<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NUMBER 000-23541
NANOGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0489621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10398 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
(Address of principal executive offices) (Zip code)
(858) 410-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
AS OF NOVEMBER 1, 1999, 19,084,461 SHARES OF THE REGISTRANT'S COMMON STOCK WERE
OUTSTANDING.
<PAGE>
NANOGEN, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998...........................................................3
Consolidated Statements of Operations for the Three and
Nine Months ended September 30, 1999 and 1998...................................4
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1999 and 1998........................................5
Notes to Consolidated Financial Statements........................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................16
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.........................................17
Item 6. Exhibits and Reports on Form 8-K..................................................17
SIGNATURES..........................................................................................18
EXHIBIT INDEX.......................................................................................19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NANOGEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,579 $ 62,245
Receivables and other current assets 3,610 2,933
-------------- -------------
Total current assets 48,189 65,178
Property and equipment, net 6,596 6,980
Restricted cash 214 270
Other assets 226 276
-------------- -------------
$ 55,225 $ 72,704
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 762 $ 1,066
Accrued liabilities 2,268 1,433
Deferred revenue 3,029 3,065
Due to joint venture 78 -
Current portion of capital lease obligations 2,139 1,913
-------------- -------------
Total current liabilities 8,276 7,477
Capital lease obligations, less current portion 3,348 4,176
Stockholders' equity:
Convertible preferred stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding at September 30, 1999
and December 31, 1998 - -
Common stock, $.001 par value, 50,000,000 shares authorized;
19,070,701 and 18,835,461 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 19 19
Additional paid-in capital 113,408 111,489
Deferred compensation (2,212) (1,512)
Notes receivable from officers (1,572) (1,514)
Accumulated deficit (66,042) (47,431)
-------------- -------------
Total stockholders' equity 43,601 61,051
-------------- -------------
$ 55,225 $ 72,704
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes.
3
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NANOGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Sponsored research $ 1,234 $ 1,366 $ 4,153 $ 3,638
Contract and grant revenue 712 498 1,928 1,595
--------------- ---------------- ---------------- ---------------
Total revenues 1,946 1,864 6,081 5,233
Operating expenses:
Research and development 5,406 5,722 19,042 15,434
General and administrative 2,161 1,733 6,158 4,685
Acquired in-process technology - - - 1,193
--------------- ---------------- ---------------- ---------------
Total operating expenses 7,567 7,455 25,200 21,312
--------------- ---------------- ---------------- ---------------
Loss from operations (5,621) (5,591) (19,119) (16,079)
Interest income, net 480 943 1,551 1,907
Loss on disposition of fixed assets - - (30) -
Equity in loss of joint venture (78) (610) (1,013) (610)
--------------- ---------------- ---------------- ---------------
Net loss $ (5,219) $ (5,258) $ (18,611) $ (14,782)
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
Net loss per share -
basic and diluted $ (0.29) $ (0.30) $ (1.03) $ (1.27)
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
Number of shares used in computing
net loss per share - basic and diluted 18,244 17,534 17,991 11,605
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
</TABLE>
See accompanying notes.
4
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NANOGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (18,611) $ (14,782)
Adjustments to reconcile net loss to net cash
used in operating activities:
Acquisition of in-process technology - 1,193
Depreciation and amortization 1,246 776
Amortization of deferred compensation 1,120 1,818
Loss on disposition of fixed assets, net 30 -
Equity in loss of joint venture 1,013 610
Interest on notes receivables from officers (58) (44)
Changes in operating assets and liabilities:
Accounts payable (304) 913
Accrued liabilities 835 73
Deferred revenue (36) 903
Receivables and other current assets (590) (1,071)
Due to joint venture 78 -
-------------- -------------
Net cash used in operating activities (15,277) (9,611)
Cash flows from investing activities:
Purchase of equipment (34) -
Investment in joint venture (1,013) (610)
-------------- -------------
Net cash used in investing activities (1,047) (610)
Cash flows from financing activities:
Restricted cash 56 93
Principal payments on capital lease obligations (1,497) (1,062)
Issuance of common stock, net of repurchases 99 60,030
Other assets - (58)
-------------- -------------
Net cash provided by (used in) financing activities (1,342) 59,003
Increase/(decrease) in cash and cash equivalents (17,666) 48,782
Cash and cash equivalents at beginning of period 62,245 19,498
-------------- -------------
Cash and cash equivalents at end of period $ 44,579 $ 68,280
-------------- -------------
-------------- -------------
Supplemental disclosure of cash flow information:
Interest paid $ 445 $ 319
-------------- -------------
-------------- -------------
Supplemental schedule of noncash investing and
financing activities:
Equipment acquired under capital leases $ 859 $ 5,475
-------------- -------------
-------------- -------------
Common stock issued in exchange for notes
receivables from officers $ - $ 310
-------------- -------------
-------------- -------------
Issuance of convertible preferred stock and
warrants in exchange for in-process technology $ - $ 1,193
-------------- -------------
-------------- -------------
Deferred compensation related to stock options and awards $ 1,820 $ 1,371
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes.
