasing its combinatorial chemistry effort for rapidly generating
analogs of compounds identified in its high throughput screening program.
DRUG DISCOVERY PLATFORMS AND DEVELOPMENT PROGRAMS
SIBIA's drug discovery platforms are based on two primary technologies in
which SIBIA has established a leading scientific and proprietary position: human
receptor/ion channel subtype technology and human protease technology.
HUMAN RECEPTOR/ION CHANNEL SUBTYPE TECHNOLOGY
The Role of Calcium in CNS Function and Disease
The human central nervous system is a complex network of interconnected
nerve cells, known as neurons, that are responsible for coordination of
virtually all bodily functions, including movement and sensory perception,
learning, memory and decision making. Neurons receive, conduct and transmit
signals. Communication between neurons is essential to the function of the
central nervous system. Dysfunction of neurons and/or communications between
neurons can result in neurological disorders (e.g., epilepsy), psychiatric
disorders (e.g., schizophrenia and depression) and neurodegenerative disorders
(e.g., Alzheimer's and Parkinson's diseases).
Communication between neurons occurs through complex electrical and
chemical processes. Neurons communicate with each other and with target cells
through the transmission and reception of molecules known as neurotransmitters.
Nerve impulses in the form of voltage changes cause the release of
neurotransmitters from one neuron, which then activate specific receptors on the
surface of an adjacent neuron or target cell and cause a response in the
receiving cell. Each different neurotransmitter interacts with a specific
corresponding receptor or family of receptors and transmits primary messages
between neurons that control important processes within those neurons. These
processes include the regulation of secondary messenger systems that, in turn,
modulate a wide array of signal transduction pathways involved in neuronal
communication and survival.
Calcium ions are one of the most important primary and secondary messengers
in the nervous system. Calcium ions enter neurons through ion channels
("receptor/ion channels") which open and close (i.e., are gated) either through
ligand/receptor interactions or voltage changes such as nerve impulses. These
receptor/ion channels regulate many essential functions in neurons, such as the
release of neurotransmitters, electrical activity, activation of enzymes and
transcription of genes. The diagram below illustrates the fundamental mechanism
of communication between adjacent neurons and the role of calcium ions in that
process.
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CALCIUM AND RECEPTOR/ION CHANNELS
IN THE NERVOUS SYSTEM
[DIAGRAM]
The diagram illustrates an example of communication between two neurons at a
synapse and certain roles of calcium in this process. A synapse is the point at
which a nerve impulse is transmitted from one neuron to another. A nerve
impulse, in the form of a voltage change, is shown passing through the
presynaptic neuron terminal (from the left). As the nerve impulse reaches the
presynaptic neuron terminal, the voltage change causes the opening of a pore in
a specific subtype of neuronal VGCC, allowing calcium ions (Ca2+) to enter (1).
This, in turn, causes the release of neurotransmitters (2) from the presynaptic
neuron terminal. In this example, the released neurotransmitter glutamate
traverses the interneuronal space and binds to and activates an EAAR subtype, a
kind of ligand-gated ion channel, located on the postsynaptic target cell (3).
The activation of the EAAR opens its channel pore allowing entry of calcium
ions into the postsynaptic target cell resulting in a voltage change and
propagation of the nerve impulse through this second cell. Calcium ions entering
neurons through the ion channels of specific subtypes of EAARs (3) and VGCCs
(4) can also act as intracellular second messengers that regulate enzyme
pathways and gene transcription. In certain presynaptic neurons, the
neurotransmitter acetylcholine can activate specific NAChR subtypes (5) also
resulting in entry of calcium ions and/or a voltage change leading to the
opening of VGCCs (1) and subsequent release of neurotransmitters. Furthermore,
a buildup of excess calcium ions in neurons can result in cell death.
Because calcium is central to so many critical neuronal functions, the
Company has identified the control of calcium levels within neurons as a key
strategy for potential therapeutic intervention in many CNS disorders, including
stroke, epilepsy, pain, Parkinson's disease and Alzheimer's disease and other
dementias. For example, the lack of blood flow and oxygen deprivation caused by
a stroke results in abnormally high concentrations of the neurotransmitter
glutamate, triggering a subsequent influx of excessive calcium ions through
specific receptor/ion channels into neurons. This leads to neuronal cell death
and brain damage. Drugs that block the abnormal release or action of glutamate
and/or the excessive calcium buildup in the neurons could represent effective
stroke therapies. Another example of the role of calcium in CNS disorders can be
seen in Parkinson's disease. The motor deficits associated with Parkinson's
disease are the result of abnormally reduced levels of the neurotransmitter
dopamine, the release of which is calcium-mediated. Drugs that activate specific
receptor/ion channels to enhance the calcium-mediated release of dopamine from
neurons could ameliorate the motor dysfunction in Parkinson's disease patients.
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Over approximately the past 20 years, drugs blocking calcium influx through
certain receptor/ion channels have been successfully developed and
commercialized for the treatment of cardiovascular diseases such as angina and
hypertension. However, these existing calcium channel blockers have been either
ineffective or have significant side effects when evaluated for CNS disorders.
This is likely due to their lack of selectivity or activity on specific neuronal
subtypes, which is typical of compounds identified by traditional drug discovery
approaches. The Company believes that its technologies will permit the targeted
identification of compounds that are selective for specific receptor/ion channel
subtypes, enabling the discovery and development of new classes of drugs that
could be more effective and have fewer side effects than existing drugs for the
treatment of CNS disorders.
Receptor/Ion Channel Subtype Technology
Calcium ions enter neurons primarily through: (i) two receptor classes that
function as ligand-gated ion channels -- NAChRs and EAARs; and (ii) VGCCs. These
three classes are the major receptor/ion channel classes involved in regulating
neuronal calcium. Each class is comprised of numerous structurally, anatomically
and pharmacologically distinct subtypes.
The large number and diversity of NAChR, EAAR and VGCC subtypes have only
recently been established by gene cloning techniques and were unknown and
virtually unmeasurable by traditional drug discovery approaches. SIBIA has
pioneered the discovery and functional expression of cloned genes encoding a
number of important human subtypes in these three receptor/ion channel classes.
This has enabled SIBIA to characterize a large number of previously unrecognized
receptor/ion channel subtypes and establish them as targets for drug discovery.
SIBIA has further incorporated these molecular targets into functional
cell-based assays for drug screening. The Company believes this should enable
the development of novel, safe and effective therapies for CNS disorders through
the identification of compounds acting only on specific neuronal subtypes to
selectively control precise calcium-mediated neuronal processes.
SIBIA's human receptor/ion channel subtype technology is based on the
identification and cloning of the genes encoding for NAChRs, EAARs and VGCCs
from human brain tissue, the expression of these genes in mammalian cells to
afford fully functional receptor/ion channels of defined subtype and the use of
these cells in in vitro functional drug screening assays. Each cell line or
assay contains only a single human receptor/ion channel subtype. In contrast to
traditional binding assays, these proprietary assays can quantify the functional
effect of test compounds and such compounds can be identified as acting as
agonists, antagonists or modulators at any functional site, known or unknown, on
a specific receptor/ion channel subtype.
SIBIA has established a leading proprietary position in drug discovery
based on human receptor/ion channel subtypes. Each of the following scientific
and technological developments by SIBIA was critical in building this position
and has represented a significant advance:
- SIBIA has determined that most of the functional receptor/ion channel
subtypes in the three classes it has targeted are multimeric (i.e.,
molecular complexes of two or more proteins), and are coded for by
multiple genes of considerable complexity. SIBIA has discovered, isolated
and developed an extensive library of more than 50 complete genes cloned
from human brain tissue coding for multiple, distinct subtypes of NAChRs,
EAARs and VGCCs controlling neuronal calcium levels.
- Because most of the receptor/ion channel subtypes are multimeric, the
expression of the multiple complex genes necessary to form the functional
subtypes has been a difficult technical challenge. SIBIA believes its
expertise in expressing multiple genes provides an important competitive
advantage. To date, SIBIA has expressed more than 20 receptor/ion channel
subtypes in the NAChR, EAAR and VGCC classes in stable cell lines which
have been shown to be physiologically functional. Each subtype
potentially represents a novel molecular target for developing
therapeutic compounds for CNS disorders. SIBIA is aggressively continuing
this program and expects to express a significant number of additional
subtypes in stable cell lines during 1996.
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<PAGE> 29
- SIBIA has developed unique and proprietary functional cell-based assays
encompassing these molecular targets and uses these assays with its
proprietary high throughput screening technology to rapidly identify and
select compounds for further development. SIBIA's high throughput
screening technology includes proprietary technology and an automated
system for the discovery and optimization of drug leads which
specifically modulate the function of specific receptor/ion channel
subtypes.
SIBIA's drug discovery efforts are supported by its patent portfolio, which
includes issued patents relating to all three classes of receptor/ion channels
and functional screening technology. See "-- Patents and Proprietary Rights."
The Company believes that the integration of its large proprietary collection of
molecular targets with its proprietary assay and screening technologies provides
a powerful and original drug discovery platform. See "Risk Factors -- New and
Uncertain Technology."
High Throughput Functional Screening Technology
High throughput functional screening is a key component in SIBIA's drug
discovery program. SIBIA utilizes its human receptor/ion channel subtype
technology with high throughput screening in two modes: first, for the testing
of large compound libraries to discover new, selective and potent series of
compounds for further drug discovery efforts; and second, for the rapid
characterization and profiling of selected series of compounds in order to
choose lead candidates for further in vitro and in vivo study.
SIBIA's proprietary high throughput functional cell-based assays are
applicable to all of SIBIA's receptor/ion channel drug discovery
programs -- NAChRs, EAARs and VGCCs. SIBIA's proprietary assays are based on the
receptor/ion channel-induced changes in cellular calcium levels. In contrast to
traditional binding assays, these assays also allow for simultaneous analysis of
the selectivity, potency, efficacy and pharmacological nature (e.g., agonist,
antagonist or modulator) of the interaction of test compounds with a specific
receptor/ion channel subtype.
Fluorescence-based Ion Assay. SIBIA's fluorescence-based ion assay
technology measures changes in intracellular events (e.g., calcium
concentrations) through the use of ion-sensitive fluorescent dyes. SIBIA, in
collaboration with a third party, has developed a 96-well microtiter
plate-imaging fluorimeter to perform functional high throughput screening. The
equipment is fully automated with robotics and analyzes the fluorescent signals
of all 96 wells simultaneously, rather than sequentially in a time-delayed
manner. This equipment incorporates a sophisticated computer control and data
capture system which allows SIBIA to perform more than 5,000 functional
receptor/ion channel assays per day, as compared to less than 100 per day using
traditional methods. SIBIA has contracted for a second, fully automated system
that is expected to allow analysis of up to 30,000 functional receptor/ion
channel assays per day.
Transcription-based Assay. SIBIA's proprietary transcription-based assay
technology measures the functional activity of test compounds on cell-surface
proteins using a wide array of specifically responsive promoter-reporter gene
constructs and products. SIBIA believes its proprietary transcription-based
assay technology is broadly applicable to virtually any cell-surface proteins,
such as receptors, that control signal transduction processes affecting gene
transcription. See "-- Patents and Proprietary Rights." In addition, the Company
believes that transcription-based assays have application beyond SIBIA's current
receptor/ion channel subtype targets and should support the expansion of SIBIA's
drug discovery efforts to other human molecular targets involved in CNS
disorders. Furthermore, the Company believes this technology can also be applied
to the discovery of drug candidates for the treatment of diseases outside the
CNS area. See "Risk Factors -- Uncertainty Regarding Patents and Proprietary
Rights."
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SUBTYPE-SELECTIVE DRUG DEVELOPMENT PROGRAM
SIBIA is applying its human receptor/ion channel technology and utilizing
its broad portfolio of proprietary molecular targets in efforts to rapidly
discover small molecule therapeutics for CNS disorders. The Company believes
that small molecule therapeutics may pass from the blood to the brain or spinal
cord through the blood-brain barrier and thereby serve as effective agents for
the treatment of certain CNS disorders. In addition, small molecules offer
advantages with respect to manufacturing and compound stability. The Company
focuses on the discovery and development of drug candidates and establishes
collaborations with pharmaceutical companies for advanced development and
commercialization of such candidates. The chart below summarizes SIBIA's current
receptor/ion channel drug development programs.
<TABLE>
<CAPTION>
DEVELOPMENT
PROGRAM THERAPEUTIC AREA STATUS(1) COMMERCIAL RIGHTS(2)
- ---------------------- ---------------------- ------------------ --------------------
<S> <C> <C> <C>
NACHR AGONISTS
SIB-1508Y Parkinson's Disease, Preclinical SIBIA
Attention Deficit
Disorders
SIB-1553A series Dementia Lead identified SIBIA
(Alzheimer's and
Parkinson's Diseases)
NAChR Subtype- Schizophrenia, Discovery SIBIA
Selective Agonists Attention Deficit
Disorders, Chronic
Pain, Eating Disorders
EAAR ANTAGONISTS
SIB-1757 series Epilepsy Lead identified Ciba/SIBIA(3)
NMDA, Non-NMDA Stroke, Epilepsy, Discovery Ciba/SIBIA(3)
Ionotropic and Head Trauma
Metabotropic
Antagonists
VGCC ANTAGONISTS
VGCC Subtype- Stroke, Epilepsy, Discovery Lilly/SIBIA(4)
Selective Antagonists Chronic Pain
</TABLE>
- ---------------
(1) "Preclinical" indicates that SIBIA is conducting pharmacology testing,
toxicology testing, formulation, process development and/or manufacturing
scale-up prior to possible submission of an IND.
"Lead identified" indicates that lead compounds have been discovered that
meet certain criteria of the Company. Lead compounds may undergo structural
modification and more extensive evaluation prior to selection of candidates
for preclinical development.
"Discovery" activities include initial research related to specific
molecular targets and assay development for the identification of new lead
compounds.
(2) Collaborative partners may participate in the preclinical and clinical
testing phases of the drug development process and generally will assume
principal responsibility for commercialization.
(3) Ciba has been granted exclusive worldwide rights to manufacture and market
products discovered during the term of its agreement with SIBIA in the EAAR
area and will pay certain milestones, if and when milestones are achieved,
and royalties, if and when products are commercialized, to SIBIA. Upon
expiration of the term of the agreement, Ciba has a right of first
negotiation for a three year period with respect to compounds identified by
SIBIA. See "-- Strategic Alliances."
(4) SIBIA and Lilly each have the right to independently utilize SIBIA's
receptor/ion channel technology in the VGCC area. Lilly has a right of first
negotiation with respect to compounds identified by SIBIA during the term of
the agreement. Lilly has exclusive, worldwide rights to manufacture and
market products which it discovers using SIBIA technology and will pay
certain milestones, if and when milestones are achieved, and royalties, if
and when products are commercialized, to SIBIA. See "-- Strategic
Alliances."
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Overview of Selected CNS Disorders
The Company is seeking to discover, design and develop receptor/ion channel
subtype-specific compounds that may be used for the treatment of Parkinson's
disease, Alzheimer's disease, stroke, head trauma, epilepsy, chronic pain,
schizophrenia and other neurological, psychiatric and neurodegenerative
disorders, many of which have large patient populations and represent critical
unmet medical needs.
Parkinson's Disease. Parkinson's disease is a progressive
neurodegenerative disorder displaying motor symptoms of rigidity, akinesia and
tremor and is frequently accompanied by depression and dementia. It affects an
estimated 500,000 people in the United States, with about 100,000 new cases
reported each year. About two-thirds of patients diagnosed with the disease are
disabled within five years of diagnosis. There currently is no cure for
Parkinson's disease and no treatment which stops its degenerative course. Many
of the symptoms of early-stage Parkinson's disease can be treated with various
drugs that mimic the action of dopamine, which is reduced in these patients.
Current therapy is primarily the oral administration of L-dopa, a precursor
molecule that neurons are able to convert into dopamine.
Alzheimer's Disease. Alzheimer's disease is a neurodegenerative disorder
exhibiting symptoms of memory loss, loss of language function, disorientation,
inability to think abstractly, inability to care for oneself, personality
change, emotional instability and behavior problems. Dementia of the Alzheimer's
type currently constitutes a large and growing health problem among the elderly,
and its prevalence is increasing as this segment of the population grows.
Alzheimer's disease accounts for about 70% of all cases of dementia,
representing about four million cases in the United States. Conservative
estimates indicate that by the year 2000, there will be five to eight million
cases of Alzheimer's disease in the United States. At present, there is no
effective therapy that will prevent the onset of Alzheimer's disease or slow or
reverse the degenerative process, and there are only a few products available
for treating symptoms for Alzheimer's dementia.
Stroke. In the United States, there are about 400,000 to 500,000 strokes
suffered each year, resulting in approximately 150,000 fatalities. This makes
stroke the third-leading cause of death in the United States. Almost two-thirds
of the survivors of strokes are handicapped, with more than two million people
in the United States now living with disabilities caused by stroke. Current
therapies for stroke have limited ability to reduce the neuronal cell damage
that results. Presently no effective means exist for treating or reducing the
areas of the brain damaged by stroke.
Head Trauma. About one million people in the United States suffer from the
effects of head injuries, and more than 400,000 hospital admissions each year
are attributed to such injuries. The economic cost of head trauma is high
because of the costs of long-term rehabilitation, support services and lost
income.
Epilepsy. Over two million people in the United States suffer from
epilepsy with approximately 100,000 new cases reported each year. At present,
there is no cure for this disorder, and no broad-spectrum anti-epileptic is
currently available. Existing symptomatic therapies produce significant adverse
effects and are ineffective for approximately 15% of the epilepsy patient
population.
Chronic Pain. Pain is a complex response and is classified into two broad
categories: acute and chronic. If acute pain problems are not effectively
treated, they may progress to chronic states. Chronic pain is recognized as
being the most frequent cause of disability in the United States and many
industrialized nations. Incidence of pain in the United States exceeds 97
million cases. Major causes of chronic pain include arthritis, cancer pain, back
injuries and migraine, with such causes affecting almost 60 million people in
the United States.
Schizophrenia. Schizophrenia is a group of serious mental disorders that
can be classed, in terms of symptoms, into four major stereotypes: paranoid,
catatonic, disorganized and undifferentiated. The patient often appears to be
mentally impaired, manifesting behavior that is bizarre and inappropriate. About
one percent of the world's population is affected by schizophrenia and it is
estimated that about two million people in the United States suffer from the
disease.
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NAChR Program
The NAChR system is a major excitatory neurotransmitter system comprised of
many different receptor subtypes, each activated by the neurotransmitter
acetylcholine. Mapping and pharmacological studies have revealed that NAChR
subtypes are widely but discretely distributed in the brain and appear to be
associated with specific neuronal structures and functions. SIBIA focuses
certain of its drug discovery and development efforts on NAChR subtypes as drug
targets.
There is strong evidence that receptors within the NAChR system are
important in Parkinson's disease, Alzheimer's disease and other CNS disorders.
In particular, a deficit of such receptors has been demonstrated in Alzheimer's
disease and Parkinson's disease patients. Studies by the Company indicate that
specific NAChR subtypes modulate the release of both dopamine and acetylcholine,
each an important neurotransmitter, in specific and different brain regions. The
Company believes that it is possible to develop subtype-specific NAChR drugs to
ameliorate the effects of reduced concentrations of dopamine in Parkinson's
patients and acetylcholine in Alzheimer's patients.
SIBIA has identified and selected SIB-1508Y for development toward clinical
studies in Parkinson's disease. In contrast to current therapies which treat
only motor dysfunction, the Company believes SIB-1508Y may be effective for the
treatment of motor, affective and cognitive dysfunctions of Parkinson's disease.
SIB-1508Y exhibits subtype-selective NAChR agonist activity, releases dopamine,
acetylcholine and norepinephrine from selected brain regions and shows activity
in rodent and primate models of Parkinson's disease and in rodent models of
depression and cognitive function. Preclinical data to date suggests that
SIB-1508Y may be useful as a stand-alone therapeutic agent, as well as in
combination with L-dopa. The Company intends to file an IND with respect to
SIB-1508Y by the end of 1996 or early in 1997. SIB-1508Y may be studied in
disorders other than Parkinson's disease involving cognitive dysfunction of
attention and/or vigilance. SIBIA expects to establish corporate collaborations
for the advanced clinical study and commercialization of SIB-1508Y, if such
stages of development are reached. See "Risk Factors -- Absence of Developed
Products; Early Stage of Development" and "-- Dependence on Collaborative
Relationships."
