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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-28310
SIBIA NEUROSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3616229
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 COAST BOULEVARD SOUTH, SUITE 300, LA JOLLA, CA 92037
(Address of principal executive offices, including zip code)
(619) 452-5892
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
On January 31, 1997, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant totaled approximately $39,886,769 based on the
closing stock price as reported by The Nasdaq Stock Market. For purposes of
determining this number, shares of Common Stock held by officers, directors and
stockholders whose ownership exceeded ten percent (10%) of the total shares of
Common Stock outstanding at January 31, 1997 were excluded. Exclusion of such
shares should not be construed to indicate that any such person possesses the
power, direct or indirect, to direct or cause the direction of the management or
policies of the Registrant or that such person is controlled or under control
with the Registrant.
The number of shares of Common Stock of the Registrant outstanding as of
January 31, 1997 was 9,178,077.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A
in connection with the 1997 Annual Meeting of Stockholders scheduled to be held
June 4, 1997 are incorporated herein by reference into Part III of this Report.
Such proxy statement will be filed with the Commission not later than 120 days
after Registrant's year end. Certain Exhibits filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 333-2586) are incorporated
by reference into Part IV of this Report.
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PART I
ITEM 1. BUSINESS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED ("EXCHANGE ACT") INVOLVING
RISK AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THIS FORM 10-K. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE ABILITY TO DEVELOP SAFE AND
EFFICACIOUS DRUGS, VARIABILITY OF ROYALTY, LICENSE AND OTHER REVENUE, FAILURE TO
SATISFY PERFORMANCE OBLIGATIONS, ABILITY TO ENTER INTO FUTURE COLLABORATION
AGREEMENTS, UNCERTAINTY REGARDING THE COMPANY'S PATENTS AND PROPRIETARY RIGHTS
(INCLUDING THE RISK THAT THE COMPANY MAY BE FORCED TO ENGAGE IN COSTLY
LITIGATION TO PROTECT SUCH PATENT RIGHTS AND THE MATERIAL ADVERSE CONSEQUENCES
TO THE COMPANY IF THERE WERE AN UNFAVORABLE OUTCOME OF ANY SUCH LITIGATION), AS
WELL AS OTHER RISKS AND UNCERTAINTIES DISCUSSED IN THE DESCRIPTION OF THE
COMPANY'S BUSINESS BELOW AND THE SECTIONS ENTITLED "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AS WELL AS THOSE DISCUSSED IN ANY DOCUMENT INCORPORATED HEREIN BY
REFERENCE.
OVERVIEW
SIBIA Neurosciences, Inc. ("SIBIA" or the "Company") is engaged in the
discovery and development of novel, small molecule therapeutics for disorders of
the nervous system based on the Company's unique approach to characterizing the
molecular processes involved in such disorders. SIBIA is focusing its efforts on
discovering and developing compounds for the treatment of Parkinson's disease,
Alzheimer's disease, stroke, depression, 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 14 issued U.S. and two foreign patents and has
three allowed U.S. patents and 56 pending U.S. patent applications relating to
these technologies. The Company's strategy is to utilize its technologies to
discover and develop proprietary nervous system 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"), Novartis AG ("Novartis"), Bristol-Myers Squibb Company
("Bristol-Myers Squibb") and Meiji Seika Kaisha, Ltd. ("Meiji").
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 nervous system 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 nervous system 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 nervous system 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 nervous system 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 nervous system 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
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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 30 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 nervous system 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 Novartis in the area of EAAR drug discovery and with Lilly in the
area of VGCC drug discovery.
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. In December 1996,
the Company filed an Investigational New Drug application ("IND") with respect
to SIB-1508Y. In February 1997, the Company commenced under its U.S. IND a Phase
I clinical trial with SIB-1508Y. In March 1997, the Company announced a new
corporate partnership with Meiji for the development and commercialization of
SIB-1508Y in Japan and certain other Asian countries, however, SIBIA has
retained rights to manufacture clinical supplies and commercial material. SIBIA
plans to establish additional corporate collaborations for advanced clinical
trials and commercialization of SIB-1508Y for other areas of the world. However,
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
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 (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.
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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 nervous system 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 and commenced Phase I clinical trials.
UTILIZING ITS BROAD PORTFOLIO OF PROPRIETARY MOLECULAR TARGETS TO
DEVELOP COMPOUNDS THAT ADDRESS THE COMPLETE SPECTRUM OF NERVOUS SYSTEM
DISORDERS. To date, SIBIA has identified over 30 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 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, Novartis,
Bristol-Myers Squibb and Meiji.
EXPANDING ITS DRUG DISCOVERY PLATFORMS TO ENHANCE ITS NERVOUS SYSTEM
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 has a 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 NERVOUS SYSTEM 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.
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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.
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 nervous system
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 nervous
system 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.
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 nervous system
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 nervous system 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
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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 nervous system 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 30 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
nervous system disorders. SIBIA is aggressively continuing this
program and expects to express a significant number of additional
subtypes in stable cell lines during 1997.
- 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 "Business--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
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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 is in the process of obtaining a second automated
system that the Company believes will increase throughput by several-fold.
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 protein,
such as receptors, that control signal transduction processes affecting gene
transcription. See "Business--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
nervous system disorders. Furthermore, the Company believes this technology can
also be applied to the discovery of drug candidates for the treatment of
diseases outside the nervous system area. See "Risk Factors -- Uncertainty
Regarding Patents and Proprietary Rights and Item 3. Legal Proceedings."
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 nervous system 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 nervous system 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.
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<TABLE>
<CAPTION>
DEVELOPMENT COMMERCIAL
PROGRAM THERAPEUTIC AREA STATUS(1) RIGHTS(2)
- ------- ---------------- ----------- ----------
<S> <C> <C> <C>
NAChR AGONISTS
SIB-1508Y Parkinson's Disease, Phase I clinical SIBIA/Meiji (3)
Cognitive Disorders trials
SIB-1553A Series Alzheimer's Disease Pre-clinical SIBIA
and other Dementias
NAChR Subtype- Schizophrenia, Discovery SIBIA
Selective Agonists Attention Deficit
Disorders, Chronic
Pain, Eating
Disorders, Depression
EAAR ANTAGONISTS
SIB-1757 Series Epilepsy Leads identified Novartis/SIBIA(4)
NMDA, Non-NMDA Stroke, Epilepsy, Discovery Novartis/SIBIA(4)
Ionotropic and Head Trauma, Pain
Metabotropic
Antagonists
VGCC ANTAGONISTS
VGCC Subtype- Stroke, Epilepsy, Discovery Lilly/SIBIA(5)
Selective Antagonists Chronic Pain
PROTEASE INHIBITORS
APP Modulators Alzheimer's Disease Pre-clinical BMS/SIBIA
</TABLE>
(1) "Phase I clinical trials" indicates that SIBIA has made 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).
"Pre-clinical" 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, except as described in
note 3 for Meiji, generally will assume principal responsibility for
commercialization.
(3) Meiji has been granted rights for development and commercialization of the
Company's proprietary nicotinic acetylcholine receptor agonist, SIB-1508Y,
as a treatment for Parkinson's disease in Japan and other Asian countries.
SIBIA will supply SIB-1508Y to Meiji for clinical use and will retain
rights for the commercial manufacture of SIB-1508Y. See "Business--
Strategic Alliances."
(4) Novartis 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, Novartis has a right
of first negotiation for a three year period with respect to compounds
identified by SIBIA. See "Business--Strategic Alliances."
(5) SIBIA and Lilly each have the right to independently utilize SIBIA's
receptor/ion channel technology in the VGCC area. Under the recent
extension of the agreement, Lilly has a right of first negotiation with
respect to compounds identified by SIBIA for a new VGCC subtype 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
"Business -- Strategic Alliances."
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OVERVIEW OF SELECTED NERVOUS SYSTEM DISORDERS
The Company is seeking to discover and develop receptor/ion channel
subtype-specific compounds that may be used for the treatment of Parkinson's
disease, Alzheimer's disease, stroke, depression, 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 nervous system
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.
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 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, if
proven to be safe and effective, SIB-1508Y may be useful as a stand-alone
therapeutic agent, as well as in combination with L-dopa. In December 1996, the
Company filed an Investigational New Drug application ("IND") with respect to
SIB-1508Y. In February 1997, the Company commenced under its U.S. IND a Phase I
clinical trial with SIB-1508Y. In March 1997, the Company announced a new
corporate partnership with Meiji for the development and commercialization of
SIB-1508Y in Japan and certain other Asian countries. SIBIA plans to establish
additional corporate collaborations for advanced clinical trials and
commercialization of SIB-1508Y for other areas of the world. 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 nervous system disorders. In particular, it has identified the SIB-1553A
series of compounds. The Company's studies indicate that these compounds
potentially stimulate acetylcholine release in specific brain regions. SIBIA
believes these types of compounds may have application in the symptomatic
treatment of Alzheimer's disease and other dementias. Furthermore, SIBIA
believes that other subtype-specific NAChR compounds may be useful for the
treatment of other nervous system disorders such as schizophrenia, attention
deficit disorder, chronic pain and eating disorders. The Company expects to
select the preferred clinical compound in the SIB-1553A series by mid-1997.
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
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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
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 nervous system 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 nervous system 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 nervous system 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 research. SIBIA has
established a corporate collaboration with Novartis in the area of EAAR
subtypes. SIBIA and Novartis are screening compounds from the Novartis 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 Novartis will work
together to design and optimize compounds based on this series, and such
compounds would then be further developed by Novartis. Based on preliminary
studies, SIBIA believes that subtype-specific metabotropic receptor antagonists
may provide a novel approach to the treatment of epilepsy. See "Business --
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 nervous system
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 nervous system 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-
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selective drugs may prove to be a more effective approach with broader
applicability than current drug therapy for nervous system disorders. 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.
The early focus of SIBIA's collaboration with Lilly involved the subtypes
of neuronal N-type VGCCs. In May 1995, the Lilly collaboration was expanded to
include additional VGCC subtypes. In January 1997, the Company extended its
research and licensing agreement with Lilly for a second time. The new
agreement, as extended, provides funding for identification and characterization
of a new VGCC subtype not previously covered under the agreement. 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 "Business -- 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.
INHIBITORS OF THE FORMATION OF AMYLOID-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 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.
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OTHER APPLICATIONS
The Company believes that the protease inhibitor technology developed as
part of the A(beta) 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 is establishing neuronal cell-based assays for monitoring the effects of
selected protease inhibitors on apoptosis (programmed cell death). See "Business
- -- 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 several lead
compounds formed the basis for the SIBIA/Bristol-Myers Squibb collaboration. See
"Business -- Strategic Alliances." The most advanced inhibitors are 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).
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, Novartis, Bristol-Myers Squibb
and Meiji. 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. In January 1997, the agreement was again
revised and extended to October 31, 1998.
Under the Lilly agreement as currently in effect, Lilly will provide
research funding for the identification and characterization of a VGCC subtype
which was not previously covered under the agreement for use in the discovery of
drugs for nervous system disorders. In exchange for providing a
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certain level of 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 and the Company may receive
royalties in the event there are sales of products containing a compound
developed under the agreement. The Company has granted Lilly an exclusive
(except as to SIBIA) license to use certain proprietary VGCC technology of the
Company during the term of the agreement, which license becomes non-exclusive
upon termination of the agreement. Either party may terminate the agreement upon
three months advance written notice provided anytime after August 1, 1997. The
Company recognized contract revenue related to this agreement of $1,621,000,
$1,663,000, and $1,609,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
NOVARTIS
In October 1992, SIBIA entered into a three-year collaborative agreement
(which included research funding and a $5,000,000 equity investment) with
Novartis 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. In March 1996, the initial term of the Novartis agreement was extended
through September 1998. Under the agreement, Novartis 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 Novartis in the area of EAARs, and
Novartis has an exclusive license during the term of the collaboration agreement
to use certain of SIBIA's receptor assay technology for EAARs. Upon expiration
of the collaboration agreement, SIBIA retains the rights to use the program
technology for its own drug discovery efforts and may screen molecules from
other sources against EAARs and pursue development of these molecules, subject
to Novartis' 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
September 1997.
Pursuant to the extended agreement, Novartis paid SIBIA $500,000 to fund
certain capital expenditures (which may be credited against future milestone
payments) and agreed to purchase $7,500,000 of the Company's Common Stock,
$5,000,000 of which was made in conjunction with the initial public offering of
the Company's Common Stock and the remaining $2,500,000 will be made upon the
achievement of certain research milestones.
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 has a 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
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be terminated prior to August 1999 without the parties' mutual consent.
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. 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. The agreement also
provides that Bristol-Myers Squibb will pay SIBIA royalties on net sales of
products resulting from the joint research, if any are ever developed.
MEIJI SEIKA KAISHA, LTD.
In February 1997, the Company entered into a development and license
agreement with Meiji for the development and commercialization of the Company's
proprietary NAChR agonist, SIB-1508Y, as a treatment for Parkinson's disease in
Japan and other Asian countries. Under the agreement, the Company received an
upfront technology access fee of $3,000,000 (the "Access Fee"), and may receive
development milestone payments and royalties on future product sales, if any.
Under the terms of the agreement, additional pre-clinical tests will be
performed to determine the potential of SIB-1508Y for use in the manner
contemplated by the agreement. In the event such tests do not yield acceptable
results, Meiji may terminate the agreement and the Company will be obligated to
return to Meiji substantially all of the Access Fee. In addition, the Company
may, at its discretion, terminate the agreement if, by June 28, 1997, certain
tasks or development milestones are not achieved by Meiji in which instance the
Company will be permitted to retain part of the Access Fee. SIBIA has retained
rights to develop and commercialize SIB-1508Y outside of Japan and certain other
Asian countries, and has retained rights to manufacture clinical supplies and
commercial material.
RESEARCH COLLABORATIONS AND LICENSES
Corporate collaborations and research collaborations with academic groups
are an integral part of SIBIA's strategy. 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 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 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.
AURORA BIOSCIENCES CORPORATION
In January 1997, the Company entered into an agreement with Aurora
Biosciences Corporation ("Aurora"). Under the agreement, the Company will
license to Aurora non-exclusive rights to practice its patented
transcription-based assay (TBA) technology, and certain other technologies
related to automated
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drug screening. In return, in addition to other consideration, the Company will
receive from Aurora non-exclusive rights to several assay technologies,
including novel reporter molecules, that will facilitate the Company's high
throughput screening and drug discovery efforts directed to certain receptor,
ion channel and enzyme targets associated with nervous system disorders. Both
parties have limited sublicensing rights to each other's patents.
THE PARKINSON'S INSTITUTE
SIBIA is collaborating with Dr. Maryka Quik, Clinical Research Associate at
the Parkinson's Institute, on the changes which occur in different NAChR and
VGCC subunit mRNAs in MPTP-treated monkeys as compared to control. These studies
may provide insight concerning alterations of specific NAChR and VGCC subtypes
in Parkinson's disease.
THE MAYO CLINIC, JACKSONVILLE
SIBIA is collaborating with Dr. Steven G. Younkin, Director of Research at
the Mayo Clinic, Jacksonville, on the effects of lead compounds in transgenic
animal models of Alzheimer's disease (in vivo).
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(beta) 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.
SIBIA has established an extensive patent estate which it intends to
protect on behalf of its shareholders. On July 9, 1996, the Company filed an
action in the United States District Court for the Southern District of
California for patent infringement against Cadus Pharmaceutical Corporation
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("Cadus"). The complaint asserts that Cadus' assay technology infringes the
Company's U.S. Patent No. 5,401,629 (the "629 Patent"), entitled "Assay Methods
and Compositions Useful for Measuring the Transduction of an Intracellular
Signal." Throughout the complaint, the Company seeks damages in an unspecified
amount and a preliminary and permanent injunction. See "Item 3. Legal
Proceedings."
SIBIA has 56 pending applications for U.S. patents on its technology
relating to drug discovery for various nervous system 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 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 ((alpha)1C), ((alpha)1D) and/or
((alpha)2(delta)) subunit, singly or in combination. SIBIA has been granted a
European patent covering DNA encoding VGCC ((alpha)2(delta)) subunits and cells
expressing the same.
Eight 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 three patents with
claims to DNAs encoding various NAChR subunits.
Within the EAAR class, SIBIA has six pending U.S. patent applications
covering human NMDA receptor genes and encoded subtypes and three pending U.S.
patent applications covering human metabotropic EAAR genes and encoded subtypes
that were filed in connection with ongoing research. SIBIA has an issued United
States Patent with claims to 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 a patent with claims to DNAs
encoding various NMDA- and non-NMDA-type ligand-gated EAA receptor/ion channel
subtypes.
Several of SIBIA's pending U.S. patent applications relate to functional
screening techniques that can be utilized in conjunction with receptor/ion
channel compositions for identifying drugs which have the potential for
treatment of disorders associated with the particular receptor or ion channel.
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 pending U.S. patent applications
and one foreign patent cover fluorescence-based automated systems for high
throughput functional screening of receptor-modulating compounds.
Additionally, SIBIA has eight pending U.S. patent applications and three
issued patents covering the composition or use of compounds which modulate the
activity of NAChRs for the treatment of diseases involving these receptors
including an issued patent covering SIB-1508Y. Ten applications are being
pursued 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.
SIBIA has a non-exclusive worldwide license to various patent applications
held by Aurora. The technology covered by these patent applications include
several assay technologies. See "Business -- Research Collaborations and
Licenses".
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
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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 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.
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 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. 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, 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 six U.S.
patents and two foreign patents pertaining to Pichia-based recombinant systems
for the production of certain proteins including human epidermal growth factor,
human IGF-1 and aprotinin.
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SIBIA also has patents in vaccine-related technology. See "Risk Factors --
Uncertainty Regarding Patents and Proprietary Rights."
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.
COMPETITION
Competition to develop drugs to treat nervous system 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
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animal studies or clinical trials may be requested during the FDA review period.
The FDA may ask one of its advisory 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.
In December of 1996, the Company filed an IND with respect to SIB-1508Y for
the treatment of Parkinson's disease and in February 1997 the Company commenced
Phase I clinical trials on SIB-1508Y. See "Risk Factors -- Absence of Developed
Products; Early Stage of Development."
HUMAN RESOURCES
As of December 31, 1996, the Company had 106 employees, 33 of whom hold
Ph.D. degrees. Ninety-six employees are engaged in, or directly support,
research development. The Company's employees are not covered by a collective
bargaining agreement and the Company considers its relations with its employees
to be excellent. The Company has entered into confidentiality agreement with all
of its employees.
RISK FACTORS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED ("EXCHANGE ACT") INVOLVING
RISK AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THIS FORM 10-K. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE ABILITY TO DEVELOP SAFE AND
EFFICACIOUS DRUGS, VARIABILITY OF ROYALTY, LICENSE AND OTHER REVENUE, FAILURE TO
SATISFY PERFORMANCE OBLIGATIONS, ABILITY TO ENTER INTO FUTURE COLLABORATION
AGREEMENTS, UNCERTAINTY REGARDING THE COMPANY'S PATENTS AND PROPRIETARY RIGHTS
(INCLUDING THE RISK THAT THE COMPANY MAY BE FORCED TO ENGAGE IN COSTLY
LITIGATION TO PROTECT SUCH PATENT RIGHTS AND THE MATERIAL ADVERSE CONSEQUENCES
TO THE COMPANY IF THERE WERE UNFAVORABLE OUTCOME OF ANY SUCH LITIGATION), AS
WELL AS OTHER RISKS AND UNCERTAINTIES DISCUSSED IN THE FOLLOWING RISK FACTORS,
AND IN THE SECTIONS ENTITLED "BUSINESS" AND "MANAGEMENT'S DISCUSSION
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AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AS WELL AS THOSE
DISCUSSED IN ANY DOCUMENT INCORPORATED HEREIN BY REFERENCE.
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. SIBIA has only filed an
Investigational New Drug ("IND") application with the U.S. Food and Drug
Administration ("FDA") on one of its compounds currently under research or
development, and no INDs have been filed by the Company's collaborative partners
on any compound in connection with their collaborations with the Company.
SIB-1508Y is the only compound for which the Company has filed an IND. Even
though clinical trials with respect to SIB-1508Y have 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 nervous system 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
nervous system 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 nervous system 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.
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, Novartis,
Bristol-Myers Squibb and Meiji 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
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generally 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,
Novartis 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, Novartis 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. Under the Company's recent agreement with Meiji, all
clinical development, product finishing, marketing and sales for Japan and
certain other Asian countries with respect to products produced from SIB-1508Y,
if any, will be controlled by Meiji. 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 three months' prior
written notice, which may be given at anytime after August 1, 1997, and Novartis
can terminate its collaboration with the Company upon six months' prior written
notice, which may be given at anytime beginning September 1997. Under the terms
of the agreement, additional pre-clinical tests will be performed to determine
the potential of SIB-1508Y for use in the manner contemplated by the agreement.
In the event such tests do not yield acceptable results, Meiji may terminate the
agreement and the Company will be obligated to return to Meiji substantially all
of its upfront technology Access Fee. 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 89%, 81% and 97% of total
revenues for the years ended December 31, 1994, 1995 and 1996, 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 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
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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.
NEW AND UNCERTAIN TECHNOLOGY
The Company's proprietary nervous system 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 nervous system function and nervous system
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 nervous system function
and nervous system disorders. 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 nervous
system disorder. Failure to develop any such product would have a material
adverse effect on the Company's business.
HISTORY OF OPERATING LOSSES
The Company is at an early stage of development with respect to its nervous
system 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, 1996, the Company had
accumulated net losses of approximately $21.7 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.
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,
Novartis, Bristol-Myers Squibb or Meiji, 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.
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'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
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research and development and in the area of intellectual property. Funds
generated from payments under existing collaborative agreements, together with
the Company's current cash reserves, 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.
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 nervous system
disorders. In addition, new developments occur and are 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 nervous system products approved or in development
and operate large, well-funded nervous system 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.
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.
SIBIA has 56 pending applications for U.S. patents on its technology
relating to drug discovery for various nervous system disorders. To date, the
Company has licensed four U.S. patents from The Salk
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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 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. 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.
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<PAGE> 27
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 nervous system 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 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 SIB-1508Y) 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.
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<PAGE> 28
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 only compound under
development by the Company, SIB-1508Y, has never been manufactured on a
commercial scale and there can be no assurance that such compound, or any other
compound the Company or its collaborators may develop, 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 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.
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 with others would have
a material adverse effect on the Company's business.
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
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<PAGE> 29
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.
CONTROL BY PRINCIPAL STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS
The Salk Institute and its affiliates beneficially owned approximately 22%
of the outstanding shares of Common Stock of SIBIA as of January 31, 1997. In
addition, as of January 31, 1997, the present directors and executive officers
of the Company beneficially owned approximately 8% of the outstanding shares of
Common Stock. Accordingly, together with The Salk Institute, the present
directors and executive officers of the Company 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, are 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 SIBIA's 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. 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).
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 issue shares of Preferred Stock, either of which may have
the effect of delaying or preventing a change in control of the Company.