5
<PAGE>
NANOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated balance sheet
as of September 30, 1999, consolidated statements of operations for the
three and nine months ended September 30, 1999 and 1998, and the
consolidated statements of cash flows for the nine months ended September
30, 1999 and 1998 are unaudited, but include all adjustments (consisting of
normal recurring adjustments) which the Company considers necessary for a
fair presentation of the financial position, results of operations and cash
flows for the periods presented. The results of operations for the three and
nine months ended September 30, 1999 shown herein are not necessarily
indicative of the results that may be expected for the year ended December
31, 1999.
For more complete financial information, these financial statements, and
notes thereto, should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1998 included in the
Nanogen, Inc. Form 10-K filed with the Securities and Exchange Commission.
2. NET LOSS PER SHARE
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income per share
is computed by dividing the net income available to common stockholders for
the period by the weighted average number of common shares outstanding
during the period. Diluted net income per share is computed by dividing the
net income for the period by the weighted average number of common shares
outstanding during the period and dilutive potential common shares
outstanding. Weighted average common shares outstanding during the period
does not include shares issued pursuant to the exercise of stock options
prior to vesting. Due to the losses incurred by the Company during the three
and nine months ended September 30, 1999 and 1998, common stock equivalents
resulting from the assumed exercise of outstanding stock options and
warrants have been excluded from the computation of diluted net loss per
share as their effect would be anti-dilutive.
3. RESTRICTED STOCK AWARDS
On July 27, 1999, the Board of Directors authorized the issuance of an
aggregate of 251,000 shares of the Company's common stock to certain
officers and key employees at a price per share of par value ($.001). All of
these shares were purchased by the respective officers and key employees and
are subject to repurchase if the officer or key employee leaves the Company
prior to July 26, 2001. Repurchase rights as to certain of the shares lapse
upon the attainment of certain performance milestones or upon a change in
control. Deferred compensation has been recorded for the excess of the fair
market value of the stock on the date of the award over the purchase price
per share and is being amortized over the restricted period.
4. AVENTIS RESEARCH AND TECHNOLOGIES
On September 28, 1999, the Company announced the expansion of its drug
discovery collaboration with Aventis Research and Technologies ("Aventis").
Two new technology development programs were added to the current program
which is focused on the development of molecular recognition arrays. These
new projects will focus on the development of gene expression tools
utilizing electronic bioarrays and the development of high throughput
screening tools for kinase analyses. In total, the two new programs will
provide a maximum of $12.0 million in additional funding to the Company
through December 31, 2001, including an up-front initiation fee of $2.0
million which was received subsequent to September 30, 1999.
6
<PAGE>
5. BECTON, DICKINSON AND COMPANY PARTNERSHIP
The Company entered into a Master Agreement with Becton, Dickinson and
Company ("Becton Dickinson") in October 1997 to develop and commercialize
products in the field of IN VITRO nucleic acid-based diagnostic and
monitoring technologies. Pursuant to this Master Agreement, Becton Dickinson
and Nanogen agreed to form The Nanogen/Becton Dickinson Partnership (the
"Partnership"). Pursuant to a General Partnership Agreement, Becton
Dickinson and Nanogen have contributed to the Partnership their respective
rights under a Collaborative Research and Development Agreement established
in May 1997, certain Intellectual Property Licenses and, as of September 30,
1999 cash in the amount in aggregate of approximately $8.3 million, of which
approximately $6.8 million was paid by Becton Dickinson and approximately
$1.5 million was paid by Nanogen. In addition, at September 30, 1999,
approximately $311,000 was due to the Partnership, of which approximately
$233,000 was due from Becton Dickinson and approximately $78,000 was due
from Nanogen. The amounts paid and due to the Partnership by Nanogen during
the nine months ended September 30, 1999 have been recorded as Nanogen's
share of the joint venture's loss for that period. The partners are
considering modifications to the joint venture to take advantage of
potential third party opportunities on technology developed to date. The
partners are also considering field changes which would allow the joint
venture access to additional technologies or content in areas more
strategically aligned with business opportunities. Further joint venture
funding will be determined based upon a final decision regarding such
modifications and field changes.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report includes forward-looking statements about our business and
results of operations that are subject to risks and uncertainties that could
cause our actual results to vary materially from those reflected in the
forward-looking statements. Words such as "believes," "anticipates," "plans,"
"estimates," "future," "could," "may," "should," "expect," "envision,"
"potentially," variations of such words and similar expressions are intended to
identify such forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below under the caption "Factors
that May Affect Results" and elsewhere in this Form 10-Q. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We disclaim any intent or obligation to update these
forward-looking statements.