SIBIA also is seeking to develop NAChR subtype-selective compounds for
other CNS disorders. In particular, it has identified the SIB-1553A series of
compounds. The Company's studies indicate that these compounds, like SIB-1508Y,
stimulate dopamine and acetylcholine release in specific brain regions but have
a different pharmacological profile. SIBIA believes these types of compounds may
have application in the symptomatic treatment of Alzheimer's and Parkinson's
diseases. Furthermore, SIBIA believes that subtype-specific NAChR compounds may
be useful for the treatment of other CNS disorders such as schizophrenia,
attention deficit disorder, chronic pain and eating disorders. The Company has
established criteria for the selection of preclinical development candidates for
Alzheimer's disease derived from SIBIA's NAChR drug discovery technology and
expects to identify such a candidate by the end of 1996.
EAAR Program
EAARs are divided into three categories: NMDA-type receptor/ion channels,
non-NMDA-type receptor/ion channels and metabotropic receptors, a category of G
protein-coupled receptors which do not directly flux calcium but rather function
via other cellular messenger molecules. Each category is comprised of multiple
subtypes that are activated by excitatory amino acid neurotransmitters such as
glutamate and which have unique anatomical distributions.
The NMDA-type and non-NMDA-type receptor/ion channel categories belong to
the class of ligand-gated ion channels, and a significant number of the
receptor/ion channel subtypes in these categories directly flux calcium into
neurons. These receptor/ion channel subtypes are important for diverse brain
functions, including memory and learning and are also implicated in
neurodegenerative processes. For example, the scientific community generally
agrees that glutamate is released by nerve cells subjected to ischemic
conditions, as occurs during and after a stroke. Normally, excess glutamate is
removed by nearby cells, but cells subjected to ischemia do not function
properly and are unable to dispose of this
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<PAGE> 33
excess glutamate. This excess glutamate binds to EAARs on adjacent nerve cells,
leading to the influx of excess calcium and subsequent cell damage or cell
death. The newly injured nerve cells release more glutamate, and the process
repeats itself, spreading neuronal damage from cell to cell. For this reason,
there is significant interest in developing subtype-selective EAAR antagonists
as a potential treatment for stroke. The Company believes compounds that
modulate EAARs would selectively control calcium entry into nerve cells.
Metabotropic receptors have been less well-studied but also appear to be
involved in certain CNS disorders. Clones for genes encoding a number of
different and novel metabotropic EAARs have been isolated by SIBIA from human
brain tissue and have been demonstrated to be functional in several types of
assays. Stable cell lines containing certain of such receptors have been
prepared and are being used in SIBIA's functional high throughput screening
assays.
The Company believes drugs acting at specific EAAR subtypes may have
application to various CNS disorders, including stroke, epilepsy and head trauma
and certain neurodegenerative diseases such as Alzheimer's, Parkinson's and
Huntington's diseases. To date, developing therapeutically useful EAAR drugs has
been difficult. Traditional drug discovery approaches have produced molecules
with non-specific EAAR antagonist activity which generally produce many side
effects. SIBIA has discovered a number of different EAAR subtypes, each with
different pharmacological properties. By identifying receptor subtype-specific
EAAR antagonists, the Company believes it may be possible to effectively treat
certain CNS disorders without the side effects caused by non-selectively
blocking multiple EAAR subtypes.
The first EAAR gene was cloned at The Salk Institute, and SIBIA has an
exclusive license to the patents relating to this landmark research. SIBIA has
established a corporate collaboration with Ciba in the area of EAAR subtypes.
SIBIA and Ciba are screening compounds from the Ciba library in functional EAAR
subtype assays. In addition, SIBIA has identified the SIB-1757 series of
subtype-specific human metabotropic receptor antagonists. Under the terms of
their collaborative agreement, SIBIA and Ciba will work together to design and
optimize compounds based on this series, and such compounds would then be
further developed by Ciba. Based on preliminary studies, SIBIA believes that
subtype-specific metabotropic receptor antagonists may provide a novel approach
to the treatment of epilepsy. See "-- Strategic Alliances."
VGCC Program
The VGCC system is a major receptor/ion channel system involved in
regulating neuronal calcium flux and excitability. VGCCs have traditionally been
classified as L-, T-, N- and P-type calcium channels based on their biophysical
and pharmacological properties. SIBIA's pioneering research in the
characterization of VGCCs by molecular structure has led to the identification
of other classes of calcium channels as well as channel subtypes within these
classes, resulting in a new classification scheme. The critical role of VGCC
subtypes in the function and potential dysfunction of nerve cells indicates that
they may be targets for therapeutic intervention in a number of CNS disorders.
Calcium flux through distinct VGCC subtypes at presynaptic neuron terminals
controls the release of different neurotransmitters, including dopamine,
acetylcholine, serotonin and glutamate. The Company believes that the ability to
selectively control neurotransmitter release with subtype-selective VGCC drugs
could impact many CNS disorders as follows: (i) control of dopamine release may
have application in the treatment of Parkinson's disease, schizophrenia and
manic-depressive disorders; (ii) control of acetylcholine release may have
application in Alzheimer's disease; (iii) control of serotonin release may have
application in the treatment of migraine and depression; and (iv) control of
glutamate release may have application in the treatment of stroke, epilepsy and
pain. Furthermore, the Company believes modulation of synaptic activity by
controlling neurotransmitter release with VGCC subtype-selective drugs may prove
to be a more effective approach with broader applicability than current drug
therapy for CNS disorders.
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The Company currently has a collaborative agreement with Lilly related to
drug discovery for VGCC subtypes. The early focus of SIBIA's collaboration with
Lilly involved the subtypes of neuronal N-type VGCCs. The Lilly collaboration
has been expanded to include additional VGCC subtypes. SIBIA was the first to
clone and functionally express a human neuronal N-type VGCC, and the Company has
filed patent applications on this and subsequent discoveries. SIBIA has
generated stable mammalian cell lines which express functional VGCC subtypes and
has developed these cell lines into assays that currently are being employed by
both Lilly and SIBIA in efforts to discover selective drugs using high
throughput screening technology. Under the terms of the collaborative agreement,
Lilly and SIBIA will each seek to optimize and develop lead compounds discovered
from its own screening efforts. See "-- Strategic Alliances."
HUMAN PROTEASE TECHNOLOGY
SIBIA has developed technology concerning the role of degradative proteases
in neurodegenerative diseases and methods for controlling the activity of these
proteases. Neuronal protease activity leading to degenerative processes is most
notable during progressive diseases such as Alzheimer's disease and in phases of
neuronal cell death which accompany acute situations such as stroke and head
trauma. These proteases are generally believed to break down the neuronal
cytoskeleton leading to nerve cell death and play a fundamental role in the
degeneration of the nervous system. The Company believes that modulating the
activity of these proteases may have a therapeutic benefit by reducing neuronal
cell loss.
AMYLOID PRECURSOR PROTEIN
PROCESSING PATHWAYS
[DIAGRAM]
Processing of amyloid precursor protein (APP) by specific neuronal proteases
leads to the production of either the neuroprotective secreted APP(s-alpha)
molecule or the neurotoxic amyloid beta-protein (A-beta) molecule. Neurotoxic
A-beta is formed through the action of two successive protease cleavages on APP,
the first by beta-secretase and the second by gamma-secretase. Alternatively,
A-beta formation is precluded through a single protease cleavage of APP by
alpha-secretase which generates neuroprotective APP(s-alpha).
Inhibitors of the Formation of Amyloid Beta-Protein
SIBIA's major effort within its human protease technology is currently
focused on controlling degradative proteases which generate A-beta, the
neurotoxic fragment of APP. A-beta, which is derived from
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<PAGE> 35
APP by the actions of specific proteases known as the beta- and
gamma-secretases, respectively, is generally understood to be the major
molecular key to Alzheimer's disease. A-beta is found at autopsy in senile
plaques and in deposits surrounding the small blood vessels in brain tissue,
both of which are diagnostic for Alzheimer's disease. A number of studies
indicate that mutations in the APP gene are associated with early-onset familial
Alzheimer's disease. The clinical presentation and histopathology of early-onset
Alzheimer's disease is indistinguishable from that seen in the more prevalent
late-onset Alzheimer's disease. The Company therefore believes the inhibition of
A-beta formation may be broadly applicable to early- and late-onset Alzheimer's
disease.
SIBIA has conducted extensive research concerning the role of APP in
Alzheimer's disease. It has developed technology related to the metabolism of
APP in Alzheimer's disease and methods for controlling the formation of A-beta.
The other important APP metabolic product, secreted APP(s-alpha), has been shown
in in vitro and in vivo studies to have neuroprotective properties and has been
shown by SIBIA to be significantly decreased in the cerebrospinal fluid of
Alzheimer's disease patients. SIBIA is seeking to develop compounds which
selectively modulate the enzymatic processing of APP, such that the formation of
A-beta is inhibited and that of APP(s-alpha) is enhanced, which SIBIA believes
could slow disease progression or possibly modify the underlying disease
process. The Company believes that, to date, research in other laboratories has
focused on either inhibiting the formation of A-beta or enhancing the formation
of APP(s-alpha), rather than modifying both processes simultaneously.
Other Applications
The Company believes that the protease inhibitor technology developed as
part of the A inhibitor program has applicability to other broad families of
proteases which are believed to play key roles in the neuronal cell death that
accompanies a variety of neurodegenerative disorders. SIBIA has established
screening assays which measure the ability of selected compounds to enhance,
modulate or inhibit the activity of some of these enzymes in vitro. Furthermore,
SIBIA has established, through a collaborative research effort with scientists
at McGill University, human neuronal cell-based assays for monitoring the
effects of selected protease inhibitors on apoptosis (programmed cell death).
See "-- Research Collaborations and Licenses."
HUMAN PROTEASE DRUG DEVELOPMENT PROGRAM
SIBIA has built an integrated drug discovery program for A-beta protein
technology incorporating molecular biology, cell biology, biochemistry,
pharmacology, combinatorial chemistry and medicinal chemistry. SIBIA has
developed neuronal-type cell lines able to process human APP and produce
APP(s-alpha) and A-beta, which are used as functional assays for compound
screening and drug development. Some cell lines express APP genes which contain
the mutations that give rise to familial Alzheimer's disease mentioned above.
A-beta, APP(s-alpha) and other processing fragments can be detected with the use
of various antibodies, and assays for these and other fragments have been
developed as part of SIBIA's drug discovery program. SIBIA's sophisticated
biochemical assays allow quantification of A-beta and APP(s-alpha) in biological
fluids derived from cultured cells, animals (normal and transgenic mice) and
sporadic and familial Alzheimer's patients. The Company believes the assays, and
the ability to biochemically evaluate the effect of test compounds on APP
processing in biological systems, and potentially in patients in clinical
trials, provide it a significant competitive advantage.
SIBIA has identified several series of small molecules which inhibit A-beta
production in vitro. The assay technology, together with the lead compounds
SIB-1281, SIB-1323 and SIB-1405 (beta-secretase and gamma-secretase inhibitors)
formed the basis for the SIBIA/Bristol-Myers Squibb collaboration. See "--
Strategic Alliances." The most advanced inhibitor, SIB-1281, is now being
evaluated in a battery of functional assays, including assays which test the
ability of drug candidates to block A-beta production in transgenic mice which
are able to process human APP to A-beta.
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STRATEGIC ALLIANCES
Strategic alliances with major pharmaceutical and biotechnology companies
are an integral part of SIBIA's business strategy. To date, SIBIA has
established collaborative agreements with Lilly, Ciba and Bristol-Myers Squibb.
There can be no assurance that the Company will maintain its existing
collaborative arrangements or establish any additional collaborative
arrangements or that such future relationships, if established, or its current
relationships will result in marketable pharmaceutical products. See "Risk
Factors -- Dependence on Collaborative Relationships."
Eli Lilly and Company
In May 1992, SIBIA entered into a collaborative agreement with Lilly under
which Lilly agreed to fund research for three years to develop and utilize
SIBIA's receptor/ion channel technology in the area of neuronal VGCCs for the
discovery of drugs that interact with such molecular targets. Coincident with
the original collaborative agreement, Lilly made a $4,000,000 equity investment
in SIBIA. In May 1995, the scope of this collaborative agreement was expanded to
include additional neuronal VGCC subtypes and to increase the Lilly milestone
payment obligations to SIBIA, and the term of the collaboration agreement was
extended for an additional two years. Under the agreement, both parties jointly
conduct research to develop the receptor/ion channel technology to identify
therapeutics based on VGCCs and can utilize this technology for this purpose
independently. During the extended term of the collaboration agreement, SIBIA
will continue to work exclusively with Lilly in the area of neuronal VGCCs and
Lilly will provide funding to support research at SIBIA. SIBIA retains the
rights to use the program technology for its own drug discovery efforts and may
screen molecules from other sources against VGCC subtypes and pursue development
of these molecules, subject to Lilly's right of first negotiation with respect
to such molecules discovered during the extended term of the collaboration
agreement. Upon expiration of the term of the collaboration, Lilly retains
non-exclusive rights to utilize certain of SIBIA's VGCC technology. Lilly has
been granted exclusive worldwide rights to manufacture and market products Lilly
discovers using SIBIA's VGCC technology, and SIBIA is entitled to receive
milestone payments at certain stages of the development of product candidates,
if any are identified, and royalties on sales of products that are developed, if
any are ever developed. Either party may terminate the collaboration agreement
upon six months' prior written notice, which may be provided at any time after
May 1996, or at any time pursuant to standard early termination provisions (such
as material breaches).
The Company has recently entered into discussions with Lilly regarding a
proposed amendment of its agreement with Lilly. As currently in effect, the
Company's agreement with Lilly expires pursuant to its terms in May 1997. The
Company anticipates that an amendment to the current agreement will be made that
would reduce the level of funding effective in November 1996, but may extend the
term of support one or more years. The Company also anticipates that under an
amendment to the current agreement Lilly may increase its utilization of the
Company's drug discovery technology for high-volume compound screening. However,
until its current agreement with the Company is amended, Lilly can terminate
such agreement and its collaboration with the Company upon six months' prior
written notice, which may be given at any time after May 1, 1996.
CIBA-GEIGY Limited
In October 1992, SIBIA entered into a three-year collaborative agreement
with Ciba which has been extended through September 1998 to develop and utilize
SIBIA's receptor/ion channel technology in the area of EAARs for the discovery
of drugs that interact with such molecular targets. Ciba has been granted
exclusive worldwide rights to manufacture and market products it or SIBIA
discovers using the program technology during the collaboration and SIBIA is
entitled to receive milestone payments at certain stages of the development of
product candidates, if any are identified, and royalties on sales of products
that are developed, if any are ever developed. During the term of the
collaboration agreement, SIBIA will work exclusively with Ciba in the area of
EAARs, and Ciba has an exclusive license during the term of the collaboration
agreement to use SIBIA's receptor assay technology. Upon expiration of the
collaboration agreement, SIBIA retains the rights to use the program technology
for its own drug discovery efforts and
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may screen molecules from other sources against EAARs and pursue development of
these molecules, subject to Ciba's right of first negotiation with respect to
such molecules discovered during the three years following expiration of the
collaboration agreement. The collaboration agreement may be terminated by either
party upon six months' prior written notice, which may be provided at any time
beginning March 1997, or at any time pursuant to standard early termination
provisions (such as material breaches and certain changes in control). Pursuant
to the extended agreement, Ciba will provide $500,000 to fund certain capital
expenditures (which may be credited against future milestone payments) and has
agreed to purchase $7,500,000 of equity from SIBIA, $5,000,000 of which will be
purchased at the closing of this offering.
On March 7, 1996, Ciba and Sandoz Ltd. announced that they had reached an
agreement to merge. The Company cannot predict the impact such merger will have
on the Company's collaboration with Ciba, and there can be no assurance that the
new combined entity will continue its collaboration with the Company or that it
will continue its current level of commitment to such collaboration.
Bristol-Myers Squibb Company
In August 1995, SIBIA entered into a collaborative agreement with
Bristol-Myers Squibb under which Bristol-Myers Squibb agreed to fund research
for a minimum of four years to discover and develop compounds able to
selectively modulate the processing of APP for the treatment of Alzheimer's
disease and related neurodegenerative disorders. During the joint research
effort, neither SIBIA nor Bristol-Myers Squibb may enter into any other
third-party agreements directed toward the discovery and development of products
for use in the area of APP metabolism. In addition, Bristol-Myers Squibb has the
sole discretion to determine which compounds, if any, it will pursue to develop.
Under the terms of the agreement, all preclinical and clinical development of
lead compounds will be undertaken by Bristol-Myers Squibb. SIBIA shall have the
right of first negotiation to obtain a license to certain compounds discovered
during the collaboration in the event Bristol-Myers Squibb elects not to pursue
the development of such compounds. Pursuant to the collaborative agreement,
except with regard to SIBIA's assay technology, SIBIA has granted to
Bristol-Myers Squibb an exclusive, worldwide, royalty-bearing license to
commercialize products arising out of the collaboration. Furthermore, upon the
termination of the collaboration, SIBIA and Bristol-Myers Squibb have granted to
one another non-exclusive licenses to the other's assay technology for the
discovery and development of new compounds. The agreement may not be terminated
prior to August 1999 without the parties' mutual consent, except pursuant to
standard early termination provisions (such as material breaches and certain
changes in control).
Coincident with the collaborative agreement, Bristol-Myers Squibb made an
equity investment in the amount of $7,000,000 and paid a license fee of
$3,000,000. Bristol-Myers Squibb is also obligated to make a further equity
investment of $6,000,000 upon the initiation of clinical trials relating to any
product developed from the collaboration, but not before January 1, 1997. In
addition to research funding, SIBIA is entitled to receive certain milestone
payments at certain stages during the development of product candidates, if any
are identified. Bristol-Myers Squibb will also pay SIBIA royalties on net sales
of products resulting from the joint research, if any are ever developed.
RESEARCH COLLABORATIONS AND LICENSES
Research collaborations with academic groups are also an integral part of
SIBIA's strategy because the Company believes that they enhance its leadership
position. Selected collaborations are described below.
The Salk Institute for Biological Studies
In 1988, SIBIA entered into a license agreement with The Salk Institute on
a number of NAChR subunit clones on which two U.S. patents have recently issued.
This agreement was amended in March 1996 such that the license to the issued
U.S. patents and related patent applications became an exclusive worldwide
license. Pursuant to the agreement, as amended, SIBIA is obligated to pay
royalties
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to The Salk Institute on sales of products resulting from The Salk Institute's
NAChR technology. In addition, the Company is required to make minimum annual
royalty payments to The Salk Institute beginning in 2002. Failure to pay such
royalties will result in the related license becoming non-exclusive.
In 1990, SIBIA entered into a three-year agreement with The Salk Institute
in the area of EAARs. This agreement provided for the support of research at The
Salk Institute by SIBIA and the transfer of research materials and research
results in the EAAR area from The Salk Institute to SIBIA. SIBIA also received
an exclusive worldwide license to certain EAAR-related patents and patent
applications held by The Salk Institute. The agreement was amended in March
1996. Pursuant to the agreement, as amended, the Company is required to make
certain annual minimum royalty payments to The Salk Institute beginning in 2002.
Failure to pay such royalties will result in the related license becoming
non-exclusive.
McGill University
SIBIA is collaborating with Dr. Andrea LeBlanc, Department of Neurology and
Neurosurgery at the Bloomfield Center for Research in Aging at McGill
University, to characterize the activities of certain of SIBIA's proprietary APP
processing modulators in human neuronal and astrocytic cultures by determining
their effects on the generation of APP processing products.
The Rockefeller University
SIBIA is collaborating with Dr. Rong Wang, a researcher in the Mass
Spectrometry Laboratory at Rockefeller, on the detection and quantitation of A
and related APP processing fragments in tissue culture, cerebrospinal fluid and
plasma samples.
Mt. Sinai School of Medicine
SIBIA is collaborating with Dr. John Morrison, Professor and Co-Director,
Dr. Arthur M. Fishberg Research Center for Neurobiology, the Mt. Sinai School of
Medicine, on the preparation of antibodies against EAAR subtypes and the use of
these antibodies to map the receptor subtype distribution in the human brain.
University of Chicago
SIBIA is collaborating with Dr. Richard J. Miller, Professor, Department of
Pharmacology and Physiological Sciences, University of Chicago, on the
biophysical and pharmacological characterization of certain VGCC subtypes.
University of Bristol, England
SIBIA is collaborating with Professor Timothy Gallagher, School of
Chemistry, University of Bristol, on the design and synthesis of novel
derivatives of a naturally occurring nicotinic acetylcholine agonist. Professor
Gallagher's work complements and expands SIBIA's internal drug discovery program
in this area.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to file patent applications to protect technology,
inventions and improvements that are important to the development of its
business. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. Since its inception, SIBIA has been granted 25 U.S.
and foreign patents and it has a total of approximately 120 pending U.S. and
foreign applications.