Furthermore, the Company has certain rights of first refusal with respect
to shares of Common Stock of the Company held by certain of its collaborative
partners which such partners may desire to sell. In March 1997, the Board of
Directors authorized and adopted a Preferred Share Purchase Rights Plan (the
"Rights Plan") pursuant to which the Company has issued right (the "Rights") to
the holders of its Common Stock to purchase a specified class of Preferred
Stock of the Company. The Rights detach from the Common Stock and become
exerciseable following the announcement of an acquisition by a person or group
(the "Acquirer") of 15% of the Company's outstanding Common Stock or ten
business days (or later if delayed by the Board of Director) after the
announcement of an intention on the part of the Acquirer to tender for at least
15% of the Company's outstanding Common Stock.
The principal purpose for the Rights Plan is to improve the bargaining
power of the Board of Directors in seeking to protect and maximize stockholder
value when an unsolicited takeover attempt occurs. Although adoption of the
Rights Plan will not prevent a takeover of the Company, it may discourage
abusive and coercive takeover tactics that result in a rapid, forced sale of the
Company at a lower price than might otherwise be obtainable. The existence of a
Rights Plan may confront the Board of Directors with difficult decisions with
respect to redemption or amendment of the outstanding Rights.In addition, once a
hostile bidder crosses a certain threshold, the Rights become non-redeemable and
the Board of Directors' ability to enter into a negotiated acquisition would be
impaired. However, there can be
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<PAGE> 30
no assurance that the Rights Plan will maximize shareholder value. Furthermore,
no assurance that the Rights Plan will not discourage potential bidders from
attempting to gain control of the Company. The foregoing charter provisions as
well as other charter provisions, the rights of first refusal in favor of the
Company, the shareholder rights plan and 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.
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 has obtained insurance coverage for its current clinical
trials. The Company intends to seek additional 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.
VOLATILITY OF STOCK PRICE
The market price of the shares of SIBIA's Common Stock, like that of the
common stock of many other early-stage biotechnology companies, is highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new commercial therapeutic
products 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.
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<PAGE> 31
EXECUTIVE OFFICERS
The Executive Officers and their ages as of January 31, 1997 are as follows:
William T. Comer, Ph.D. .............................61
President, Chief Executive Officer and Director
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, the University of California, San Diego ("UCSD") Cancer Center
Foundation and The San Diego Chamber Orchestra. He is also a member of the
Governor's Council on Biotechnology and the UCSD Industrial Advisory Committee
for the Department of Chemistry.
Michael M. Harpold, Ph.D. ...........................47
Vice President, Research
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 his 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.
G. Kenneth Lloyd, Ph.D. .............................52
Vice President, Pharmaceuticals -- Biology
Dr. Lloyd has been Vice President, Pharmaceuticals -- Biology since 1994.
He joined SIBIA in October 1992. Beginning in 1977, Dr. Lloyd worked for
Synthelabo S.A. where he held various management positions culminating with six
years as Associate Director, Biology with responsibility for nervous system,
cerebrovascular, bronchopulmonary, gastrointestinal and inflammation research.
From 1990 to 1992, Dr. Lloyd was Assistant Vice President of Research and
Director of Research (U.K.) for Wyeth-Ayerst Research. Dr. Lloyd serves on the
Scientific Advisory Boards of Epigenesis and the Huntington Chorea Society of
Canada. He received his B.S. and M.S. degrees from McGill University and a Ph.D.
from the University of Toronto. He held a postdoctoral position at F. Hoffman La
Roche & Co. Ltd. in Basel, Switzerland.
Ian A. McDonald, Ph.D. ..............................49
Vice President, Pharmaceuticals -- Chemistry
Dr. McDonald has been Vice President, Pharmaceuticals -- Chemistry since
1994. He joined SIBIA as Director of Chemistry in February 1993. 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. He received
his B.S. degree and Ph.D. from the School of Chemistry, the University of
Western Australia. He completed his postdoctoral studies at the Organic
Chemistry Institute of the University of Zurich, Switzerland.
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<PAGE> 32
David E. McClure, Ph.D. ............................49
Vice President, Clinical Development and Regulatory
Dr. McClure has been Vice President, Clinical Development and Regulatory
since September 1996. From 1992 to 1996, Dr. McClure served as Director, Product
Development and Project Management at Molecular Biosystems, Inc. From 1988 to
1992, he served as Assistant Director, Oncology Clinical and Medical Affairs,
and as Senior Project Development Manager, Drug Development Department at ICI
Pharmaceuticals Group. From 1983 to 1988, Dr. McClure served as Development Team
Chairperson and Section Head, Medicinal Chemistry at McNeil Pharmaceutical
(Johnson & Johnson). He started his career at Merck Research Laboratories as a
medicinal chemist. He received his B.S. degree in Chemistry from Nebraska
Wesleyan University, a Ph.D. in Organic Chemistry from Stanford University, and
conducted post-doctoral work from 1973 to 1975 at Columbia University.
Michael J. Dunn ....................................41
Vice President, Business Development
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.
Thomas A. Reed .....................................40
Vice President, Finance/Administration and Chief Financial Officer
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.
ITEM 2. PROPERTIES
The Company's facilities are located in La Jolla, California. As of the
dated of this Report, the Company leases approximately 49,000 square feet of
space used for laboratory and administrative purposes of which approximately
6,267 square feet is sublet. SIBIA believes that its present facility will be
adequate to conduct its research activities through December 2001, 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.
ITEM 3. LEGAL PROCEEDINGS
On July 9, 1996, the Company filed an action in the United States District
Court for the Southern District of California, for patent infringement against
Cadus Pharmaceutical Corporation ("Cadus"). The complaint asserts that Cadus'
assay technology infringes the Company's U.S. Patent No. 5,401,629 (the "629
patent"), entitled "Assay Methods and Compositions Useful for Measuring the
Transduction of an Intracellular Signal". Through the complaint, the Company
seeks damages in an unspecified amount and a preliminary and permanent
injunction.
On August 1, 1996, Cadus filed its answer and counterclaim to the Company's
complaint. The counterclaim asserts claims that the 629 patent and the Company's
5,436,128 patent are invalid and/or unenforceable and further asserts claims for
intentional interference with prospective economic advantage and unfair
competition. The counterclaim seeks declaratory relief and compensatory and
punitive damages in an unspecified amount.
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Company management believes that its complaint against Cadus is
well-founded and necessary to protect the value of its intellectual property
portfolio. Management believes that Cadus' counterclaim is without merit and
intends to vigorously prosecute its claim of infringement and oppose Cadus'
counterclaim.
Management believes that the ultimate resolution of the above matter will
not have a material adverse impact on the Company's financial position, results
of operations or cash flow.
In addition to the above, the Company is involved in certain legal or
administrative proceedings generally incidental to its normal business
activities. While the outcome of any such proceedings cannot be accurately
predicted, the Company does not believe the ultimate resolution of any such
existing matters will have a material adverse effect on its financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's Security holders
during the fourth quarter of the year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on the Nasdaq Stock Market under the symbol "SIBI". The
following table sets forth the high and low sales prices as reported by The
Nasdaq Stock Market for the periods indicated and since May 9, 1996, the date of
the Company's initial public offering.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
Second Quarter (May 9, 1996 - June 30, 1996) 11.50 6.88
Third Quarter 8.25 5.50
Fourth Quarter 8.25 6.25
</TABLE>
On January 31, 1997, the closing sales price of the Company's Common Stock
as reported by The Nasdaq Stock Market was $8.50 per share. There were
approximately 800 holders of record of the Common Stock of the Company as of
such date. The Company has not paid cash dividends on its Common Stock and does
not intend to do so in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, the Company has sold and issued the following
securities which were not registered under the Securities Act of 1933, as
amended (the "Securities Act"):
(1) On May 9, 1996, the Company issued and sold an aggregate of 454,545
shares of its Common Stock to Novartis for a total sales price of $5,000,000.
Such shares were sold pursuant to the Stock Purchase Agreement dated March 20,
1996 between the Company and Novartis filed as Exhibit 10.30 to this Report.
(2) In March 1996, the Company effected a 2.35-for-1 stock split of the
outstanding Common Stock whereby each share of outstanding Common Stock was
exchanged for 2.35 shares of Common Stock. As a result of the stock split, each
share of outstanding Series A, Series B and Series C Convertible Preferred Stock
were converted into 2.35 shares of Common Stock effective upon the closing of
the Company's initial public offering.
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(3) From January 1, 1996 to December 31, 1996, the Company granted stock
options to its directors, officers, employees and consultants covering an
aggregate of 372,007 shares of Common Stock at a weighted average exercise price
of $4.48 per share.
(4) During the period January 1, 1996 to May 9, 1996, the Company issued
and sold 399,028 shares of Common Stock for an aggregate of $725,968 of the
Company pursuant to the exercise of stock options granted to directors,
officers, employees and consultants of the Company.
The sales and issuances of securities in the transactions described in
paragraphs (1) and (2) above were deemed to be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated
thereunder.
With respect to the grant of stock options and the issuance of Common Stock
pursuant to the exercise of options described in paragraphs (3) and (4) above
were deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 promulgated thereunder in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a written contract
relating to compensation, as provided by Rule 701.
ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share amounts)
The following table summarizes certain selected financial data for each of
the five years in the period ended December 31, 1996. The information should be
read in conjunction with the financial statements included elsewhere in this
report.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue $ 8,481 $ 10,448 $ 4,852 $ 5,077 $ 3,196
Research and development expenses $ 12,268 $ 8,949 $ 8,663 $ 7,713 $ 5,446
Net income (loss) $ (5,564) $ 2,926 $ (27) $ (4,550) $ (3,998)
Net income (loss) per common share $ (0.73) $ .42
Shares used in computing net income
(loss) per common share 7,596 6,928
Balance Sheet Data:
Cash, cash equivalents and investment
securities $ 37,532 $ 16,488 $ 5,944 $ 4,584 $ 7,820
Working capital $ 35,324 $ 14,338 $ 4,523 $ 2,016 $ 6,614
Total assets $ 39,983 $ 18,251 $ 8,005 $ 6,451 $ 8,873
Long-term capital lease obligations $ 519 $ 721 $ 860 $ 761 $ 151
Accumulated deficit $(21,693) $(16,129) $(19,055) $(19,028) $(14,478)
Total Stockholders' equity $ 36,572 $ 15,107 $ 5,166 $ 2,588 $ 6,986
</TABLE>
ITEM 7. 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 nervous system disorders.
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<PAGE> 35
SIBIA is engaged in the discovery and development of novel, small molecule
therapeutics for nervous system disorders based on the Company's unique approach
to characterizing the molecular processes involved in such disorders. SIBIA is
focusing its efforts on discovering and developing compounds for the treatment
of Parkinson's disease, Alzheimer's disease, stroke, depression, 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.
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, 1994, 1995 and 1996, the Company had
two, three and three collaborative research agreements that accounted for 89%,
81% and 97%, respectively, of total revenue.
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.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenue decreased by 19%, from $10,448,000 in 1995 to $8,481,000 in
1996. The decrease was due primarily to the recognition, in 1995, of an up-front
license fee received from Bristol-Myers Squibb for an exclusive
commercialization license to use certain proprietary technologies related to
amyloid precursor protein, a one-time payment related to Cephalon, Inc.'s
buy-down of its royalty percentage due
35
<PAGE> 36
on sales of an IGF-1 product within the neurology field, and revenue related to
Novartis' purchase of certain equipment. Such decrease was partially offset by a
net increase in 1996 contract revenue that was primarily attributable to the
Company's collaborative agreement with Bristol-Myers Squibb and reimbursement of
additional costs and fees from Novartis, pursuant to the terms of the extension
of a collaborative agreement.
Total expenses increased by 42%, from $11,127,000 in 1995 to $15,829,000 in
1996. The increase in total expenses was primarily attributable to an increase
in research and development expenses of 37%, from $8,949,000 in 1995 to
$12,268,000 in 1996. This was a result of an increase in research and
development personnel and other costs related to the collaborative agreement
with Bristol-Myers Squibb, expanded programs in drug discovery, increased
outside preclinical expenses, occupancy costs, and compensation expense relating
to stock option grants. Partially offsetting the above increases was a decrease
in costs related to Novartis' purchase of certain equipment. General and
administrative expenses increased 63%, from $2,178,000 in 1995 to $3,561,000 in
1996. The increase in general and administrative expenses was primarily due to
increased 1996 legal fees related to various general and litigation matters,
increased 1996 compensation expense relating to stock option grants, increases
in salaries and fringe benefit expenses in 1996 due to an increased number of
employees, and other expenses related to being a publicly traded company.
Other income decreased by 52%, from $3,680,000 in 1995 to $1,784,000 in
1996. The decrease in other income was due primarily to the net effect of
$3,146,000 of litigation settlements in 1995 and $1,834,000 of interest income
in 1996 related to investing of the proceeds of the Company's initial public
offering of Common Stock.
As of December 31, 1996, the Company had available net operating loss
carryforwards for federal and state income tax purposes of approximately
$20,730,000 and $700,000, respectively, which expire beginning in 2006 and 2002,
respectively. As of December 31, 1996, the Company had federal and state tax
credits for research activities totaling approximately $1,116,000 and $370,000,
respectively, which are available to offset future income taxes. The federal tax
credits 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 tax credit carryforwards.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenue increased by 115%, from $4,852,000 in 1994 to $10,448,000 in
1995. The increase was due primarily to the recognition, in 1995, of an up-front
license fee received from Bristol-Myers Squibb for an exclusive
commercialization license to use certain proprietary technologies related to
amyloid precursor protein, increased revenue related to a new collaborative
agreement with Bristol-Myers Squibb, a one-time payment related to Cephalon,
Inc.'s buy-down of its royalty percentage due on sales of an IGF-1 product
within the neurology field, and revenue related to Novartis' purchase of certain
equipment.
Total expenses increased by 5%, from $10,580,000 in 1994 to $11,127,000 in
1995. The increase in total expenses was primarily attributable to an increase
in research and development expenses of 3%, from $8,663,000 in 1994 to
$8,949,000 in 1995, primarily due to an increase in preclinical development
expenses. General and administrative expenses increased 14%, from $1,917,000 in
1994 to $2,178,000 in 1995. The increase in general and administrative expenses
was primarily due to increased 1995 outside patent legal expenses.
Other income decreased by 35%, from $5,701,000 in 1994 to $3,680,000 in
1995. The decrease in other income was due primarily to the net effect of a
$5,296,000 gain from the sale of the Company's
36
<PAGE> 37
interest in the SISKA Diagnostics, Inc. joint venture in 1994 and $3,146,000 of
litigation settlements in 1995.
LIQUIDITY AND CAPITAL RESOURCES
SIBIA has financed its operations primarily through equity financings,
research contracts (generally conducted on a best efforts basis), option,
license and royalty revenues. 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 $41,775,000 in net proceeds from the sale of Convertible
Preferred Stock and Common Stock to investors and collaborative partners and
approximately $36,739,000 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, 1996, the
Company had an accumulated deficit of $21,693,000.
In 1996, the Company extended its agreement with Lilly, pursuant to which
the parties reduced the scope of development to be conducted under the agreement
and Lilly reduced its funding obligation. The Company expects that the reduced
development commitment will lead to a decrease in research and development
expenses which will be approximately equal to the reduction in funding from
Lilly.
The Company anticipates that the cash, cash equivalents and investment
securities balance of $37,464,000 as of December 31, 1996 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, 2001. The average minimum annual payment under the lease is approximately
$1,333,000, before consideration of sublease income. The Company believes that
its present facility will be adequate to conduct its research activities through
December 2001. 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 $2,887,000 in property and equipment. Included within this amount is
$2,307,000 of equipment under capital leases. The net present value of
obligations under such capital leases as of December 31, 1996 was $1,071,000. In
addition, 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 was provided by Novartis (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, 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 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 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's future capital needs
will be dependent upon many factors, including progress in its research
37
<PAGE> 38
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 Company's current cash reserves, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company required by
this item are filed as exhibits hereto, are listed under Item 14, and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information concerning Executive Officers of the Company is
contained in Item 1, Part I of this Report.
The information required by this item (with respect to Directors) is
incorporated by reference to the information under the caption "Election of
Directors" contained in the Company's definitive Proxy Statement to be filed
with the Commission pursuant to Regulation 14A in connection with the Company's
1997 Annual Meeting of Stockholders to be held on June 4, 1997 (the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information under the caption "Executive Compensation" contained in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement.
38
<PAGE> 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information under the caption "Certain Transactions" contained in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
Index to financial statements appears on
page F-1.
(2) FINANCIAL STATEMENT SCHEDULES
None required.
(b) REPORTS ON FORM 8-K
On March 31, 1997, the Company filed a current report on Form 8-K which
disclosed certain information under Item 5.
39
<PAGE> 40
(c) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
(1)
3.2 Amended and Restated Bylaws of the Registrant. (1)
3.3 Registrant's Certificate of Designation of Series A Junior
Participating Preferred Stock (2)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen stock certificate. (1)
10.1 Form of Indemnification Agreement entered into between Registrant
and its directors and officers. (1)
10.2 Registrants 1981 Employee Stock Option Plan. (1)
10.3 Form of Employee Incentive Stock Option Agreement under the 1981
Employee Stock Option Plan. (1)
10.4 Registrant's 1981 Consultant Stock Option Plan. (1)
10.5 Form of Consultant Nonstatutory Stock Option Agreement. (1)
10.6 Registrant's 1992 Stock Option and Restricted Stock Plan, as amended
(the "1992 Option Plan"). (1)
10.7 Form of Incentive Stock Option Agreement under the 1992 Option Plan.
(1)
10.8 Form of Nonstatutory Stock Option Agreement under the 1992 Option
Plan. (1)
10.9 Registrant's 1996 Equity Incentive Plan (the "1996 Equity Plan").
(1)
10.10 Form of Incentive Stock Option Agreement under the 1996 Equity Plan.
(1)
10.11 Form of Nonstatutory Stock Option Agreement under the 1996 Equity
Plan. (1)
10.12 Registrant's 1996 Non-Employee Directors' Stock Option Plan (the
"Non-Employee Directors' Option Plan"). (1)
10.13 Form of Nonstatutory Stock Option Agreement under the Non-Employee
Directors' Option Plan. (1)
10.14 Registrant's Employee Stock Purchase Plan and related offering
document. (1)
10.15 Registrant's Management Change of Control Plan, as amended (the
"Change of Control Plan"). (1)
10.16 Form of Nonqualified Stock Option Agreement under the Change of
Control Plan. (1)
10.17 Lease Agreement dated April 7, 1989 between Registrant and Regency
Associates, Limited, as subsequently amended on March 1, 1993, and
July 1, 1995. (1)
10.18 Equipment Lease Line Agreement dated June 30, 1992 between
Registrant and GE Capital, as amended. (1)
10.19 Investment Agreement dated August 10, 1995 between Registrant and
Bristol-Myers Squibb Company. (1)
10.20 Collaborative Research and License Agreement dated August 10, 1995
between Registrant and Bristol-Myers Squibb Company. (1)
10.21 Stockholders Agreement dated as of October 1, 1991, by and among
Registrant, Phillips Petroleum Company, The Salk Institute for
Biological Studies, Skandigen AB and the Stockholders of Protease
Corporation. (1)
10.22 License Agreement dated March 8, 1988 between Registrant and The
Salk Institute for Biological Studies, as amended by that certain
First Amendment to License Agreement dated March 10, 1996. (1)
10.23 License Agreement dated December 15, 1990 between Registrant and The
Salk Institute for Biological Studies, as amended by that certain
First Amendment to License Agreement dated March 10, 1996. (1)
10.24 Stock Purchase and Stockholders Agreement dated April 11, 1988 among
Registrant, Phillips Petroleum Company, The Salk Institute for
Biological Studies and Skandigen AB, as amended by that certain
Amendment to Stock Purchase and Shareholders Agreement dated April
12, 1990. (1)
40
<PAGE> 41
Exhibit
Number Description of Document
- ------ -----------------------
10.25 Agreement dated December 20, 1991 between Registrant, Phillips
Petroleum Company, The Salk Institute for Biological Studies and
Skandigen AB. (1)
10.26 License Agreement dated December 20, 1991 between Registrant and
Phillips Petroleum Company. (1)
10.27 Amended and Restated Research and Development and License Agreement
dated March 20, 1996 between Registrant and CIBA-GEIGY Limited. (1)
10.28 Stock Purchase Agreement dated September 15, 1992 between Registrant
and CIBA-GEIGY Limited. (1)
10.29 Subscription Agreement dated April 11, 1994 between Registrant and
CIBA-GEIGY Limited. (1)
10.30 Stock Purchase Agreement dated March 20, 1996 between Registrant and
CIBA-GEIGY Limited. (1)
10.31 Agreement dated May 1, 1992 between Registrant and Eli Lilly and
Company, as amended and extended by that certain Extension Agreement
dated May 1, 1995. (1)
10.32 Stock Purchase Agreement dated May 7, 1992 between Registrant and
Eli Lilly and Company. (1)
10.33 Option and License Agreement dated April 30, 1995 between Registrant
and Eli Lilly and Company. (1)
10.34 License Agreement dated March 5, 1992 between Registrant and
Cephalon, Inc., as amended by that certain Letter dated March 22,
1995. (1)
10.35 Patent License Agreement dated June 21, 1993 between Registrant and
Affymax Technologies, N.V., as amended by that certain Letter dated
July 15, 1993. (1)
10.36 Agreement dated October 1, 1993 between Registrant and Hafslund
Nycomed Pharma AG. (1)
10.37 Development and License Agreement dated February 28, 1997 between
Registrant and Meiji Seika Kaisha, Ltd. (3)
10.38 Further Extension Agreement dated November 1, 1996 between
Registrant and Eli Lilly and Company (3)
10.39 Third Amendment to Lease dated December 31, 1996 between Registrant
and Regency Properties, L.P. (3)
10.40 Equipment Lease Line Agreement dated March 4, 1997 between
Registrant and G.E. Capital.
10.41 Rights Agreement dated as of March 17, 1997 among Registrant and
ChaseMellon Shareholders Services, L.L.C. (2)
10.42 Specimen Rights Certificate (2)
11.1 Computation of net income per share.
23.1 Consent of Price Waterhouse LLP.
24.1 Power of Attorney. Reference is made to page 42.
27.1 Financial Data Schedule
- ----------------------------------------------
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1
(No. 333-2586) or amendments thereto and incorporated herein by
reference.
(2) Filed as an exhibit to Registrant's current report on Form 8-K filed with
the Commission on March 31, 1997.
(3) Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1997 SIBIA Neurosciences, Inc.
By: /s/ Thomas A. Reed
---------------------------------------------
Thomas A. Reed
Vice President, Finance/Administration, & CFO
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William T. Comer and Thomas A. Reed, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his substitute or
resubstitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/William T. Comer
- ---------------------------------- President, Chief Executive Office March 25, 1997
William T. Comer, Ph.D. and Director(Principal Executive Officer)
/s/Thomas A. Reed
- ---------------------------------- Vice President, Finance/ March 28, 1997
Thomas A. Reed Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/William R. Miller
- ---------------------------------- Chairman of the Board March 26, 1997
William R. Miller
/s/Stanley T. Crooke
- ---------------------------------- Director March 26, 1997
Stanley T. Crooke, MD, Ph.D.
/s/Francis H.C. Crick
- ---------------------------------- Director March 27, 1997
Francis H.C. Crick, Ph.D.