OVERVIEW
Since commencing operations in 1993, we have applied substantially all of
our resources to our research and development programs. We have incurred losses
since inception and, as of September 30, 1999, had an accumulated deficit of
approximately $66.0 million. We expect to incur significant losses over at least
the next several years as we expand our research and product development efforts
and attempt to commercialize our products.
We currently have no products available for sale and no revenues have been
generated from the sale of products arising out of our technology. We anticipate
our main sources of revenues during at least 1999 will be payments from
contracts, grants and sponsored research. We believe our future operating
results may be subject to quarterly fluctuations due to a variety of factors,
including the achievement of milestones under our collaborative agreements,
whether and when new products are successfully developed and introduced by us or
our competitors, and market acceptance of products under development. Payments
under contracts, grants and sponsored research agreements will be subject to
significant fluctuations in both timing and amount and therefore our results of
operations for any period may not be comparable to the results of operations for
any other period.
RESULTS OF OPERATIONS
REVENUES. For the three and nine months ended September 30, 1999, revenue
from sponsored research totaled approximately $1.2 million and $4.2 million,
compared to approximately $1.4 million and $3.6 million for the three and nine
months ended September 30, 1998, respectively. Revenues are recorded under these
arrangements as expenses are incurred. Payments received in advance under these
arrangements are recorded as deferred revenue until the expenses are incurred.
Sponsored research revenue recognized during the three and nine months ended
September 30, 1999 and 1998, was earned in connection with our joint venture
collaboration with Becton Dickinson, our research and development agreement with
Aventis Research and Technology ("Aventis", an affiliate of Hoechst AG), and our
nonexclusive research and development agreement with Elan Corporation, plc
("Elan"). Nanogen and Becton Dickinson are considering modifications to the
joint venture to take advantage of potential third party opportunities on
technology developed to date, as well as field changes which would allow the
joint venture access to additional technologies or content in areas more
strategically aligned with business opportunities. Further joint venture funding
will be determined based upon a final decision regarding such modifications and
field changes. Nanogen and Aventis have added two new technology development
programs to the existing molecular recognition array development program. The
two new programs will provide a maximum of $12.0 million in additional funding
to the Company through December 31, 2001, including an up-front initiation fee
of $2.0 million which was received subsequent to September 30, 1999. Nanogen and
Elan have not yet agreed upon specific program objectives with respect to the
nonexclusive research and development agreement.
Revenue from contracts and grants totaled approximately $712,000 and $1.9
million for the three and nine months ended September 30, 1999, compared to
approximately $498,000 and $1.6 million for the three and nine months ended
September 30, 1998. The Company funds some of its research and development
efforts through contracts and grants awarded by various federal and state
agencies. As of September 30, 1999, the Company had five active contracts and
grants, compared to four such at September 30, 1998. Revenues are recognized
under these contracts and grants as expenses are incurred.