SIBIA has 34 pending applications for U.S. patents on its technology
relating to drug discovery for various CNS diseases and disorders. Fifteen of
the currently pending U.S. patent applications cover the composition or use of
VGCC genes and the encoded subtypes. SIBIA has two issued patents which include
claims to DNAs encoding key structural components of VGCCs which can be utilized
in assays to
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identify compounds that modulate VGCC function. SIBIA also has a U.S. patent
which covers an assay method for the identification of modulators of VGCCs
containing an (1C), (1D) and/or (2) subunit, singly or in combination. SIBIA has
recently been notified of the intent to grant a European patent covering DNA
encoding VGCC (2) subunits and cells expressing the same.
Seven of SIBIA's pending U.S. patent applications cover the composition or
use of human NAChR genes and encoded subtypes. SIBIA also holds an issued patent
with claims to DNAs encoding key structural components of NAChRs. In addition,
SIBIA has an exclusive license from The Salk Institute to DNAs encoding various
NAChR subunits.
Within the EAAR class, SIBIA is actively pursuing three U.S. patent
applications covering human NMDA receptor genes and encoded subtypes and three
U.S. patent applications covering human metabotropic EAAR genes and encoded
subtypes that were filed in connection with ongoing research. Recently, SIBIA
received a Notice of Allowance from the United States Patent and Trademark
Office ("PTO") to claims covering DNAs encoding human metabotropic receptors
mGluR1b, mGluR2, mGluR3 and mGluR5a-c and cells containing the same. SIBIA also
has an exclusive license from The Salk Institute to DNAs encoding various NMDA-
and non-NMDA-type ligand-gated EAA receptor/ion channel subtypes.
Several of SIBIA's U.S. patent applications relate to functional screening
techniques that can be utilized in conjunction with receptor/ion channel
compositions for identifying potential drugs for the treatment of CNS disorders.
Two issued patents cover methods and compositions for identifying
receptor-modulating compounds based on detection of reporter gene transcription
in recombinant cell systems. In addition, six patent applications cover
fluorescence-based automated systems for high throughput functional screening of
receptor-modulating compounds.
Additionally, SIBIA has eleven U.S. patent applications covering the
composition or use of compounds which modulate the activity of NAChRs for the
treatment of diseases involving these receptors. Twelve applications have been
filed to cover the composition or use of compounds that modulate the processing
of proteins implicated in Alzheimer's disease.
Applications for foreign patents corresponding to the majority of the above
described U.S. applications covering receptor compositions and uses and
screening technologies have also been filed.
The patent positions of pharmaceutical and biotechnology firms, including
SIBIA, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, the Company does not know
whether any more of its applications will result in the issuance of patents or,
if any patents are issued, whether they will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the United States are maintained in secrecy until a patent issues, and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, the Company cannot be certain that it was the first
creator of inventions covered by its pending patent applications or that it was
the first to file patent applications for such inventions. Moreover, the Company
may have to participate in interference proceedings declared by the PTO to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. Similarly,
the Company may have to participate in opposition proceedings with respect to
granted European patents. The Company is aware of a third-party patent
application that may elicit an interference proceeding with one of the Company's
patent applications in the PTO. In addition, the Company believes that certain
claims in three of its other patent applications may elicit such proceedings as
well. Further, the Company currently is opposing an issued patent of a third
party in Europe. There can be no assurance that the Company will prevail in
these proceedings. Also, there can be no assurance that the validity of the
Company's patents, if issued, would be upheld by a court of competent
jurisdiction. An adverse outcome in patent prosecution or in litigation with
respect to the validity of any of the Company's patents could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease using such
technology.
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In addition, the recombinant Pichia pastoris yeast expression system
developed at SIBIA is protected by several patents that have issued to Phillips
Petroleum. These patents include claims to key Pichia gene regulatory elements,
marker genes and transformation methods that form the basis of the recombinant
expression system. SIBIA retains full rights to the general expression system
protected by these patents but does not have the right to sublicense this
technology. SIBIA has filed numerous applications and has been granted five U.S.
patents pertaining to Pichia-based recombinant systems for the production of
certain proteins including human epidermal growth factor, human IGF-1 and
aprotinin. SIBIA also has patents and patent applications in other areas such as
therapeutic peptides, bioagriculture and vaccine-related technology. See "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights."
COMPETITION
Competition to develop drugs to treat CNS disorders is intense and expected
to increase as knowledge and interest in the disorders addressed by the products
the Company is seeking to develop increases. The Company's most significant
competitors are fully integrated pharmaceutical companies and established
biotechnology companies. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical companies. In addition, the Company faces competition from
academic institutions, governmental agencies and other public and private
research organizations which conduct research, seek patent protection, and
establish collaborative arrangements for product and clinical development and
marketing. Furthermore, these companies and institutions compete with the
Company in recruiting and retaining highly qualified scientific and management
personnel.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company and have significant products
approved or in development. In addition, many of these competitors have
significantly greater experience than the Company in undertaking preclinical
testing and clinical trials of new pharmaceutical products and in obtaining FDA
approval for products more rapidly than the Company. The Company has not
conducted clinical trials with respect to any of its compounds under development
and has not sought the approval of the FDA for any product based on such
compounds. Furthermore, if the Company is permitted to commence commercial sales
of products that it may develop, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has no
experience.
Any product that the Company may succeed in developing, and for which it
gains regulatory approval, must then compete for market acceptance and market
share. For certain of the Company's potential products, an important competitive
factor will be the timing of market introduction. Accordingly, the Company
expects that the relative speed with which companies can develop products,
complete the clinical testing and approval processes and supply commercial
quantities of the product to the market will be important competitive factors.
With respect to clinical testing, competition may delay progress by limiting the
number of clinical investigators and patients available to test the Company's
potential products.
In addition to the above factors, competition is based on product efficacy
and safety, the timing and scope of regulatory approvals, availability of
supply, marketing and sales capability, price, patent position and reimbursement
coverage. See "Risk Factors -- Intense Competition; Rapid Technological Change."
MANUFACTURING
The Company currently has no manufacturing facilities for clinical or
commercial production of any compounds currently under development or the
manufacture and distribution of products that may be developed. The Company is
currently relying on third-party manufacturers to produce its compounds for
preclinical and clinical purposes. Furthermore, the compounds under development
by the Company have never been manufactured on a commercial scale and may not be
able to be manufactured at a cost or in quantities to make commercially viable
products.
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The Company intends to establish arrangements with third-party
manufacturers to supply compounds for preclinical and clinical trials and
commercial sales of products that may be developed, as well as for the
packaging, labeling and distribution of such products. If the Company is unable
to contract for a sufficient supply of its compounds on acceptable terms, the
Company's preclinical and clinical testing schedule would be delayed, resulting
in the delay of submission of products for regulatory approval and initiation of
new development programs, which would have a material adverse effect on the
Company's business. If the Company should encounter delays or difficulties in
establishing relationships with manufacturers to produce, package and distribute
products that it may develop, market introduction or penetration of such
products would be adversely affected. See "Risk Factors -- No Manufacturing or
Marketing Capability; Reliance on Third-Party Manufacturers and Marketers;
Absence of Sales and Marketing Experience."
SALES AND MARKETING
The commercialization of products, such as those that may be developed by
the Company, is an expensive and time-consuming process. The Company has no
experience in sales, marketing or distribution. In order to market directly any
products that the Company may develop, the Company must develop a marketing and
sales force with technical expertise and supporting distribution capability.
Alternatively, the Company may seek to obtain the assistance of a pharmaceutical
or biotechnology company with a large distribution system and a large direct
sales force. See "Risk Factors -- No Manufacturing or Marketing Capability;
Reliance on Third-Party Manufacturers and Marketers; Absence of Sales and
Marketing Experience."
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the United
States requires the approval of the FDA under the federal Food, Drug and
Cosmetic Act. Similar approvals by the comparable agencies are required in most
foreign countries. The FDA has established mandatory procedures and safety
standards that apply to the preclinical and clinical testing, manufacture and
marketing of pharmaceutical products. Obtaining FDA approval for a new
therapeutic takes several years and involves substantial expenditures.
Pharmaceutical manufacturing facilities are also regulated by state, local and
other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess a drug's efficacy and
to identify potential safety problems. The results of these studies are
submitted to the FDA as part of an IND, which is filed to comply with FDA
regulations prior to beginning clinical trials.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to (i)
assess the potential of the drug for specific, targeted indications; (ii)
evaluate dosage tolerance and optimal dosage; and (iii) identify possible
adverse effects and safety risks. When a compound is found to be effective and
to have an acceptable safety profile in Phase II evaluations, Phase III trials
are undertaken to further evaluate clinical efficacy and to further test for
safety within an expanded patient population at geographically dispersed
clinical study sites. Data from clinical trials are submitted to the FDA in a
New Drug Application ("NDA") or Product License Application ("PLA"). Preparing
an NDA or PLA involves considerable data collection, verification, analysis and
expense.
The testing and approval process requires substantial time and effort and
there can be no assurance that any approval will be granted on a timely basis,
if at all. The time period required for NDA review and approval may be affected
by a number of factors, including the severity of the disease, the availability
of alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested during the
FDA review period. The FDA may ask one of its advisory
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committees to aid in its assessment of the drug. All of these factors may delay
marketing approval. The FDA may also require post-marketing testing to monitor
for adverse effects, which can involve significant expense. FDA approval is
limited to specified indications. Moreover, the product label and promotional
labeling and prescription drug advertising are highly regulated by the FDA under
the federal Food, Drug and Cosmetic Act. In order to permit promotion of the
approved product for indications not included in the scope of the original
approval, further clinical trials and FDA approval may be necessary.
NDA approval requires, among other things, that the prospective
manufacturer's quality control and manufacturing procedures conform to GMP
regulations. All manufacturing facilities, whether foreign or domestic, may be
subjected to a pre-NDA approval inspection. Additionally, domestic manufacturing
facilities are subject to biennial FDA inspections and foreign manufacturing
facilities are subject to periodic inspection by foreign regulatory authorities
as well as by the FDA where the FDA has a reciprocal inspection agreement with
the foreign regulatory authorities.
For clinical investigation and marketing outside the United States, the
Company also is subject to foreign regulatory requirements governing clinical
trials and marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country. The Company's approach to the European regulatory
process involves the identification of respected clinical investigators in the
member states of the European Economic Community ("EEC") to conduct clinical
studies. The Company intends to design these studies to meet both FDA and EEC
standards. Provided regulatory harmonization is finalized in the EEC, these
studies are designed to develop a regulatory package sufficient for
multi-country approval in the Company's European target markets without the need
to duplicate studies for individual country approvals. This approach also takes
advantage of regulatory requirements in some countries, such as in the United
Kingdom, which allow Phase I studies to commence after appropriate toxicology
and preclinical pharmacology studies but prior to formal regulatory approval.
By the end of 1996 or early in 1997, the Company intends to file an IND
with respect to SIB-1508Y for the treatment of Parkinson's disease. However,
there can be no assurance that the Company will meet this intended filing date,
if at all. See "Risk Factors -- Absence of Developed Products; Early Stage of
Development."
EMPLOYEES
As of December 31, 1995, the Company employed 89 full-time employees, 28 of
whom hold Ph.D. degrees. Eighty employees are engaged in research and
development activities and nine are employed in finance and general
administrative activities. As the Company expands its operations after this
offering, the Company will hire additional personnel. The Company believes that
it maintains good relations with its employees.
FACILITIES
The Company's facilities are located in La Jolla, California. The Company
leases approximately 47,417 square feet of space used for laboratory and
administrative purposes of which approximately 13,609 square feet is sublet.
SIBIA believes that its present facility will be adequate to conduct its
research activities through December 1997, when its current lease expires. The
Company has an option to extend its lease for an additional five years.
Management believes that it will be able to secure additional space at
commercially reasonable rates during the terms of such lease, if necessary.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company and
their ages as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- ------------------------------------------------
<S> <C> <C>
William T. Comer, Ph.D.(1)................. 59 President, Chief Executive Officer and Director
Michael M. Harpold, Ph.D. ................. 46 Vice President, Research
G. Kenneth Lloyd, Ph.D. ................... 51 Vice President, Pharmaceuticals -- Biology
Ian A. McDonald, Ph.D. .................... 48 Vice President, Pharmaceuticals -- Chemistry
Michael J. Dunn............................ 40 Vice President, Business Development
Thomas A. Reed............................. 39 Vice President, Finance/Administration and Chief
Financial Officer
William R. Miller(2)....................... 67 Chairman of the Board of Directors
Francis H.C. Crick, Ph.D. ................. 79 Director
Stanley T. Crooke, M.D., Ph.D.(3).......... 50 Director
Gunnar Ekdahl(2)........................... 53 Director
Frederick B. Rentschler(3)................. 57 Director
James D. Watson, Ph.D.(2).................. 67 Director
</TABLE>
- ---------------
(1) Member of the Non-Officer Stock Option Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
Dr. Comer has been President, Chief Executive Officer and a Director of
SIBIA since April 1991. Prior to joining SIBIA, Dr. Comer worked for
Bristol-Myers Squibb for nearly 30 years in various scientific and management
positions. He served as Executive Vice President, Science & Technology, and then
President, Pharmaceutical Research & Licensing, at Bristol-Myers Squibb from
April 1989 until April 1990. Thereafter, he served as Senior Vice President,
Strategic Management -- Pharmaceuticals and Nutritionals at Bristol-Myers Squibb
until March 1991. Dr. Comer received a B.A. degree from Carleton College and a
Ph.D. in Organic Chemistry and Pharmacology from the University of Iowa. Dr.
Comer is currently a director of Houghten Pharmaceuticals, Inc., Cytel
Corporation and the University of California, San Diego ("UCSD") Cancer Center
Foundation. He is also a member of the Governor's Council on Biotechnology, the
University of California Breast Cancer Research Council and the UCSD Industrial
Advisory Committee for the Department of Chemistry.
Dr. Harpold has been Vice President, Research since 1986 and was a founding
member of SIBIA's scientific staff and Research Director from 1981 to 1986. From
1979 to 1981, he was Assistant Professor of Biochemistry at the University of
Southern California School of Medicine and Member of the Kenneth Norris, Jr.
Comprehensive Cancer Center. Dr. Harpold received a B.S. degree from Texas
Christian University and a Ph.D. in Developmental and Molecular Cell Biology
from Tulane University and was a Helen Hay Whitney Research Fellow at The
Rockefeller University from 1976 to 1979.
Dr. Lloyd has been Vice President, Pharmaceuticals -- Biology since 1994.
He joined SIBIA in October 1992. He received his B.S. and M.S. degrees from
McGill University and a Ph.D. from the University of Toronto. He then held a
postdoctoral position at F. Hoffman La Roche & Co. Ltd. in Basel, Switzerland.
In 1977, Dr. Lloyd moved to Synthelabo S.A. where he held various management
positions culminating with six years as Associate Director, Biology with
responsibility for CNS, cerebrovascular, bronchopulmonary, gastrointestinal and
inflammation research. From 1990-1992, Dr. Lloyd was Assistant Vice President of
Research and Director of Research (U.K.) for Wyeth-Ayerst Research.
Dr. McDonald has been Vice President, Pharmaceuticals -- Chemistry since
1994. He joined SIBIA as Director of Chemistry in February 1993. He received his
B.S. degree and Ph.D. from the School of
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Chemistry, the University of Western Australia. He completed his postdoctoral
studies at the Organic Chemistry Institute of the University of Zurich,
Switzerland. He has held senior scientist positions at the State Health
Laboratory Service in Perth, Australia, at the Australian National University;
the Centre de Recherche Merrell International, Strasbourg, France; and he was a
Group Leader and Senior Research Scientist, Marion Merrell Dow Research
Institute (formerly Merrell Dow), Cincinnati, Ohio during the period July 1985
to February 1993.
Mr. Dunn has been with SIBIA since the Company's inception. He has been
Vice President, Business Development since August 1995. From 1992 to 1995, he
was Director, Business Development and was Manager of Business Development from
September 1991 to April 1992. He received a B.A. degree from the University of
Chicago and an M.B.A. degree from the University of San Diego.
Mr. Reed has been with SIBIA since the Company's inception. He has been
Vice President, Finance/Administration and Chief Financial Officer since August
1995. From 1991 to 1995, he was Director, Finance and was Manager of Business
and Market Evaluation from January 1989 to April 1991. He received a B.A. degree
from the University of California, Berkeley and an M.B.A. degree from the
University of San Diego.
Mr. Miller has been a Director since August 1991 and Chairman of the Board
of Directors since August 1992. In January 1991, he retired as Vice Chairman of
the Board of Directors of Bristol-Myers Squibb; he had been a director of
Bristol-Myers Squibb since 1985. Mr. Miller served as Chairman of the Board of
the Pharmaceutical Manufacturers Association from 1986 until 1987 and was Vice
President and a member of the council of the International Federation of
Pharmaceutical Manufacturers Associations from 1988 until 1990. Mr. Miller is a
member of the Board of Trustees of the Cold Spring Harbor Laboratory and is a
director of Isis Pharmaceuticals, Inc., St. Jude Medical, Inc., Westvaco
Corporation and several private companies. In addition, Mr. Miller serves as
Chairman of the Board of Directors of Vion Pharmaceuticals, Inc. (formerly
OncoRx).
Dr. Crick has been a Director since November 1994. Dr. Crick is President
Emeritus of The Salk Institute. Dr. Crick is also the J.W. Kieckhefer
Distinguished Research Professor at The Salk Institute and Adjunct Professor of
Psychology at UCSD. Dr. Crick majored in physics at University College, London.
In 1949, he joined the Medical Research Council Unit in the Cavendish Laboratory
at Cambridge University as a Laboratory Scientist. He received a Ph.D. from
Cambridge University in 1954. In 1961 he became a founding member of the Medical
Research Council's Laboratory of Molecular Biology at Cambridge. With three
other scientists (Dr. Maurice Wilkins, the late Dr. Rosalind Franklin at King's
College, London, and Dr. James Watson), Dr. Crick was responsible in 1953 for
the discovery of the molecular structure of deoxyribonucleic acid ("DNA") -- the
biological structure which makes possible the transmission of inherited
characteristics. Dr. Crick was elected a Fellow of The Royal Society in 1959. He
is a foreign member of several national academies including the U.S. National
Academy of Sciences. In 1960, he was a recipient of an Albert Lasker Award of
the American Public Health Association for work in medical research. The
following year he was awarded the Prix Charles Leopold Mayer of the French
Academy of Sciences and the Research Corporation Award. In 1962, he received the
Gairdner Award of Merit for outstanding medical research from the Gairdner
Foundation in Toronto, which was followed by the Nobel Prize for Physiology or
Medicine, shared with Professors Watson and Wilkins. In 1992, he received the
Order of Merit from the Queen of England.
Dr. Crooke has been a Director since April 1992. He is the founder of Isis
Pharmaceuticals, Inc. and has been its Chief Executive Officer since its
inception in January 1989 and its Chairman of the Board of Directors since
February 1991. From 1980 until January 1989, Dr. Crooke was employed by
SmithKline Beckman Corporation, most recently as President of Research and
Development of SmithKline & French Laboratories. Dr. Crooke received a Ph.D. and
an M.D. degree from Baylor College of Medicine. He is a director of
GeneMedicine, Inc. and the Biotechnology Industry Organization and is Adjunct
Professor of Pharmacology at the Baylor College of Medicine and UCSD.
Mr. Ekdahl has been a Director since 1995. He was appointed Chairman of the
Board of Skandigen AB in 1995. Mr. Ekdahl has extensive experience with Swedish
finance and investment companies and
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<PAGE> 45
was President and Chief Executive Officer of Latour AB from 1985 to 1992, which
has controlling holdings in large Swedish industrial companies. Since 1992, Mr.
Ekdahl has been active as a non-executive board member of several Swedish
companies, including Chairman of Arcona AB, G&L Beijer AB, Lofbergs Lila AB,
Philipson Bil AB and Skandigen AB. Mr. Ekdahl received his B.A. degree from the
Stockholm School of Economics.
Mr. Rentschler has been a Director since January 1993. Since 1990, he has
been a director of several U.S. companies, including The Salk Institute. In
addition, he was President and Chief Executive Officer of Northwest Airlines
during 1990. From 1986 to 1987 Mr. Rentschler held several positions at Beatrice
Company, the most recent being President and Chief Executive Officer. From 1980
to 1984, Mr. Rentschler was President and Chief Executive Officer of Hunt-Wesson
Foods, Inc. Prior to joining Hunt-Wesson Foods, Inc., Mr. Rentschler was
President and a Board member of Armour International from 1976 to 1977 and
President of Armour-Dial from 1977 to 1979. Mr. Rentschler received his B.A.
degree from Vanderbilt University and his M.B.A. degree from Harvard Business
School. He joined The Salk Institute Board of Trustees in 1988 and has been
Chairman of the Board of Trustees since November 1995.