/s/Frederick B. Rentschler
- ---------------------------------- Director March 26, 1997
Frederick B. Rentschler
/s/James D. Watson
- ---------------------------------- Director March 26, 1997
James D. Watson, Ph.D.
</TABLE>
42
<PAGE> 43
SIBIA NEUROSCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants F-2
Balance Sheet as of December 31, 1995 and 1996 F-3
Statement of Operations for the years ended
December 31, 1994, 1995 and 1996 F-4
Statement of Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996 F-5
Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of SIBIA Neurosciences, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of SIBIA
Neurosciences, Inc. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, 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 LLP
PRICE WATERHOUSE LLP
San Diego, California
February 28, 1997
F-2
<PAGE> 45
SIBIA NEUROSCIENCES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,274,000 $ 1,412,000
Investment securities 14,214,000 36,052,000
Contract and accounts receivable 35,000 68,000
Prepaid expenses and other current assets 238,000 684,000
------------ ------------
Total current assets 16,761,000 38,216,000
Property and equipment, net 1,387,000 1,307,000
Other assets 103,000 460,000
------------ ------------
$ 18,251,000 $ 39,983,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,006,000 $1,212,000
Accrued liabilities 1,167,000 1,249,000
Deferred revenue 250,000 431,000
------------ ------------
Total current liabilities 2,423,000 2,892,000
Capital lease obligations 721,000 519,000
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; 4,899,884 and 9,154,157 shares issued
and outstanding at December 31, 1995 and 1996,
respectively 5,000 9,000
Additional paid-in capital 31,869,000 59,746,000
Deferred compensation (635,000) (1,039,000)
Notes receivable from stockholders (82,000) (640,000)
Net unrealized gain on investment securities
available-for-sale 79,000 189,000
Accumulated deficit (16,129,000) (21,693,000)
------------ ------------
Total stockholders' equity 15,107,000 36,572,000
------------ ------------
$ 18,251,000 $ 39,983,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 46
SIBIA NEUROSCIENCES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Contract $ 4,454,000 $ 5,563,000 $ 8,215,000
License and royalty 398,000 4,885,000 266,000
----------- ----------- -----------
Total revenue (including $2,691,000,
$4,139,000 and $6,606,000 in related-party
revenue for 1994, 1995 and 1996, respectively) 4,852,000 10,448,000 8,481,000
----------- ----------- -----------
Expenses:
Research and development 8,663,000 8,949,000 12,268,000
General and administrative 1,917,000 2,178,000 3,561,000
----------- ----------- -----------
10,580,000 11,127,000 15,829,000
----------- ----------- -----------
(5,728,000) (679,000) (7,348,000)
----------- ----------- -----------
Other income (expense):
Settlement of litigation 3,146,000
Gain from sale of joint venture 5,296,000
Interest income 424,000 567,000 1,834,000
Interest expense (63,000) (71,000) (68,000)
Other 44,000 38,000 18,000
----------- ----------- -----------
5,701,000 3,680,000 1,784,000
----------- ----------- -----------
Income (loss) before provision for income
taxes (27,000) 3,001,000 (5,564,000)
Provision for income taxes 75,000
----------- ----------- -----------
Net income (loss) $ (27,000) $ 2,926,000 $(5,564,000)
=========== =========== ===========
Net income (loss) per share $.42 $(0.73)
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 6,928,323 7,596,380
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 47
SIBIA NEUROSCIENCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A, B AND C
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------- ------------ ADDITIONAL
SHARES SHARES PAID-IN
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL
----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1993 24,450 4,839,019 $5,000 $21,733,000
Net unrealized gain on investment
securities available-for-sale
at January 1, 1994
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
Stock cancellations - Series B
Convertible Preferred Stock (1,550) (6,000)
Payment on notes receivable
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
Issuance of Series C
Convertible Preferred Stock 280,000 6,930,000
Stock option compensation expense 461,000
Stock cancellations - Series B
Convertible Preferred Stock (300) (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
Issuance of Common Stock 2,554,545 3,000 25,842,000
Stock option compensation expense 1,167,000
Exercise of stock options 120,200 288,765 815,000
Stock purchase plan 9,408 54,000
Payments on notes receivable
Conversion of Preferred Stock (596,411) 1,401,566 1,000 (1,000)
Net increase in unrealized
gain on investment securities
available-for-sale
Cancellation of partial shares (11)
Net Loss
-------- ------ --------- ------ -----------
Balance as of
December 31, 1996 9,154,157 $9,000 $59,746,000
======== ====== ========= ====== ===========
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN ON
NOTES INVESTMENT
RECEIVABLE SECURITIES TOTAL
DEFERRED FROM AVAILABLE- ACCUMULATED STOCKHOLDERS'
COMPENSATION STOCKHOLDERS FOR-SALE DEFICIT EQUITY
----------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1993 $(22,000) $(100,000) $(19,028,000) $2,588,000
Net unrealized gain on investment
securities available-for-sale
at January 1, 1994 $219,000 219,000
Issuance of Common Stock 10,000
Issuance of Series A Convertible
Preferred Stock 2,500,000
Stock option compensation expense (201,000) 16,000
Stock cancellations - Series B
Convertible Preferred Stock 5,000 (1,000)
Payment on notes receivable 11,000 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 (223,000) (84,000) 62,000 (19,055,000) 5,166,000
Issuance of Series C
Convertible Preferred Stock 6,930,000
Stock option compensation expense (412,000) 49,000
Stock cancellations - Series B
Convertible Preferred Stock 2,000
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 (635,000) (82,000) 79,000 (16,129,000) 15,107,000
Issuance of Common Stock 25,845,000
Stock option compensation expense (404,000) 763,000
Exercise of stock options (593,000) 222,000
Stock purchase plan 54,000
Payments on notes receivable 35,000 35,000
Conversion of Preferred Stock
Net increase in unrealized
gain on investment securities
available-for-sale 110,000 110,000
Cancellation of partial shares
Net Loss (5,564,000) (5,564,000)
----------- --------- --------- ------------ -----------
Balance as of
December 31, 1996 $(1,039,000) $(640,000) $189,000 $(21,693,000) $36,572,000
=========== ========= ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 48
SIBIA NEUROSCIENCES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (27,000) $ 2,926,000 $ (5,564,000)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Gain on sale of corporate joint venture (5,296,000)
Depreciation and amortization 449,000 497,000 598,000
Compensation from issuance of
common stock options 16,000 49,000 763,000
Gain on disposal of property (44,000) (37,000) (1,000)
Net amortization of premium and discount
on investment securities (261,000) (271,000) (447,000)
Increase (decrease) in cash resulting from
changes in:
Contract and accounts receivable (52,000) 201,000 (33,000)
Prepaid expenses and other assets (18,000) 47,000 (813,000)
Accounts payable and accrued liabilities (102,000) 271,000 237,000
Deferred revenue (1,038,000) 76,000 181,000
------------ ------------ ------------
Net cash provided (used) by operating
activities (6,373,000) 3,759,000 (5,079,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of investment securities held-to-
maturity (10,685,000) (17,312,000)
Maturities of investment securities held-to-
maturity 7,370,000 7,295,000 13,992,000
Purchase of investment securities available-for-
sale (42,624,000)
Maturities of investment securities
available-for-sale 7,300,000
Principal payments received on investment
securities available-for-sale 1,167,000 88,000 51,000
Proceeds from sale of corporate joint venture 5,196,000
Proceeds from disposal of property and
equipment 52,000 44,000 5,000
Acquisition of property and equipment (79,000) (120,000) (182,000)
------------ ------------ ------------
Net cash provided (used) by investing
activities 3,021,000 (10,005,000) (21,458,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from payments on notes receivable 11,000 35,000
Proceeds from issuance of stock 2,507,000 6,949,000 26,121,000
Principal payments on capital lease obligations (276,000) (377,000) (481,000)
------------ ------------ ------------
Net cash provided by financing activities 2,242,000 6,572,000 25,675,000
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (1,110,000) 326,000 (862,000)
Cash and cash equivalents at beginning of year 3,058,000 1,948,000 2,274,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,948,000 $ 2,274,000 $ 1,412,000
============ ============ ============
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> 49
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 nervous system disorders
based on its 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 disorders.
The Company has been funded to date principally through equity financings,
research contracts (generally conducted on a best efforts basis), 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 37%, 33% and 22% of the Company's outstanding Common
Stock as of December 31, 1994, 1995 and 1996, respectively. Skandigen AB owned
18%, 16% and 11% of the Company's outstanding Common Stock as of December 31,
1994, 1995 and 1996, respectively. Novartis AG, formerly CIBA-GEIGY Limited,
owned 11% of the Company's outstanding Common Stock as of December 31, 1996.
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 fair value.
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, 1994, 1995 and 1996, the Company had two,
three and three collaborative research agreements that accounted for 89%, 81%
and 97%, respectively, of total revenue (Note 4).
F-7
<PAGE> 50
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 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. 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. As of December 31, 1996, $932,000 of the
$1,412,000 total cash and cash equivalents was invested in money market funds.
INVESTMENT SECURITIES
Management determines the appropriate classification of its investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company has classified its investment securities as
"available-for-sale" or "held-to-maturity". Available-for-sale securities are
recorded at fair value with the corresponding unrealized gain or loss reflected
as a component of stockholders' equity. Held-to-maturity securities are
recorded at amortized cost. Actual gains or losses, if any, on
available-for-sale securities are reflected in the statement of operations when
the underlying securities are sold.
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.
F-8
<PAGE> 51
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.
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. The
Company establishes a valuation allowance, if necessary, to reflect the
likelihood of realization of net deferred tax assets. Deferred income tax
expense is the change during the year in the deferred income tax asset or
liability.
NET INCOME (LOSS) PER SHARE
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 initial public offering date at prices below the
offering price have been included in the calculation of weighted average shares
outstanding for the year ended December 31, 1995. The net income per share in
1995 includes the effect of the Company's Convertible Preferred Stock that was
convertible at the option of the holder or automatically in the event of an
initial public offering. Earnings per share in 1994 is 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 (Note 9).
NOTE 2 -- INVESTMENT SECURITIES
The Company's investment securities as of December 31, 1995 and 1996 consist
primarily of United States government and mortgage-backed securities. These
investment securities were classified as available-for-sale and
held-to-maturity as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
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 $ 343,000 $ 422,000 $84,000 $5,000 $35,863,000 $36,052,000 $198,000 $9,000
=========== ========== ======= ====== =========== =========== ======== ======
Held-to-
maturity
Investment
securities $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, 1996 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 in one year or less $14,493,000 $14,510,000
=========== ===========
Due in one to five years $21,075,000 $21,174,000
=========== ===========
Due after ten years $ 295,000 $ 368,000
=========== ===========
</TABLE>
F-9
<PAGE> 52
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
PROPERTY AND EQUIPMENT
Lab equipment $ 3,690,000 $ 3,708,000
Computer equipment 265,000 284,000
Other 85,000 108,000
----------- -----------
4,040,000 4,100,000
Accumulated depreciation and amortization (2,653,000) (2,793,000)
----------- -----------
$ 1,387,000 $ 1,307,000
=========== ===========
DECEMBER 31,
------------
1995 1996
---- ----
ACCRUED LIABILITIES
Capital leases obligations, current portion $ 431,000 $ 482,000
Accrued vacation 264,000 288,000
Accrued bonuses 202,000 183,000
Other 270,000 296,000
---------- ----------
$1,167,000 $1,249,000
========== ==========
</TABLE>
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 January 1997,
the agreement was revised and extended to October 31, 1998. Under the terms of
the extended agreement, Lilly will provide research funding for the
identification and characterization of a new VGCC subtype for use in the
discovery of drugs for central nervous system disorders. 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 and the
Company may receive royalties in the event there are sales of products
containing a compound developed under 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. Either party
may terminate the current agreement upon three months advance written notice
provided anytime after August 1, 1997. As part of the original agreement,
Lilly purchased 276,470 shares of Common Stock. The Company recognized contract
revenue related to this agreement of $1,621,000, $1,663,000 and $1,609,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
NOVARTIS AG (FORMERLY CIBA-GEIGY LIMITED)
In October 1992, the Company entered into a three-year agreement with
Novartis AG ("Novartis") relating to the development and use of mammalian cell
lines expressing excitatory amino acid receptor ("EAAR") subtypes for the
discovery of chemical agents which react with specific EAAR subtypes. During
March 1994, pursuant to the agreement, Novartis purchased 173,611 shares of
Series A Convertible Preferred Stock (Note 9). In March 1996, the Company
executed an agreement with Novartis to extend the term of its collaborative
agreement to September 1998, unless extended by mutual consent or terminated by
either party upon six months' notice, which may be provided after September
1997. In exchange for providing a certain level of scientific research under
the agreement, the Company will receive payments from Novartis; 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, Novartis agreed to make a further equity investment in
shares of the Company's Common Stock of $7,500,000, of which $5,000,000 was
made in conjunction with the initial public offering of the Company's Common
Stock and the remaining $2,500,000 will be made upon the achievement of certain
research milestones. Novartis has also
F-10
<PAGE> 53
paid the Company $500,000 to fund certain capital expenditures, which may be
credited against future milestone payments. Upon expiration or termination of
the agreement, each party will continue to have a non-exclusive right to use
technology developed and, for a period of three years after the agreement,
Novartis will have a right of first negotiation related to any compounds
developed from the technology related to the agreement. The Company recognized
contract revenue related to this agreement of $2,691,000, $2,281,000 and
$3,383,000 for the years ended December 31, 1994, 1995 and 1996, 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 related to this agreement of $1,169,000 and
$3,223,000 in 1995 and 1996, respectively.
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 (Note 9).
Bristol-Myers Squibb also agreed to make an additional equity investment of
$6,000,000 in shares of Common Stock upon the initiation of clinical trials
relating to any product developed from the collaboration but not before January
1, 1997.
Total costs incurred under the Company's various collaborative agreements for
the years ended December 31, 1994, 1995 and 1996, including certain
administrative costs, aggregated $3,232,000, $4,381,000 and $5,671,000,
respectively.
NOTE 5 -- SIGNIFICANT OPTION AND LICENSE AGREEMENTS
THE SALK INSTITUTE
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 royalties will result in the
related license agreement becoming non-exclusive.
F-11
<PAGE> 54
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
applications. The option-to-license was subsequently expanded to include
additional applications. All options- to-license the IGF-1 technology were
exercised and the license agreements, as executed, include a provision for the
payment of licensing fees upon the occurrence of certain development milestones
and royalties on the sales of products using licensed technology. In 1995, the
Company received a non-refundable payment of $1,750,000 from Cephalon to reduce
the royalty percentage on sales of an IGF-1 product within the neurology field.
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
As of December 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $20,730,000 and
$700,000, respectively, which expire beginning in 2006 and 2002, respectively.
As of December 31, 1996, the Company had federal and state tax credits for
research activities totaling approximately $1,116,000 and $370,000,
respectively, which are available to offset future income taxes. The federal
credits 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-12
<PAGE> 55
Deferred tax liabilities and assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ (447,000) $ (431,000)
----------- ------------
Deferred tax assets:
Net operating loss carryforwards 5,224,000 6,581,000
Research and development credits 1,304,000 1,486,000
Purchased research and development 76,000 50,000
Research and development capitalized for state tax
purposes 890,000 1,855,000
Capital lease obligations 473,000 408,000
Other 230,000 327,000
----------- ------------
Total deferred tax assets 8,197,000 10,707,000
----------- ------------
Net deferred tax assets 7,750,000 10,276,000
Valuation allowance (7,750,000) (10,276,000)
----------- ------------
Deferred taxes $ - $ -
=========== ============
</TABLE>
As of December 31, 1996, 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 $12,000, $13,000 and $31,000 during
1994, 1995 and 1996, respectively.
NOTE 9 -- STOCKHOLDERS' EQUITY
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. The 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) 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 Novartis stock purchase
agreement (Note 4). In March 1994, Novartis purchased 173,611 shares of Series
A Convertible Preferred Stock (407,986 shares of Common Stock on an
as-if-converted basis) for an aggregate amount of $2,500,000.
In March 1996, certain officers of the Company exercised options to purchase
120,200 shares of Series B Convertible Preferred Stock at $5.00 per share in
exchange for cash and $589,000 of notes receivable that bear interest at 7% per
annum.
In May 1996, the Series A, B and C Convertible Preferred Stock were
automatically converted into Common Stock upon the Company's initial public
offering of Common Stock.
F-13
<PAGE> 56
WARRANTS
As of December 31, 1995 and 1996, 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 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
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation. Compensation
expense, as appropriate, has been recorded related to option grants and is
being amortized to operations over the related vesting period. No compensation
expense has been recognized for its stock purchase plan. Had compensation cost
for the Company's stock-based compensation awards issued during 1995 and 1996
been determined based on the fair value at the grant dates of awards consistent
with the method of Financial Accounting Standards Board Statement No. 123, the
Company's net income (loss) and pro forma net income (loss) per share would
have been reduced to the pro forma amounts indicated below (in thousands,
except per share data):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Net income (loss):
As reported $2,926,000 $(5,564,000)
Pro forma 2,698,000 (5,556,000)
Primary net income (loss) per share:
As reported $.42 $(0.73)
Pro forma .39 (0.73)
</TABLE>
For purposes of determining the pro forma amounts, the fair value of each
option grant is estimated on the date of grant using the Black- Scholes option
pricing model with the following weighted average assumptions used for grants
during the years ended December 31, 1995 and 1996, respectively: dividend
yield of 0.0% for both years, risk-free interest rates of 6.01% and 6.16%,
expected volatility of 0.0% and 34.2%, and expected lives of 4 and 5.81 years.
The weighted average fair value of options granted during 1995 and 1996 for
which the exercise price equals the market price on the grant date was $.30 and
$5.29, respectively. The weighted average fair value of options granted during
1995 and 1996 for which the exercise price was less than the market price on
the grant date was $4.58 and $6.21, respectively. The fair value of the
employees' purchase rights is estimated using the Black-Scholes model with the
following assumptions: dividend yield of 0.0%, a risk-free interest rate of
5.35%, expected volatility of 67.7%, and an expected life of 6 months. The
weighted average fair value of those purchase rights granted in 1996 was $3.44.
STOCK OPTION AND EQUITY INCENTIVE PLANS
The Company has various stock option plans and an equity incentive plan
whereby 2,694,306 shares of the Company's Common Stock have been reserved for
issuance to its officers, directors, employees and consultants. The plans are
administered by the Board of Directors or its designees and provide generally
that, for incentive stock options, the exercise price shall not be less than
the fair market value of the shares on the date of grant and, for non-qualified
stock options, the price shall not be less than 85% of the fair market value of
the shares on the date of grant as determined by the Board of Directors. The
options expire not later than ten years from the date of grant and are
generally subject to vesting over four years, as
F-14
<PAGE> 57
determined by the Board of Directors. A summary of the changes in options
outstanding under the plans for the three years ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance, December 31, 1993 766,095 $1.54
Options granted:
Price equal to the market price of stock on grant date 122,701 1.65
Price less than the market price of stock on grant date 373,062 0.86
Options exercised (13,865) 0.51
Options forfeited (38,184) 3.27
---------
Balance, December 31, 1994 1,209,809 1.30
Options granted:
Price equal to the market price of stock on grant date 128,310 1.45
Price less than the market price of stock on grant date 110,919 1.18
Options exercised (23,500) 0.80
Options forfeited (56,559) 1.29
---------
Balance, December 31, 1995 1,368,979 1.31
Options granted:
Price equal to the market price of stock on grant date 173,975 7.32
Price less than the market price of stock on grant date 186,282 2.01
Options exercised (570,706) 1.43
Options forfeited (36,910) 3.06
---------
Balance, December 31, 1996 1,121,620 2.24
=========
Exercisable, December 31, 1996 377,545
=========
Available for future grant, December 31, 1996 1,572,686
=========
</TABLE>
Included as options outstanding as of December 31, 1996 in the above table
are options to purchase 373,062 shares of Common Stock under the Management
Change of Control Plan which, in the event of a change of control, may have
accelerated vesting of unvested options as determined by the value of the
Company on the date of such a change of control. Also included as options
outstanding as of December 31, 1996 in the above table are options to purchase
155,455 shares of Common Stock under the 1996 Equity Incentive Plan. Shares of
Common Stock issued under the 1996 Equity Incentive Plan 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.
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.37 - $0.85 417,947 7.09 $0.80 127,137 $0.68
1.23 - 2.13 516,468 3.20 1.59 213,658 1.39
6.38 - 9.88 187,205 9.18 7.28 36,750 7.40
--------- -------
1,121,620 377,545
========= =======
</TABLE>
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
F-15
<PAGE> 58
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. In 1996,
the Company issued 9,408 shares of Common Stock under the plan.
RETIREMENT SAVINGS PLAN
The Company has a savings plan under Section 401(k) of the Internal Revenue
Code which covers all employees who meet minimum age requirements. Employees
can contribute up to 9% 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 1994, 1995 and 1996, the Company
contributed $87,000, $104,000 and $121,000, 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 2000 and have interest rates between 4.9% and 8.1%. As of
December 31, 1996, $2,110,000 ($946,000 net of accumulated amortization) of
such leased equipment is included in property and equipment. For the years
ended December 31, 1994, 1995 and 1996, $297,000, $392,000 and $483,000 in
amortization expense, respectively, was recorded related to property acquired
under capital leases.
OPERATING LEASES
The Company leases its principal facilities under a long-term operating lease
which expires December 31, 1997. The Company has the option to extend the
lease for a period of five years. Rent expense was $559,000, $563,000 and
$705,000, net of sub-lease income of $567,000, $571,000 and $586,000 for 1994,
1995 and 1996, respectively.
Future minimum lease payments for capital and operating leases as of December
31, 1996 are as follows (operating lease payments are net of noncancellable
sub-lease income of $352,000).
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1997 $ 528,000 $1,023,000
1998 369,000 129,000
1999 145,000
2000 29,000
--------- ----------
Total minimum lease payments 1,071,000 $1,152,000
Amount representing interest 70,000 ==========
----------
Obligations under capital leases 1,001,000
Less portion due within one year 482,000
----------
Long-term capital lease obligations $ 519,000
==========
</TABLE>
During 1994, 1995 and 1996, $63,000, $71,000 and $66,000, respectively, was
paid in imputed interest on capital leases.
COMMITMENTS
The Company has contracted for a fully automated, functional high throughput
screening system and update of related equipment with an expected cost of
approximately $750,000, of which $500,000 has been provided by Novartis (Note
4).
F-16
<PAGE> 59
LEGAL PROCEEDINGS
On July 9, 1996, the Company filed an action in the United States District
Court for the Southern District of California, for patent infringement against
Cadus Pharmaceutical Corporation ("Cadus"). Through the complaint, the Company
seeks damages in an unspecified amount and a preliminary and permanent
injunction. On August 1, 1996, Cadus filed its answer and counterclaim to the
Company's complaint. The counterclaim seeks compensatory and punitive damages
in an unspecified amount. Company management believes that its complaint
against Cadus is well-founded and necessary to protect the value of its
intellectual property portfolio. Management believes that Cadus' counterclaim
is without merit and intends to vigorously prosecute its claim of infringement
and oppose Cadus' counterclaim. Management believes that the ultimate
resolution of the above matter will not have a material adverse impact on the
Company's financial position, results of operations or cash flows.