8
<PAGE>
Continuation of sponsored research agreements, contracts and grants is
dependent upon us achieving specific contractual milestones. The recognition of
revenue under sponsored research agreements, contracts and grants may vary from
quarter to quarter and may result in significant fluctuations in operating
results from year to year.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
approximately $5.4 and $5.7 million, respectively for the three months ended
September 30, 1999 and 1998. Research and development expenses include salaries,
lab supplies, consulting, travel, facilities, product design and prototype
development, and other expenditures relating to research and product
development. The decrease in research and development expenditures for the three
months ended September 30, 1999, compared to the same period in 1998, can be
attributed to the timing of expenditures associated with the design and
development phase of our research system. Research and development expenses were
approximately $19.0 and $15.4 million, respectively, for the nine months ended
September 30, 1999 and 1998. The increase in research and development
expenditures for the nine months ended September 30, 1999, compared to the same
period in 1998, can be primarily attributed to costs associated with the
development and refinement of engineering prototypes as we move toward
commercialization of our first product. Additionally, the increases from year to
year are attributable to the continued growth of research and product
development efforts, including hiring of additional scientific, engineering and
operations personnel, increased purchases of laboratory supplies, equipment and
services to support our sponsored research programs, and expansion of research
and development facilities. Research and development spending may increase over
the next several years as our research and product development efforts continue.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
totaled approximately $2.2 and $6.2 million for the three and nine months ended
September 30, 1999, compared to approximately $1.7 and $4.7 million for the
three and nine months ended September 30, 1998. This increase was principally
due to increased legal costs associated with enhancing and maintaining the
Company's intellectual property portfolio, the expansion of activities related
to marketing the Company's potential products, and to increased costs associated
with operating as a public company. The increase was partially offset by a
decrease in deferred compensation expense recognized in the first nine months of
1999 compared to what was recorded during the same period in 1998. Deferred
compensation represents the excess of the fair value over the exercise price for
common stock issuable on exercise of stock options. General and administrative
expenses are expected to continue to increase as we continue to expand our sales
and marketing and general and administrative organizations and as we continue to
enhance our intellectual property portfolio.
ACQUIRED IN-PROCESS TECHNOLOGY. During the first quarter of 1998, the
Company issued 200,000 shares of its Series D Convertible Preferred Stock at
$6.00 per share in exchange for all of the outstanding shares of Nanotronics,
Inc. This Series D Preferred Stock converted into 132,334 shares of common stock
at the Company's initial public offering. The in-process technology, which was
acquired, relates generally to nanotechnology and molecular electronics. We
recorded $1.2 million in expenses relating to acquired in-process technology
during the nine months ended September 30, 1998.
INTEREST INCOME, NET. Net interest income during the three and nine months
ended September 30, 1999 was approximately $480,000 and $1.6 million,
respectively, compared to net interest income of approximately $943,000 and $1.9
million for the same periods in 1998. The decrease in net interest income for
the three and nine months ended September 30, 1999 compared to the same periods
in 1998 can be attributed to the lower cash balances available during 1999
compared to 1998 as a result of cash used for operations. In addition, interest
rates were lower in 1999 as compared to 1998. Interest expense during both the
three and nine months ended September 30, 1999 was greater than interest expense
during the same period in 1998, due to a greater amount of equipment under
capital leases in 1999.
EQUITY IN LOSS OF JOINT VENTURE. The Company recognized a loss of
approximately $78,000 and $1.0 million for the three and nine months ended
September 30, 1999 from the joint venture with Becton Dickinson, based on the
loss allocation described in the Partnership Agreement stating that losses will
be allocated in proportion to and not to exceed required cash contributions. A
loss of $610,000 was recognized during the three and nine months ended September
30, 1998.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through private placements
of equity securities totaling approximately $65.1 million, as well as through
our initial public offering in April 1998, which generated net proceeds of
approximately $38.7 million.
To date we have funded most of our equipment acquisitions and leasehold
improvements through capital leasing or secured debt facilities. During the
first nine months of 1999, we received proceeds from equipment financing of
approximately $859,000. This compares to $5.5 million received for equipment
acquisitions and leasehold improvements during the same period in 1998 which was
primarily related to the expansion of our research and administrative facility.
We anticipate that we will continue to use capital equipment leasing or debt
facilities to fund most of our equipment acquisitions and leasehold
improvements.
Net cash used in operating activities was approximately $15.3 million and
$9.6 million for the nine months ended September 30, 1999 and 1998,
respectively. Cash used for operations was primarily related to costs associated
with developing prototypes of our initial product, the support of our expanding
operations, including higher personnel costs, and legal fees relating to
establishing and maintaining our intellectual property rights.