Dr. Watson has been a Director since July 1992. Dr. Watson was a founder of
the Cold Spring Harbor Laboratory and since its inception in 1968 served as a
director until his appointment as President in 1994. Prior to moving to the Cold
Spring Harbor Laboratory, Dr. Watson was a member of the Department of Biology
(then Molecular Biology) at Harvard University. Between 1988 and 1992, he
directed the National Center for Human Genome Research at the National
Institutes of Health. In 1962, Dr. Watson, along with Dr. Crick and Dr. Wilkins,
was awarded the Nobel Prize in Physiology or Medicine for discovering the
structure of DNA. Dr. Watson has won numerous awards in addition to the Nobel
Prize and is a member of the U.S. National Academy of Sciences, the Royal
Society in London, the Danish Academy of Arts and Sciences and the Academy of
Sciences of Russia. Dr. Watson holds a B.S. degree from the University of
Chicago and a Ph.D. from Indiana University and he has also received honorary
degrees from 15 colleges and universities. He is a director of the Pall
Corporation and a director of Diagnostics Products Corporation.
All members of the Board of Directors hold office until the next annual
meeting of stockholders or the election and qualification of their successors.
The Company's Certificate of Incorporation provides that the authorized number
of directors may only be changed by resolution of the Board of Directors. The
authorized number of directors is currently set at seven. The Company's
Certificate of Incorporation provides that directors may be removed for cause by
the affirmative vote of the holders of a majority of the Common Stock and
without cause by the affirmative vote of the holders of at least 66 2/3% of the
Common Stock.
The directors are eligible to be granted stock options under the Company's
stock option plans. See "-- Stock Plans." In 1995, Stanley T. Crooke, Francis
H.C. Crick, Frederick B. Rentschler, and James D. Watson were each granted
options to purchase 11,750 shares of Common Stock and William R. Miller was
granted options to purchase 17,625 shares of Common Stock. These options were
non-qualified stock options having an exercise price of $1.23 per share and
expire in December 2000.
Non-employee directors of the Company receive an annual retainer of
$15,000, with the Chairman of the Board receiving $25,000, and are reimbursed
for certain expenses for each Board and committee meeting attended. Non-employee
directors are also entitled to receive options under the Company's Non-Employee
Director Stock Option Plan. See "-- Stock Plans."
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the Directors, officers or key employees of
the Company.
COMMITTEES
The Board's Audit Committee consists of Dr. Stanley T. Crooke and Mr.
Frederick B. Rentschler. The functions of the Audit Committee are to recommend
the selection of independent accountants to the Board of Directors, to review
the scope and results of the year-end audit with management and the
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<PAGE> 46
independent accountants and to review the Company' s accounting practices and
its systems of internal accounting controls.
The Board's Compensation and Stock Option Committee consists of Mr. Miller,
Mr. Ekdahl and Dr. Watson. The functions of the Compensation and Stock Option
Committee are to review and approve the salaries, bonuses and other benefits
payable to the Company's executive officers and to administer the Company's
stock option and employee stock purchase plans.
The Board's Non-Officer Stock Option Committee consists of William T. Comer
as the sole member of such committee. The function of the Non-Officer Stock
Option Committee is to review and approve stock option grants under the
Company's 1996 Equity Incentive Plan in accordance with guidelines approved by
the Board to eligible persons under the plan that are not subject to Section 16
of the Securities Exchange Act of 1934, as amended, by reason of their status as
an officer, director or stockholder of the Company.
SCIENTIFIC ADVISORY BOARD
SIBIA has a Scientific Advisory Board that provides consulting services to
SIBIA. The Scientific Advisory Board meets as a group at least twice each year,
and on an individual basis with management when so requested, to discuss
research priorities and new developments. The Scientific Advisory Board consists
of independent professionals with recognized expertise in relevant sciences or
clinical medicine who advise the Company about present and long-term scientific
planning, research and development. SIBIA's Scientific Advisory Board consists
of the following persons:
Dennis W. Choi, M.D., Ph.D., Professor and Head of Neurology at Washington
University Medical School and Neurologist-in-Chief at Barnes-Jewish Hospital.
Dr. Choi is a molecular neuropharmacologist and clinical neurologist, and his
research is directed toward understanding the basic mechanisms which underlie
brain or spinal cord injury in acute or chronic neurological disease states. In
1992 he received the Wakeman Award and in 1994 the Silvio Cone Decade of the
Brain Award for his research.
Francis H.C. Crick, Ph.D. See "-- Directors, Executive Officers and Key
Employees."
Ronald M. Evans, Ph.D., Professor and Director of the Gene Expression
Laboratory and Investigator of the Howard Hughes Medical Institute at The Salk
Institute. Dr. Evans' research focuses on the regulation of gene expression,
with intracellular receptor systems being the primary experimental models. He is
a member of the U.S. National Academy of Sciences.
Stephen F. Heinemann, Ph.D., Professor and Director of the Molecular
Neurobiology Laboratory at The Salk Institute. Dr. Heinemann's research focuses
on the structure and function of brain receptors and their role in neurological
diseases and mental illness. He is a member of the U.S. National Academy of
Sciences.
Lewis L. Judd, M.D., Professor and Chairman of the Department of
Psychiatry, UCSD. Dr. Judd was the Director of the National Institute of Mental
Health and is an acknowledged expert on neuropsychiatric diseases. He is a
member of the U.S. National Academy of Sciences and the National Institute of
Medicine.
Richard J. Miller, Ph.D., Professor in the Department of Pharmacology and
Physiological Sciences and member of the Committee on Neurobiology, University
of Chicago. Dr. Miller is a neuropharmacologist whose current research involves
different neuronal receptor/ion channel systems that flux calcium.
Sangram Sisodia, Ph.D., Associate Professor of Pathology and Neuroscience,
The Johns Hopkins University School of Medicine. Dr. Sisodia is a molecular
neurobiologist who is studying the molecular basis of Alzheimer's disease.
James D. Watson, Ph.D. See "-- Directors, Executive Officers and Key
Employees."
There is no fixed term of service on the Scientific Advisory Board; current
members may resign or be removed at any time, and additional members may be
appointed by SIBIA. Members do not serve on an
46
<PAGE> 47
exclusive basis to SIBIA, are not under contract with SIBIA (other than with
respect to confidentiality obligations) and are not obligated to present
corporate opportunities to SIBIA. To the Company's knowledge, none of the
members of the Scientific Advisory Board is working on the development of a
competitive product. Inventions or products developed by members of the
Scientific Advisory Board who are not otherwise affiliated with SIBIA will not
become SIBIA's property but will remain the member's property.
Members of the Scientific Advisory Board generally receive a stock option
grant upon joining such Board as well as $10,000 per year for their services.
All members receive reimbursement for expenses incurred in traveling to and
attending meetings on behalf of SIBIA. Certain members of the Scientific
Advisory Board have previously received stock options under the Company's stock
option plans in amounts determined from time-to-time by the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers.
In addition, the Company is required, subject to certain exceptions, to advance
all expenses incurred by any director or executive officer in connection with a
completed, pending or threatened action, suit or proceeding upon receipt of an
undertaking by such director or executive officer to repay all amounts advanced
by the Company on such person's behalf if it is ultimately determined that such
person is not entitled to be indemnified under the Bylaws or otherwise.
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law, the Company's directors will not be personally
liable to the Company and its stockholders for monetary damages for any breach
of a director's fiduciary duty. The Company's Certificate of Incorporation does
not, however, eliminate the duty of care, and in appropriate circumstances
equitable remedies such as an injunction or other forms of non-monetary relief
would remain available under Delaware law. Each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Company 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 Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
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<PAGE> 48
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1995 by (i) the Company's Chief Executive Officer and (ii)
the Company's five other most highly compensated executive officers who were
serving as executive officers as of December 31, 1995 (together, the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- --------------------- ALL OTHER
NAME AND SALARY BONUS SECURITIES UNDERLYING COMPENSATION
PRINCIPAL POSITION ($)(1) ($) OPTIONS(#)(2) ($)(3)
- ----------------------------------- -------- ------- --------------------- ------------
<S> <C> <C> <C> <C>
William T. Comer, Ph.D. ........... $239,872 $18,000 12,925 $ 936
Chief Executive Officer and
President
Michael M. Harpold, Ph.D. ......... 179,495 9,650 7,050 910
Vice President, Research
G. Kenneth Lloyd, Ph.D............. 174,870 9,000 6,815 10,885(4)
Vice President,
Pharmaceuticals -- Biology
Ian A. McDonald, Ph.D.............. 150,380 9,150 5,875 10,759(4)
Vice President,
Pharmaceuticals -- Chemistry
Michael J. Dunn.................... 88,683 4,700 15,275(5) 445
Vice President, Business
Development
Thomas A. Reed..................... 100,940 5,200 15,745(5) 507
Vice President,
Finance/Administration and
Chief Financial Officer
</TABLE>
- ---------------
(1) Includes base salary and contributions made by the Company to each person's
401(k) plan account.
(2) As adjusted to give effect to the 2.35-for-1 split of the outstanding shares
of Common Stock.
(3) Includes life insurance premiums paid by the Company on behalf of such
person.
(4) Includes $10,000 relating to the forgiveness of certain loans made by the
Company to such persons.
(5) Includes options to purchase 11,750 shares of Common Stock granted pursuant
to the Change of Control Plan. See "-- Change of Control Arrangements."
CHANGE OF CONTROL ARRANGEMENTS
In November 1994, the Company adopted a Management Change of Control Plan
(the "Change of Control Plan") applicable to William T. Comer, Michael J. Dunn,
Michael M. Harpold, G. Kenneth Lloyd, Ian A. McDonald and Thomas A. Reed. The
Change of Control Plan was amended by the Board in December 1995 and March 1996.
The Change of Control Plan, as amended, generally provides for the payment of
benefits to its participants upon the occurrence of certain defined change of
control events. Among the benefits provided are: (i) cash bonuses of up to 25%
of annual base salary, depending on the valuation of the Company at the time of
the change of control; (ii) a stock option grant to each participant; (iii)
severance payments of up to two times annual base salary, depending on the
participant's position with the Company at the time of a change of control; and
(iv) the payment of health insurance premiums and outplacement expenses incurred
upon a change of control.
Stock options granted under the Change of Control Plan, as amended, have an
exercise price of $.85 per share and are subject to vesting, with such options
being 25% vested as of the effective date of the Registration Statement
("Effective Date") and the remaining 75% vesting in three equal installments on
each anniversary of the Effective Date. Such vesting will be accelerated in
whole or in part upon a change of control, depending on the valuation of the
Company at the time of such change of control. Under the Change of Control Plan,
Dr. Comer received an option to purchase 94,000 shares of Common Stock and
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<PAGE> 49
each of Mr. Dunn, Dr. Harpold, Dr. Lloyd, Dr. McDonald and Mr. Reed received an
option to purchase 58,750 shares of Common Stock.
Under the Change of Control Plan, a "change of control" of the Company is
deemed to have occurred upon the consummation of a merger or consolidation in
which the Company is not the surviving entity (other than a transaction the
principal purpose of which is to change the jurisdiction of the Company's
incorporation), the sale, transfer or other disposition of all or substantially
all of the assets of the Company or a reverse merger in which the Company is the
surviving entity, but in which 50% or more of the Company's outstanding voting
stock is transferred to holders different from those who held such stock
immediately prior to such merger.
STOCK PLANS
1996 Equity Incentive Plan. In February 1996, the Board of Directors of
the Company (the "Board") adopted the Company's 1996 Equity Incentive Plan (the
"1996 Plan") under which 1,513,141 shares of Common Stock are reserved for
issuance pursuant to the exercise of stock awards granted to employees,
directors and consultants. The 1996 Plan was adopted by the Board to replace the
Company's 1981 Employee Stock Option Plan (the "1981 Plan") and its 1992 Stock
Option and Restricted Stock Plan (the "1992 Plan," and, together with the 1981
Plan, the "Prior Plans"). The 1981 Plan terminated by its terms in 1991;
provided, however, that options outstanding under the 1981 Plan will be
exercisable according to their terms. The 1992 Plan will be terminated upon the
closing of this offering and no further options will be issued thereunder;
provided, however, that options outstanding under the 1992 Plan will be
exercisable according to their terms. The 1996 Plan will terminate in February
2006, unless sooner terminated by the Board.
The 1996 Plan permits the granting of options intended to qualify as
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") to employees
(including officers and employee directors) and options that do not so qualify
("Nonstatutory Options," and, together with Incentive Options, the "Options") to
employees (including officers and employee directors) and consultants (including
non-employee directors). In addition, the 1996 Plan permits the granting of
stock appreciation rights (SARs) appurtenant to or independently of Options, as
well as stock bonuses and rights to purchase restricted stock (Options, SARs,
stock bonuses and rights to purchase restricted stock are hereinafter referred
to as "Stock Awards"). No person shall be eligible to be granted Options and
SARs covering more than 500,000 shares of Common Stock in any 12-month period.
As of March 19, 1996, the Company has not granted any Stock Awards under the
1996 Plan.
The 1996 Plan is administered by the Board or a committee appointed by the
Board of Directors. Subject to the limitations set forth in the 1996 Plan, the
Board has the authority to select the persons to whom grants are to be made, to
designate the number of shares to be covered by each Stock Award, to determine
whether an Option is to be an Incentive Option or a Nonstatutory Option, to
establish vesting schedules, to specify the Option exercise price and the type
of consideration to be paid to the Company upon exercise and, subject to certain
restrictions, to specify other terms of Stock Awards. In addition, the Board has
delegated to William T. Comer the authority to grant Options to persons who are
not officers, directors, or holders of more than 10% of the outstanding shares
of Common Stock in accordance with guidelines established by the Board.
The maximum term of Options granted under the 1996 Plan is ten years. The
aggregate fair market value of the Common Stock with respect to which Incentive
Options are first exercisable in any calendar year may not exceed $100,000.
Options granted under the 1996 Plan generally are non-transferable and expire
three months after the termination of an optionee's service to the Company. In
general, if an optionee is permanently disabled or dies during his or her
service to the Company, such person's option may be exercised up to 12 months
following such disability and up to 18 months following such death.
The exercise price of Incentive Options must be equal to at least the fair
market value of the Common Stock on the date of grant. The exercise price of
Nonstatutory Options may be no less than 85% of the fair market value of the
Common Stock on the date of grant. The exercise price of Incentive Options
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<PAGE> 50
granted to any person who at the time of grant owns stock representing more than
10% of the total combined voting power of all classes of capital stock must be
at least 110% of the fair market value of such stock on the date of grant and
the term of such Incentive Options cannot exceed five years.
Any stock bonuses or restricted stock purchase awards granted under the
1996 Plan shall be in such form and shall contain terms and conditions as the
Board shall deem appropriate. The purchase price under any restricted stock
purchase award shall not be less than 85% of the fair market value of the Common
Stock on the date of grant. Stock bonuses and restricted stock purchase awards
granted under the 1996 Plan generally are non-transferable.
As of March 19, 1996, no options or stock awards have been granted under
the 1996 Plan, there are outstanding options to purchase a total of 812,184
shares of Common Stock at a weighted average exercise price of $1.23 per share
pursuant to the 1992 Plan and outstanding options to purchase a total of 24,675
shares of Common Stock at a weighted average exercise price of $5.78 per share
pursuant to the 1981 Plan. The exercise price of options granted under the Prior
Plans has been equal to 85% of the fair market value of the Common Stock for
nonstatutory stock options and 100% of the fair market value of the Common Stock
for incentive stock options, as determined in good faith by the Board of
Directors on the date of grant. Stock options granted under the Prior Plans
generally are subject to vesting ratably over a four-year period. The term of
options granted under the 1992 Plan generally is five years, while the term of
options granted under the 1981 Plan is generally ten years. Stock options
granted under the Prior Plans generally are non-transferable, with exceptions
for the transfer of such options pursuant to a will or the laws of descent and
distribution. Additionally, as of December 31, 1995, options to purchase 387,750
shares of Common Stock at an exercise price of $.85 per share were outstanding
under the Change of Control Plan. See "-- Change of Control Arrangements."
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<PAGE> 51
The following tables set forth information concerning individual grants of
stock options, exercises of stock options, and aggregate stock options held for
each of the Named Officers listed in the Summary Compensation Table above for
the year ended December 31, 1995:
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE MARKET PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE AT GRANT EXPIRATION ------------------------
NAME GRANTED(1) 1995 PER SHARE DATE DATE 0% 5% 10%
- ----------------- ---------- ------------ --------- ------------ ---------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William T. Comer,
Ph.D........... 12,925 7.8% $1.45 $ 1.45 5/8/00 $4,700 $10,100
Michael M.
Harpold,
Ph.D........... 7,050 4.3% $1.45 $ 1.45 5/8/00 $2,500 $ 5,500
G. Kenneth Lloyd,
Ph.D........... 6,815 4.1% $1.45 $ 1.45 5/8/00 $2,500 $ 5,300
Ian A. McDonald,
Ph.D........... 5,875 3.6% $1.45 $ 1.45 5/8/00 $2,100 $ 4,600
Michael J. Dunn.. 11,750 7.1% $0.85 $ 1.45 12/5/05 7,000 11,300 16,200
3,525 2.1% $1.45 $ 1.45 5/8/00 3,200 8,100
Thomas A. Reed... 11,750 7.1% $0.85 $ 1.45 12/5/05 7,000 11,200 16,200
3,995 2.4% $1.45 $ 1.45 5/8/00 3,600 9,200
</TABLE>
- ---------------
(1) As adjusted to give effect to the 2.35-for-1 split of the outstanding shares
of Common Stock.
(2) The potential realizable value is calculated based on the term of the option
and is calculated by assuming that the fair market value of Common Stock on
the date of the grant as determined by the Board appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and the Common Stock received therefor is
sold on the last day of the term of the option for the appreciated price.
The 5% and 10% rates of appreciation are derived from the rules of the
Securities and Exchange Commission. The actual value realized may be greater
than or less than the potential realizable values set forth in the table.
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
12/31/95
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
----------------------------------- -----------------------------
NAME EXERCISABLE(1) UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
- --------------------------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
William T. Comer, Ph.D........... 260,850 113,975 $ 500 $ 107,600
Michael M. Harpold, Ph.D......... 155,394 70,206 182,000 66,700
G. Kenneth Lloyd, Ph.D........... 29,669 69,971 19,500 66,600
Ian A. McDonald, Ph.D............ 24,675 68,150 16,300 65,300
Michael J. Dunn.................. 25,556 64,214 36,600 64,600
Thomas A. Reed................... 2,115 64,860 200 64,800
</TABLE>
- ---------------
(1) As adjusted to give effect to the 2.35-for-1 split of the outstanding shares
of Common Stock.
1996 Non-Employee Directors' Stock Option Plan. In February 1996, the
Company adopted the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company. The Directors'
Plan is administered by the Board, unless the Board delegates administration to
a committee of directors.
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<PAGE> 52
A total of 235,000 shares of Common Stock have been reserved for issuance
pursuant to the exercise of options granted under the Directors' Plan. Under the
terms of the Directors' Plan, each person that is elected for the first time as
a director of the Company and that is not otherwise employed by the Company (a
"Non-Employee Director") automatically will be granted an option to purchase
10,000 shares of Common Stock (subject to adjustment as provided in the
Directors' Plan) upon the date of his or her election to the Board. In addition,
each person who is re-elected as a Non-Employee Director will receive an option
to purchase 3,000 shares of Common Stock upon such re-election, except that (i)
if such Non-Employee Director is the Chairman of the Board of Directors, such
person will instead receive an option to purchase 5,000 shares of Common Stock
upon such re-election and (ii) for the 1996 calendar year, such additional
grants will instead be made automatically to Non-Employee Directors as of June
1, 1996 in lieu of such re-election.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan are 50% vested on the date of grant and become 100% vested on
the date that is one year from the date of grant (so long as, with respect to
such additional vesting, the optionee has continuously served as a Non-Employee
Director from the date of grant through such vesting date). The exercise price
of options under the Directors' Plan must be equal to the fair market value of
the Common Stock on the date of grant. Options granted under the Directors' Plan
are generally non-transferable. Unless otherwise terminated by the Board of
Directors, the Directors' Plan automatically terminates in February 2006. As of
March 19, 1996, no options have been granted under the Directors' Plan.