In addition to the above, the Company is involved in certain legal or
administrative proceedings generally incidental to its normal business
activities. While the outcome of any such proceeding cannot be accurately
predicted, the Company does not believe the ultimate resolution of any such
existing matters will have a material adverse effect on its financial position,
results of operations or cash flows.
NOTE 12 -- SUBSEQUENT EVENTS
CROSS-LICENSING AGREEMENT
In January 1997, the Company entered into an agreement with Aurora
Biosciences Corporation ("Aurora"). Under the agreement, the Company will
license to Aurora non-exclusive rights to practice its patented
transcription-based assay (TBA) technology, and certain other technologies
related to automated drug screening. In return, in addition to other
consideration, the Company will receive from Aurora non-exclusive rights to
several assay technologies, including novel reporter molecules, that will
facilitate the Company's high throughput screening and drug discovery efforts
directed to certain receptor, ion channel and enzyme targets associated with
nervous system disorders. Both parties will receive limited sublicensing
rights to each other's patents.
LEASE LINE FUNDING
In February 1997, the Company received a firm commitment to fund a $1,500,000
lease line through December 15, 1997. The fundings will have terms generally
consistent with those of the Company's existing lease commitments.
DEVELOPMENT AGREEMENT
In February 1997, the Company entered into an agreement with Meiji Seika
Kaisha, Ltd for the development and commercialization of the Company's
proprietary nicotinic acetylcholine receptor agonist, SIB-1508Y, as a treatment
for Parkinson's disease in Japan and other Asian countries. Under the
agreement, the Company will receive an upfront license fee of $3,000,000, and
may receive substantial development milestone payments and royalties on future
products, if any. The Company will retain rights for the commercial
manufacture of the product.
F-17
<PAGE> 1
Certain confidential portions of this Exhibit were omitted by means of blackout
of the text (the "Mark"). This Exhibit has been filed separately with the
Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act.
Exhibit 10.37
DEVELOPMENT AND LICENSE AGREEMENT
THIS DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement") is made as of the
28th day of February, 1997 (the "Effective Date") by and between SIBIA
NEUROSCIENCES, INC. a Delaware corporation with offices at 505 Coast Boulevard
South, Suite 300, La Jolla, California 92037-4641 ("SIBIA"), and MEIJI SEIKA
KAISHA, LTD. a corporation organized under the laws of Japan with offices at
4-16, Kyobashi 2-chome, Chuo-ku, Tokyo, 104, Japan ("MEIJI").
RECITALS
WHEREAS, SIBIA possesses substantial scientific and technical proprietary
technology and resources relating to the discovery of drug candidates; and
WHEREAS, SIBIA has identified and sought patent protection on a compound
designated SIB-1765F/1508Y and is preparing such compound for the treatment of
Parkinson's disease and other Central Nervous System Disorders (defined below);
and
WHEREAS, MEIJI possesses substantial expertise and resources relating to
the clinical development and the distribution, marketing and sale of drugs for
the treatment of human diseases in the Territory (defined below); and
WHEREAS, the parties desire to establish a collaborative relationship to
develop and market the Licensed Product (defined below) for the treatment of
Parkinson's disease and other Central Nervous System Disorders in the Territory,
with MEIJI taking responsibility and assuming the majority of the financial risk
of such development and marketing effort and SIBIA granting an exclusive license
to market the Licensed Product in the Territory;
NOW, THEREFORE, in consideration of the promises and covenants set forth
below, the parties hereby agree as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following meanings and
the singular shall include the plural and vice versa:
1.1 "AFFILIATE" shall mean any entity that directly or indirectly Owns, is
Owned by or is under common Ownership with, a party to this Agreement, where
"Own" or "Ownership" [*]
1.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
1.2 "BACKUP COMPOUND" shall mean the receptor subtype-selective nicotinic
agonist other than SIB-1765F/1508Y identified or developed by SIBIA, whether or
not covered by the Licensed Patents (defined below) which is jointly selected by
MEIJI and SIBIA in the manner contemplated by Section 2.3.4 and [*] (ii) in the
case of the Backup Compound not covered by the Licensed Patents, is being
pursued by SIBIA for the primary indication of Parkinson's disease.
1.3 "CNS DISORDER" (or, the "Central Nervous System Disorder") shall mean
any neurodegenerative, neurological or behavioral disorders of humans.
1.4 "CONFIDENTIAL INFORMATION" shall mean any proprietary information,
data, and any other information relating to: (i) any SIBIA Data, MEIJI Data and
Licensed Technology (individually defined below), research project, work in
process, future development, scientific engineering, manufacturing, marketing,
business plan, financial or personnel matter relating to either party, its
present or future products, sales, suppliers, customers, employees, investors or
business, whether in oral, written, graphic or electronic form, or (ii) any of
SIBIA's licensors' technology, know-how, improvements, patents or biological
materials or other proprietary information which SIBIA is authorized to
disclose. The Confidential Information shall also include any Licensed Product
transferred from SIBIA to MEIJI during this Agreement for use hereunder.
1.5 "FIRST COMMERCIAL SALE" shall mean the first sale for use or
consumption by the general public of the Licensed Product in each country in the
Territory after all required Government Approvals (defined below) have been
granted.
1.6 "GMP" shall mean the current Good Manufacturing Practice regulations
promulgated by the Food and Drug Administration in the United States (the "FDA")
or its equivalent in the Territory.
1.7 "GOVERNMENT APPROVALS" shall mean any approvals, licenses,
registrations or authorizations of any federal, state or local regulatory
agency, ministry, department, bureau or other government entity necessary for
the development, use, manufacturing, marketing, sale or distribution of the
Licensed Product.
1.8 "IND" (or, the "Investigational New Drug Application") shall mean an
application to the FDA to commence human clinical testing of a drug, or its
equivalent in the Territory.
1.9 "LICENSED FIELD" means the pharmaceutical use in humans for the
treatment of Parkinson's disease and any other CNS Disorder.
1.10 "LICENSED KNOW-HOW" shall mean all know-how, trade secrets,
inventions, data, technology and other information now owned or licensed (with
the right to sublicense) by or on
2.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
behalf of SIBIA or any of its Affiliates or hereafter acquired or licensed (with
the right to sublicense) by or on behalf of SIBIA or any of its Affiliates
during the term of this Agreement, which are necessary or useful to the
formulation, development, manufacture or sale of the Licensed Product. Licensed
Know-How shall include information on the manufacture of the bulk Licensed
Product only to the extent such information is reasonably required to fulfill
the purpose of this Agreement, including the Regulatory Filings (as defined in
Section 2.4.2) and the Government Approvals.
1.11 "LICENSED PATENTS" shall mean all patents (including inventor's
certificates) which have issued as of the Effective Date or which issue at any
time from applications pending as of the Effective Date or subsequently filed
worldwide, now owned or licensed (with the right to sublicense) and which are
set forth in Schedule 1, or hereafter acquired or licensed (with the right to
sublicense) during the term of this Agreement, by or on behalf of SIBIA or any
of its Affiliates, and which are necessary, useful and related to the
development or the sale of the Licensed Product. Schedule 1 may be amended from
time to time to reflect the current patent estate.
1.12 "LICENSED TECHNOLOGY" shall mean the Licensed Patents and Licensed
Know-How.
1.13 "LICENSED PRODUCT" shall mean any form, salt or dosage of a compound
developed from or containing the receptor subtype-selective nicotinic agonist
SIB-1765F/1508Y (SIB-1508Y is the active enantiomer of the racemate, SIB-1765F)
or the Backup Compound selected pursuant to Section 2.3.4.
1.14 "MEIJI DATA" shall mean all data arising out of all non-clinical and
clinical development activities conducted by or on behalf of MEIJI, its
Affiliates or sublicensees, or disclosed to MEIJI by its licensors and other
collaborators, that are necessary to obtain the Government Approvals from the
FDA and its equivalents in the Territory for marketing of the Licensed Product,
including without limitation, clinical data, pharmacokinetic and pharmacological
test data, analytical data, stability and integrity data, formulation data,
quality control data, and safety and efficacy data, all to the extent MEIJI has
the right to disclose and/or license the use of such information to SIBIA.
1.15 "NDA" (or the "New Drug Application") shall mean an application and
all supplements filed pursuant to the requirements of the FDA or its equivalents
in the Territory to commence commercial sale of a drug, including all documents,
data and other information concerning the Licensed Product which are necessary
for the Government Approval from the FDA or its equivalents in the applicable
Territory.
1.16 "NET SALES" shall mean the actual gross invoice price of the Licensed
Product sold by MEIJI, its Affiliates or sublicensees to unrelated third parties
(wholesalers, physicians or patients as the case may be) less, to the extent
included therein, the total of (i) ordinary and customary trade discounts and
rebates (although samples are not exempted), (ii) sales and excise taxes, and
other similar taxes, customs, duty and compulsory payments to governmental
3.
<PAGE> 4
authorities (other than income taxes) actually paid or deducted and related to
the sale, (iii) credits given to customers for rejects or returns of the
Licensed Product and (iv) [*] of such gross invoice price to cover
transportation and insurance charges incurred in shipping of the Licensed
Product, all as determined in accordance with generally accepted accounting
principles ("GAAP"), consistently applied.
1.17 "PIVOTAL TRIAL" shall mean that portion of the clinical development
program that provides for expanded controlled human clinical trials, performed
after a dose-ranging study has been completed and preliminary evidence
suggesting effectiveness of the Licensed Product has been obtained, which is
intended to gather the additional information about the effectiveness and safety
necessary to evaluate the overall benefit-risk relationship of the Licensed
Product and provide an adequate basis for physician labeling, involving either a
placebo control, a double blind format or a competing drug, all in accordance
with the appropriate governmental and institutional regulatory requirements.
1.18 "SIBIA DATA" shall mean all data arising out of all non-clinical and
clinical development activities conducted by or on behalf of SIBIA, its
Affiliates or licensees, or disclosed to SIBIA by its licensors and other
collaborators, that are necessary to obtain the Government Approvals from the
FDA and its equivalent in the Territory for marketing of the Licensed Product,
including without limitation, clinical data, pharmacokinetic and pharmacological
test data, analytical data, stability and integrity data, formulation data,
quality control data, and safety and efficacy data, all to the extent SIBIA has
the right to disclose and/or license the use of such information to MEIJI.
1.19 "TERRITORY" shall mean the countries set forth in Schedule 2.
ARTICLE 2
DEVELOPMENT, GOVERNMENT APPROVALS
2.1 SCOPE.
2.1.1 PRELIMINARY TESTS. Promptly upon execution of the Agreement,
SIBIA will arrange at MEIJI's sole expense to have a third party contractor, to
be selected by SIBIA and approved by MEIJI, [*] in accordance with mutually
agreed protocols thereof. In the event that a [*]. MEIJI may, at its discretion,
terminate this Agreement. [*]
4.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 5
2.1.2 COOPERATIVE DEVELOPMENT PROGRAM. SIBIA and MEIJI will conduct a
cooperative development program for the Licensed Product with the objective of
obtaining the Government Approval for the Licensed Product in the Licensed Field
in the Territory in a timely manner, as set forth in this Agreement. It is
understood and agreed that Parkinson's disease is the initial and primary target
for the development of the Licensed Product in the Licensed Field in the
Territory.
2.2 STEERING COMMITTEE.
2.2.1 GENERAL. The non-clinical and clinical development of the
Licensed Product in the Territory shall be managed by the Steering Committee
(the "Steering Committee") comprised of an equal number of members appointed by
each of MEIJI and SIBIA not to exceed three (3) members per party. Either party
may appoint substitute or replacement members of the Steering Committee to serve
as their representatives, provided that such substitution or replacement shall
occur no more frequently than once per calendar year. The initial members of the
Steering Committee will be appointed by the parties within ten (10) days
following the Effective Date. The Steering Committee shall have the
responsibility and authority to: (a) prepare, implement and monitor a plan (the
"Joint Study Plan") for all studies of the Licensed Product to be conducted
jointly, such plan to be prepared within sixty (60) days of the Effective Date
of this Agreement; (b) assign tasks and responsibilities in connection with such
studies to each party as appropriate in the context of this Agreement; (c)
obtain protocols for specific studies from the party to whom they were assigned
for approval by the Steering Committee; and (d) review and modify the Joint
Study Plan, as it shall deem appropriate to achieve the parties' objectives
under this Agreement. The Joint Study Plan will be prepared by the Steering
Committee both in English and Japanese. In addition, MEIJI shall have the
responsibility to prepare and implement a plan (the "Development Plan") for the
non-clinical and clinical development of the Licensed Product in the Territory.
Such Development Plan shall be approved by SIBIA and reviewed on an ongoing
basis by the Steering Committee, with any significant modifications made by
MEIJI requiring SIBIA's approval. SIBIA shall not unreasonably withhold its
approval for the Development Plan and modifications thereof prepared by MEIJI.
The Steering Committee's determination of which modifications are significant
shall be determinative. The Development Plan will be prepared by MEIJI within
ninety (90) days of the Effective Date both in English and Japanese. [*]
2.2.2 MEETINGS OF THE STEERING COMMITTEE. The Steering Committee shall
meet two (2) to four (4) times per year at locations and times to be determined
by the Steering Committee. Each party will bear all travel and related costs for
its members to attend Steering Committee meetings.
5.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 6
2.2.3 DECISION-MAKING PROCESS. Each member of the Steering Committee
shall have one vote, and decisions by the Steering Committee shall be made by a
majority vote. Any disagreement among members of the Steering Committee will be
resolved within the Steering Committee based on the efficient achievement of the
objectives of this Agreement. Any disagreement which has not been able to be
resolved by a majority vote of the Steering Committee shall be referred to the
Chief Executive Officers or appropriate representatives (the "CEOs") of SIBIA
and MEIJI for resolution under Section 13.10 of this Agreement. It is the intent
of the parties to resolve issues through the Steering Committee whenever
possible and to refer issues to the CEOs of SIBIA and MEIJI only when resolution
through the Steering Committee has not been able to be achieved.
2.3 DEVELOPMENT OBLIGATIONS.
2.3.1 DILIGENCE. MEIJI shall work diligently, consistent with accepted
business practices and legal requirements, to develop the Licensed Product for
the Licensed Field, devoting the same degree of attention and diligence to such
development efforts as similar companies devote to development activities for
products of comparable market potential. MEIJI agrees to provide scientific,
technical, clinical and regulatory personnel, equipment, time and resources to
the development of the Licensed Product sufficient to meet its obligations
hereunder. Without otherwise limiting the foregoing, MEIJI will use its best
efforts to achieve the development milestones (the "Development Milestones") for
the development of the Licensed Product in the Territory. Such Development
Milestones shall be prepared by MEIJI within ninety (90) days of the Effective
Date for SIBIA's approval and attached hereto as Schedule 3. SIBIA shall not
unreasonably withhold the approval for the Development Milestones prepared by
MEIJI. [*] In the event of changes in the Joint Study Plan, the Development Plan
or the regulatory requirements, or other unforeseen circumstances which prevent
MEIJI from achieving the Development Milestones as indicated, the parties agree
to discuss such changed circumstances and appropriate mechanisms to address
them. [*]
2.3.2 DEVELOPMENT REPORTS.
6.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 7
(a) MEIJI shall submit to the Steering Committee detailed
protocols for all proposed Development Plan studies undertaken by MEIJI, its
Affiliates or sublicensees pursuant to this Agreement in the Territory and
advise the Steering Committee of its efforts in finalizing and implementing all
protocols. MEIJI shall also submit to the Steering Committee detailed protocols
of the Joint Study Plan to be undertaken by MEIJI pursuant to this Agreement.
All studies shall be subject to the Steering Committee's approval, such approval
to be provided within two (2) weeks of receipt of the protocol and not to be
unreasonably withheld. MEIJI shall submit to SIBIA semi-annual summary reports
within thirty (30) days of the end of each six (6) month period which describe
the progress of non-clinical and clinical efforts and all registration filings.
Summary reports shall include, without limitation, a description and statement
of purpose of each study in progress; the number of patients which enrolled in,
dropped from, or completed the study, as well as any side effect or unexpected
data, and the progress in the Development Milestones.
(b) Upon completion of each individual study undertaken
pursuant to this Agreement, MEIJI will, within three (3) months, submit to SIBIA
a final, detailed, study report with respect to such study. MEIJI shall also
submit to SIBIA a final clinical program report on all clinical aspects of the
development program within six (6) months from the end of the trials conducted
pursuant to this Agreement.
(c) With respect to all non-clinical studies including the
Joint Study Plan studies conducted by or on behalf of SIBIA, its Affiliates or
licensees on the Licensed Product and all clinical trials conducted by or on
behalf of SIBIA, its Affiliates or licensees on the Licensed Product outside the
Territory, except for any manufacturing process research of the bulk Licensed
Product. SIBIA also shall submit to MEIJI or the Steering Committee as the case
may be, in the same manner as MEIJI is subjected to pursuant to this Section:
(i) detailed protocols, (ii) semi-annual summary reports, (iii) final, detailed,
study reports, and (iv) final clinical program reports.
(d) MEIJI shall also provide to SIBIA any other reports or
information reasonably necessary and in sufficient detail for SIBIA to monitor
the progress of the development of the Licensed Product in the Territory, to
practice any procedures or reproduce any studies performed by MEIJI and to
enable SIBIA to comply with any obligations to which SIBIA may be bound.
For the purposes of this Section, each final study report and final
clinical program report shall mean the complete and comprehensive description of
the technical developments and clinical study and subsequent studies of the
Licensed Product, accurately reflecting the MEIJI Data or SIBIA Data. The
contents and form of these reports shall meet the standard for the FDA
submissions and submissions to the appropriate regulatory authority in the
Territory. SIBIA and MEIJI each shall have the right to use such reports and
data in its development and marketing of the Licensed Product hereunder.
2.3.3 VISIT OF FACILITIES. Representatives of SIBIA may, upon
reasonable request and prior written notice and at mutually agreed upon times
and intervals, (i) visit
7.
<PAGE> 8
facilities of MEIJI and its Affiliates and sublicensees where the development of
the Licensed Product is being conducted, and (ii) consult informally with
personnel of MEIJI, and its Affiliates and sublicensees provided MEIJI
representatives are present or MEIJI has otherwise agreed, conducting the
development during such visits, by telephone, facsimile transmission or other
manner as the parties shall agree.
2.3.4 BACKUP COMPOUND. [*]
2.4 REGULATORY MATTERS.
2.4.1 COMPLIANCE WITH REGULATIONS. MEIJI will conduct its efforts
hereunder in compliance with all applicable regulatory requirements, including
without limitation, any equivalents in the Territory to the GMP, the Good
Clinical Practice and Good Laboratory Practice regulations promulgated by the
FDA, and the guidelines of the International Conference on Harmonization of
Technical Requirements for Registration of Pharmaceuticals for Human Use.
2.4.2 REGULATORY FILINGS. MEIJI shall, at its own expense, prepare,
and submit all filings to the regulatory authorities with respect to the
Licensed Product in the Territory (the "Regulatory Filings"), and MEIJI shall be
responsible for causing such applications to progress through the approval
process on a timely basis. SIBIA shall have rights of consultation with MEIJI's
personnel responsible for the Regulatory Filings with respect to the preparation
and submission of such Regulatory Filings, and SIBIA shall cooperate with MEIJI
in such manner as MEIJI may reasonably request to assist in obtaining the
Government Approval for the Licensed Product. MEIJI shall, no later than thirty
(30) days prior to filing, deliver to SIBIA English language translations
summarizing all Regulatory Filings and correspondence, and shall at SIBIA's
request, provide to SIBIA a complete English language translation of any
Regulatory Filing or piece of correspondence, at SIBIA's expense.
2.4.3 REGULATORY DATA. Promptly upon execution of this Agreement,
SIBIA shall deliver to MEIJI such SIBIA Data as are necessary to commence
non-clinical and clinical development, and periodically thereafter shall provide
such additional SIBIA Data as may be generated by or on behalf of SIBIA, its
Affiliates or licensees and as are necessary to obtain the
8.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 9
Government Approval in the Territory. MEIJI will provide to SIBIA, upon request
from SIBIA, such MEIJI Data as are necessary to obtain the Government Approval
outside the Territory.
2.4.4 MAINTENANCE OF RECORDS. SIBIA and MEIJI each shall maintain
records with respect to activities conducted in connection with development of
the Licensed Product in sufficient detail and in good scientific manner
appropriate for the Government Approval purposes in the Territory and as will
reflect all studies conducted, results achieved and data obtained by it in the
course of the development of the Licensed Product.
2.4.5 ADVERSE EVENT REPORTING. The parties shall jointly develop
standard operating procedures for the investigation and reporting of adverse
experiences (the "AE") concerning the Licensed Product in the development and
commercial uses thereof, and for exchanging toxicological and other similar
reports relevant to the use, indications or safety of the Licensed Product. Each
party agrees to report to the other, immediately upon receipt of the information
on serious AE and/or any other AE, as may be required by applicable law, or if
no applicable law exists which is regarded to be medically significant, and is
reported to occur in connection with use of the Licensed Product. Such events
must be reported in as much detail as possible, whether or not there is proof of
a causal connection between the experience and use of the Licensed Product. Each
party agrees to investigate such experience, comply with the reporting
requirements of all relevant authorities, undertake follow-up reports, and
promptly deliver such written reports to the other party, all in accordance with
applicable law in effect at the time the serious AE and/or any other AE
occurred.
2.4.6 FUNDING OF DEVELOPMENT AND CLINICAL PROCESS.
(a) The parties agree expenses incurred for studies outlined in
the Joint Study Plan including the supply of the Licensed Product, shall be
shared as follows: [*]
(b) MEIJI agrees to conduct at its own expense all non-clinical
and clinical development work outlined in the Development Plan necessary to
obtain all Government Approvals for the commercialization of the Licensed
Product in the Territory.
ARTICLE 3
GRANT OF RIGHTS
3.1 LICENSE. Subject to the terms of this Agreement, SIBIA hereby grants
to MEIJI, and MEIJI hereby accepts, an exclusive (even as to SIBIA) right and
license, with the right to sublicense, under the Licensed Technology to make,
have made, use, market, distribute, offer for sale and sell the Licensed Product
in finished form produced from the bulk form supplied by SIBIA in the Licensed
Field in the Territory, and to sell the Licensed Product in bulk form supplied
by SIBIA in the Territory to make, have made, use, market, distribute, offer for
sale, and sell the Licensed Product in finished form produced from the bulk form
supplied by SIBIA
9.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 10
in the Licensed Field in the Territory. SIBIA shall retain all rights to
manufacture the Licensed Product in bulk form.
3.2 RIGHT TO SUBLICENSE LICENSED PRODUCT. MEIJI's right to sublicense the
rights granted to it pursuant to Section 3.1 shall be subject to the following:
(i) MEIJI shall furnish SIBIA with prior written notice of its intent to
sublicense and the identity of any such proposed sublicensee, and (ii) SIBIA
shall have the right, within sixty (60) days of receipt of such notice, to
consult with MEIJI and to consent to the further sublicense of the rights
granted MEIJI to such third party, such consent not to be unreasonably withheld.