At September 30, 1999, we had approximately $44.6 million in cash and cash
equivalents. We expect that our existing capital resources, combined with
anticipated revenues from potential product sales, sponsored research
agreements, contracts and grants will be sufficient to support our planned
operations into the year 2001. This estimate of the period for which we expect
our available sources of liquidity to be sufficient to meet our capital
requirements is a forward-looking statement that involves risks and
uncertainties, and actual results may differ materially. Our future liquidity
and capital funding requirements will depend on numerous factors including, but
not limited to, the extent to which our products under development are
successfully developed and gain market acceptance, the timing of regulatory
actions regarding our potential products, the costs and timing of expansion of
sales, marketing and manufacturing activities, prosecution and enforcement of
patents important to our business, the results of clinical trials, competitive
developments, and our ability to maintain existing collaborations and to enter
into additional collaborative arrangements. We have incurred negative cash flow
from operations since inception and do not expect to generate positive cash flow
to fund our operations for at least the next several years. We may need to raise
additional capital to fund our research and development programs, to scale up
manufacturing activities and expand our sales and marketing efforts to support
the commercialization of our products under development. Additional capital may
not be available on terms acceptable to us, or at all. If adequate funds are not
available, we may be required to curtail our operations significantly or to
obtain funds through entering into collaborative agreements or other
arrangements on unfavorable terms. Our failure to raise capital on acceptable
terms when needed could have a material adverse effect on our business,
financial condition or results of operations.
YEAR 2000 ISSUES
The Year 2000 issue arises from the fact that many existing computer
software programs use only the last two digits to refer to a specific year,
instead of all four digits. As a result, computer programs that have
date-sensitive software, or operate with date-sensitive data, may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions in operations, including,
among other things, the temporary inability to process transactions or engage in
normal business activities.
We have assembled a Year 2000 task force to ensure that we are Year 2000
compliant by December 31, 1999. Our task force, assisted by third parties, has
completed the assessment and testing of our computer systems, software
applications, equipment and facilities infrastructure to ensure that all systems
will function properly with respect to dates in the Year 2000 and thereafter. We
have completed all required modifications and conversions of existing software
and hardware that were identified during this assessment and testing procedure.
We have verified the readiness of our significant suppliers of products and
services and key business partners through the distribution of a questionnaire.
Based on responses to the questionnaire, we are not currently aware of any Year
2000 problems encountered by suppliers or business partners which could have a
significant effect on our
10
<PAGE>
operations. In the event that any of our significant suppliers do not
successfully achieve Year 2000 compliance in a timely manner, our results of
operations could be adversely affected. There can be no assurance that the
systems of other companies on which our systems rely will be converted on a
timely basis and would not have an adverse effect on our results of
operations.
Although no significant issues have arisen during our assessment and testing
procedures, we have in place a contingency plan that would allow us to continue
operating the major functional areas of our business if such issues should
arise. We have determined that a reasonable "worst case" scenario relates to
Year 2000 compliance problems of our suppliers of products and services and
other external organizations which if not remedied could adversely affect our
results of operations.
The cost we have incurred to date and expect to incur to achieve Year 2000
compliance for our internal systems, equipment and facilities infrastructure are
not expected to exceed $150,000.
FACTORS THAT MAY AFFECT RESULTS
OUR PRODUCTS MAY NOT BE SUCCESSFULLY DEVELOPED, WHICH WOULD ADVERSELY AFFECT US
All of our products are under development. Our products may not be
successfully developed or commercialized on a timely basis, or at all. If we are
unable, for technological or other reasons, to complete the development,
introduction or scale-up of manufacturing of our new products, or if our
products do not achieve a significant level of market acceptance, we would be
adversely affected.
Our success will depend upon our ability to overcome significant
technological challenges and successfully introduce products into the
marketplace. A number of applications envisioned by us will require significant
enhancements in our basic technology platform.
LACK OF MARKET ACCEPTANCE OF OUR TECHNOLOGY WOULD ADVERSELY AFFECT US
We may not be able to develop commercially viable products. Even if a
product is developed it may not be accepted in the marketplace. If we are unable
to achieve market acceptance, we would be adversely affected. Market acceptance
will depend on many factors, including demonstrating to customers that our
technology platform is a viable alternative to currently available technologies.
In addition, our technology platform could be adversely affected by limited
funding available for capital acquisitions by our customers, as well as internal
obstacles to customer approvals of purchases of our products.
OUR DEPENDENCE ON COLLABORATIVE ALLIANCES COULD ADVERSELY AFFECT US
The development and commercialization of our products in a number of
applications depends on the formation of alliances and licensing arrangements.