Employee Stock Purchase Plan. The Company's Board of Directors adopted the
Employee Stock Purchase Plan (the "Stock Purchase Plan") in February 1996. The
Stock Purchase Plan provides for the issuance of up to 500,000 shares of Common
Stock to employees of the Company. The rights to purchase Common Stock under the
Stock Purchase Plan are intended to qualify as options issued under an "employee
stock purchase plan" within the meaning of Section 423(b) of the Code. The Board
may suspend or terminate the Plan at any time.
The Stock Purchase Plan provides that it shall be administered by the Board
of Directors, unless such authority is delegated to a committee composed of not
fewer than two members of the Board of Directors. The Board has delegated
administration of the Stock Purchase Plan to the Compensation Committee of the
Board. Subject to certain limitations, the Board has the authority to determine
when and how rights to purchase Common Stock will be granted and the terms of
each offering of such rights and to amend or revoke the rules and regulations
governing the administration of the Stock Purchase Plan.
Under the Stock Purchase Plan, all eligible employees are granted identical
rights to purchase Common Stock for each Board-authorized offering under the
Stock Purchase Plan. Subject to limited exceptions, any person who is employed
on the date of commencement of an offering under the Stock Purchase Plan, has
been an employee of the Company for a continuous period of 90 days preceding the
grant and is customarily employed by the Company at least 20 hours per week and
at least five months per calendar year is eligible to participate in an offering
under the Stock Purchase Plan. An eligible employee participates in the Stock
Purchase Plan by authorizing payroll deductions of up to 15% of such employee's
"earnings" as defined in the Stock Purchase Plan. The purchase price per share
at which shares are sold in an offering under the Stock Purchase Plan cannot be
less than the lower of (i) 85% of the fair market value of a share of Common
Stock on the commencement of an offering under the Stock Purchase Plan, or (ii)
85% of the fair market value of a share of Common Stock on the date of purchase.
Rights granted pursuant to any offering under the Stock Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason and the
Company will distribute to such employee all of his or her net accumulated
payroll deductions at such time. In general, an employee may withdraw from
participation in an offering under the Stock Purchase Plan at any time during
the purchase period for such offering. Rights granted under the Stock Purchase
Plan are not transferable and may be exercised only by the person to whom such
rights are granted. The initial offering under the Stock Purchase Plan will
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commence on the date of this Prospectus and terminate on April 30, 1998, with
exercise dates on each October 31 and April 30 during the term of the Stock
Purchase Plan.
401(K) PLAN
The Company adopted a tax-qualified employee savings and retirement plan
under Section 401(k) of the Code (the "401(k) Plan") covering all of the
Company's employees who have completed one year of employment. Pursuant to the
401(k) Plan, employees may elect to reduce their current compensation by up to
6% of their salaries, but not in excess of the statutory prescribed annual limit
($9,240 in 1995) and have the amount of such reduction contributed to the 401(k)
Plan. The Company currently matches 50% of employee contributions up to 6% of an
employee's salary, limited to the maximum contribution allowable for income tax
purposes. Employer contributions vest proportionally over five years of service.
The 401(k) Plan is intended to qualify under Section 401 of the Code so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. The 401(k) Plan may be amended or
discontinued at any time by the Company.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
In October 1994, the following individuals were granted options under the
Change of Control Plan to purchase shares of Common Stock at an exercise price
of $.85 per share: Dr. Comer, 94,000 shares; Mr. Dunn, 47,000 shares; Dr.
Harpold, 58,750 shares; Dr. Lloyd, 58,750 shares; Dr. McDonald 58,750 shares;
and Mr. Reed, 47,000 shares. See "Management -- Change of Control Arrangements."
In December 1995, in connection with their promotions to Vice President,
Mr. Dunn and Mr. Reed each received an additional option under the Change of
Control Plan to purchase 11,750 shares of Common Stock at an exercise price of
$.85 per share. See "Management -- Change of Control Arrangements."
In February 1996, William T. Comer, President, Chief Executive Officer and
a Director of the Company, exercised an option to purchase 258,500 shares of
Common Stock pursuant to the Company's 1981 Employee Stock Option Plan at an
exercise price of $2.13 per share for a total purchase price of $550,000. In
accordance with the terms of the 1981 Employee Stock Option Plan, such purchase
price was paid in cash in the amount of $11,000 and by delivery of a
full-recourse promissory note payable in the principal amount of $539,000 and
bearing interest at 7% per annum. Such note is payable in full after five years
and is secured by the shares of Common Stock issued upon exercise of such
option.
TRANSACTIONS WITH 5% STOCKHOLDERS
In March 1994, Ciba purchased 173,611 shares of Series A Convertible
Preferred Stock of the Company at a purchase price of $14.40 per share pursuant
to an agreement entered into in October 1992. Such shares will be converted into
an aggregate of 407,986 shares of Common Stock upon the closing of this
offering. In addition, Ciba has committed to purchase from the Company in a
private placement an aggregate of $5,000,000 of shares of Common Stock at the
initial public offering price (454,545 shares of Common Stock at the initial
public offering price of $11.00 per share) upon the closing of this offering.
Immediately after the closing of this offering and the sale of the Ciba Shares
by the Company, Ciba will own 1,035,324 shares of Common Stock (or approximately
11.7% of the total outstanding shares of Common Stock). The sale of the Ciba
Shares by the Company will not be registered in the offering and will be deemed
"restricted" securities within the meaning of Rule 144 under the Securities Act.
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In October 1994, Ciba and the Company entered into an agreement for the
sale to Ciba by the Company of certain equipment totaling $400,000, including a
license to the equipment-related software, to be used in conjunction with Ciba's
EAAR technology.
In March 1996, the Company entered into an extension of its collaboration
agreement with Ciba. Under the agreement as extended, Ciba is obligated to
provide to SIBIA $500,000 to fund certain capital expenditures (which may be
credited against future milestone payments).
In August 1995, the Company entered into a collaborative relationship with
Bristol-Myers Squibb. In connection with the collaboration, the Company sold to
Bristol-Myers Squibb in a private placement 280,000 shares of its Series C
Convertible Preferred Stock (the "Bristol-Myers Squibb Shares") at a purchase
price of $25.00 per share, for a total of $7,000,000. The Bristol-Myers Squibb
Shares will be converted into 658,000 shares of Common Stock of the Company upon
the closing of this offering, which shares will represent approximately 7.4% of
the outstanding Common Stock immediately subsequent to the closing of this
offering and the sale of the Ciba Shares by the Company.
In 1988, SIBIA entered into a license agreement with The Salk Institute on
a number of NAChR subunit clones on which two U.S. patents have recently issued.
This agreement was amended in March 1996 such that the license to the issued
U.S. patents and related patent applications became an exclusive worldwide
license. Pursuant to the agreement, as amended, SIBIA is obligated to pay
royalties to The Salk Institute on sales of products resulting from The Salk
Institute's NAChR technology. In addition, the Company is required to make
minimum annual royalty payments to The Salk Institute beginning in 2002. Failure
to pay such royalties will result in the related license becoming non-exclusive.
In 1990, SIBIA entered into a three-year agreement with The Salk Institute
in the area of EAARs. This agreement provided for the support of research at The
Salk Institute by SIBIA and the transfer of research materials and research
results in the EAAR area from The Salk Institute to SIBIA. SIBIA also received
an exclusive worldwide license to certain EAAR-related patents and patent
applications held by The Salk Institute. The agreement was amended in March
1996. Pursuant to the agreement, as amended, the Company is required to make
certain minimum annual royalty payments to The Salk Institute beginning in 2002.
Failure to pay such royalties will result in the related license becoming
non-exclusive.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of March
19, 1996, as adjusted to reflect the 2.35-for-1 split of the outstanding shares
of Common Stock effected in March 1996 and the automatic conversion of all
outstanding Convertible Preferred Stock into Common Stock upon the closing of
this offering and as adjusted to reflect the sale of the 2,100,000 shares of
Common Stock being offered hereby and the sale of the Ciba Shares by the Company
at the initial public offering price (454,545 shares at the initial public
offering price of $11.00 per share) and assuming no exercise of the
Underwriters' over-allotment option, by (i) each stockholder who is known by the
Company to be the beneficial owner of more than 5% of the Company's Common
Stock; (ii) each of the Company's directors; (iii) each Named Officer (see
"Management -- Executive Compensation"); and (iv) all executive officers and
directors as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(1)
SHARES ----------------------
DIRECTORS, NAMED OFFICERS AND BENEFICIALLY BEFORE AFTER
5% STOCKHOLDERS OWNED(1) OFFERING OFFERING(2)
- -------------------------------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
The Salk Institute for Biological Studies..................... 1,983,461 31.4% 22.4%
10010 North Torrey Pines Road
La Jolla, CA 92037
Skandigen AB.................................................. 986,697 15.6 11.1
Norrlandsgatan 15
S- 111 43 Stockholm, Sweden
CIBA-GEIGY Limited(2)......................................... 580,779 9.2 11.7
Klybeckstrasse 141
CH-4002 Basel, Switzerland
Bristol-Myers Squibb Company.................................. 658,000 10.4 7.4
Route 206 & Province Line Road
Princeton, NJ 08543
Eli Lilly and Company......................................... 276,470 4.4 3.1
Lilly Corporate Center
Indianapolis, IN 46285
William T. Comer, Ph.D.(3).................................... 289,931 4.6 3.3
Michael M. Harpold, Ph.D.(4).................................. 179,188 2.8 2.0
G. Kenneth Lloyd, Ph.D.(5).................................... 47,529 * *
Ian A. McDonald, Ph.D.(6)..................................... 42,007 * *
Michael J. Dunn(7)............................................ 41,772 * *
Thomas A. Reed(8)............................................. 42,007 * *
William R. Miller(9).......................................... 52,875 * *
Francis H.C. Crick, Ph.D.(10)................................. 11,750 * *
Stanley T. Crooke, M.D., Ph.D.(11)............................ 35,250 * *
Frederick B. Rentschler(12)................................... 11,750 * *
James D. Watson, Ph.D.(13).................................... 35,250 * *
All officers and directors as a group (11 persons)(14)........ 789,309 11.7 8.5
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent (1%).
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<PAGE> 56
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Options to purchase shares of Common
Stock that are exercisable within 60 days of March 19, 1996 are deemed to
be beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person. Applicable percentage of beneficial ownership is based on
6,318,593 shares of Common Stock outstanding as of March 19, 1996, plus any
options exercisable within 60 days of March 19, 1996 by such stockholder,
and 8,873,138 shares of Common Stock outstanding after completion of this
offering, plus any options exercisable within 60 days of March 19, 1996 by
such stockholder. Except as set forth above, the address of each person set
forth above is the address of the Company appearing elsewhere in this
Prospectus.
(2) Includes the sale of the Ciba Shares by the Company at the initial public
offering price (454,545 shares at the initial public offering price of
$11.00 per share). The Ciba Shares are not included in the number of shares
shown as beneficially owned by Ciba prior to the offering.
(3) Includes 31,431 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(4) Includes (i) 136,888 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996, (ii) 23,030 shares of Series
B Convertible Preferred Stock, and (iii) 15,275 shares of Series B
Convertible Preferred Stock issuable pursuant to options exercisable within
60 days of March 19, 1996.
(5) Includes 47,529 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(6) Includes 42,007 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(7) Includes 40,362 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(8) Includes 17,097 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(9) Includes 17,625 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(10) Includes 11,750 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(11) Includes 35,250 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(12) Includes 11,750 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(13) Includes 35,250 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996.
(14) Includes 442,214 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 19, 1996, as described in footnotes
(3)-(13).
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and the
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by reference to such documents which have been
filed as exhibits to the Company's Registration Statement, of which this
Prospectus is a part.
Upon the closing of this offering and the sale of the Ciba Shares by the
Company, the authorized capital stock of the Company, after giving effect to the
conversion of all outstanding Convertible Preferred Stock into Common Stock and
the amendment and restatement of the Company's Certificate of Incorporation,
will consist of 25,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of March 19, 1996, there were 6,318,593 shares of Common Stock
outstanding held of record by 105 stockholders, after giving effect to the
conversion of all outstanding Convertible Preferred Stock into Common Stock and
the 2.35-for-1 split of the outstanding shares of Common Stock.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive rights and no right
to convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of this offering and the sale of the Ciba Shares by the Company
will be, fully paid and nonassessable.
Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. These additional shares may be issued for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of unissued and unreserved Common Stock may be to enable the
Board of Directors to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of opportunities to sell their shares of
Common Stock at prices higher than prevailing market prices. See " -- Certain
Anti-takeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law."
PREFERRED STOCK
Upon the closing of this offering and the sale of the Ciba Shares by the
Company, all outstanding shares of Convertible Preferred Stock will be converted
into 1,141,656 shares of Common Stock. See Note 9 of Notes to Financial
Statements for a description of the currently outstanding Convertible Preferred
Stock. Following the conversion, the Company's Certificate of Incorporation will
be amended and restated to delete all references to such series of Convertible
Preferred Stock. Under the Certificate of Incorporation, as amended and restated
upon the closing of this offering and the sale of the Ciba Shares by the
Company, the Board has the authority, without further action by stockholders, to
issue up to 5,000,000 shares of Preferred Stock in one or more series, and to
fix the rights, designations, preferences, privileges, qualifications and
restrictions thereof, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preferences and sinking fund
terms, any or all of which may be greater than the rights of the Common Stock.
The issuance of Preferred Stock could adversely affect the voting power of
holders of Common Stock and reduce the likelihood that such
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holders will receive dividend payments and payments upon liquidation. Such
issuance could have the effect of decreasing the market price of the Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company without any further
action by the stockholders. The Company has no present plans to issue any shares
of Preferred Stock. See " -- Certain Anti-takeover Effects of Provisions of the
Certificate of Incorporation, Bylaws and Delaware Law."
WARRANTS
As of December 31, 1995, the Company had issued warrants to purchase an
aggregate of 258,359 shares of Common Stock (the "Warrants"). All of such
Warrants were issued in connection with the Company's acquisition of Protease
Corporation in September 1991 (the "Protease Acquisition"). The Warrants may not
be exercised until the Company shall have received $50,000,000 in aggregate net
sales of products which incorporate the technology received under a license
agreement entered into in connection with the Protease Acquisition. Such license
agreement has been terminated, and the Company is no longer using such
technology and does not plan to use such technology in the future. Accordingly,
such Warrants are not presently exercisable, and the Company believes that they
will never become exercisable.
REGISTRATION RIGHTS
Bristol-Myers Squibb Company. Upon the closing of this offering and the
sale of the Ciba Shares by the Company, Bristol-Myers Squibb, the holder of
658,000 shares of Common Stock (the "Bristol-Myers Squibb Registration Rights
Shares") will be entitled to certain rights with respect to the registration of
such shares under the Securities Act pursuant to that certain Investment
Agreement dated August 10, 1995 (the "Agreement") among such holder and the
Company. Under the terms of the Agreement, in the event the Company proposes to
register any of its securities under the Securities Act for a public offering
for cash, whether as a primary or secondary offering, Bristol-Myers Squibb is
entitled to notice of such registration and is entitled, subject to certain
limitations, to include shares in such registration. In addition, upon the later
of one year after the Company's initial public offering and the conclusion of
research funding by Bristol-Myers Squibb, Bristol-Myers Squibb is entitled to
demand on two occasions that the Company use its best efforts to register the
shares under the Securities Act pursuant to such registration method deemed most
appropriate. Bristol-Myers Squibb's registration rights are subject to certain
conditions and limitations, including the right of the underwriters of an
offering to limit the number of shares included in any such registration. The
Company is required to bear all expenses of registration, except that
Bristol-Myers Squibb is required to reimburse the Company for all expenses
incurred by the Company in effecting any demand registrations.
The Salk Institute; Skandigen AB. Upon the closing of this offering and
the sale of the Ciba Shares by the Company, The Salk Institute, the holder of
1,983,461 shares of Common Stock (the "Salk Registration Rights Shares"), and
its permitted transferees, and Skandigen AB, the holder of 986,697 shares of
Common Stock (the "Skandigen Registration Rights Shares"), and its permitted
transferees, will be entitled to certain rights with respect to the registration
of such shares under the Securities Act. Pursuant to an agreement between the
Company, The Salk Institute and Skandigen AB, upon the request of The Salk
Institute or Skandigen AB, the Company is required to use its best efforts to
include such shares in any proposed registration statement to be filed by the
Company pursuant to the Securities Act, subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares to be included in such registration statement. The Company is
required to bear all expenses in connection with the registration of such
shares, except underwriters' fees and selling discounts.
CIBA-GEIGY Limited. Upon the closing of this offering and the sale of the
Ciba Shares by the Company, Ciba, the holder of 1,035,324 shares of Common Stock
(the "Ciba Registration Rights Shares"), will be entitled to certain rights with
respect to the registration of such shares under the Securities Act pursuant to
that certain Stock Purchase Agreement dated September 15, 1992 between
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<PAGE> 59
the Company and Ciba. Whenever the Company proposes to register any shares of
Common Stock under the Securities Act (or pursuant to registration rights
granted to holders of other securities of the Company), the Company shall use
its best efforts, upon the written request of Ciba, to include in the
registration statement the Ciba Registration Rights Shares. In addition,
commencing with the third anniversary of the Company's initial public offering
of its Common Stock or at such earlier time should the Company be obligated to
file a registration statement at the demand of another stockholder, Ciba may
demand that the Company file a registration statement with respect to the Ciba
Registration Rights Shares. The foregoing registration rights are subject to
certain conditions and limitations, including the right of the underwriters in
an offering to limit the number of shares included in such registration
statement. All of the expenses incurred in connection with a registration
statement undertaken by the Company (except demand registration statements and
excluding underwriting commissions and discounts) shall be borne by the Company.
In addition to the foregoing registration rights, Ciba has been granted
certain registration rights in connection with the sale of the Ciba Shares by
the Company at the initial public offering price (454,545 shares at the initial
public offering price of $11.00 per share) to Ciba upon the closing of this
offering. The Company has agreed to use its best efforts to qualify to use Form
S-3 under the Securities Act and, at Ciba's request thereafter, to promptly file
a registration statement on such Form upon such qualification to register for
resale by Ciba, from time to time, the Ciba Shares.
Eli Lilly and Company. Upon the closing of this offering and the sale of
the Ciba Shares by the Company, under an agreement between Lilly and the
Company, Lilly will be entitled to certain registration rights with respect to
the registration under the Securities Act of 276,470 shares of Common Stock held
by Lilly (the "Lilly Registration Rights Shares"). Whenever the Company proposes
to register any shares of Common Stock under the Securities Act (or pursuant to
registration rights granted to holders of other securities of the Company), the
Company shall use its best efforts, upon the written request of Lilly, to
include in the registration statement the Lilly Registration Rights Shares. The
foregoing registration rights are subject to certain conditions and limitations,
including the right of the underwriters in an offering to limit the number of
shares included in such registration statement. All of the expenses incurred in
connection with a registration statement undertaken by the Company (except
underwriting commissions and discounts) shall be borne by the Company.
Hafslund Nycomed Pharma AG. Upon the closing of this offering and the sale
of the Ciba Shares by the Company, Hafslund Nycomed Pharma AG ("Hafslund
Nycomed"), the holder of 70,500 shares of Common Stock (the "Hafslund Nycomed
Registration Rights Shares"), will be entitled to certain rights with respect to
the registration of such shares under the Securities Act pursuant to that
certain Agreement dated October 1, 1993 between the Company and Hafslund
Nycomed. Under the terms of the Agreement, in the event the Company proposes to
register any shares of Common Stock for a public offering for cash, whether as a
primary or secondary offering, upon the request of Hafslund Nycomed, the Company
is required to use its best efforts to include the Hafslund Nycomed Registration
Rights Shares in such registration statement, subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares to be included in such registration statement. All expenses
incurred in connection with a registration statement undertaken by the Company
(except underwriting commissions and discounts) will be borne by the Company.
The foregoing Hafslund Nycomed registration rights terminate on the earlier of
October 1, 2000 and the date on which the Hafslund Nycomed Registration Rights
Shares may be sold in the public market under Rule 144(k).
Others. In addition to the foregoing registration rights, the holders of
559,089 shares of Common Stock are entitled to certain rights with respect to
the registration of such shares under the Securities Act pursuant to an
agreement between the Company and such holders. Under the terms of the
agreement, upon the request of such holders, the Company is required to use its
best efforts to include in any proposed registration statement to be filed by
the Company pursuant to the Securities Act, subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares to be included in such registration statement, the shares of
Common Stock held by such
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holders. The Company is required to bear all expenses in connection with the
registration of such shares, except underwriting commissions and discounts.
CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
General
Certain provisions of the Delaware General Corporation Law ("DGCL") and the
Company's Certificate of Incorporation and Bylaws could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. These provisions of Delaware law and provisions of the
Company's Certificate of Incorporation and Bylaws may also have the effect of
discouraging or preventing certain types of transactions involving an actual or
threatened change of control of the Company (including unsolicited takeover
attempts), even though such a transaction may offer the Company's stockholders
the opportunity to sell their stock at a price above the prevailing market
price. Certain of these provisions allow the Company to issue Preferred Stock
with rights senior to those of the Common Stock and other rights that could
adversely affect the interests of holders of Common Stock without any further
vote or action by stockholders. The issuance of Preferred Stock, for example,
could decrease the amount of earnings or assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock, as well as having the anti-takeover effect discussed
above. See "Risk Factors -- Control by Principal Stockholders; Anti-takeover
Provisions."
Delaware Takeover Statute
The Company is subject to the provisions of Section 203 of the DGCL. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior to
such transaction, did own) 15% or more of the corporation's voting stock.
Certificate of Incorporation and Bylaws
The Company's Certificate of Incorporation requires that, effective upon
the closing of this offering, any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by a consent in writing. In
addition, special meetings of the stockholders of the Company may be called only
by the Chairman of the Board of Directors, the President of the Company, by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors or by the holders of at least 10% of the
outstanding voting stock of the Company. The Company's Certificate of
Incorporation and Bylaws also require advance notice by a stockholder of a
proposal or director nomination which such stockholder desires to present at the
annual meeting of stockholders. These provisions may delay stockholder approval
and may preclude stockholders from bringing matters before the stockholders at
an annual or special meeting, including making nominations for directors. The
Company's Certificate of Incorporation does not include a provision for
cumulative voting in the election of directors. Under cumulative voting, a
minority stockholder holding a sufficient number of shares may be able to ensure
the election of one or more directors. The absence of cumulative voting may have
the effect of limiting the ability of minority stockholders to effect changes in
the Board of Directors and, as a result, may have the effect of deterring a
hostile takeover or delaying or preventing changes in control or management of
the Company.
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The Company's Certificate of Incorporation also provides that the
authorized number of directors may be changed only by resolution of the Board of
Directors. In addition, any vacancies on the Board of Directors, including any
newly created directorships resulting from any increase in the number of
directors, shall be filled only by affirmative vote of a majority of the
directors then in office, even though less than a quorum of the Board of
Directors. Accordingly, the Board of Directors may be able to prevent any
stockholder from obtaining majority representation on the Board of Directors by
increasing the size of the Board of Directors and filling newly created
directorships with its own nominees. Such provision may have the effect of
deterring a hostile takeover or delaying or preventing changes in control or
management of the Company.
The Company's Certificate of Incorporation and Bylaws also require that the
holders of at least 66 2/3% of the voting stock of the Company must approve any
amendment to either the Certificate of Incorporation or Bylaws affecting certain
provisions, including the provisions described above. The provisions described
above may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
First Interstate Bank of California has been appointed as the transfer
agent and registrar for the Company's Common Stock.
LISTING
The Company's Common Stock has been approved for listing on the Nasdaq
National Market under the trading symbol "SIBI".
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock, and any sale of substantial amounts of Common Stock in the open market
may adversely affect the market price of the Common Stock offered hereby.
Upon completion of this offering and the sale of the Ciba Shares by the
Company, there will be an aggregate of 8,873,138 shares of Common Stock
outstanding assuming (i) no exercise of the Underwriters' over-allotment option
and (ii) no exercise of outstanding options to purchase Common Stock. Of these
shares, the 2,100,000 shares of Common Stock sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless such shares are held by "affiliates" of the Company, as that term is
defined under the Securities Act and the regulations promulgated thereunder. The
remaining 6,773,138 shares of Common Stock (the "Restricted Shares") are held by
officers, directors, employees and other stockholders of the Company. The
Restricted Shares were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted" securities
within the meaning of Rule 144 under the Securities Act.
The Company's directors, officers and certain other stockholders, who own
in the aggregate approximately 5,106,614 shares of Common Stock, have agreed not
to sell (without the prior consent of Salomon Brothers Inc) for a period of 180
days after the effective date of the Registration Statement (the "Effective
Date"), any of the shares of Common Stock which they will own after this
offering and the sale of the Ciba Shares by the Company, but may dispose of such
shares as bona fide gifts.
Approximately 523,780 of the Restricted Shares will be eligible for sale in
the public market from the Effective Date in reliance on Rule 144(k). Beginning
90 days after the Effective Date, an additional approximately 45,990 of the
Restricted Shares will become eligible for sale subject to the provisions of
Rule 144 and Rule 701 under the Securities Act. The remainder of the Restricted
Shares held by existing stockholders will become eligible for sale at various
times thereafter, subject to the provisions of Rule 144. In addition, beginning
90 days after the Effective Date, holders of then vested options to purchase
approximately 501,549 shares will be entitled to exercise such options and sell
such shares subject to the provisions of Rule 144 and Rule 701, and beginning
180 days after the Effective Date, an
61
<PAGE> 62
additional approximately 511,950 shares subject to vested options will be
available for sale subject to compliance with Rule 701 upon the expiration of
agreements not to sell such shares.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(88,731 shares immediately after this offering and the sale of the Ciba Shares
by the Company) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. Pursuant to a recent proposal of the Securities and Exchange
Commission (the "Commission") that has not yet been adopted, the two-year
holding period described in the preceding sentence would be reduced to one year.
In addition, a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least three years, would be entitled to
sell such shares under Rule 144(k) without regard to the requirements described
above. Pursuant to a recent proposal of the Commission that has not yet been
adopted, the three-year holding period described in the preceding sentence would
be reduced to two years.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date. However, all officers and directors and certain
other stockholders have agreed not to sell or otherwise dispose of Common Stock
of the Company for the 180-day period after the Effective Date without the prior
written consent of Salomon Brothers Inc. See "Underwriting."
Within 90 days of the date of this Prospectus, the Company intends to file
a registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under its equity incentive plans, thus permitting
the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statements will become
effective immediately upon filing. As of December 31, 1995, options to purchase
981,266 shares of Common Stock at a weighted average exercise price of $1.49 per
share were outstanding under the Company's stock option plans. Additionally, as
of December 31, 1995, options to purchase 387,750 shares of the Company's Common
Stock with an exercise price of $.85 per share were outstanding under the
Company's Change of Control Plan.
62
<PAGE> 63
UNDERWRITING
Upon the terms and subject to the conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below (the "Underwriters"), for whom Salomon Brothers Inc, Needham & Company,
Inc. and Vector Securities International, Inc. are acting as representatives
(the "Representatives"), and each of such Underwriters has severally agreed to
purchase from the Company the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------- ----------
<S> <C>
Salomon Brothers Inc..................................................... 460,000
Needham & Company, Inc. ................................................. 460,000
Vector Securities International, Inc. ................................... 460,000
A.G. Edwards & Sons, Inc. ............................................... 85,000
Hambrecht & Quist LLC.................................................... 85,000
Montgomery Securities.................................................... 85,000
Robertson, Stephens & Company LLC........................................ 85,000
McDonald & Company Securities, Inc. ..................................... 60,000
The Robinson-Humphrey Company, Inc. ..................................... 60,000
Sutro & Co. Incorporated................................................. 60,000
Crowell, Weedon & Co. ................................................... 40,000
Josephthal Lyon & Ross Incorporated...................................... 40,000
Kaufman Bros., L.P. ..................................................... 40,000
Pennsylvania Merchant Group Ltd.......................................... 40,000
Wedbush Morgan Securities................................................ 40,000
---------
Total.......................................................... 2,100,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby (other than those covered by the
Underwriters' over-allotment option described below) if any such shares are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated. The Company has been advised by the Representatives that the
Underwriters propose initially to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price, less a concession not in excess of $0.46 per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $0.10 per share to certain other dealers. After the initial public
offering, the price and such concessions may be changed by the Underwriters.
Ciba, one of the Company's collaborative partners and an existing
stockholder, has committed to purchase an aggregate of $5,000,000 of shares of
Common Stock in a private placement at the initial public offering price of
$11.00 per share. The sale of the Ciba Shares by the Company will not be
registered in this offering or covered by the Underwriting Agreement, and the
Underwriters will not receive any fee in connection with the sale of such
shares. Ciba has agreed to purchase such shares upon the closing of this
offering.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the Effective Date, to purchase up to 315,000 additional
shares of Common Stock, at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriters may
exercise such option only to cover over-allotments in the sale of shares of
Common Stock that the Underwriters have agreed to purchase. To the extent that
the Underwriters exercise such option, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the same proportion of
the option shares as the number of shares of Common Stock to be purchased and
offered by such
63
<PAGE> 64
Underwriter in the above table bears to the total number of shares of Common
Stock initially offered by the Underwriters.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
At the request of the Company, the Underwriters have reserved approximately
82,500 of the Shares for sale at the initial public offering price to directors,
officers and employees of the Company and to certain individuals associated with
the Company, its directors, officers or employees. The number of shares of
Common Stock available for sale to the public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.
The Company, its directors and certain officers and other stockholders, who
will own in the aggregate 5,106,614 shares of Common Stock after the closing of
this offering and the sale of the Ciba Shares by the Company, have agreed not to
offer, sell, contract to sell or otherwise dispose of, directly or indirectly,
or announce the offering of shares of Common Stock or any securities convertible
into, or exchangeable for, shares of Common Stock, for a period of 180 days
after the Effective Date without the prior written consent of Salomon Brothers
Inc; provided, however, that the Company may (i) issue and sell Common Stock
pursuant to any stock option plan or stock purchase plan of the Company in
effect at the Effective Date, (ii) issue Common Stock issuable upon the
conversion of securities or the exercise of options outstanding at the Effective
Date, and (iii) issue Common Stock in connection with any corporate
collaboration, strategic alliance, or technology licensing transaction, to the
extent such shares are acquired for investment purposes and appropriate
representations to such effect are given by the person acquiring such shares and
to the extent such shares do not exceed 15% of the outstanding Common Stock as
of the Effective Date.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Shares will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price will be the earnings
and certain other financial and operating information of the Company in recent
periods, the future prospects of the Company and its industry in general, the
general condition of the securities market at the time of this offering and the
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. There can,
however, be no assurance that the prices at which the Shares will sell in the
public market after this offering will not be lower than the price at which it
is sold by the Underwriters.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Cooley Godward Castro Huddleson & Tatum, San Diego, California. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The Financial Statements as of December 31, 1994 and December 31, 1995, and
for each of the three years in the period ended December 31, 1995 appearing in
this Prospectus and the Registration Statement have been audited by Price
Waterhouse LLP, independent accountants, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
auditing and accounting.
64
<PAGE> 65
The statements in this Prospectus under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and
"Business -- Patents and Proprietary Rights" and all other disclosure in this
Prospectus relating to intellectual property matters have been reviewed and
approved by Brown Martin Haller & McClain and Pretty, Schroeder, Brueggemann &
Clark, as experts in such matters, and are included herein in reliance upon such
review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (which together with all amendments, exhibits and schedules thereto, is
referred to as the "Registration Statement") under the Securities Act, with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the exhibits thereto may be
inspected without charge at the principal office of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 and at its
regional offices located at Seven World Trade Center, New York, NY 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street N.W., Washington, D.C. 20549 upon the payment of the fees
prescribed by the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
65
<PAGE> 66
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 67
SIBIA NEUROSCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheet as of December 31, 1994 and 1995........................................ F-3
Statement of Operations for the years ended
December 31, 1993, 1994 and 1995.................................................... F-4
Statement of Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995.............................................. F-5
Statement of Cash Flows for the years ended
December 31, 1993, 1994 and 1995.................................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of SIBIA Neurosciences, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of SIBIA Neurosciences, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE
PRICE WATERHOUSE LLP
San Diego, California
March 19, 1996
F-2
<PAGE> 69
SIBIA NEUROSCIENCES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS' EQUITY
DECEMBER 31, UNAUDITED (NOTE 1)
----------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ --------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,948,000 $ 2,274,000
Investment securities......................... 3,996,000 14,214,000
Contract and accounts receivable.............. 236,000 35,000
Prepaid expenses and other current assets..... 254,000 238,000
------------ ------------
Total current assets....................... 6,434,000 16,761,000
Property and equipment, net..................... 1,416,000 1,387,000
Other assets.................................... 155,000 103,000
------------ ------------
$ 8,005,000 $ 18,251,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 838,000 $ 1,006,000
Accrued liabilities........................... 899,000 1,167,000
Deferred revenue.............................. 174,000 250,000
------------ ------------
Total current liabilities.................. 1,911,000 2,423,000
------------ ------------
Capital lease obligations....................... 860,000 721,000
Deferred rent................................... 68,000
------------ ------------
Total long-term liabilities................ 928,000 721,000
------------ ------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000
shares authorized (Note 9):
Series A Convertible Preferred Stock..........
Series B Convertible Preferred Stock..........
Series C Convertible Preferred Stock..........
Common Stock -- $.001 par value, 25,000,000
shares authorized; 4,876,384 and 4,899,884
shares issued and outstanding at December
31, 1994 and 1995; 6,018,980 issued and
outstanding at December 31, 1995 -- pro
forma (unaudited).......................... 5,000 5,000 $ 6,000
Additional paid-in capital.................... 24,461,000 31,869,000 31,868,000
Deferred compensation......................... (223,000) (635,000) (635,000)
Notes receivable from stockholders............ (84,000) (82,000) (82,000)
Net unrealized gain on investment securities
available-for-sale......................... 62,000 79,000 79,000
Accumulated deficit........................... (19,055,000) (16,129,000) (16,129,000)
------------ ------------ ------------
Total stockholders' equity................. 5,166,000 15,107,000 $ 15,107,000
------------ ------------ ============
$ 8,005,000 $ 18,251,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 70
SIBIA NEUROSCIENCES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Contract...................................... $ 4,072,000 $ 4,454,000 $ 5,563,000
License and royalty........................... 1,005,000 398,000 4,885,000
---------- ---------- ----------
Total revenue (including $2,691,000 and
$4,139,000 in related-party revenue for
1994 and 1995, respectively)............. 5,077,000 4,852,000 10,448,000
---------- ---------- ----------
Expenses:
Research and development...................... 7,713,000 8,663,000 8,949,000
General and administrative.................... 2,202,000 1,917,000 2,178,000
---------- ---------- ----------
9,915,000 10,580,000 11,127,000
---------- ---------- ----------
(4,838,000) (5,728,000) (679,000)
---------- ---------- ----------
Other income (expense):
Settlement of litigation...................... 3,146,000
Gain from sale of joint venture............... 5,296,000
Other --
Interest income............................ 358,000 424,000 567,000
Interest expense........................... (33,000) (63,000) (71,000)
Other...................................... (37,000) 44,000 38,000
---------- ---------- ----------
288,000 5,701,000 3,680,000
---------- ---------- ----------
(Loss) income before provision for income
taxes......................................... (4,550,000) (27,000) 3,001,000
Provision for income taxes...................... 75,000
---------- ---------- ----------
Net (loss) income............................... $(4,550,000) $ (27,000) $ 2,926,000
========== ========== ==========
Net income per share:
Primary.................................... $ .42
Fully diluted.............................. .41
Weighted average number of common and common
equivalent shares outstanding:
Primary.................................... 6,928,323
Fully diluted.............................. 7,068,120
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 71
SIBIA NEUROSCIENCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A, B AND C
CONVERTIBLE
PREFERRED
STOCK (CONVERTIBLE
AT 2.35-FOR-1)
(NOTE 9) COMMON STOCK NOTES
--------------------- --------------------- ADDITIONAL RECEIVABLE
SHARES SHARES PAID-IN DEFERRED FROM
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL COMPENSATION STOCKHOLDERS
----------- ------ ----------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1992............. 32,950 4,707,125 $5,000 $21,586,000 $ (31,000) $ (96,000)
Issuance of Common
Stock................ 94,000 118,000
Stock option
compensation
expense.............. 11,000 9,000
Conversion of Series B
Convertible Preferred
Stock................ (8,500) 19,975
Exercise of stock
options.............. 17,919 18,000 (4,000)
Net loss..............
------- ------ --------- ------ ---------- ---------- ---------
Balance as of December
31, 1993............. 24,450 4,839,019 5,000 21,733,000 (22,000) (100,000)
Net unrealized gain on
investment securities
available-for-sale at
January 1, 1994 (Note
1)...................
Issuance of Common
Stock................ 23,500 10,000
Issuance of Series A
Convertible Preferred
Stock................ 173,611 2,500,000
Stock option
compensation
expense.............. 217,000 (201,000)
Stock cancellations --
Series B Convertible
Preferred Stock...... (1,550) (6,000) 5,000
Payment on notes
receivable........... 11,000
Exercise of stock
options.............. 13,865 7,000
Net decrease in
unrealized gain on
investment securities
available-for-sale...
Net loss..............
------- ------ --------- ------ ----------- ---------- ---------
Balance as of December
31, 1994............. 196,511 4,876,384 5,000 24,461,000 (223,000) (84,000)
Issuance of Series C
Convertible Preferred
Stock................ 280,000 6,930,000
Stock option
compensation
expense.............. 461,000 (412,000)
Stock cancellations --
Series B Convertible
Preferred Stock...... (300) (2,000) 2,000
Exercise of stock
options.............. 23,500 19,000
Net increase in
unrealized gain on
investment securities
available-for-sale...
Net income............
------- ------ --------- ------ ----------- ---------- ---------
Balance as of December
31, 1995............. 476,211 4,899,884 $5,000 $31,869,000 $ (635,000) $ (82,000)
======= ====== ========= ====== =========== ========== =========
<CAPTION>
NET UNREALIZED
GAIN ON
INVESTMENT
SECURITIES TOTAL
AVAILABLE- ACCUMULATED STOCKHOLDERS'
FOR-SALE DEFICIT EQUITY
-------------- ------------ -------------
<S> <C> <C> <C>
Balance as of December
31, 1992............. $(14,478,000) $ 6,986,000
Issuance of Common
Stock................ 118,000
Stock option
compensation
expense.............. 20,000
Conversion of Series B
Convertible Preferred
Stock................
Exercise of stock
options.............. 14,000
Net loss.............. (4,550,000) (4,550,000)
---------- ------------ ------------
Balance as of December
31, 1993............. (19,028,000) 2,588,000
Net unrealized gain on
investment securities
available-for-sale at
January 1, 1994 (Note
1)................... $ 219,000 219,000
Issuance of Common
Stock................ 10,000
Issuance of Series A
Convertible Preferred
Stock................ 2,500,000
Stock option
compensation
expense.............. 16,000
Stock cancellations --
Series B Convertible
Preferred Stock...... (1,000)
Payment on notes
receivable........... 11,000
Exercise of stock
options.............. 7,000
Net decrease in
unrealized gain on
investment securities
available-for-sale... (157,000) (157,000)
Net loss.............. (27,000) (27,000)
--------- ------------ -----------
Balance as of December
31, 1994............. 62,000 (19,055,000) 5,166,000
Issuance of Series C
Convertible Preferred
Stock................ 6,930,000
Stock option
compensation
expense.............. 49,000
Stock cancellations --
Series B Convertible
Preferred Stock......
Exercise of stock
options.............. 19,000
Net increase in
unrealized gain on
investment securities
available-for-sale... 17,000 17,000
Net income............ 2,926,000 2,926,000
---------- ------------ ------------
Balance as of December
31, 1995............. $ 79,000 $(16,129,000) $ 15,107,000
========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 72
SIBIA NEUROSCIENCES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income............................... $(4,550,000) $ (27,000) $ 2,926,000
Adjustments to reconcile net (loss) income to
net cash (used) provided by operating
activities:
Gain on sale of corporate joint venture...... (5,296,000)
Depreciation and amortization................ 332,000 449,000 497,000
Compensation from issuance of common stock
options.................................... 22,000 16,000 49,000
Issuance of stock for research and
development................................ 108,000
(Gain) loss on disposal of property.......... 37,000 (44,000) (37,000)
Net amortization of premium and discount on
investment securities...................... (71,000) (261,000) (271,000)
Increase (decrease) in cash resulting from
changes in:
Contract and accounts receivable........... (92,000) (52,000) 201,000
Prepaid expenses and other assets.......... (101,000) (18,000) 47,000
Accounts payable........................... 206,000 138,000 168,000
Accrued liabilities........................ 16,000 (174,000) 171,000
Deferred revenue........................... 1,048,000 (1,038,000) 76,000
Deferred rent.............................. (66,000) (66,000) (68,000)
----------- ------------ ------------
Net cash (used) provided by operating
activities............................ (3,111,000) (6,373,000) 3,759,000
----------- ------------ ------------
Cash flows from investing activities:
Purchases of investment securities
held-to-maturity............................. (2,974,000) (10,685,000) (17,312,000)
Maturities of investment securities
held-to-maturity............................. 7,959,000 7,370,000 7,295,000
Principal payments received on investment
securities available-for-sale................ 741,000 1,167,000 88,000
Proceeds from sale of corporate joint venture... 5,196,000
Proceeds from disposal of property and
equipment.................................... 17,000 52,000 44,000
Acquisition of property and equipment........... (95,000) (79,000) (120,000)
----------- ------------ ------------
Net cash provided (used) by investing
activities............................ 5,648,000 3,021,000 (10,005,000)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options......... 14,000 7,000 19,000
Proceeds from payments on notes receivable...... 11,000
Proceeds from issuance of stock................. 2,500,000 6,930,000
Principal payments on capital lease
obligations.................................. (132,000) (276,000) (377,000)
----------- ------------ ------------
Net cash (used) provided by financing
activities............................ (118,000) 2,242,000 6,572,000
----------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 2,419,000 (1,110,000) 326,000
Cash and cash equivalents at beginning of year.... 639,000 3,058,000 1,948,000
----------- ------------ ------------
Cash and cash equivalents at end of year.......... $ 3,058,000 $ 1,948,000 $ 2,274,000
=========== ============ ============
Supplemental Information:
Income taxes paid -- Note 8.....................