3.3 EXCLUSIVITY.
(a) [*]
(b) [*]
3.4 NEGOTIATION OF LICENSE TO MANUFACTURE. During the Pivotal Trials or at
any time thereafter, either party may propose that SIBIA grant MEIJI an
exclusive (even as to SIBIA) license, with the right to sublicense, to
manufacture the bulk Licensed Product in the Territory. The parties shall
discuss the economic terms of such manufacturing right in good faith. Such
license shall be granted only upon the agreement of both parties.
ARTICLE 4
MARKETING
4.1 MARKETING. MEIJI will use all commercially reasonable and diligent
efforts to promote the sale, marketing and distribution of the Licensed Products
that have received the applicable Government Approval in any country in the
Territory for use in the Licensed Field in such country, consistent with the
Marketing Plan (the "Marketing Plan") developed pursuant to Section 4.5 of this
Agreement and accepted business practices and devoting the same level of effort
thereto as it devotes to its products of comparable market potential.
10.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 11
4.2 DISTRIBUTION DILIGENCE. MEIJI shall use commercially reasonable
efforts to promote the distribution of the Licensed Product in the Territory
including but not limited to hiring, training and maintaining a sales force
dedicated to the marketing and sale of products for CNS Disorders, which shall
make sales calls of a quantity and in a manner consistent with accepted business
practices. MEIJI shall also provide appropriate periodic educational programs
for its sales force and make expenditures consistent with products of comparable
market potential.
4.3 MARKETING SUPPORT. SIBIA and MEIJI each will cooperate in providing to
the other commercial information (including but not limited to, copies of
promotional items, medical article reprints, medical educational strategies and
related materials) regarding the marketing of the Licensed Product worldwide, in
accordance with and subject to any obligations of confidentiality on the part of
SIBIA to its other marketing partners, if any.
4.4 FORMULATION, PACKAGING AND LABELING. MEIJI will be responsible for
formulating the bulk substance of the Licensed Product into final dosage form
and packaging the Licensed Product for sale under this Agreement, including,
without limitation, designing and producing all packaging materials and product
inserts, all in forms consistent with the requirements of the regulatory
authorities in the Territory and which shall be subject to approval by SIBIA
prior to first use by MEIJI, such approval not to be unreasonably withheld. Such
packaging and labeling shall identify SIBIA as licensor of the Licensed Product.
4.5 MARKETING PLANS. MEIJI shall prepare and provide to SIBIA during the
Pivotal Trials the Marketing Plan for the Territory which includes pre-launch
and initial launch marketing activities, such Marketing Plan to be consistent
with plans for products of similar market potential with respect to level of
effort, resource commitment and activities. The Marketing Plan shall also
provide for post-launch marketing activities and strategies. All activities and
strategies to be employed in the Territory in connection with the Licensed
Product shall be consistent with SIBIA's or its licensees' marketing activities
and strategies outside the Territory to the extent applicable, emphasizing
similar features and claims. SIBIA may offer non-binding suggestions,
recommendations or comments with respect to any marketing activity or strategy
planned by MEIJI, its Affiliates or sublicensees of the Licensed Product in the
Territory, and the parties will work to ensure that neither party's activities
will jeopardize those of the other party. The parties will jointly review and
update the Marketing Plan annually. The Marketing Plan shall be prepared both in
English and Japanese.
4.6 REPORTS. Commencing after the First Commercial Sale of the Licensed
Product in the Territory, MEIJI shall submit to SIBIA annual reports detailing
MEIJI's marketing efforts within sixty (60) days after the last day of each
financial year closing the end of March. In addition, MEIJI shall furnish SIBIA
with copies of any market research reports relating to the Licensed Product and
any competitive product competition which MEIJI commissions or otherwise
obtains, which reports shall be submitted to SIBIA promptly after receipt
thereof by MEIJI.
11.
<PAGE> 12
4.7 EXPENSES. All expenses incurred by MEIJI in connection with its
obligations under this Article 4 will be borne solely by MEIJI. MEIJI will be
responsible for appointing its own employees, agents and representatives, who
will be compensated by MEIJI.
4.8 TRADEMARKS.
(a) RIGHT TO ADOPT AND USE. SIBIA acknowledges and agrees that MEIJI
has the right to adopt, use, and register any acronym, trademark, trade name,
service mark or other marketing name (the "Trademark") it so chooses in
connection with its distribution, marketing, advertising and sale of the
Licensed Product in the Territory, and SIBIA shall have no ownership interest or
other right in or to such Trademarks of MEIJI unless otherwise agreed by the
parties in writing; provided, however, that MEIJI shall not adopt, use or
register as its own any Trademark which is confusingly similar to the Trademark
owned by or licensed by SIBIA. MEIJI may use SIBIA's Trademarks related to the
Licensed Product on a non-exclusive basis in the Territory only for the duration
of this Agreement and solely for display or advertising purposes in connection
with selling and distributing the Licensed Product in accordance with this
Agreement. MEIJI shall not at any time do or permit any act to be done which may
in any way impair the rights of SIBIA in SIBIA's Trademarks.
(B) QUALITY CONTROL. In order to comply with SIBIA's quality control
standards, MEIJI shall: (i) use SIBIA's Trademarks in compliance with all
relevant laws and regulations; (ii) accord SIBIA the right to inspect during
normal business hours, without prior advance notice, MEIJI's facilities used in
connection with efforts to sell the Licensed Product in order to confirm that
MEIJI's use of SIBIA's Trademarks is in compliance with this provision; and
(iii) not modify any of the Trademarks of SIBIA in any way and not use any of
the Trademarks on or in connection with any goods or services other than the
Licensed Product.
4.9 RESTRICTIONS ON DISTRIBUTORS AND DEALERS. MEIJI shall assure that any
of its distributors or dealers (including its Affiliates and non-Affiliates) to
whom MEIJI sells the Licensed Product for resale shall not sell the Licensed
Product to any customer located outside the Territory or for any use other than
use in the Licensed Field.
ARTICLE 5
SUPPLY OF LICENSED PRODUCT
5.1 SUPPLY OF LICENSED PRODUCT FOR DEVELOPMENT. As requested by MEIJI,
SIBIA shall supply, at the price as provided for in Section 5.1.5 of this
Agreement, to MEIJI, its Affiliates or sublicensees, its requirements of the
Licensed Product, in compliance with GMP, necessary for the studies undertaken
by MEIJI which are outlined in the Joint Study Plan and the Development Plan.
For the purpose of the development of the Licensed Product in the Territory, the
Licensed Product to be supplied by SIBIA hereunder shall include, without
limitation, the bulk substance, the finished dosage form being developed by
SIBIA, the reference standard, and any salt, metabolite, by-product and optical
isomer of the Licensed Product.
12.
<PAGE> 13
5.1.1 FORECASTING SUPPLY FOR DEVELOPMENT. SIBIA agrees to provide
MEIJI with such quantities of the Licensed Product on which MEIJI is conducting
development work as MEIJI may order pursuant to this Agreement. At least one
hundred eighty (180) days prior to commencement of the studies of the Licensed
Product in the Territory which are outlined in the Joint Study Plan and the
Development Plan, MEIJI will provide SIBIA with a rolling six (6) calendar
quarter forecast of its expected requirements for non-clinical and clinical
trials of the Licensed Product in the Territory, including quantities and
requested delivery dates. MEIJI will update such forecast at the beginning of
each calendar quarter thereafter during the development phase. SIBIA shall
supply MEIJI's requested quantities of the Licensed Product. Deliveries shall be
made at MEIJI's facilities no later than one hundred and eighty (180) days after
receipt by SIBIA of MEIJI's firm order for a specified quantity of the Licensed
Product. Such orders shall not deviate by more than ten (10) percent from the
amount forecasted for such delivery dates in the most recent forecast.
5.1.2 ORDERS. MEIJI will provide to SIBIA a purchase order for its
binding quantity requirements of the Licensed Product concurrent with its first
binding forecast, and shall provide subsequent purchase orders each month for
the binding forecast quantity not covered by existing purchase orders. Such
purchase orders shall be governed by the terms of this Agreement.
5.1.3 SHIPMENT OF LICENSED PRODUCT FOR DEVELOPMENT. SIBIA shall ship
all Licensed Product ordered by MEIJI to a Japanese port designated by MEIJI,
with all expenses associated with shipping and delivery to be paid by MEIJI.
5.1.4 ACCEPTANCE. MEIJI shall inspect, using a mutually agreed upon
inspection protocol, all shipments of the Licensed Product supplied by SIBIA for
the development use promptly upon receipt and MEIJI may reject any shipment
which does not conform to the applicable specifications, documentation and
process requirements or which otherwise is deficient with respect to the
quantity of material provided or contamination by materials not listed in the
specifications (is "Deficient"). Any such notice shall be in writing and shall
indicate the reasons for such rejection. In order to reject delivery of a
shipment of the Licensed Product, MEIJI shall give written notice to SIBIA of
MEIJI's rejection of any delivery within thirty (30) days after receipt of such
delivery at MEIJI's facilities. If SIBIA is satisfied that the relevant shipment
does not comply with such specifications, documentation and process requirements
or is Deficient, MEIJI shall dispose of the noncomplying shipment as SIBIA shall
lawfully direct and at SIBIA's sole cost and expense; and SIBIA shall replace
the shipment or remedy the deficiency. If SIBIA disputes MEIJI's rejection of
such Licensed Product, the parties shall submit such Licensed Product to a third
party laboratory for testing. Such laboratory's determination shall be final.
The party against whom the third party tester rules shall bear all costs of the
third party testing. In the event that the third party tester determines that
such Licensed Product failed to meet the applicable specifications,
documentation and process requirements or is Deficient, SIBIA shall replace such
Licensed Product or remedy the deficiency within ninety (90) days of receiving
the third party tester's notice of such determination. If the third party tester
rules that the rejected Licensed Product meets such specifications,
documentation and process requirements or is not Deficient, MEIJI guarantees to
13.
<PAGE> 14
purchase such Licensed Product at the agreed-upon price. If no such notice of
rejection is received, MEIJI shall be deemed to have accepted such delivery
thirty (30) days after delivery. Once MEIJI accepts a shipment of the Licensed
Product, MEIJI shall have no recourse against SIBIA if such Licensed Product is
subsequently deemed unsuitable for use for any reason.
5.1.5 PRICE AND USE OF LICENSED PRODUCT FOR DEVELOPMENT. MEIJI agrees
that it shall pay to SIBIA for the Licensed Product [*] MEIJI agrees to use
such Licensed Product only for purposes of pursuing IND and NDA allowance of the
Licensed Product and conducting the non-clinical and clinical trials, and that
it shall not transfer the Licensed Product supplied for non-clinical or clinical
use to a third party without the prior written approval of SIBIA.
5.2 COMMERCIAL SUPPLY OF LICENSED PRODUCT. SIBIA shall supply MEIJI, its
Affiliates and sublicensees, its commercial requirements of bulk Licensed
Product pursuant to a separate supply agreement (the "Supply Agreement") to be
negotiated between the parties in good faith promptly after submission of an NDA
for the Licensed Product in any country in the Territory. Such Supply Agreement
shall be consistent with the applicable terms and conditions of this Agreement
(including without limitation Articles 9, 11 and 12 of this Agreement) and will
contain such other commercially reasonable terms and conditions as are necessary
and appropriate for such Supply Agreement and will comply with all applicable
laws and regulations in the Territory as are otherwise agreed to by the parties,
provided, however, that with particular regard to the transfer price of bulk
Licensed Product, it is agreed upon between the parties that SIBIA shall supply
the bulk Licensed Product to MEIJI [*]. MEIJI's purchase obligation pursuant to
this Section shall expire on a country-by-country basis concurrently with the
later of the fifteenth anniversary of the First Commercial Sale of the Licensed
Product in such country in the Territory or the expiration of the last to expire
of the Licensed Patents utilized by the Licensed Product in such country in the
Territory where such Licensed Patents have been issued, or the fifteenth
anniversary of the First Commercial Sale of the Licensed Product in such country
in the Territory where any Licensed Patents utilized by such Licensed Product
have not been issued.
ARTICLE 6
MILESTONES; ROYALTIES.
6.1 TECHNOLOGY ACCESS FEE. In consideration for the rights granted to
MEIJI by SIBIA in this Agreement, MEIJI will pay to SIBIA the non-refundable
(except in accord with Sections 2.1.1, 2.2.1 and 2.3.1) amount of Three Million
Dollars ($3,000,000) in United States currency within ten (10) days after the
execution of this Agreement.
6.2 MILESTONES. MEIJI will pay to SIBIA the following non-refundable
amounts within thirty (30) days after the occurrence of the following specified
events:
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<PAGE> 15
6.2.1 [*]
6.2.2 [*]
6.3 ROYALTIES. MEIJI shall pay to SIBIA a royalty equal to [*] MEIJI's
royalty obligation pursuant to this Section shall expire on a country-by-country
basis concurrently with the later of the fifteenth anniversary of the First
Commercial Sale of the Licensed Product in such country in the Territory or the
expiration of the last to expire of the Licensed Patents utilized by the
Licensed Product in such country in the Territory where such Licensed Patents
have been issued, or the fifteenth anniversary of the First Commercial Sale of
the Licensed Product in such country in the Territory where any Licensed Patents
utilized by such Licensed Product have not been issued.
ARTICLE 7
PAYMENT PROCEDURES; RECORDS; AUDITS
7.1 PAYMENT AND REPORTS. Royalty payments due under this Agreement shall
accrue on a calendar quarter basis and MEIJI shall pay to SIBIA all such royalty
payments due under this Agreement within sixty (60) days of the end of each
calendar quarter. Each payment of royalties shall be accompanied by a report
summarizing the Net Sales of the Licensed Product made and the royalty payment
due thereon, including a description of any offsets or credits deducted, in
sufficient detail to permit confirmation of the accuracy of the royalty payment
made.
7.2 EXCHANGE RATE: MANNER AND PLACE OF PAYMENT. All amounts paid hereunder
shall be paid in United States currency. Exchange conversion of foreign payments
into U.S. Dollars shall be made as necessary at the rate of exchange quoted at
the Ginza-Douri branch of the Tokyo-Mitsubishi Bank, on the fourth banking day
preceding the end of the applicable royalty period or, for payments other than
royalty payments, on the fourth banking day preceding the date of payment. All
payments owed under this Agreement shall be made by wire transfer at a bank and
to an account designated by SIBIA, unless otherwise specified by SIBIA.
15.
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<PAGE> 16
7.3 LATE PAYMENTS. In the event that any payment, including payments due
in connection with development projects, technology access fee, milestone
payments and royalties, due hereunder is not made when due, the payment shall
accrue interest from the date due at the rate of [*] per month; provided that in
no event shall such rate exceed the maximum legal annual interest rate. The
payment of such interest shall not limit any party from exercising any other
rights it may have as a consequence of the lateness of the payment.
7.4 RECORDS. During the term of this Agreement, MEIJI shall keep full and
accurate books and records setting forth, for the Licensed Product on which
royalties are due, gross sales, all deductions allowed in arriving at the Net
Sales and any other information necessary and in sufficient detail to allow the
calculation of royalties to be paid by MEIJI. During the term of this Agreement
and for a period of three (3) years thereafter, MEIJI shall permit SIBIA, at
SIBIA's expense, to have independent certified public accountants employed by
SIBIA and reasonably acceptable to MEIJI, examine relevant books and records at
any reasonable time, not more often than once each calendar year, within five
(5) years of the payment of such royalties. If it is determined that there was
an underpayment of royalties due SIBIA of [*] or more, without prejudice to any
other rights SIBIA may have, MEIJI shall promptly pay to SIBIA the balance of
the royalties due and shall also reimburse SIBIA for the cost of such
verification examination.
7.5 TAX AND WITHHOLDINGS. With respect to technology access fee, milestone
payments and royalties owed to SIBIA under this Agreement, any withholding taxes
levied in Japan shall be for the account of SIBIA, and MEIJI agrees to provide
SIBIA with a certificate from the Japanese tax authorities regarding such
withholding taxes.
ARTICLE 8
CONFIDENTIALITY
8.1 CONFIDENTIALITY. During the term of this Agreement, and for five (5)
years thereafter, each party hereto will maintain in confidence all Confidential
Information disclosed by the other party hereto, including without limitation
the Confidential Information disclosed to MEIJI pursuant to MEIJI's information
rights under Articles 2 and 3 of this Agreement. Neither party will use,
disclose, transfer or grant use of such Confidential Information except as
expressly authorized by this Agreement. To the extent that disclosure is
authorized by this Agreement, the disclosing party will obtain prior written
agreement from its employees, agents, consultants or clinical investigators to
whom disclosure is to be made to hold in confidence and not make use of such
information for any purpose other than those permitted by this Agreement. Each
party will use at least the same standard of care as it uses to protect its own
trade secrets, proprietary information or materials to ensure that such
employees, agents, consultants and clinical investigators do not disclose or
make any unauthorized use of such Confidential Information. Each party will
promptly notify the other upon discovery of any unauthorized use or disclosure
of the Confidential Information.
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<PAGE> 17
8.2 EXCEPTIONS. The Confidential Information shall not include any
information which:
8.2.1 was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure by the other party as
evidenced by written records;
8.2.2 was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the other party;
8.2.3 became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
8.2.4 was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
other party not to disclose such information to others as evidenced by written
records; or
8.2.5 is required to be disclosed in a judicial or administrative
proceeding after all reasonable legal remedies for maintaining such information
in confidence have been exhausted.
8.3 AUTHORIZED DISCLOSURE. Each party may disclose the Confidential
Information to the extent such disclosure is reasonably necessary in filing or
prosecuting patent applications, prosecuting or defending litigation or
complying with applicable governmental regulations, provided that if such party
is required to make any such disclosure of the Confidential Information it will
to the extent practicable give reasonable advance notice to the other party of
such disclosure requirement and, except to the extent inappropriate in the case
of patent applications, will use its best efforts to secure confidential
treatment of such information required to be disclosed. MEIJI may disclose
(subject to the confidentiality restrictions contained herein) the Confidential
Information to third party contractors, investigators and regulatory
authorities, to the extent necessary to perform its obligations under this
Agreement, provided that MEIJI has instructed such third parties (other than
regulatory authorities) to hold such Confidential Information strictly
confidential.
8.4 Agreement Confidential. The parties agree that the contents of this
Agreement shall constitute a part of the Confidential Information, and as such,
will not be disclosed by either party without the prior written consent of the
other, except as required by law or prior contractual obligation.
ARTICLE 9
INTELLECTUAL PROPERTY; PATENT EXPENSES
9.1 OWNERSHIP OF INTELLECTUAL PROPERTY. SIBIA shall retain all of its
rights, title and interest in and to all Licensed Technology, SIBIA Data,
copyrights, trademarks, trade name, and
17.
<PAGE> 18
all other industrial and intellectual property licensed to MEIJI under this
Agreement. Except as otherwise expressly provided in this Agreement, MEIJI has
no right, title or interest in any industrial or intellectual property relating
to the Licensed Technology, the Licensed Product or the SIBIA Data. This Section
9.1 shall survive the termination or expiration of this Agreement.
9.2 PROSECUTION AND MAINTENANCE OF LICENSED PATENTS.
9.2.1 PROSECUTION AND MAINTENANCE. SIBIA shall remain responsible
for patent prosecution and maintenance of the Licensed Patents and shall bear
all expenses associated therewith. In the event SIBIA elects not to prosecute
any applications included in the Licensed Patents or to abandon any issued
Licensed Patents in any country in the Territory, SIBIA shall notify MEIJI not
less than two (2) months before any relevant deadline and MEIJI shall have the
right to pursue, at its expense and in its sole discretion, prosecution of such
applications or maintenance of such issued Licensed Patents. In such event,
SIBIA shall promptly assign without any compensation by MEIJI its rights therein
to MEIJI.
9.3 INVENTIONS. Each party acknowledges and agrees that any and all
inventions (the "Inventions") that are made or discovered pursuant to this
Agreement solely by its employees or agents shall be owned solely by it (the
"SIBIA Inventions" or the "MEIJI Inventions" as the case may be), and that all
Inventions made jointly by employees or agents of each pursuant to this
Agreement shall be jointly owned (the "Joint Inventions"), all as determined in
accordance with U.S. laws of inventorship. MEIJI shall have the exclusive right
without any payment to SIBIA to practice and use the Joint Inventions within the
Territory, and shall have the right to file and control, at its expenses, any
patent applications on the Joint Inventions in the Territory. SIBIA shall have
the exclusive right, and MEIJI hereby grants to SIBIA without any payment to
MEIJI such right, to practice and use the Joint Inventions outside the
Territory, and shall have the right to file and control, at its expenses, any
patent applications on such Joint Inventions outside the Territory. Each party
shall bear the costs of prosecuting and maintaining any patents on its own
Inventions.
9.4 LICENSE TO MEIJI INVENTIONS. MEIJI agrees promptly to disclose to
SIBIA in writing all MEIJI Inventions in sufficient detail to allow SIBIA to
evaluate such Inventions. [*].
9.5 THIRD PARTY PATENT INFRINGEMENT. In the event either SIBIA or MEIJI
learns of any third party's patents which may cover the development,
manufacture, use, distribution, marketing or sale of the Licensed Product in the
Territory, and such claim arises out of MEIJI's practice, in the Licensed Field
and in the Territory, of any Licensed Patents or Licensed Know-How licensed
hereunder, such party will notify the other. The parties agree to confer in good
faith regarding such potential infringement risk and to explore reasonable
alternatives for avoiding such risk. If the parties cannot agree on the
existence or extent of the risk, or on a
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<PAGE> 19
strategy to avoid the risk, and MEIJI believes in good faith that sale of the
Licensed Product would create an unjustified risk of infringement liability,
MEIJI may negotiate and enter into a license for such third party's patents, [*]
Additionally, if a third party files a claim, suit or action against MEIJI
claiming that any patent or other intellectual property right owned by it is
infringed by the development, manufacture, use, marketing, distribution or sale
of the Licensed Product, and such claim arises out of MEIJI's practice, in the
Licensed Field and in the Territory, of any Licensed Patents or Licensed
Know-How licensed hereunder, MEIJI will have the right to defend against or to
settle any such claims. SIBIA will assist in the defense of any such claim as
reasonably requested by MEIJI. MEIJI shall not settle any such suit, claim or
action if such settlement would impose on SIBIA the obligation to pay any
damages without the prior express written consent of SIBIA, which shall not be
unreasonably withheld or delayed. [*].
9.6 INFRINGEMENT OF LICENSED TECHNOLOGY. In the event MEIJI or SIBIA
becomes aware of any actual or threatened infringement of any Licensed Patents
or Licensed Know-How in the Territory, the party first having knowledge of such
infringement shall promptly notify the other. SIBIA shall have the first right
to bring, at its own expense, any infringement action against any person or
entity infringing the Licensed Patents or Licensed Know-How directly or
contributorily. MEIJI shall cooperate with SIBIA as reasonably requested, at
SIBIA's expense. If MEIJI so desires, it may join such infringement action at
its own expense. [*] In the event SIBIA is unable or unwilling to commence an
action against the alleged infringer within one hundred twenty (120) days of the
date of SIBIA's becoming aware of such infringement, MEIJI may, but shall not be
required to, prosecute the alleged infringement or threatened infringement. In
such event MEIJI shall act in its own name and at its own expense. If SIBIA so
desires, it may join such action at a later date, at its own expense. [*]
19.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 20
[*].
ARTICLE 10
TERM AND TERMINATION
10.1 TERM. Except as otherwise provided herein, the term of this Agreement
shall commence on the Effective Date and shall extend until fifteen (15) years
from the date of the First Commercial Sale of the Licensed Product in the last
country in the Territory in which the Government Approval is obtained for the
Licensed Product to be sold, or until the expiration of the last to expire of
the Licensed Patents utilized by the Licensed Product in the Territory,
whichever is longer.
10.2 TERMINATION BY MUTUAL AGREEMENT. The parties may at any time terminate
this Agreement by written agreement executed by both SIBIA and MEIJI.
10.3 TERMINATION FOR CAUSE. Either party may terminate this Agreement upon
sixty (60) days written notice upon the occurrence of any of the following:
(a) Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or
(b) Upon or after the breach of any material provision of this
Agreement by the other party if the breaching party has not cured such breach
within the sixty (60) day period following written notice of termination by the
other party.
10.4 TERMINATION FOR NON-PAYMENT. Notwithstanding the foregoing, SIBIA may
terminate this Agreement in the event MEIJI fails to make full payment of
amounts due SIBIA within twenty (20) days after written notice from SIBIA to
MEIJI. Any failure by SIBIA to terminate this Agreement for late payments shall
not be deemed a waiver of its right to terminate this Agreement in the future
for late payment by MEIJI.
10.5 FAILURE OF MEIJI TO EXERCISE DILIGENCE.
(a) [*].
20.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 21
(b) [*]
In the event of changes in the Joint Study Plan, the Development Plan,
regulatory requirements or other unforeseen circumstances which prevent MEIJI
from meeting such diligence obligations, the parties agree to discuss such
changed circumstances and appropriate mechanisms to address them.
10.6 FAILURE OF LICENSED PRODUCT TO PERFORM. In the event the Licensed
Product fails in the development for efficacy, safety or any other justifiable
reasons, MEIJI may, at its election and in its sole discretion, terminate this
Agreement upon sixty (60) days written notice to SIBIA.
10.7 EFFECT OF TERMINATION.
(a) Upon termination of this Agreement by the parties
pursuant to Section 10.2, by SIBIA pursuant to Sections 10.3, 10.4 or 10.5(a),
or by MEIJI pursuant to Section 10.6 of this Agreement:
(i) all rights and licenses granted to MEIJI with
respect to the Licensed Product under Section 3.1, and all sublicenses granted
by MEIJI pursuant to Sections 3.1 and 3.2 with respect to the Licensed Product,
shall terminate; and
(ii) SIBIA shall have the right to retain any sums
already paid by MEIJI hereunder, and MEIJI shall pay all sums accrued hereunder
which are then due; and
(iii) MEIJI shall promptly assign to SIBIA all right,
title and interest in and to any Regulatory Filings in the Territory pertaining
to the Licensed Product and any MEIJI Data necessary to obtain the Government
Approval of the Licensed Product in the Territory which has not been obtained as
of the date of termination, and return to SIBIA, or at SIBIA's request destroy,
all SIBIA Data and any other Confidential Information relating to the Licensed
Product and any Licensed Product supplied for clinical development or commercial
distribution.
(b) In the event that a particular country shall be deleted from the
Territory by SIBIA pursuant to Section 10.5(b):
21.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 22
(i) all rights and licenses granted to MEIJI in such
country with respect to the Licensed Product under Section 3.1, and all
sublicenses granted by MEIJI in such country pursuant to Sections 3.1 and 3.2
with respect to the Licensed Product shall terminate; and
(ii) SIBIA shall have the right to retain any sums already
paid by MEIJI hereunder, and MEIJI shall pay all sums accrued hereunder which
are then due in such country; and
(iii) MEIJI shall promptly assign to SIBIA all right, title
and interest in and to any Regulatory Filings in such country pertaining to the
Licensed Product.
(c) Upon termination of this Agreement by MEIJI pursuant to
Section 10.3(a) or (b) of this Agreement:
(i) all rights of SIBIA to use the MEIJI Data and any other
Confidential Information disclosed by MEIJI hereunder shall terminate; and
(ii) SIBIA shall return to MEIJI, or at MEIJI's request
destroy, all such MEIJI Data and Confidential Information.
(d) Further, upon termination of this Agreement by MEIJI
pursuant to Section 10.3(a) or (b) of this Agreement:
(i) MEIJI shall have an exclusive license [*] with the
right to sublicense, under the Licensed Technology to make, have made, use and
sell the Licensed Product in bulk form in the Territory, and to make, have made,
use, market, distribute, offer for sale and sell the Licensed Product in
finished form so manufactured from the Licensed Product in bulk form in the
Licensed Field in the Territory; and
(ii) SIBIA shall provide MEIJI, free of charge, with all
know-how and specifications for a viable commercial scale process for the
manufacture of the bulk Licensed Product then available to SIBIA, in sufficient
detail to permit MEIJI or its designee to manufacture the Licensed Product in
bulk form in the Territory; and
(iii) [*]
22.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 23
(e) Upon termination of this Agreement by MEIJI pursuant to
Section 2.1.1 or by SIBIA pursuant to either Section 2.2.1 or Section 2.3.1,
then all rights of the Parties granted herein shall terminate except the right
of SIBIA to retain the specified amounts contemplated by those sections.
Subject to the limitations of other provisions in this Agreement including
but not limited to Section 13.8, either party hereto is entitled to claim that
any damage caused as a result of the breach of the other party hereunder be
compensated by such party in breach.
10.8 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination of this Agreement
shall not affect any accrued rights and remedies of either party. Additionally,
the terms of Article 8 of this Agreement shall survive five (5) years after
termination or expiration of this Agreement and Sections 4.8, 10.7, 13.8 and
13.11 and Articles 9 and 12 of this Agreement shall survive any termination or
expiration of this Agreement.
10.9 EFFECT OF NORMAL EXPIRATION. In case of normal expiration of MEIJI's
purchase obligations as provided for in Section 5.2 in a particular country in
the Territory, MEIJI, its Affiliates and sublicensees may thereafter continue to
use, on a non-exclusive basis and without any further monetary obligation to
SIBIA, the Licensed Know-How, the SIBIA Data and any other Confidential
Information, licensed or granted the right to use by SIBIA hereunder, for the
manufacture, use, marketing, sale or distribution of the Licensed Product in
finished form in such country in the Territory. Notwithstanding the foregoing,
the parties may mutually agree to extend the Supply Agreement under which SIBIA
will supply Licensed Product in bulk form upon the normal expiration of this
Agreement.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
11.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each party hereby represents
and warrants:
11.1.1 CORPORATE POWER. Such party is duly organized and validly
existing under the laws of the state or country of its incorporation and has
full corporate power and authority to enter into this Agreement and to carry out
the provisions hereof.
11.1.2 DUE AUTHORIZATION. Such party is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
11.1.3 BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon it and enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by such party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having jurisdiction over it.
23.
<PAGE> 24
ARTICLE 12
INDEMNIFICATION
12.1 INDEMNIFICATION.
12.1.1 SIBIA agrees to indemnify and defend MEIJI, its officers,
directors, employees, consultants, agents, Affiliates and sublicensees from and
against any and all third party claims, suits, actions, losses, damages, costs,
fees and expenses, including reasonable legal costs and attorneys' fees, (the
"Losses") with respect to death or injury to any person or damage to any
property, resulting from the negligent or defective manufacture of the bulk
Licensed Product by SIBIA, its Affiliates, agents or licensees, except to the
extent such Losses result directly from the gross negligence or intentional
wrongful act or omission of MEIJI, its Affiliates, agents or sublicensees.
12.1.2 MEIJI agrees to indemnify and defend SIBIA, its officers,
directors, employees, consultants, agents, Affiliates and licensees from and
against any Losses resulting from any activity undertaken by MEIJI, its
Affiliates, agents or sublicensees, with respect to the Licensed Product, except
to the extent such Losses result from the gross negligence or intentional
wrongful act or omission of SIBIA, its agents, Affiliates or licensees.
12.1.3 In the event either party seeks indemnification under this
Section, it shall inform the other party of the claim as soon as reasonably
practicable after it receives notice of the claim, shall permit the other party
to assume direction and control of the defense of the claim (including the right
to settle the claim solely for monetary consideration), and shall cooperate as
requested (at the expense of the other party) in the defense of the claim.
ARTICLE 13
MISCELLANEOUS
13.1 ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the entire
agreement and understanding between the parties and supersedes all previous
agreements, promises, representations, understandings and negotiations, whether
written or oral, between the parties with respect to the subject matter hereof.
None of the terms of this Agreement shall be amended or modified except in
writing signed by the parties hereto.
13.2 ASSIGNMENT. Neither party may assign any right or obligation hereunder
without the prior written consent of the other party, except if such assignment
arises under a transaction in which the assigning party is selling its entire
business or a line of business to which this Agreement relates or that party is
being acquired by or merging with a third party. This Agreement shall be binding
upon and inure to the benefit of the parties' respective successors and
permitted assigns. Any attempted assignment in violation of this provision shall
be void and of no effect.
24.
<PAGE> 25
13.3 SEVERABILITY. If any Article or part thereof of this Agreement is
declared invalid by any court of competent jurisdiction, or any government or
other agency having jurisdiction over either SIBIA or MEIJI deems any Article or
part thereof to be contrary to any anti-trust or competition laws then such
declaration shall not affect the remainder of the Article or other Articles. To
the extent possible the parties shall revise such invalidated Article or part
thereof in a manner that will render such provision valid without impairing the
parties' original intent.
13.4 WAIVERS. A waiver by either party of any term or condition of this
Agreement in any one instance shall not be deemed or construed to be a waiver of
such term or condition for any similar instance in the future or of any
subsequent breach hereof. All rights, remedies, undertakings, obligations and
agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement.
13.5 FURTHER DOCUMENTS. Each party hereto agrees to execute such further
documents and take such further steps as the other party reasonably determines
may be necessary or desirable to effectuate the purposes of this Agreement.
13.6 COMPLIANCE WITH LAW. Each party hereto shall comply with all
applicable laws, rules, ordinances, guidelines, consent decrees and regulations
of any applicable federal, state or other governmental authority.
13.7 DISCLAIMER OF WARRANTIES. The parties understand that the activities
to be undertaken pursuant to this Agreement will involve technologies and
products that have not been approved by any regulatory authority and that
neither party guarantees the safety or usefulness of the Licensed Product.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
13.8 LIMITATIONS OF LIABILITY. EXCEPT AS PROVIDED IN ARTICLE 12, IN NO
EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF
CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE
ARISING OUT OF THIS AGREEMENT.
13.9 FORCE MAJEURE. No party shall be in breach of this Agreement, or
liable to the other party, for any delay or failure of performance to the extent
such delay or failure is caused by circumstances beyond its reasonable control
and that by the exercise of due diligence it is unable to prevent; provided that
the party claiming excuse uses its commercially reasonable efforts to overcome
the same.
25.
<PAGE> 26
13.10 DISPUTE RESOLUTION. In the event a dispute arises between the parties
relating to this Agreement, or any alleged breach or the grounds for the
termination thereof (the "Dispute"), the aggrieved party shall notify the other
party in writing of such Dispute, and the parties shall attempt to resolve such
Dispute in good faith. If, within thirty (30) days of such written notice, the
parties have not succeeded in resolving the Dispute, the matter shall be
referred by the aggrieved party for review and resolution by the CEOs of SIBIA
and MEIJI. The CEOs shall attempt in good faith to resolve the Dispute for a
period of thirty (30) days. If no successful resolution of the Dispute has been
mutually agreed to at the end of this period, either party shall be free to seek
legal or equitable relief under Section 13.11 of this Agreement.
13.11 GOVERNING LAW; ARBITRATION; JURISDICTION. This Agreement is deemed to
have been entered into in the State of California, United States of America, and
its interpretation, construction, and the remedies for its enforcement or breach
are to be applied pursuant to and in accordance with the laws of the State of
California. Any Dispute failed to be resolved pursuant to Section 13.10 of this
Agreement shall be finally settled by arbitration in accordance with the Rules
of Conciliation and Arbitration of the International Chamber of Commerce. The
arbitration shall be held in Tokyo, Japan if the arbitration is requested by
SIBIA and in San Diego, California if requested by MEIJI. Judgment upon the
award rendered through arbitration may be entered in any court having
jurisdiction or application may be made to such court for a judicial acceptance
of the award, an order of enforcement or such other legal remedy as may be
available.
13.12 OFFICIAL LANGUAGE. The official text of this Agreement and any
appendices, exhibits and schedules hereto, or any notice given or accounts or
statements required by this Agreement shall be in English. In the event of any
dispute concerning the construction or meaning of this Agreement, reference
shall be made only to this Agreement as written in English and not to any other
translation into any other language.
13.13 NOTICES. Any notice, consent or approval permitted or required under
this Agreement shall be in writing sent by registered or certified airmail,
postage pre-paid, or by overnight courier or by facsimile (confirmed by mail)
and addressed as follows:
If to SIBIA: SIBIA NEUROSCIENCES, INC.
505 Coast Boulevard South, Suite
300 La Jolla, CA 92037-4641
with a copy to: COOLEY GODWARD LLP
Five Palo Alto Square, 4th Floor
Palo Alto, CA 94306
Attention: Jana Miller, Esq.
If to MEIJI: MEIJI SEIKA KAISHA, LTD.
4-16, Kyobashi, 2-chome
Chuo-ku, Tokyo 104, Japan
26.
<PAGE> 27
with a copy to: MEIJI SEIKA KAISHA, LTD.
Solid Square, West Tower 4th Floor
580 Horikawa-cho, Saiwai-ku, Kawasaki 210, Japan
Attention: Director of Licensing and Business
Development
All notices shall be deemed to be effective on the date of mailing. In
case any party changes its address at which notices are to be received, written
notice of such change shall be given as soon as practicable to the other party.
13.14 HEADINGS. Headings in this Agreement are included for ease of
reference only and shall have no legal effect.
13.15 RELATIONSHIP OF THE PARTIES. Nothing hereunder shall be deemed to
authorize either party to act for, represent or bind the other except as
expressly provided in this Agreement.
13.16 PUBLICITY. Neither party shall issue any press release or other
publicity materials, or make any presentation with respect to the existence of
this Agreement or the terms and conditions hereof without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
The principles to be observed by the parties in public disclosures with respect
to this Agreement shall be: accuracy, the requirements of confidentiality under
Article 8 and the normal business practice of the biotechnology and
pharmaceutical industries for disclosures by companies comparable to SIBIA and
MEIJI. This restriction shall not apply to disclosures required by law or
regulation, including as may be required in connection with any filings made
with the Securities and Exchange Commission or by the disclosure policies of a
major Stock Exchange.
13.17 EXPORT LAW COMPLIANCE. MEIJI understands and recognizes that the
Licensed Product and other materials made available to it hereunder may be
subject to the export administration regulations of the United States Department
of Commerce and other United States government regulations related to the export
of chemical compounds and medical devices. MEIJI agrees that it will not export
or re-export outside the Territory, the Licensed Product without complying with
all applicable regulations.
13.18 FOREIGN CORRUPT PRACTICES ACT. SIBIA and MEIJI each agrees that it
shall comply with the requirements of the U.S. Foreign Corrupt Practices Act
(the "Act") and shall refrain from any payments to third parties which would
cause SIBIA or MEIJI to violate the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their duly authorized officers.
SIBIA NEUROSCIENCES, INC. MEIJI SEIKA KAISHA, LTD.
27.
<PAGE> 28
By: /s/ William T. Comer By: /s/ L. Ogama
------------------------------- -------------------------------
William T. Comer L. Ogama
28.
<PAGE> 29
SCHEDULE 1
LICENSED PATENTS
The Licensed Patents shall include:
[*] Date Filed
---------------------------------- ----------
[*] [*]
29.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 30
SCHEDULE 2
TERRITORY
The Territory shall include:
1) Japan
2) Brunei
3) Burma
4) Cambodia
5) China
6) Indonesia
7) Malaysia
8) Laos
9) Korea
10) Singapore
11) Taiwan
12) Thailand
13) Vietnam
30.
<PAGE> 31
SCHEDULE 3
DEVELOPMENT MILESTONES
The Development Milestones shall be:
Development Milestone Date to be Achieved
--------------------- -------------------
-
- To be established pursuant to
Section 2.3.1.
-
- [*] [*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 1
Certain confidential portions of this Exhibit were omitted by means of blackout
of the text (the "Mark"). This Exhibit has been filed separately with the
Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act.
Exhibit 10.38
FURTHER EXTENSION AGREEMENT
This agreement (the "Further Extension Agreement"), effective as of
November 1, 1996, by and between:
Eli Lilly and Company, a corporation having its principal place of
business at Lilly Corporate Center, Indianapolis, Indiana 46285, hereinafter
referred to as "Lilly", and SIBIA Neurosciences, Inc., a corporation having its
principal place of business at 505 Coast Boulevard South, La Jolla, California
92037-4641, hereinafter referred to as "SIBIA".
RECITALS
1. Lilly and SIBIA have been conducting research directed to the
discovery of compounds for the treatment of central nervous system disorders,
based on the modulation of voltage-dependent calcium channels. The research is
being performed under an Agreement between the parties, effective May 1, 1992,
as modified and extended by an Extension Agreement effective May 1, 1995, which
created a plan of collaborative research to be carried out by SIBIA and Lilly.
The Agreement expires by its terms on May 1, 1997.
2. SIBIA and Lilly have decided that they wish to further extend the
Agreement and the collaboration until October 31, 1998, to modify the scope of
the research to be carried out under the Agreement, and to amend some other
aspects of the Agreement.
3. This Further Extension Agreement records the new arrangement between
Lilly and SIBIA, by restating Sections of the 1992 Agreement and the 1995
Extension Agreement which are amended by the new arrangement of the parties.
Effective as of November 1, 1996, such restatement shall have the effect of
amending certain other Sections of the 1992 Agreement as amended by the 1995
Extension Agreement, whose meanings or terms are affected by the Sections
restated hereby. All Sections of the 1992 Agreement and the 1995 Extension
Agreement which are not restated in or otherwise amended by this Further
Extension Agreement are continued in force unchanged.
Article I
***Restate Section 1.02 to read as follows:
Section 1.02. "Project" means a collaborative research project to be
carried out by SIBIA and Lilly [*] human neuronal calcium channels ("VDCCs") as
targets for the discovery of new therapeutic agents. Information and materials
generated in the course of this research, including Cell Lines, will be utilized
by both parties in biological test systems to identify chemical entities which
interact with VDCCs within the Project.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
The Project and the technical approach is more fully described in the
action plan prepared by SIBIA and approved by the Project Team. The action plan
may be amended from time to time by written agreement of the Project Team but
the scope of the Project will stay with the same general definition provided
here. A copy of the action plan is attached to this Further Extension Agreement.
***Restate Section 1.06 to read as follows:
Section 1.06. "Project Compound" means any chemical entity which is
identified or further developed for a Project Use, by Lilly independently, or
jointly by Lilly and SIBIA, subsequent to November 1, 1996 and during the term
of the Project under this Further Extension Agreement, or within a [*] period
following the termination or expiration of this Further Extension Agreement, by
use of a Cell Line, and which chemical entity interacts with a VDCC. Project
Compound shall also include any derivative or analogue of a Project Compound, as
defined above, which is conceived or reduced to practice anytime during the term
of the Project under this Further Extension Agreement or within [*] period
following termination or expiration of this Further Extension Agreement, and
which is specifically synthesized in an effort to optimize therapeutic utility
based upon information learned from a Project Compound.
Project Compound shall exclude any chemical substance identified by
Lilly as having therapeutic application or any other utility by a method other
than evaluation using a Cell Line, and not further developed using a Cell Line.
Project Compound shall additionally exclude any chemical entity which Lilly
receives from a third party who has identified the substance as potentially
useful prior to submission to Lilly, and not further developed using a Cell
Line.
Notwithstanding any other provision of this Further Extension Agreement,
SIBIA and Lilly shall retain all of their respective rights and obligations
pursuant to Article VI of the Prior Agreement with respect to Products and
Project Compounds as defined under the Prior Agreement; provided that the [*]
period following expiration or termination in the definition of "Project
Compound" under the Prior Agreement shall begin as of November 1, 1996.
***Restate Section 1.12. to read as follows:
Section 1.12. "SIBIA Compound" means a chemical entity identified or
developed by SIBIA subsequent to November 1, 1996 and during the term of the
Project defined in Article V for this Further Extension Agreement that strongly
or primarily interacts [*] with a VDCC within the Project, and to which SIBIA
has, or has licensed, rights to its composition.
SIBIA Compound shall exclude any chemical substance identified by SIBIA
as having therapeutic application or any other utility by a method other than
evaluation using a Cell Line, and not further developed using a Cell Line. SIBIA
Compound shall additionally exclude any chemical entity which SIBIA receives
from a third party who has identified the substance as potentially useful prior
to submission to SIBIA, and not further developed using a Cell Line.
Article II
***Restate Section 2.00 to read as follows:
Section 2.00. Duration of Funding. Subject to the terms and conditions
of this Further Extension Agreement, Lilly shall provide Project Funds to SIBIA
pursuant to this Further Extension Agreement for the sole purpose of conducting
the Project for the period from November 1, 1996 to October 31, 1998.
For the time period November 1, 1996 to October 31, 1997, Project Funds
shall be [*] increased or decreased by a factor (a) which reflects changes in
the Employment Cost Index (for Private Industry Workers, by occupational group,
in the "Professional specialty and technical occupations" category) as reported
by the U.S. Bureau of Labor Statistics as of September , 1996 when compared to
the comparable statistic for September of the previous year, and for the time
period November 1, 1997 to October 31, 1998, that same amount, increased or
decreased by a factor (b) which again reflects changes in the Employment Cost
Index (for Private Industry Workers, by occupational group, in the "Professional
specialty and technical occupations" category) as reported by the U.S. Bureau of
Labor Statistics as of September, 1996 when compared to the comparable statistic
for September of the previous year. Accordingly, Project Funds for the time
period November 1, 1996 to October 31, 1998 shall be:
[*]
[*]
***Restate Section 2.01 to read as follows:
Section 2.01. Schedule of Payments. Project funds shall be paid to
SIBIA by Lilly in substantially equal quarterly payments on or before January 1,
April 1, July 1, and October 1 of each calendar year during the term of the
Further Extension Agreement. Because of the way that payments were made during
the first year of the 1992 Agreement, the last quarterly payment will be that
which is due on or before July 1, 1998.
***Restate Section 2.03 to read as follows:
Section 2.03. Use of Project Funds. SIBIA shall use Project funds
solely for work on the Project [*].
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
[*] SIBIA shall at substantially all times during the term of this Further
Extension Agreement assign up to [*] to work on the Project. While the level of
training and research experience of these FTEs may vary from time to time, SIBIA
will use its best efforts to ensure that at least [*] of the FTEs assigned to
the Project will have educational degrees of Ph.D. or M.D., or research
experience of greater than [*] years in a relevant scientific field that
qualifies them as equivalent to a Ph.D. or M.D. level researcher. SIBIA shall
have the ability to subcontract specific tasks as needs and efficiency suggest
upon approval of the Project Team.