Interest paid -- Note 11........................
Equipment under capital leases -- Note 11.......
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 73
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
SIBIA Neurosciences, Inc., formerly the Salk Institute
Biotechnology/Industrial Associates Inc. (the "Company" or "SIBIA"), was founded
by The Salk Institute for Biological Studies ("The Salk Institute") and
incorporated in Delaware in 1981. SIBIA is engaged in the discovery and
development of novel, small molecule therapeutics for disorders of the central
nervous system based on the Company's unique approach to characterizing the
molecular processes involved in such disorders. SIBIA is focusing its efforts on
developing compounds for the treatment of Parkinson's disease, Alzheimer's
disease, stroke, head trauma, epilepsy, chronic pain, schizophrenia and other
neurological, psychiatric and neurodegenerative disorders.
The Company has been funded to date principally through research contracts
(generally conducted on a best efforts basis), equity financings, option,
license and royalty revenues. The Company has also received income from the sale
of its interest in a joint venture (Note 6) and from the settlement of certain
litigation (Note 7).
SIGNIFICANT OWNERSHIP
The Salk Institute owned 40%, 37% and 33% of the Company's outstanding
Common Stock as of December 31, 1993, 1994 and 1995, respectively. Skandigen AB
owned 20%, 18% and 16% of the Company's outstanding Common Stock as of December
31, 1993, 1994 and 1995, respectively.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
It is management's belief that the carrying amounts shown for the Company's
financial instruments are reasonable estimates of their related fair values.
CONCENTRATION OF RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
investment securities. The Company invests in high-grade debt instruments. No
significant losses have been incurred related to these investments.
During the years ended December 31, 1993, 1994 and 1995, the Company had
two, two and three collaborative research agreements that accounted for 78%, 89%
and 81%, respectively, of total revenue.
COLLABORATIVE AGREEMENTS
The Company enters into collaborative agreements from time to time with
third parties. Such agreements may call for an equity investment by the
collaborative partner as well as a commitment for current and future research
funding in exchange for best efforts research to be provided by the Company. The
collaborative agreements may also provide for license fees, milestone payments
and royalties. Such agreements define the rights of each party related to the
results of such research. The amounts
F-7
<PAGE> 74
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recognized by the Company related to equity investments are recorded at the fair
market value, per share, of the Company's securities. Amounts related to
research funding and license and royalty rights are recognized in accordance
with the specific terms of each collaborative agreement to the extent the
Company determines that such recognition is consistent with the substance of the
agreement. (Note 4).
REVENUE RECOGNITION
Contract revenue is recognized as the research is performed using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. Revenue
related to milestones is recognized upon the achievement of the related
milestone and when collection is probable. License revenue is recognized when
there is no material continuing performance obligation under the agreement and
collection is probable. Royalty revenue is recognized when earned and collection
is probable.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and include costs
associated with collaborative agreements. These costs consist of direct and
indirect internal costs related to specific projects as well as fees paid to
other entities which conduct certain research activities on behalf of the
Company.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less. Of the $1,948,000 total cash and cash
equivalents as of December 31, 1994, $1,147,000 was invested in interest-bearing
United States government and mortgage-backed securities. As of December 31,
1995, $2,000,000 of the $2,274,000 total cash and cash equivalents was invested
in certificates of deposit that are carried at cost.
INVESTMENT SECURITIES
The Company adopted prospectively in 1994, Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." Management determines the appropriate classification of its
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. The Company has classified its debt securities as
"available-for-sale" and "held-to-maturity" and has recorded them at fair value
and amortized cost, respectively. Implementation of this accounting treatment
resulted in the Company reflecting in stockholders' equity an unrealized gain on
investments classified as "available-for-sale" of $219,000 as of January 1,
1994. No held-to-maturity securities have been disposed of prior to their
maturity.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated over estimated
useful lives of 4 to 8 years using the straight-line method. Property and
equipment acquired under capital leases is amortized over the shorter of the
useful life or the related lease terms using the straight-line method.
LONG-LIVED ASSETS
The Company assesses potential impairments to its long-lived assets, on an
exception basis, when there is evidence that events or changes in circumstances
have made recovery of the asset's carrying value unlikely. An impairment loss
would be recognized when the sum of the expected future net cash flows is less
than the carrying amount of the asset. No such impairment losses have been
recorded by the Company.
F-8
<PAGE> 75
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
established for the expected future consequences resulting from the differences
in the financial reporting and tax bases of assets and liabilities. Deferred
income tax expense is the change during the year in the deferred income tax
asset or liability (Note 8).
STOCK-BASED COMPENSATION ACCOUNTING
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation." The Company has not elected early adoption of FAS 123. Upon
adoption of FAS 123, the Company will continue to measure compensation expense
for its stock-based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" and
will provide pro forma disclosures as if the fair value based method prescribed
by FAS 123 had been utilized. The disclosures under this standard will be
required beginning in 1996.
NET INCOME PER SHARE
Primary and fully diluted net income per share is computed pursuant to the
treasury stock method using the weighted average number of common and common
equivalent shares outstanding during the period. All equity securities issued by
the Company during the twelve months preceding the planned initial public
offering date at prices below the offering price have been included in the
calculation of weighted average shares outstanding. The net income per share
includes the effect of the Company's Convertible Preferred Stock that are
convertible at the option of the holder or automatically in the event of an
initial public offering. Historical earnings per share are not presented because
such amounts are not believed to be meaningful. All Common Stock share and per
share information has been adjusted for the 2.35-for-1 stock split of the
outstanding shares of Common Stock for all periods presented (Notes 9 and 12).
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Pro forma stockholders' equity of the Company as of December 31, 1995 gives
effect to the automatic conversion of each share of Series A, B and C
Convertible Preferred Stock into 2.35 shares of Common Stock upon the closing of
the Company's planned initial public offering.
NOTE 2 -- INVESTMENT SECURITIES AND CASH EQUIVALENTS
The Company's investment securities and cash equivalents as of December 31,
1994 consist of United States government and mortgage-backed securities. As of
December 31, 1995 the Company's
F-9
<PAGE> 76
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
investment securities consist of mortgage-backed securities and commercial
paper. These investment securities were classified as available-for-sale and
held-to-maturity as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
------------------------------------------------- ---------------------------------------------------
ESTIMATED GROSS GROSS ESTIMATED GROSS GROSS
FAIR UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES COST VALUE GAINS LOSSES
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
Investment
securities...... $ 427,000 $ 489,000 $ 66,000 $ 4,000 $ 343,000 $ 422,000 $ 84,000 $5,000
========== ========== ======== ======== =========== =========== ======= =======
Held-to-maturity
Investment
securities...... $3,507,000 $3,509,000 $ 30,000 $ 28,000 $13,792,000 $13,788,000 $ 1,000 $5,000
Cash
equivalents..... 1,147,000 1,149,000 4,000 2,000
---------- ---------- -------- -------- ----------- ----------- ------- -------
$4,654,000 $4,658,000 $ 34,000 $ 30,000 $13,792,000 $13,788,000 $ 1,000 $5,000
========== ========== ======== ======== =========== =========== ======= =======
</TABLE>
The amortized cost and estimated fair value of the debt securities as of
December 31, 1995, by contractual maturity, are shown below. Actual maturities
may differ from the contractual maturities as the issuers of the securities may
have the right to call the obligation.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Available-for-sale
Due after five years................................. $ 343,000 $ 422,000
=========== ===========
Held-to-maturity
Due in one year or less.............................. $13,792,000 $13,788,000
=========== ===========
</TABLE>
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- ----------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Lab equipment......................................... $ 3,643,000 $3,690,000
Computer equipment.................................... 237,000 265,000
Other................................................. 63,000 85,000
----------- ----------
3,943,000 4,040,000
Accumulated depreciation and amortization............. (2,527,000) (2,653,000)
----------- ----------
$ 1,416,000 $1,387,000
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- ----------
<S> <C> <C>
ACCRUED LIABILITIES
Capital leases obligations............................ $ 333,000 $ 431,000
Accrued vacation...................................... 232,000 264,000
Accrued bonuses....................................... 129,000 202,000
Other................................................. 205,000 270,000
-------- ----------
$ 899,000 $1,167,000
======== ==========
</TABLE>
F-10
<PAGE> 77
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- SIGNIFICANT COLLABORATIVE AGREEMENTS
ELI LILLY & COMPANY
In May 1992, the Company entered into a three-year agreement with Eli Lilly
& Company ("Lilly") providing for the discovery and development of drugs which
specifically interact with human neuronal calcium channels. In exchange for
providing a certain level of scientific research under the agreement, the
Company will receive payments from Lilly; additional payments may be received by
the Company upon the achievement of certain development milestones. Both Lilly
and the Company have certain licensing and royalty rights under conditions set
forth in the agreement. The Company has granted Lilly an exclusive license to
use certain proprietary technology of the Company during the term of the
agreement, and non-exclusively thereafter. In May 1995, the agreement was
extended to May 1997 and can be extended further by mutual consent or may be
terminated by either party upon six months' advance written notice, which may be
provided anytime after May 1996. As part of the original agreement, Lilly
purchased 276,470 shares of Common Stock. The Company recognized contract
revenue related to this agreement of $1,525,000, $1,621,000 and $1,663,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.
CIBA-GEIGY LIMITED
In October 1992, the Company entered into a three-year agreement with
CIBA-GEIGY Limited ("Ciba") relating to the development and use of mammalian
cell lines expressing excitatory amino acid receptor ("EAAR") subtypes and
chemical agents which react with specific EAAR subtypes. In exchange for
providing a certain level of scientific research under the agreement, the
Company will receive payments from Ciba; additional payments may be received by
the Company upon the achievement of certain development milestones. In March
1996, the agreement was extended through September 1998 (Note 12). Under
conditions set forth in the agreement, the Company has rights to receive
royalties based upon Ciba's sales of products developed, if any, using specified
technology. The Company has granted Ciba an exclusive license to use certain
proprietary technology of the Company during the term of the agreement. Upon
expiration of the agreement, SIBIA retains the right to use the program
technology for its own drug discovery efforts, subject to Ciba's right of first
negotiation with respect to any compounds developed from such technology
discovered during the three years following expiration of the agreement.
During March 1994, pursuant to the agreement, Ciba purchased 173,611 shares
of Series A Convertible Preferred Stock (407,986 shares of Common Stock on an
as-if-converted basis; pro forma unaudited -- Note 12). Ciba owned approximately
4%, 11% and 10% of the Company's outstanding Common Stock on an as-if-converted
basis as of December 31, 1993, 1994 and 1995, respectively. The Company
recognized contract revenue related to this agreement of $2,423,000, $2,691,000
and $2,281,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
BRISTOL-MYERS SQUIBB COMPANY
In August 1995, the Company entered into a four-year collaborative
agreement with Bristol-Myers Squibb Company ("Bristol-Myers Squibb") relating to
the discovery and development of compounds relating to amyloid precusor protein.
The collaborative effort includes identifying compounds that are suitable for
development into products for commercialization and to conduct preclinical
development and clinical trials for such compounds. In exchange for providing a
certain level of scientific research under the agreement, the Company will
receive payments from Bristol-Myers Squibb; additional payments may be received
by the Company upon the achievement of certain development milestones.
Bristol-Myers Squibb will also pay royalties based on the level of its net sales
of products, if any, developed under the agreement. The Company recognized
contract revenue of $1,169,000 in 1995 related to this agreement.
F-11
<PAGE> 78
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concurrent with the execution of the agreement, Bristol-Myers Squibb paid a
non-refundable $3,000,000 license fee for an exclusive commercialization license
to use certain related existing proprietary technologies and purchased 280,000
shares of the Company's Series C Convertible Preferred Stock (658,000 shares of
Common Stock on as as-if-converted basis; pro forma unaudited -- Note 12). The
stock purchase resulted in an approximate 11% ownership of the Company's total
outstanding Common Stock on an as-if-converted basis as of December 31, 1995.
Bristol-Myers Squibb also agreed to make an additional equity investment of
$6,000,000 of shares of Common Stock upon the initiation of clinical trials
relating to any product developed from the collaboration but not before January
1, 1997. The number of shares to be purchased by Bristol-Myers Squibb on such
date will be determined by dividing $6,000,000 by the then fair market value per
share of the Company's Common Stock on the date of issuance.
Total costs incurred under the Company's various collaborative agreements
for the years ended December 31, 1993, 1994 and 1995, including certain
administrative costs, aggregated $3,226,000, $3,232,000 and $4,381,000,
respectively.
NOTE 5 -- SIGNIFICANT OPTION AND LICENSE AGREEMENTS
CEPHALON, INC.
In October 1991, the Company entered into a development and
option-to-license agreement with Cephalon, Inc. ("Cephalon") for certain
proprietary technology related to the development and production of recombinant
insulin-like growth factor ("IGF-1"), known as Myotrophin, on a commercial basis
for certain indications. In addition to the reimbursement of certain research
costs, the agreement includes a provision for the payment of option and
licensing fees upon the occurrence of certain development milestones.
In March 1992, Cephalon exercised its option and executed the license
agreement, which provides Cephalon an exclusive worldwide license to produce
IGF-1 for certain neurological applications. Under the agreement, the Company
has rights to receive royalties on Cephalon's sales of products using licensed
technology, which rights generally expire seven years after the first commercial
sale of such products or upon the expiration of patents underlying product
manufacture, whichever is later. Cephalon has the right to terminate the
agreement upon sixty days written notice to the Company.
In September 1995, Cephalon exercised its option to buy-down its royalty
percentage to a reduced rate that would be payable upon Cephalon achieving a
certain level of sales of an IGF-1 product within the neurology field, for a
non-refundable payment of $1,750,000.
AFFYMAX TECHNOLOGIES, N.V.
In June 1993, SIBIA entered into a license agreement with Affymax
Technologies, N.V. ("Affymax") for certain proprietary recombinant phage
technology used in drug and diagnostic reagent discovery. Under this agreement,
Affymax paid SIBIA $500,000 during 1993 and may pay certain license fees in
future years.
ZENECA LIMITED
In August 1994, the Company entered into an agreement with Zeneca Limited
("Zeneca") to sell its technology used to alter the characteristics of tomatoes
or other crop species by genetic engineering. As consideration for this
technology, Zeneca paid the Company $300,000 and may be required to pay
specified royalties and payments equal to the difference, if any, between these
royalties and specified minimum payments. These minimum payments will be made
beginning in 1997. Zeneca can terminate the agreement at any time. During 1994,
the Company recognized $300,000 in revenue related to the agreement.
F-12
<PAGE> 79
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SALE OF JOINT VENTURE
In February 1984, the Company received 1,000,000 shares of Common Stock of
SISKA Diagnostics, Inc. ("SISKA"), a corporation formed in 1984, in exchange for
the assignment of rights to certain inventions in the field of nucleic acid
probe diagnostics. The Company's investment in the SISKA corporate joint
venture, accounted for under the equity method of accounting, was assigned no
value as the intangible assets exchanged had no recorded value. The remaining
1,000,000 shares of SISKA Common Stock outstanding was owned by Skandigen AB, a
corporation of Sweden.
In January 1994, the Company forfeited its right to receive certain
royalties in exchange for an additional 10% interest in the SISKA corporate
joint venture. In March 1994, the Company entered into an agreement with Organon
Teknika Corporation to sell its 60% interest in SISKA for $5,196,000 and
recorded a gain of $5,296,000 which included the reversal of $100,000
representing the Company's share of the SISKA's stockholders' deficit.
NOTE 7 -- SETTLEMENT OF LITIGATION
In October 1995, the Company entered into settlements with two law firms
for failure to properly file a foreign patent application. The Company accepted
$4,633,000 in total damages and received $3,146,000 in net proceeds after
payment of $1,487,000 in legal expenses.
NOTE 8 -- INCOME TAXES
The provision for income taxes for the year ended December 31, 1995 is
comprised of $75,000 in current federal alternative minimum tax expense. The
$75,000 provision for income taxes differs from the $1,020,000 income tax
determined by applying the applicable U.S. statutory federal income tax rate of
34% to pretax income primarily as a result of alternative minimum taxes after
consideration of the $1,001,000 benefit of net operating loss carryforwards.
As of December 31, 1995, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $14,600,000, which expires
beginning in 2006. As of December 31, 1995, the Company had federal and state
tax credits for research activities totaling approximately $1,063,000 and
$241,000, respectively, which are available to offset future income taxes and
which expire during the years 2004 to 2010.
The Company's ability to utilize net operating loss carryforwards and tax
credits is subject to limitations as set forth in applicable federal and state
tax laws. As specified in the Internal Revenue Code, an ownership change of more
than 50% by a combination of the Company's significant stockholders during any
three-year period would result in certain limitations on the Company's ability
to utilize its net operating loss and credit carryforwards.
F-13
<PAGE> 80
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax liabilities and assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation......................................... $ (507,000) $ (447,000)
----------- -----------
Deferred tax assets:
Net operating loss carryforward...................... 6,628,000 5,224,000
Research and development credit...................... 1,173,000 1,304,000
Purchased research and development................... 110,000 76,000
Research and development capitalized for state tax
purposes.......................................... 1,182,000 890,000
Capital lease obligations............................ 531,000 473,000
Other................................................ 227,000 230,000
----------- -----------
Total deferred tax assets.................... 9,851,000 8,197,000
----------- -----------
Net deferred tax assets................................ 9,344,000 7,750,000
Valuation allowance.................................... (9,344,000) (7,750,000)
----------- -----------
Deferred taxes......................................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1995, the Company has provided a deferred tax asset
valuation allowance for net deferred tax assets which "more likely than not"
will not be realized based on recent and expected trends in operating results.
The Company paid state franchise taxes of $16,000, $12,000 and $13,000
during 1993, 1994 and 1995, respectively. The Company paid federal income tax of
$32,000 during 1995.
NOTE 9 -- STOCKHOLDERS' EQUITY
STOCK SPLIT
In March 1996, the Board of Directors authorized a 2.35-for-1 stock split
and increased the total authorized shares of Common Stock outstanding to
25,000,000 (Note 12). The Convertible Preferred Stock conversion rate was also
changed to 2.35-for-1. The 1994 and 1995 stockholders' equity accounts have been
restated to give effect to the Common Stock split and increased share
authorization. All earnings per share, option and other data presented have also
been restated to give effect to the stock split.
CONVERTIBLE PREFERRED STOCK
In July 1995, the Company amended and restated its Certificate of
Incorporation to issue up to 280,000 shares of the Company's Series C
Convertible Preferred Stock in conjunction with the Bristol-Myers Squibb stock
purchase agreement (Note 4). In August 1995, Bristol-Myers Squibb purchased
280,000 shares of Series C Convertible Preferred Stock (658,000 shares of Common
Stock on an as-if-converted basis; pro forma unaudited -- Note 12) for an
aggregate amount of $7,000,000 that was recorded net of $70,000 in issuance
costs.
In March 1994, the Company amended and restated its Certificate of
Incorporation to issue up to 173,611 shares of the Company's Series A
Convertible Preferred Stock in conjunction with the Ciba stock purchase
agreement (Note 4). In March 1994, Ciba purchased 173,611 shares of Series A
Convertible Preferred Stock (407,986 shares of Common Stock on an
as-if-converted basis; pro forma unaudited -- Note 12) for an aggregate amount
of $2,500,000.