Article III
***Restate Section 3.00 to read as follows:
Section 3.00. Planning and Review. Upon execution of this Further
Extension Agreement and from time to time during the term of the Further
Extension Agreement under Article V, the Project Team shall meet to discuss the
direction and progress of the Project. The Project shall be conducted
substantially in accordance with the action plan attached hereto. The action
plan will be modified from time to time with the written approval of the Project
Team to direct the Project in an optimal way. The Project Team shall endeavor to
assign specific tasks to both SIBIA and Lilly so as to maximize progress on the
Project and to avoid any duplication of research effort.
***Restate Section 3.05 to read as follows:
Section 3.05. Exclusivity of Research. During the term of the Further
Extension Agreement under Article V, SIBIA shall not enter into an agreement
with another company for support of the Project as defined in Section 1.02
without the written consent of Lilly. SIBIA may conduct research on, as well as
drug discovery with, calcium channels which are outside the Project, either
independently or with or for other companies, including, but not limited to,
calcium channels which may have been included within the meaning or definition
of "VDCC" or "Project" prior to the effect [Effective Date?] of this Further
Extension Agreement, and new constructs or cell lines that may be incorporated
into the Project in accord with Section 6.11.
SIBIA may use the products of the Project, including Cell Lines, for
its own drug discovery research, and as negative controls for research conducted
with or for other companies on other receptor or ion channel classes or
subtypes, but not in any other manner without the written consent of Lilly.
Article IV
***Add a new paragraph to Section 4.00 as follows:
On November 1, 1998, Lilly shall prepare and provide to SIBIA a report
listing all Project Compounds, as defined in the Prior Agreement, including
those which are in active preclinical or clinical development or could
potentially be entered into development. In addition, one (1) year after the
termination or expiration of this Further Extension Agreement, Lilly shall
prepare and provide to SIBIA a report listing all Project Compounds as defined
in this Further Extension Agreement, including those which are in active
preclinical or clinical development or could potentially be entered into
development.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 4
***Replace the second paragraph of Section 4.01 with the following:
In addition, SIBIA will [*].
***Add the following sentence to the end of Section 4.03:
The foregoing is more fully described in Section 6.00.
Article V
***Restate Section 5.00 to read as follows:
Section 5.00. Term. The Project defined in Section 1.02 and covered by
the Further Extension Agreement shall continue until October 31, 1998, unless
sooner terminated in accordance with the provisions of Section 5.02 or 5.03, or
extended pursuant to Section 5.01.
***Restate Section 5.01 to read as follows:
Section 5.01. Extension. By mutual written agreement of both SIBIA and
Lilly, the Further Extension Agreement may be extended beyond October 31, 1998
for additional periods, with such extension contemplating additional funding by
Lilly and continuing studies on the Project pursuant to direction by the Project
Team.
***Restate Section 5.02 to read as follows:
Section 5.02. Voluntary Termination. Either party may terminate the
Further Extension Agreement upon three (3) months advance written notice
provided anytime after August 1, 1997. Should Lilly terminate the Further
Extension Agreement, it shall be relieved of its obligation to pay any further
Project Funds after the effective date of termination (i.e. three (3) months
after written notice of its intent to terminate has been given).
***Restate the first sentence of Section 5.04 to read as follows:
Section 5.04. Effect of Termination or Expiration. Termination or
expiration of the Further Extension Agreement shall not affect the rights and
obligations of the parties accrued under Articles III, IV and VI prior to
termination or expiration, and under Section 1.06 as it relates to Article VI
after termination or expiration. Any Project Funds paid by Lilly but not
committed by SIBIA at the effective date of termination shall be refunded to
Lilly, and Lilly shall have no further obligation to pay Project Funds.
Article VI
***Restate Section 6.00 to read as follows:
Pursuant to this Agreement, SIBIA warrants that it has the right to grant and
hereunder so grants Lilly a worldwide license without the right to sublicense,
to use all SIBIA Project Technology as defined in Section 1.07, and Cell Lines,
and any patents covering such Technology, as well as any patents and patent
applications held by SIBIA at the time of execution of this Agreement, or at any
time thereafter except as limited by Section 1.07, the licensing of which may
be required to make, use or sell Products or to otherwise practice Project
Technology. for clarity, Lilly does not have the right to further modify the
Cell Lines.
As to SIBIA Project Technology and Cell Lines generated during the term
of the Project under this Further Extension Agreement, and the claims of patents
which relate directly to SIBIA Project Technology and Cell Lines, said license
shall be exclusive except as to SIBIA during the term of the Project under this
Further Extension Agreement, and nonexclusive thereafter.
As to SIBIA Project Technology and Cell Lines generated during the
term of the Prior Agreement and the claims of any patents or patent
applications referred to in Section 6.00 of the Prior Agreement, Lilly's
license shall be worldwide, nonexclusive, non-sublicensable and royalty-bearing
to the extent provided therein. For clarity, Lilly does not have the right to
further modify Cell Lines generated during the term of the Prior Agreement.
As to Lilly Project Technology generated during the term of the Project
under this further Extension Agreement, and the claims of any patents or patent
applications which relate directly to Lilly Project Technology, SIBIA shall have
a non-royalty-bearing, non-sublicensable license to practice or use Lilly
Project Technology, with said license being exclusive except as to Lilly during
the term of the Project under this Further Extension Agreement, and nonexclusive
thereafter.
As to Lilly Project Technology generated during the term of the Prior
Agreement and the claims of any patents or patent applications referred to in
Section 6.00 of the Prior Agreement, SIBIA's license shall be worldwide,
nonexclusive, non-sublicensable and non-royalty-bearing.
***Restate Section 6.07 to read as follows:
Section 6.07. Additional Rights. If SIBIA identifies or develops a
SIBIA Compound pursuant to this Further Extension Agreement prior to the
expiration of the term of the Project hereof, or, if earlier, the date notice of
termination is given under Article V, subject to the rights of or SIBIA's
obligations to third parties, SIBIA shall disclose it and its properties to
Lilly, and Lilly may decide to negotiate for commercial rights to it. The timing
of such disclosure shall be at SIBIA's discretion but must occur by the
expiration of the term of the Project or within ten (10) days of the date notice
of termination is given under Article V. If Lilly so decides the parties shall
negotiate in good faith and SIBIA shall not offer the SIBIA Compound to a third
party unless Lilly fails to notify SIBIA of its intent to negotiate for the
SIBIA Compound within ninety (90) days from the date of disclosure, or SIBIA and
Lilly fail to reach an agreement within one hundred and eighty (180) days from
the date of disclosure. The provisions of this Section 6.07 set forth the sole
right of first negotiation of Lilly with respect to any SIBIA Compounds as
defined. Without limiting the foregoing, effective November 1, 1996, Lilly shall
not have such right with respect to compounds that may have been included in the
meaning of "SIBIA Compounds" prior to the effect of this Further Extension
Agreement.
***Add a new Section 6.11 as follows:
Section 6.11. New Constructs.
(a) At any time during the term of this Further Extension Agreement
upon thirty (30) days advance written notice to SIBIA or the Project
Team, Lilly shall have the right to expand the direction of the Project
to include the preparation of new constructs or new cell lines ("New
Constructs") based upon, derived from or comprising VDCC subunits that
were part of the Project as previously defined under the Prior
Agreement and in existence as of October 31, 1996 [*] human neuronal
VDCCs as defined in Section 1.02. In the event such a New Construct is
proposed and the FTEs assigned to the Project are insufficient to
prepare such New Constructs:
(i) SIBIA shall provide Lilly with a budget for the
requested work and shall, in conjunction with the Project Team,
assign additional FTEs to work on the New Constructs, subject to
then current availability within SIBIA's research staff as
determined by SIBIA (without any obligation on SIBIA's part to
hire additional FTEs);
(ii) Lilly shall advance to SIBIA, on each scheduled payment
date as described under Section 2.01, Lilly's share of the
expenses related to work on the New Constructs, based on the
budget for New Constructs submitted by SIBIA pursuant to Section
6.11(a)(i) ("Projected New Construct Expenses"), which expenses
shall be deemed Project Funding for the following quarter. SIBIA
shall maintain records of expenses related to work on the New
Constructs actually incurred by it ("Actual New Construct
Expenses") in accordance with procedures to be agreed upon
between the parties. SIBIA shall report quarterly to Lilly on
Actual New Construct Expenses, with such reports to be submitted
within thirty (30) days after the end of each calendar quarter
and sixty (60) days after the end of each calendar year. Any
difference between the Actual New Construct Expenses and
Projected New Construct Expenses for such quarter upon which
Lilly's advance payment was made to SIBIA shall be applied as an
adjustment to the payment due from Lilly for the quarter
immediately following the determination by SIBIA of such
difference as follows:
(A) In the case of Actual New Construct Expenses
exceeding Projected New Construct Expenses for a particular
quarter, the amount of the difference shall be added to Lilly's
advance payment of Projected New Construct Expenses for the
quarter immediately following the determination by SIBIA of such
difference.
(B) In the case of Actual New Construct Expenses
being less than Projected New Construct Expenses, for a
particular quarter, the amount of the difference shall be
subtracted from Lilly's advance payment of Projected New
Construct Expenses for the quarter immediately following the
determination by SIBIA of such difference.
(C) Notwithstanding the foregoing paragraphs (A) and
(B) above, upon the date of expiration or termination of this
Agreement, if Projected New Construct Expenses exceed Actual New
Construct Expenses, such excess shall be promptly refunded to
Lilly by SIBIA, or if Actual New Construct Expenses exceed
Projected New Construct Expenses as of such date, Lilly shall
promptly pay such excess to SIBIA, as applicable.
(iii) Lilly shall, at its option, be entitled to reduce the
term of the Project in this Further Extension Agreement as set
forth in Section 5.00 by one calendar month for each additional
four months of FTE effort added to the Project under this
Section 6.11; and
(iv) the terms Project and Cell Line as used in this Further
Extension Agreement shall thereupon include such additional New
Constructs.
(v) SIBIA will retain records of FTE days worked on the
Project, as well as the work performed, and Lilly shall have the
right to audit such records during business hours upon
reasonable request.
(b) Notwithstanding any other provision of this Section 6.11, Lilly's
right under the foregoing paragraph (a) to request New Constructs shall
be subject in all respects to the rights of third parties pursuant to
any agreements which SIBIA may enter into following the date hereof and
prior to Lilly's request for New Constructs under (a) above, and to the
rights of SIBIA in the event SIBIA has already generated or is in the
process of generating New Constructs requested by Lilly prior to
Lilly's request.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate originals, by their respective officers thereunto duly authorized, the
day and year herein written.
ELI LILLY AND COMPANY
By /s/ AUGUST M. WATANABE
----------------------------
August M. Watanabe
Vice President
Date January 7, 1997
---------------------------
SIBIA NEUROSCIENCES, INC.
By /s/ WILLIAM T. COMER
---------------------------
William T. Comer
President and CEO
Date December 19, 1997
---------------------------
<PAGE> 1
Certain confidential portions of this Exhibit were omitted by means of blackout
of the text (the "Mark"). This Exhibit has been filed separately with the
Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act.
Exhibit 10.39
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE is made and entered into as of December
___, 1996 between Regency Properties, L.P., a California limited partnership
(hereinafter referred to as "Landlord") and SIBIA Neurosciences, Inc., a
Delaware corporation authorized to do business in California, and
successor-in-interest to The Salk Institute Biotechnology/Industrial Associates,
Inc. (hereinafter referred to as "Tenant"). Landlord and Tenant are collectively
hereinafter referred to as the "parties".
RECITALS:
A. Landlord and Tenant entered into a written Lease effective July 1,
1991 (the "Lease") in which Landlord leased to Tenant and Tenant leased from
Landlord the Premises described therein.
B. Landlord and Tenant entered into a First Amendment to Lease dated
March 1, 1993 wherein Tenant leased additional space in the second floor of the
Project.
C. Landlord and Tenant entered into a Second Amendment to Lease
effective as of July 1, 1995 wherein Tenant added and released space and
Landlord made adjustments to the Rental Rate to reflect the revised square
footage leased by Tenant in the Project.
D. The parties now wish to amend the Lease to make additional
modifications to the Lease relating to the Base Rent, Term, description of the
Premises and other miscellaneous modifications.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and notwithstanding anything to the contrary in the Lease, the parties
agree as follows:
1. PREMISES. The description of the Premises referenced in
paragraph 3(b) of the Lease and the First and Second Amendments to Lease are
deleted in their entirety and superseded by the revised Exhibit "A" attached
hereto and made a part hereof which includes a description of the entire
Premises leased by Tenant.
2. Paragraph 3(d) of the Lease is revised as follows:
COMMENCEMENT DATE: The Commencement Date for the Premises shall be as
follows: January 1, 1997 (the "First Commencement Date") and March 1,
1997 (the "Second Commencement Date").
1.
<PAGE> 2
3. Paragraph 3(e) of the Lease is revised as follows:
TERMINATION DATE. December 31, 2001, subject to early termination by
Tenant in accordance with paragraph 15 below.
4. Paragraph 3(g) is revised as follows:
TENANT'S PROPORTIONATE SHARE. That percentage which is the ratio of the
total number of rentable square feet in the Premises to the total
number of square feet in the Project.
<TABLE>
<S> <C>
Rentable Square Footage of Tenant's
Premises on the First Commencement Date: 52,215
Tenant's Proportionate Share
on the First Commencement Date: 80.72%
Rentable Square Footage of Tenant's
Premises on the Second Commencement Date: 49,000
Tenant's Proportionate Share
on the Second Commencement Date: 75.75%
</TABLE>
Tenant's Proportionate Share on Term Commencement Date is based on a total
number of square feet in the Project of 64,682. If, at the commencement of any
Lease Year hereunder, the actual number of rentable square feet in the Project
is more or less than 64,682, Tenant's Proportionate Share shall be increased or
decreased for such Lease Year accordingly. If Landlord makes a major change in
the Project, such as the addition or deletion of one or more floors, or if one
or more floors becomes unusable as laboratory or office space, Tenant's
Proportionate Share shall be increased or decreased accordingly. If any change
is made in Tenant's Proportionate Share, the parties shall execute an amendment
to this Lease evidencing such change.
5. RADIOACTIVE WASTE STORAGE AREA: Landlord shall pay fifty
percent (50%) of the cost of permitting and installing a radioactive waste
storage area for Tenant's exclusive use in the hallway adjacent to the loading
dock and security for gates in the loading dock area. The total square footage
for the radioactive storage area is 124 square feet and shall be leased to
Tenant at a rate of [*] Landlord agrees to exclude the square footage
of the radioactive waste storage area from the total square footage of the
Premises for purposes of calculating Tenant's Proportionate Share referenced in
paragraph 4 above. Tenant may use the Tenant Improvement Allowance referred to
in paragraph 7 below to pay for its portion of the cost for permitting and
installing the radioactive waste storage area, including the associated security
for gates in the loading dock areas.
2.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
6. RENT: Paragraph 5(a) of the Lease is deleted in its
entirety and revised as follows:
Tenant shall pay the Base Rent in advance, without notice or demand,
and without deduction or offset, on or before the first (1st) day of
each calendar month, in the following amounts during the following time
periods:
a. FIRST LEASE YEAR. Commencing on the First
Commencement Date, the monthly sum of [*]
b. SECOND LEASE YEAR. Commencing on January 1, 1998
until December 31, 1998, [*]
c. THIRD LEASE YEAR. Commencing on January 1, 1999
until December 31, 1999, [*]
d. FOURTH LEASE YEAR. Commencing on January 1, 2000
until December 31, 2000, [*]
e. FIFTH LEASE YEAR. Commencing on January 1, 2001
until December 31, 2001, [*]
7. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide
Tenant, at Landlord's cost and expense, a Tenant Improvement Allowance of [*]
which may be used by Tenant solely to make improvements to the Premises. The
Tenant Improvement Allowance shall be subject to recoupment and/or abatement in
the event of early termination in accordance with paragraph 15 below.
Expenditures which have been or will be incurred by Tenant in making
improvements to the Premises since August 1996 shall be reimbursed to Tenant out
of the Tenant Improvement Allowance provided in this paragraph. Up to [*] of the
Tenant Improvement Allowance may be used by Tenant to purchase a dishwasher, an
autoclave and other general building equipment. Any portion of the Tenant
Improvement Allowance in excess of [*] which remains unused by Tenant on the
date which is six (6) months prior to the Expiration Date shall be credited
against Tenant's Base Rent over the remainder of the Extension Term. For
example, if Tenant uses only $350,000 of the Tenant Improvement Allowance for
improvements to the Premises, then Tenant shall be entitled to a credit of [*]
The [*] reduction in Tenant's credit for the unused Tenant Improvement Allowance
reflects certain Building Improvements to be made by Landlord for the benefit of
Tenant [*]
3.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 4
[*] In the event any of the foregoing Building Improvements are not made,
Tenant's credit shall be increased in an amount equal to the budgeted amount for
such Building Improvements which are not made by Landlord.
8. BUILDING IMPROVEMENTS MADE BY LANDLORD. Landlord agrees to
make the building improvements (the "Building Improvements") set forth on
Exhibit "B" attached hereto and incorporated herewith, at a total cost of [*]
The cost of the Building Improvements are "not to exceed" budget amounts
established by Landlord; provided, however, that in the event that any of the
Building Improvements identified on Exhibit "B" cannot be made, the budgeted
amount for such Building Improvements may be allocated to increase the "not to
exceed" budget amounts of the remaining Building Improvements or used for other
improvements to the common areas of the Project. Subject to the "not to exceed"
budget amounts (as such amounts may be revised pursuant to the foregoing
sentence), Landlord shall, at Landlord's sole cost and expense, make such
Building Improvements within the time frame indicated on Exhibit "B" but no
later than six (6) months after the Commencement Date of this Lease.
9. RELEASE OF SPACE TO LANDLORD. Commencing as of the Second
Commencement Date, Tenant releases to Landlord and Landlord accepts from Tenant
Laboratories 404, 407A, and 407 located on the fourth floor of the Project (the
"Released Premises") as outlined in Exhibit "C" attached hereto and incorporated
herewith. The Released Premises total 3,215 square feet (Laboratories 404, 407A,
and 407 represent 2,563, 383, and 269 square feet, respectively). After the
Second Commencement Date, Landlord shall have the right to lease the Released
Premises without restrictions and Tenant shall have no further right of first
refusal as outlined in paragraph 17 below.
10. OPTION TO EXTEND TERM. Paragraph 6(a) of the Lease shall
be amended as follows:
Tenant shall have the option to extend the term of this Lease for an
additional five (5) years (the "Extension Option"), provided Tenant
gives Landlord written notice of its election to exercise the Extension
Option at least twelve (12) months prior to the Termination Date. Time
is of the essence. Tenant shall be responsible for its proportionate
share of all Operating Expenses during the extended term (the "Extended
Term"). Tenant shall pay Base Rent in advance, without notice or demand
and without deduction or offset, on or before the first (1st) day of
each calendar month of the Extended Term.
11. BASE RENT ADJUSTMENT FOR EXTENDED TERM.
During the Extended Term, the annual Base Rent shall be adjusted as
follows:
4.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 5
a. The annual Base Rent provided for in the Fifth
Lease Year of the original Term as set forth in paragraph 6(e) of the Third
Amendment to Lease shall be subject to adjustment on the first day of the
Extended Term and on the first day of each Lease year thereafter for the balance
of the Extended Term (the "Adjustment Date") as set forth in this Paragraph. The
base for computing the adjustment is the CPI Index defined below, which is in
effect for the third month preceding the first day of the Fifth Lease Year
("Beginning Index"). The Index published for the third month preceding the
Adjustment Date in question or the next earlier month for which the CPI Index is
published ("Extension Index") is to be used in determining the amount of the
adjustment. If the Extension Index has increased over the Beginning Index, the
Base Rent for the following year (until the next rent adjustment) shall be set
by multiplying the Base Rent set forth in paragraph 6(e) of the Third Amendment
to Lease by a fraction, the numerator of which is the Extension Index and the
denominator of which is the Beginning Index; provided, however, that in no event
shall the Base Rent be adjusted downward on any Adjustment Date from the amount
of the Base Rent in effect immediately preceding that Adjustment Date. On
adjustment of the Base Rent as provided in this Lease, the parties shall
immediately execute an amendment to this Lease stating the new Base Rent. If the
annual adjustment cannot be determined on the Adjustment Date, Tenant will
continue to pay the Base Rent based on the previous twelve (12) month period
until such time as the adjustment can be calculated. Upon such notification from
Landlord, in addition to commencing to pay the Base Rent, as adjusted, Tenant
shall pay on the date the next Base Rent payment is due, the difference between
the adjusted Base Rent and the Base Rent actually paid by Tenant.
b. CPI Index. The term "CPI Index" shall mean the
United States Bureau of Labor Statistics Consumer Price Index for All Urban
Consumers, All Items, for the Los Angeles-Long Beach-Anaheim Metropolitan Area
(1982-84=100). In the event the CPI Index shall be discontinued, or if such
calculation is not possible, or if the basis of calculating the CPI Index is
materially changed, an alternative index or computation, published or provided
by a governmental or non-partisan agency to measure changes in the cost of
living for persons in the same area, shall be selected by Landlord in its
reasonable judgment, as is most nearly comparable to the CPI Index as defined
above. If the Index is changed so that the Base Year differs from that called
for below, the Index shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor Statistics.
In the event the Index is revised during the term, such revised Index shall be
used for both comparison dates.
12. OPERATING EXPENSES. Landlord shall provide to Tenant a
semi-annual accounting for all Operating Expenses. With respect to those
Operating Expenses which Tenant determines to be excessive, Tenant may obtain
one or more bids for the cost of comparable services for the Project, and if
Tenant is able to obtain comparable services for the Project at a cost which is
less than the amount currently paid by Landlord for such services, Landlord
agrees to either contract for such lower-priced services as soon as permitted by
Landlord's contract for current services or reduce Tenant's Share of Operating
Expenses in the amount by which the cost of such current services exceeds the
lowest bid for such comparable service.
5.
<PAGE> 6
13. PARKING. Paragraph 3(m) of the Lease is deleted in its
entirety and revised as follows:
"Tenant leases from Landlord and is entitled to the
nonexclusive use of 145 spaces in the parking area which is
shown on EXHIBIT "B" to the Lease."
The first paragraph in Article 7 of the Lease, shall be deleted in its
entirety and replaced by the following paragraphs:
"Landlord grants to Tenant, for use by Tenant and Tenant's
subtenants, agents, employees, servants, contractors,
licensees, invitees, customers, and other persons with whom
Tenant has legitimate business relationships in connection
with the conduct of Tenant's business at the Premises, a
nonexclusive right to use, in common with Landlord and
Landlord's agents, employees, servants, contractors,
licensees, invitees, customers, and other persons with whom
Landlord has legitimate business relationships in connection
with the conduct of Landlord's business at the Premises one
hundred forty-five (145) Parking Spaces in the parking
facility, as shown on EXHIBIT "B" to the Lease. Landlord, at
its sole election, may designate the types and locations of
the Parking Spaces and Landlord shall have the right, at
Landlord's sole election, to change said types and locations
from time to time. Landlord shall provide Tenant with one
hundred forty-five (145) access cards (or shall program one
hundred forty-five (145) of Tenant's access cards into its
parking access system) and shall be under no obligation to
provide Tenant with designated Parking Spaces. However, if
Parking Spaces are designated, Tenant's Parking Spaces shall
be, in as far as possible, contiguous.