F-14
<PAGE> 81
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Series A, B and C Convertible Preferred Stock is convertible at the
option of the stockholder into shares of Common Stock on a 2.35-for-1 basis. In
the event of an initial public offering of Common Stock, the Series A, B and C
Convertible Preferred Stock will automatically convert into Common Stock (Note
12).
The Series A and C Convertible Preferred Stock voting rights are on an
as-converted-into-common basis on all matters requiring stockholder approval.
Dividends are non-cumulative when declared by the Board of Directors, prior and
in preference to any dividend on Common Stock or on Series B Convertible
Preferred Stock. The liquidating preference is $14.40 and $25.00 ($6.13 and
$10.64 per share, respectively, on an as-if-converted basis; pro forma
unaudited -- Note 12) per share for Series A and C, respectively, plus declared
but unpaid dividends, in preference to the holders of the Common Stock and the
Series B Convertible Preferred Stock. Any remaining liquidation distribution
will be made on an as-if-converted basis to holders of Common Stock and Series B
Convertible Preferred Stock.
The Series B Convertible Preferred Stock is non-voting and entitled to
receive dividends, out of funds legally available, at the rate of $.01 per annum
per share when declared by the Board of Directors, payable in preference and
priority to any payment of any dividend on Common Stock. The rights to such
dividends are non-cumulative.
Certain holders of the Company's Convertible Preferred Stock are entitled
to certain registration rights with respect to their shares. Should the Company
propose to register shares of its capital stock, certain holders of shares of
Convertible Preferred Stock will be entitled to include their shares in such
registration.
As of December 31, 1995, 407,986, 53,110 and 658,000 shares of Common Stock
were reserved for issuance to Series A, B and C Convertible Preferred
stockholders upon conversion, respectively.
The following shares of Convertible Preferred Stock, $.001 par value, are
issued and outstanding:
<TABLE>
<CAPTION>
PROFORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, (UNAUDITED)
------------- DECEMBER 31,
1994 1995 1995
---- ---- -------------
<S> <C> <C> <C>
Series A -- 173,611 shares designated, issued and
outstanding as of December 31, 1994 and 1995
($2,500,000 total liquidation preference).
Convertible into Common Stock at 2.35-for-1. No
shares issued and outstanding as of December 31,
1995 -- pro forma (unaudited).................... $ -- $ -- $ --
Series B -- 600,000 shares designated; 22,900 and
22,600 shares issued and outstanding as of
December 31, 1994 and 1995. Convertible into
Common Stock at 2.35-for-1. No shares issued and
outstanding as of December 31, 1995 -- pro forma
(unaudited)...................................... -- -- --
Series C -- 280,000 shares designated, issued and
outstanding as of December 31, 1995 ($7,000,000
total liquidation preference). Convertible into
Common Stock at 2.35-for-1. No shares issued and
outstanding as of December 31, 1995 -- pro forma
(unaudited)...................................... -- -- --
</TABLE>
F-15
<PAGE> 82
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK
The Common Stock has voting rights and powers and contains certain
liquidation rights over the Series B Convertible Preferred Stock. Certain
holders of Common Stock are entitled to certain registration rights with respect
to their shares. In the event that the Company proposes to register any of its
Common Stock under the Securities Act of 1933, certain holders of Common Stock
are entitled to include their shares in such a registration. In addition,
pursuant to certain of its collaborative agreements, the Company must use its
best efforts to register for public resale certain shares of Common Stock which
were purchased by such collaborative partners prior to the Company's planned
initial public offering.
WARRANTS
As of December 31, 1994 and 1995, warrants to purchase 258,359 shares of
Common Stock (the "warrants") were outstanding. The warrants were issued in
September 1991 as part of an acquisition. The warrants are exercisable through
October 31, 2001 upon the Company's initial public offering of Common Stock and
the Company's achieving $50,000,000 from net sales of, or royalties from,
products utilizing the related acquired technology. The license agreement to
which the technology relates was cancelled in 1994 and the Company is no longer
utilizing the related technology. The warrants are not presently exercisable and
management believes that the warrants will never be exercisable. No separate
value was assigned to the warrants in 1991 as the Company determined their value
to be de minimis.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
COMMON STOCK OPTION PLANS
During 1992, the Company adopted the SIBIA 1992 Stock Option and Restricted
Stock Plan under which options for a maximum of 1,551,000 shares of Common Stock
may be issued to employees and consultants of the Company. The plan provides for
the granting of options intended to qualify as incentive stock options under the
Internal Revenue Code and nonqualified stock options. The exercise price of the
incentive stock options may not be less than the fair market value of the
underlying shares on the date of grant. The exercise price of the nonqualified
stock options may not be less than 85% of the fair market value of the
underlying shares on the date of grant as determined by the Board of Directors.
Options granted under the plan are generally subject to vesting over four years
(25% per year), as determined by the Board of Directors. Compensation expense,
as appropriate, has been recorded related to option grants and is being
amortized to operations over the related vesting period. The terms of the stock
options are up to ten years. No further stock option grants will be made under
this plan upon the completion of an initial public offering by the Company.
F-16
<PAGE> 83
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the changes in options outstanding under the plan for the
three years ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
OUTSTANDING PER SHARE
----------- --------------
<S> <C> <C>
Balance, December 31, 1992.............................. 338,987 $ .37 - $1.23
Options granted....................................... 110,333 1.23 - 1.30
Options exercised..................................... (13,219) 1.23 - 1.30
Options forfeited..................................... (9,576) 1.23 - 1.30
-----------
Balance, December 31, 1993.............................. 426,525 .37 - 1.30
Options granted....................................... 131,530 1.30 - 1.70
Options exercised..................................... (13,865) .37 - 1.30
Options forfeited..................................... (21,268) .37 - 1.70
-----------
Balance, December 31, 1994.............................. 522,922 .37 - 1.70
Options granted....................................... 215,754 1.23 - 1.45
Options exercised..................................... (23,500) .37 - 1.23
Options forfeited..................................... (41,055) .37 - 1.70
-----------
Balance, December 31, 1995.............................. 674,121 .37 - 1.70
==========
Exercisable, December 31, 1995.......................... 423,212 .37 - 1.70
==========
Available for future grant, December 31, 1995........... 357,412
==========
</TABLE>
Prior to March 1994, employees and consultants who exercised options could
borrow, on a full-recourse basis, at the time of exercise, an amount equal to
the difference between the aggregate exercise price of the shares of Common
Stock acquired and $.04. All borrowings are secured by a pledge of the shares of
Common Stock purchased and bear interest at the applicable federal rate with
principal and interest due and payable in five years. Outstanding borrowings
bear interest at rates of 8% and 9%.
MANAGEMENT CHANGE OF CONTROL PLAN
In November 1994, the Company adopted a plan whereby certain key employees
may be entitled to receive benefits upon the occurrence of a change of control
of the Company, as defined in the plan. Certain of these benefits (bonus and/or
severance) are based on the Company having a minimum valuation upon the change
in control and the key employees' base salary. Also in conjunction with the
plan, certain key employees were granted a total of 364,250 nonqualified stock
options exercisable at $.85 per share. Additionally, during 1995, 23,500
nonqualified stock options were granted at an exercise price of $.85 per share.
Options issued have terms of 10 years and are exercisable seven years from their
date of grant. In the event of a change in control, the exercise period of the
options may accelerate as determined by the value of the Company on the date of
such a change in control. Deferred compensation related to the options granted
is being amortized to operations over the related vesting period. Subsequent to
year end, the Management Change of Control Plan was amended to allow for the
immediate vesting of 25% of the outstanding options in the event of an initial
public offering of the Company's Common Stock. The remaining options outstanding
under such plan would vest over a three-year period (Note 12).
SERIES B CONVERTIBLE PREFERRED STOCK OPTION PLANS
The Company had two stock option plans under which a maximum of 300,000
shares of Series B Convertible Preferred Stock (convertible at 2.35-for-1) could
be issued to employees and consultants of
F-17
<PAGE> 84
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company. These plans expired in 1991; accordingly, no options are available
for grant as of December 31, 1995. Option grant prices approximated the fair
market value of the Series B Convertible Preferred Stock at the date of grant as
determined by the Board of Directors. The stock options have terms of ten years
and are exercisable at such time (generally subject to vesting over 3 to 5 years
from the grant date) and under conditions and at prices as were determined by
the Board of Directors. A summary of the changes in options outstanding under
the Series B Convertible Preferred Stock option plans for the three years ended
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
OUTSTANDING PER SHARE
----------- ---------------
<S> <C> <C>
Balance, December 31, 1992............................ 148,100 $ 3.30 - $15.00
Options exercised................................... (2,000) 3.85
Options forfeited................................... (1,600) 3.30 - 4.00
-----------
Balance, December 31, 1993............................ 144,500 5.00 - 15.00
Options forfeited................................... (7,200) 12.00 - 15.00
-----------
Balance, December 31, 1994............................ 137,300 5.00 - 15.00
Options forfeited................................... (6,600) 5.00
-----------
Balance, December 31, 1995............................ 130,700 5.00 - 15.00
==========
Exercisable, December 31, 1995 (Note 12).............. 130,700 5.00 - 15.00
==========
</TABLE>
Employees and consultants who exercise options may borrow at the time of
exercise, on a full-recourse basis, an amount equal to the difference between
the aggregate exercise price of the shares of Common Stock acquired and $.04.
All borrowings are secured by a pledge of Series B Convertible Preferred Stock
purchased, bear interest at the applicable federal rate with principal and
interest due and payable in five years. Outstanding borrowings bear interest of
9%.
RETIREMENT SAVINGS PLAN
The Company has a savings plan under Section 401(k) of the Internal Revenue
Code which covers all employees of the Company who have completed one year of
service. Employees can contribute up to 6% of their salaries, but not in excess
of the amount deductible for income tax purposes. The Company currently matches
50% of employee contributions up to 6% of an employee's salary, limited to the
maximum contribution allowable for income tax purposes. Employer contributions
are vested proportionately over five years of service. The plan may be amended
or discontinued at anytime by the Company. During 1993, 1994 and 1995, the
Company contributed $59,000, $87,000 and $104,000, respectively, to the plan.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
Certain scientific instrumentation, computer equipment and other equipment
acquired under available lease-line credit facilities are subject to leases
which are classified as capital leases. These capital leases mature at various
dates through 1999 and have interest rates between 4.9% and 8.1%. As of December
31, 1995, $1,976,000 ($1,099,000 net of accumulated amortization) of such leased
equipment is included in property and equipment. For the years ended December
31, 1993, 1994 and 1995, $146,000, $297,000 and $392,000 in amortization
expense, respectively, was recorded related to property acquired under capital
leases. As of December 31, 1995 the Company has $400,000 available under a lease
financing line.
F-18
<PAGE> 85
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES
The Company leases its principal facilities under a long-term operating
lease which includes rent escalations of approximately 5 percent per annum. Rent
expense was $545,000, $559,000 and $563,000, net of sub-lease income of
$541,000, $567,000 and $571,000 for 1993, 1994 and 1995, respectively. The
Company has the option to extend the lease for a period of five years.
Future minimum lease payments for capital and operating leases as of
December 31, 1995 are as follows (operating lease payments are net of
noncancellable sub-lease income of $528,000 and $352,000 in 1996 and 1997).
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1996...................................................... $ 484,000 $ 760,000
1997...................................................... 435,000 937,000
1998...................................................... 275,000 40,000
1999...................................................... 51,000
---------- ----------
Total minimum lease payments.............................. 1,245,000 $1,737,000
==========
Amount representing interest.............................. (93,000)
----------
Obligations under capital leases.......................... 1,152,000
Less portion due within one year.......................... (431,000)
----------
Long-term capital lease obligations....................... $ 721,000
==========
</TABLE>
During 1993, 1994 and 1995, $33,000, $63,000 and $71,000, respectively, was
paid in imputed interest.
COMMITMENTS
The Company has contracted for a fully automated, functional high
throughput screening system and related equipment with an expected cost of
approximately $750,000, of which $500,000 will be provided by Ciba (Note 12).
The Company is party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
resolution of all such matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
NOTE 12 -- SUBSEQUENT EVENTS
CIBA COLLABORATIVE AGREEMENT EXTENSION
In March 1996, the Company executed an agreement with Ciba to extend the
term of its collaborative agreement with Ciba to September 1998, unless extended
by mutual consent or terminated by either party upon six months' notice, which
may be provided after March 1997. In exchange for providing a certain level of
scientific research under the agreement, the Company will receive payments from
Ciba; additional payments may be received by the Company upon the achievement of
certain development milestones and the Company may receive royalties in the
event there are sales of products containing a compound developed under the
agreement. As part of the agreement, Ciba has agreed to make a further equity
investment of $7,500,000 of shares of the Company's Common Stock, of which
$5,000,000 would be made in conjunction with an initial public offering of the
Company's Common Stock and the remaining $2,500,000 upon the achievement of
certain research milestones. The initial $5,000,000 of Common Stock will be
issued to Ciba at the public offering price concurrently with the
F-19
<PAGE> 86
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
closing of the Company's planned initial public offering. The number of shares
to be issued upon achievement of such milestones will be determined by dividing
$2,500,000 by the then fair market value per share of the Company's Common Stock
on the date of issuance. Ciba is also agreed to provide $500,000 to fund certain
capital expenditures (which may be credited against future milestone payments).
Each party will continue to have a non-exclusive right to use technology
developed. For a period of three years after the agreement, Ciba will have a
right of first negotiation related to any compounds developed from the
technology related to the agreement.
In March 1996, Ciba and Sandoz Ltd. announced that they agreed to a merger
of their respective companies. The Company cannot predict what impact, if any,
the merger will have on its agreement with Ciba.
THE SALK INSTITUTE LICENSE AGREEMENT EXTENSION
In 1988, SIBIA entered into a license agreement with The Salk Institute
covering a number of NAChR receptor subunit clones. This agreement was amended
in March 1996 such that the license became an exclusive worldwide license.
Pursuant to the agreement, as amended, SIBIA is obligated to pay royalties to
The Salk Institute on sales of products resulting from The Salk Institute's
NAChR technology. In addition, the Company is required to make certain minimum
annual royalty payments to The Salk Institute beginning in 2002. Failure to pay
such royalties will result in the related license becoming non-exclusive.
In 1990, SIBIA entered into a three-year agreement with The Salk Institute
in the area of EAARs. This agreement provided for the support of certain
research in 1992 and 1993 at The Salk Institute by SIBIA and the transfer of
research materials and research results in the EAAR area from The Salk Institute
to SIBIA. SIBIA also received an exclusive worldwide license to certain
EAAR-related patents and patent applications held by The Salk Institute. The
agreement was amended in March 1996. Pursuant to the agreement, as amended,
SIBIA is required to make certain annual minimum royalty payments to The Salk
Institute beginning in 2002. Failure to pay such royalty payments will result in
the related license agreement becoming non-exclusive.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
In March 1996, the Company amended and restated its Certificate of
Incorporation to: (i) change the name of the Company to "SIBIA Neurosciences,
Inc.", (ii) split each outstanding share of Common Stock into 2.35 shares of
Common Stock, (iii) increase the authorized number of shares of Common Stock to
25,000,000, (iv) adjust the conversion rate of Convertible Preferred Stock to
2.35-for-1 and (v) provide for the automatic conversion of the Series B
Preferred Stock into Common Stock upon the closing of an initial public
offering.
EQUITY INCENTIVE PLAN
In February 1996, the Company adopted the 1996 Equity Incentive Plan to
provide selected employees, directors and consultants with incentive stock
options, nonqualified stock options, stock bonuses, rights to purchase
restricted stock and stock appreciation rights. The Company has reserved
1,513,141 shares of Common Stock for issuance under the plan. The options
granted are exercisable for ten years from the date of grant. The exercise price
of the incentive stock options will not be less than the fair market value of
the Common Stock on the date of grant. The exercise price of the nonqualified
stock options will not be less than 85% of the fair market value of the Common
Stock on the date of grant. The vesting provisions may vary but in each case
will provide for the vesting of at least 20% per year of the total number of
shares of Common Stock subject to the option.
F-20
<PAGE> 87
SIBIA NEUROSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price for restricted stock will be determined by the Board of
Directors, but in no event will the purchase price be less than 85% of the fair
market value of the Common Stock on the date such an award is granted. Shares of
Common Stock may be subject to a repurchase feature in favor of the Company in
accordance with a vesting schedule to be determined by the Board of Directors,
provided however, that the right to repurchase at the original purchase price
will lapse at a minimum rate of 20% per year over the five-year period following
the date that the award was granted. The repurchase feature can be exercised by
the Company within the 90-day period following the stockholder's termination of
employment or the relationship as a director or consultant.
EMPLOYEE STOCK PURCHASE PLAN
In February 1996, the Company adopted the Employee Stock Purchase Plan
under Section 423 of the Internal Revenue Code in which eligible employees may
use funds from accumulated payroll deductions to purchase shares of Common Stock
at the end of each designated purchase period. Employees may contribute up to
15% of base salary toward such purchases, not to exceed $25,000 per calendar
year. The purchase price is 85% of the fair market value of Common Stock
determined at the beginning or end of each purchase period, whichever is lower.
The Company has reserved 500,000 shares of Common Stock for issuance under the
plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1996, the Company adopted the 1996 Non-Employee Directors'
Stock Option Plan, which becomes effective as of the effective date of the
Company's planned initial public offering, to provide non-employee directors
with the opportunity to purchase Common Stock by granting options to
non-employee directors at an exercise price equal to the fair market value of
the underlying shares on the date of grant. Options are granted upon election as
a non-employee director and on the date of each annual meeting of the
stockholders of the Company. The options are exercisable over a ten-year period
from the date of grant and are 50% vested as of the date of grant with the
remainder vesting one year thereafter. The Company has reserved 235,000 shares
of Common Stock for issuance under the plan.
MANAGEMENT CHANGE OF CONTROL PLAN
In March 1996, the Management Change of Control Plan was amended to allow,
in the event of an initial public offering of the Company's Common Stock, for
the immediate vesting of 25% of the outstanding options under such plan. The
remaining options would vest annually over a three-year period. In the event of
a change of control, the vesting of unvested options may accelerate as
determined by the value of the Company on the date of such a change of control.
EXERCISE OF STOCK OPTIONS
In March 1996, options to purchase 120,200 shares of Series B Convertible
Preferred Stock option plans were exercised at $5.00 per share in exchange for
notes receivable that bear interest at 7 % per annum. Of these shares, 110,600
shares were converted into 259,910 shares of Common Stock. Additionally, during
March 1996, options to purchase 17,143 shares of Common Stock with a weighted
average exercise price of $2.93 per share were exercised.
GRANT OF STOCK OPTIONS
In March 1996, the Company issued options to purchase 157,168 shares of
Common Stock with an exercise price of $1.91 per share resulting in deferred
compensation of $910,000, which will be recognized as expense over the related
four-year vesting period.
F-21
<PAGE> 88
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<PAGE> 89
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<PAGE> 90
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<PAGE> 91
[PASTE-UP PHOTOS HERE]
Processing of the amyloid precursor protein (APP) by specific neuronal proteases
leads to the production of either the neuroprotective secreted APP (s-alpha)
molecule or the neurotoxic Amyloid beta-protein (A-beta) molecule. The
neurotoxic A-beta molecule is formed through the action of two successive
protease cleavages on APP, the first by beta-secretase and the second by
gamma-secretase. Alternatively, A-beta formation is precluded through a
single protease cleavage of APP by alpha-secretase which generates the
neuroprotective APP (s-alpha) molecule.
<PAGE> 92
<TABLE>
<S> <C> <C>
NO DEALER, SALESPERSON OR ANY OTHER 2,100,000 SHARES
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED SIBIA
UPON AS HAVING BEEN AUTHORIZED BY THE NEUROSCIENCES, INC.
COMPANY OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY COMMON STOCK
ANYONE IN ANY JURISDICTION IN WHICH ($.001 PAR VALUE)
SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH SOLICITATION.
- ---------------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 16
Dividend Policy............................ 16
Capitalization............................. 17 [SIBIA LOGO]
Dilution................................... 18
Selected Financial Data.................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 20
Business................................... 24
Management................................. 43
Certain Transactions....................... 53
Principal Stockholders..................... 55
Description of Capital Stock............... 57
Shares Eligible for Future Sale............ 61 SALOMON BROTHERS INC
Underwriting............................... 63 NEEDHAM & COMPANY, INC.
Legal Matters.............................. 64 VECTOR SECURITIES INTERNATIONAL, INC.
Experts.................................... 64
Additional Information..................... 65
Index to Financial Statements.............. F-1
- -------------------------------------------------
UNTIL JUNE 3, 1996 (25 DAYS AFTER THE
COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR PROSPECTUS
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. DATED MAY 9, 1996
</TABLE>