In the event Landlord is unable to provide Tenant with the
entire one hundred forty-five (145) Parking Spaces in the
parking facility, Landlord shall provide Tenant with (i)
reasonably similar replacement parking on a pro rata basis at
a rate not to exceed $50.00 per parking space per month and
(ii) in the event such replacement parking is located more
than three blocks from the Project, shuttle service to and
from the replacement parking facilities. In the event that
Landlord is unable to provide Tenant with one hundred thirty
(130) Parking Spaces in the Project, Tenant may terminate the
Lease without additional obligation to Landlord upon thirty
(30) days prior written notice to Landlord."
The following paragraph shall supersede paragraph 10 of the Second
Amendment to Lease:
"Landlord shall designate a minimum of five (5) guest parking
spaces for Tenant's guests. These spaces will be located on
Scripps Lane and south of the Timken-Sturgis Building and
shall remain for Tenant's guests until either the commencement
of the hotel construction by Landlord or the sale of the hotel
property by Landlord. At such time, Tenant's guests will park
in the parking
6.
<PAGE> 7
facility shown on EXHIBIT "B" to the Lease dated July 1, 1991.
So long as Landlord is the owner or operator of the parking
structure, Landlord will use its best efforts to provide
Tenant with up to five (5) spaces, if available in the parking
structure, for Tenant's visitors. If Landlord's operating
agreement for the parking structure does not permit Landlord
to provide such spaces to Tenant at no additional charge,
Landlord shall providing such spaces for Tenant's visitor's
use, by charging Tenant for validation at parking charges no
more than 50% of the transient parking rate."
14. BASIC SECURITY. [Intentionally Omitted]
15. EARLY TERMINATION. Landlord shall grant to Tenant a
limited right to terminate provided Tenant gives Landlord twelve (12) months
prior written notice and the termination is due to the following circumstances:
(a) a merger of Tenant with another company or an acquisition of all of the
assets of Tenant which results in the relocation of Tenant to either (i) the
acquirer's premises, or (ii) premises within the close vicinity of the
acquirer's premises; or (b) the expansion requirements of Tenant are such that
Tenant requires at least ten thousand (10,000) square feet of additional space
for Tenant's business operations, and such additional space is not readily
available for lease to Tenant in the Project. Tenant shall pay Landlord a
termination fee to compensate Landlord for such early termination, in the amount
[*]
16. EXPIRATION, TERMINATION AND HOLDING OVER: Paragraph 26 of
the Lease shall be deleted in its entirety and revised as follows:
"At the expiration or earlier termination of the term of this Lease,
Tenant shall surrender to Landlord the possession of the Premises.
Surrender or removal of improvements, fixtures, trade fixtures and
improvements shall be as directed in Article 13 above. Tenant shall
leave the surrendered Premises in good and broom-clean condition, and
except as may be provided to the contrary in provisions of this Lease
on maintenance and repair, in the same condition as delivered to Tenant
or as constructed during the term hereof, less normal wear and tear.
All property that Tenant is required to surrender shall become
Landlord's property as of the termination date of this Lease. All
property that Tenant is not required to surrender but that Tenant does
not remove from the Premises prior to the termination of this Lease
shall, at Landlord's election, be Landlord's property at termination.
7.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 8
If Tenant fails to surrender the Premises at the expiration or sooner
termination of this Lease, Tenant shall defend and indemnify Landlord
from all liability and expense resulting from Tenant's failure to
surrender.
This Lease shall terminate without further notice at the expiration of
the term. Any holding over by Tenant after expiration shall not
constitute a renewal or extension or give Tenant any right in or to the
Premises.
If Tenant retains possession of the Premises or any part thereof after
the Termination Date, Tenant's occupancy of the Premises shall be as a
tenant at will, terminable at any time by Landlord. For the first two
(2) months of such holdover period, Tenant shall pay Landlord rent for
such time as Tenant remains in possession at the rate of 150% of the
total amount of the Rent payable hereunder for the month immediately
preceding the Termination Date. Thereafter, rent shall be payable at a
rate of 200% of the Rent payable for the month preceding the
Termination Date. Holdover shall be prorated on a per diem basis for
the duration of such holdover period. In addition thereto, Tenant shall
pay Landlord for all damages sustained by reason of Tenant's retention
of possession; provided, however, that in the event that Tenant
notifies Landlord at least six (6) months in advance of the Termination
Date that Tenant will be holding over and such holding over is for a
period less than sixty (60) days, then Tenant shall not be liable for
consequential damages. The provisions of this Section do not exclude
Landlord's rights of re-entry or any other right hereunder.
17. FIRST RIGHT OF REFUSAL: Before entering into a lease with
anyone else during the Term hereof, respecting any space in the Project
previously leased to other tenants ("Expansion Space"), Landlord shall notify
Tenant of the availability of such space for letting. Provided Tenant gives
written notice of its desire to lease such space with five (5) business days
after receipt of such notice, Tenant shall, thereafter, for a period of thirty
(30) days, have the right to negotiate with Landlord for a lease of such space
for a term not extending beyond the expiration date of this Lease, and Landlord
and Tenant agree to negotiate for such a lease in good faith. Landlord's notice
may not be given more than six (6) months prior to the date as of which said
premises will become available for letting. If Tenant fails to respond to said
notice within said five (5) business day period, or, after giving written notice
of its exercise of its right to negotiate, if Landlord and Tenant do not enter
into a lease within said thirty (30) day period, Tenant's rights under this
paragraph shall be deemed to have been waived, and Landlord shall be free
(without any further obligation to Tenant) to lease the space to anyone upon the
same or any other terms and without any further obligation to Tenant, whether or
not the terms of such lease are more or less favorable than those offered to
Tenant. Tenant's right to negotiate, as aforesaid, is subordinate, however, to
any expansion or renewal options granted, from time to time, in leasing to other
tenants in the Project. The first right to negotiate for additional space, shall
be terminated during any period in which Tenant is in default under any
provisions of this Lease until said default has been cured. The period of time
within which this first right to negotiate may be exercised shall not be
extended or enlarged by reason of Tenant's inability to exercise such rights
because of the foregoing provision. Time is of the essence. If Tenant fails to
8.
<PAGE> 9
exercise its first right to negotiate any instance when such right may arise, in
writing, prior to the expiration of the applicable time period for the exercise
of such right, Tenant's right in the instance in question shall thereafter be
deemed null and void and of no further force or effect. The right of first
refusal under this paragraph is intended to provide Tenant with the ability to
obtain Expansion Space for its own use in the Project. The rent for the
Expansion Space shall be the same rental rate per square foot as currently being
paid by Tenant for the balance of the Premises at the time the right of first
refusal is exercised. It is not the Parties intent to allow Tenant to lease
Expansion Space at the existing rate and immediately sublease the Expansion
Space at a profit to a subtenant. Therefore, Tenant shall not have the right to
sublease the Expansion Space for a period of one (1) year after exercising its
right to lease the Expansion Space.
18. RECEPTIONIST. Landlord shall use its best efforts to
require any new tenants or subtenants of the Project to pay a proportionate
share of the salary and benefits of the Project receptionist employed by Tenant
for the benefit of the Project.
19. EXTERIOR SIGN. Landlord, at Landlord's sole cost and
expense, shall remove the existing "TIMKEN-STURGIS BUILDING" sign and modify the
existing "SIBIA" sign to refer to "SIBIA Neurosciences." Landlord shall obtain,
on Tenant's behalf, any approval required under the law to construct, remove
and/or modify the existing exterior signage. Landlord makes no representation
with respect to Tenant's ability to obtain such approval.
20. PREVENTATIVE MAINTENANCE. Attached as Exhibit "D" is a
copy of the Preventative Maintenance Program prepared by Landlord which contains
a complete list of all equipment in the Project (except for equipment
exclusively serving the Premises of another tenant of the Project) and a
schedule of the preventative maintenance required for each piece of equipment.
21. LENDER APPROVAL. Landlord shall use its best efforts to
obtain consents from the mortgagees of the Project for entering into this Third
Amendment to Lease, including an amendment to the Nondisturbance Agreement
recognizing Tenant's rights under the Third Amendment to Lease.
22. ENVIRONMENTAL ASSESSMENT. At the expiration of the Lease,
Tenant shall provide Landlord with a letter from its safety officer certifying
that the Premises have been inspected and are safe for unrestricted use. In
addition, with respect to all spaces where radioactive materials were used or
stored, Tenant shall provide Landlord with approval from the County Department
of Health Services. This provision shall also be applicable for any space
released by Tenant during the Term of the Lease.
23. EQUIPMENT AND PERSONAL PROPERTY PURCHASED BY TENANT.
Exhibit "H" of the Lease shall be deleted in its entirety and replaced by the
Exhibit "H" attached hereto and incorporated herewith.
9.
<PAGE> 10
24. Except as modified herein, all other terms and conditions
of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment to Lease on the date first above written.
"LANDLORD"
REGENCY PROPERTIES, L.P.,
a California limited partnership
By: KSC MANAGEMENT, INC.
a California corporation
Its Managing General Partner
By: /s/ Paul L. Reed
--------------------------------------------
Paul L. Reed, Executive Vice President
"TENANT"
SIBIA NEUROSCIENCES, INC.
a Delaware corporation
By: /s/ William T. Comer
----------------------------------------------------
William T. Comer, Ph.D., President and CEO
EXHIBIT "A"
DESCRIPTION OF PREMISES
The Premises consist of portions of the first and fourth floors and the entire
second and third floors of the Timken-Sturgis Building, as shown on the attached
Site Plan and Floor Plans, which is located at 505 Coast Boulevard South, La
Jolla, California, and is more particularly described as follows:
Parcel 1 of Parcel Map No. 15030, in the City of San Diego, County of
San Diego, State of California, as filed in the Office of the County
Recorder of said San Diego County, November 19, 1887 as File No.
87-646909.
10.
<PAGE> 11
EXHIBIT "B"
BUILDING IMPROVEMENTS MADE BY LANDLORD
Landlord shall, at Landlord's sole cost and expense, make the following Building
Improvements, subject to the terms and conditions set forth in paragraph 8 of
the Third Amendment to Lease.
<TABLE>
<CAPTION>
Description of Improvements
Budget Amount
Completion Date
<S> <C>
Install a new lobby-reception desk, closed- circuit television monitor for the
driveway, emergency exit to the loading dock and cardreader attached to the
emergency door.
[*]
Completed
Install new carpet and paint in the Lieb Auditorium.
[*]
Completed
Remodel and upgrade the men's and women's locker rooms on the second floor.
[*]
Completed
Install additional roof-top decking, roof-top safety railings and new outdoor
tables and chairs for use by tenants' employees, contingent upon compliance with
building and OSHA Rules and Regulations and a workable safety plan.
[*]
06-30-97
Renovation and improvement to the lunchroom on the first floor of the Project,
including new flooring, lighting and furniture improvements with possible
reconfiguration to accommodate the radioactive waste storage area.
[*]
06-30-97
Install a new roof for the Project.
[*]
06-30-97
</TABLE>
11.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 12
<TABLE>
<CAPTION>
Budget Amount
Description of Improvements Completion Date
- --------------------------- ---------------
<S> <C>
Complete the exterior balconies and railing repairs.
[*]
Completed
Paint the exterior of the Project.
[*]
06-30-97
Third floor bathroom improvements.
[*]
06-30-97
Complete as-built drawings for the interior of the structure.
[*]
Completed
Bike Storage Cage.
[*]
06-30-97
TOTAL
[*]
========
</TABLE>
EXHIBIT "C"
RELEASED PREMISES
EXHIBIT "D"
PREVENTATIVE MAINTENANCE PROGRAM
EXHIBIT "H"
EQUIPMENT AND PERSONAL PROPERTY
PURCHASED BY TENANT
The following is a list of items that might be confused with capital portions of
the building since, in most cases, they are permanently affixed to the
structure. In the event Tenant was required to
12.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 13
vacate the premises, Tenant shall have the right to take these items, all of
which were purchased by Tenant for exclusive use by Tenant's personnel.
1. Reverse osmosis water purification system, including fiberglass holding
tank and water softener.
2. Fume hoods in Labs 205 (two), 209, 211, 210A, 213, 305.
3. Stand alone benches and shelves in all labs, library and offices.
Adjustable shelves/brackets identified by double tract type wall mounts
or knob-supported brackets.
4. Metal cabinets and shelves in Labs 111, 205, 207, 211, 306, 310.
5. Market-Forge autoclave in 201.
6. All biological safety cabinets.
7. Xenopus habitat system in 205.
8. Darkroom door and photography lamp in Lab #306A.
9. Barnstead water purification systems in Labs 305 and 202.
10. Fabric, modular office dividers throughout the building.
11. Projection screen in 3rd floor (west) conference room.
12. Exposed traps, regulators and valves in 411/409 and adjacent pipe chase
which were used for fermentation equipment.
13. Compressors in 409/411 and 305/301 pipe chases.
14. Photoprocessor Lab #306A.
The following items purchased by Agouron for their exclusive use, may be removed
by Agouron in the event they vacate:
1. Three transformers for computer room in south, 5th floor penthouse.
2. Halon fire extinguisher system.
3. Two dark room doors.
13.
<PAGE> 1
EXHIBIT 10.40
Corporate Leasing & Syndication Group
General Electric Capital Corporation
4 North Park Drive, Suite 500, Hunt Valley, MD 21030
410-527-9300
- --------------------------------------------------------------------------------
February 20, 1997
Mr. James Engelman
Controller
SIBIA Neurosciences, Inc.
505 Coast Boulevard, South
Suite 300
La Jolla, CA 92037-4641
Dear Mr. Engelman:
We are pleased to advise you that our nominees, Mellon US Leasing and
NationsCredit Commercial Corporation, (the "Lessors"), have approved firm
commitments for lease lines to SIBIA Neurosciences, Inc., (the "Lessee"), to be
funded by our nominees, on the following terms and conditions:
1. TRANSACTION: The transaction is structured as a true lease in which the
Lessor will be entitled to claim and retain all of the tax benefits
associated with ownership of the equipment. The lease will be a net
lease in which the Lessee will be responsible for all expenses relating
to the equipment and the transaction, including equipment maintenance,
insurance coverage, payment of personal property taxes, recording fees
and other expenses.
2. LESSORS: (A) Mellon US Leasing
(B) NationsCredit Commercial Corporation
3. LESSEE: SIBIA Neurosciences, Inc.
4. EQUIPMENT: New Laboratory Equipment, all acceptable to Lessor.
5. DELIVERY: All Equipment must be delivered, accepted and scheduled on or
before March 31, 1998.
6. ACQUISITION COST: (A) $1,000,000.00
(B) $ 500,000.00
7. TERM: Four (4) years from the Base Lease Commencement Date.
8. BASE LEASE COMMENCEMENT DATE: April 1, 1997; July 1, 1997; October 1,
1997; and December 31, 1997.
9. BASE LEASE RENTAL PAYMENT: Lessee will be required to make forty-eight
(48) monthly rental payments, each payable in advance and equal to the
following percentages of the Acquisition Cost.
<PAGE> 2
Mr. James Engelman
Page Two
February 20, 1997
MONTHLY BASE LEASE
DELIVERY DATE LEASE RATE FACTOR COMMENCEMENT DATE
------------- ----------------- -----------------
January 1 to March 31, 1997 2.3305% April 1, 1997
April 1 to June 30, 1997 2.3172% July 1, 1997
July 1 to September 30, 1997 2.3038% October 1, 1997
October 1 to December 31, 1997 2.2941% December 31, 1997
These Base Lease Rental Payments were calculated using current money
market rates; however, money market conditions at the date of funding
will control the final Base Lease Rental Payment that is fixed for the
Term. See "Adjustments to the Base Lease Rental Payment" on the
following page.
9a. INTERIM RENTAL PAYMENT: From the funding date to the Base Lease
Commencement Date, the Lessee will be required to make Interim Rental
Payments equal to the daily equivalent of the Base Lease Rental Payment.
10. TAX BENEFITS: Depreciation deductions arising out of the ownership of
the Equipment will be for the account of Lessor and will be recognized
over a five (5) year period on a 200% declining balance switching to a
straight-line (DDB/SL) formula using the half-year convention. A
Federal corporate tax rate of 35% for 1997 and thereafter was assumed in
calculating the Base Lease Rental Payment. In the event of a change of
tax law or in the interpretation of tax law from the assumptions herein,
the Base Lease Rental Payment will be adjusted to preserve the Lessor's
economics.
11. ADMINISTRATIVE FEE: GE Capital Corporation acknowledges receipt of an
Administrative Fee. This Administrative Fee is considered earned with
the issuance of this commitment letter and is non-refundable. Upon
funding, it shall be applied to the first monthly rental payment.
12. LESSEE OPTIONS AT LEASE EXPIRATION: Lessees will have the following
options:
LESSOR: MELLON US LEASING
At the end of the Initial Term, provided there is no default under the
lease, the Lessee shall have the option to:
A. Renew the lease for an Extension Term of twelve (12) months at a
monthly rental amount of 1.0% of the Acquisition Cost, in
advance, after which time the Lessee may:
1. Return all the Equipment to the Lessor;
2. Renew all the Equipment under the Lease at a term and rate
to be negotiated by the parties based upon the then
remaining life and the Fair Market Value of the Equipment
and the then current money market; or
3. Purchase all the Equipment at its then Fair Market Value.
B. Purchase all of the Equipment for the greater of ten percent
(10%) of the Acquisition Cost or its then Fair Market Value.
<PAGE> 3
Mr. James Engelman
Page Three
February 20, 1997
LESSOR: NATIONSCREDIT COMMERCIAL CORPORATION
At the end of the Initial Term, provided there is no default under the
lease, the Lessee shall have the option to:
A. Renew the lease for an Extension Term of nine (9) months at a
monthly rental amount of 1.2% of the Acquisition Cost, in advance,
after which time the Lessee may:
1. Return all the Equipment to the Lessor;
2. Renew all the Equipment under the Lease at a term and rate to be
negotiated by the parties based upon the then remaining life and
the Fair Market Value of the Equipment and the then current
money market; or
3. Purchase all the Equipment at its then Fair Market Value.
B. Purchase all of the Equipment for the greater of ten percent (10%)
of the Acquisition Cost or its then Fair Market Value.
13. ADJUSTMENTS TO THE BASE LEASE RENTAL PAYMENT: The Base Lease Rental
Payment stated above reflects current money market rates as indicated by
the yield to maturity of 5.70% (the Reference Yield) as shown in the
December 4, 1996, issue of "The Wall Street Journal" for the U.S.
Treasury Note having an 7.75% coupon and maturing in November of 1999.
The table below sets forth the U.S. Treasury Notes with similar then
remaining lives to maturity which will be used to establish the final
Base Lease Rental Payment, depending upon the date of funding:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Applicable Treasury Note
------------------------
Date of Funding Coupon Maturity
--------------- ------ --------
<S> <C> <C>
January 1 to March 31, 1997........ 7.125% February, 2000
April 1 to June 30, 1997......... 6.25% May, 2000
July 1 to September 30, 1997.... 8.75% August, 2000
October 1 to December 31, 1997..... 5.625% November, 2000
--------------------------------------------------------------
</TABLE>
The Base Lease Rental Payment actually used will be that stated above,
increased or decreased basis point for basis point in the implicit rate
for each basis point change in the yield to maturity of the Applicable
Treasury Note from the Reference Yield. The yield to maturity of the
Applicable Treasury Note used to calculate the adjustment to the Base
Lease Rental Payment will be the yield quoted in the most recently
published issue of "The Wall Street Journal" on the date of funding.
These firm commitments have been rendered in express reliance on the financial
or other statements respecting the conditions, operation, and affairs of the
Lessee, or respecting the equipment to be leased which Lessee has previously
provided to us, and is based on the understanding that Lessee has committed to
complete the transaction with us and our nominees. The Lessor's commitment is
subject to the condition that there shall be no material adverse change in
either (i) the business or financial condition of the Lessee or (ii) proposed
Federal tax law, prior to any funding under the lease. In addition, fundings
under this lease will be for a minimum of $50,000 each.
<PAGE> 4
Mr. James Engelman
Page Four
February 20, 1997
An express condition of this commitment is that documentation reasonably
satisfactory to our and our nominee's counsel be executed prior to funding.
This firm commitment will expire on March 4, 1997, unless you acknowledge your
receipt hereof and acceptance by executing the enclosed copy of this letter and
returning it to us by that date.
GECC Capital Markets Group, Inc.
By: /s/ LOUIS J. VIGLIOTTI
-----------------------------
Louis J. Vigliotti
Vice President
ACCEPTED BY:
SIBIA Neurosciences, Inc.
By: /s/ WILLIAM T. COMES
------------------------------
Title: President and CEO
---------------------------
Date: March 4, 1997
---------------------------
<PAGE> 1
SIBIA Neurosciences, Inc.
Exhibit 11.1 - Statement Re: Computation of (Loss) Income Per Share
<TABLE>
Year Ended
December 31,
1995 1996
------------ ------------
<S> <C> <C>
Primary Income (Loss) Per Share:
Weighted average common shares outstanding 4,893,091 7,596,380
Cheap stock (1):
Exercised options 247,746
Option grants 343,434
Common stock equivalents (2) 1,444,052
------------ ------------
Weighted average number of common and
common equivalent shares outstanding 6,928,323 7,596,380
============ ============
Net income (loss) $2,926,000 $(5,564,000)
============ ============
Primary net income (loss) per common share $ 0.42 $ (0.73)
============ ============
Fully Diluted Income (Loss) Per Share:
Weighted average number of common shares
outstanding per primary share computation 6,928,323 7,596,380
Incremental effect of outstanding options on a
fully dilutive basis (3) 139,797 -
------------ ------------
Weighted average number of common and
common equivalent shares as adjusted 7,068,120 7,596,380
============ ============
Net income (loss) $2,926,000 $(5,564,000)
============ ============
Fully diluted net income (loss) per common share $ 0.41 $ (0.73)
============ ============
</TABLE>
(1) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, certain equity securities issued within one year of an
offering at less than the offering price are included as outstanding for
1995 for the purposes of the net income per share computations. Such
securities consist of common stock and stock options computed using the
treasury stock method
(2) Includes the assumed conversion of the series A, B, and C Convertible
Preferred Stock and dilutive stock options.
(3) In 1996 such amounts are excluded from the calculation as they are
antidilutive.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No 333-03519) of SIBIA Neurosciences, Inc. of our report
dated February 28, 1997 appearing on page F-2 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Diego, California
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,412,000
<SECURITIES> 36,052,000
<RECEIVABLES> 68,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,216,000
<PP&E> 1,307,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,983,000
<CURRENT-LIABILITIES> 2,892,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 36,563,000
<TOTAL-LIABILITY-AND-EQUITY> 39,983,000
<SALES> 0
<TOTAL-REVENUES> 8,481,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,829,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,000
<INCOME-PRETAX> (5,564,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,564,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,564,000)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