We may not be successful in entering into or maintaining collaborations to
develop these commercial applications. Failure to do so could have an adverse
impact on us. We may have limited or no control over the time, effort or
financial resources that any partner may devote to the development or marketing
of our products.
We may be materially and adversely affected if:
- A partner develops competitive technologies;
- We are precluded from entering into competitive arrangements with other
potential partners;
- Disputes arise over ownership rights to any intellectual property,
know-how or technologies developed with a partner; or
- An agreement is terminated early, or by a failure by a partner to devote
sufficient resources to the development and commercialization of our
products.
11
<PAGE>
We currently have agreements with Becton Dickinson, Aventis and Elan that
contemplate the commercialization of products resulting from research and
development collaboration agreements between the parties. These collaborations
may not be successful. Nanogen and Becton Dickinson are considering
modifications to their joint venture to take advantage of potential third party
opportunities on technology developed to date, as well as field changes which
would allow the joint venture access to additional technologies or content in
areas more strategically aligned with business opportunities. Further joint
venture funding will be determined based upon a final decision regarding such
modifications and field changes. Nanogen and Elan have not yet agreed upon
specific program objectives with respect to the nonexclusive research and
development agreement.
OUR HISTORY OF LOSSES AND OUR ANTICIPATION OF FUTURE LOSSES MAY ADVERSELY AFFECT
US
At September 30, 1999, we had an accumulated deficit of approximately $66.0
million. We anticipate that we will continue to incur operating losses for at
least the next several years. We may never attain profitability or become
profitable on a quarterly or annual basis in the future. We currently have no
products available for sale and to date no revenues have been generated from
commercialization of products arising out of our technology.
To develop and sell our products successfully, we will need to increase our
spending levels in research and development, as well as in selling, marketing,
and administration. We will have to incur these increased spending levels before
knowing whether our products can be sold successfully.
Our anticipated increases in operating expenses may adversely affect our
financial prospects.
FAILURE TO RAISE ADDITIONAL CAPITAL MAY ADVERSELY AFFECT US
We have incurred negative cash flow from operations since inception. We do
not expect to generate positive cash flow to fund our operations for at least
the next several years. We may need to raise additional capital to fund our
research and development programs, to scale up manufacturing activities and
establish our sales and marketing capability. Our current collaborations will,
and future collaborations may, require us to commit substantial amounts of
capital. We may not be able to make these capital contributions.
If adequate funds are not available, we may be required to curtail our
operations significantly or to obtain funds by entering into collaborative
agreements or other arrangements on less favorable terms. Our failure to raise
capital on acceptable terms when needed could have a material adverse effect on
us. Our liquidity and capital funding requirements will depend on numerous
factors, including:
- The extent to which our products under development are successfully
developed and gain market acceptance;
- The timing of regulatory actions regarding our potential products;
- The costs and timing of expansion of sales, marketing and manufacturing
activities;
- Prosecution and enforcement of patents important to our business;
- The results of clinical trials, competitive developments, and our
ability to enter into additional collaborative arrangements.
Additional capital may not be available on terms acceptable to us, or at
all. Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may include restrictive covenants.
COMPETING TECHNOLOGIES MAY ADVERSELY AFFECT US
We expect to encounter intense competition from a number of companies that
offer products in our targeted application areas. We anticipate that our
competitors in these areas will include:
12
<PAGE>
- Health care companies that manufacture laboratory-based tests and
analyzers,
- Diagnostic and pharmaceutical companies, and
- Companies developing drug discovery technologies.
To the extent we are successful in developing products in these areas, we
will face competition from established companies and numerous development-stage
companies that continually enter these markets.
In many instances, our competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than us. Moreover, these
competitors may offer broader product lines and have greater name recognition
than us, and may offer discounts as a competitive tactic.
In addition, several development stage companies are currently making or
developing products that compete with or will compete with our potential
products. Our competitors may succeed in developing or marketing technologies or
products that are more effective or commercially attractive than our potential
products, or that render our technologies and potential products obsolete.
Also, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future.
THE UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION AND OUR
POTENTIAL INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES MAY ADVERSELY
AFFECT US
Our success will depend in part on obtaining and maintaining meaningful
patent protection on our inventions, technologies and discoveries. Our ability
to compete effectively will depend on our ability to develop and maintain
proprietary aspects of our technology, and to operate without infringing the
proprietary rights of others, or to obtain rights to third-party proprietary
rights, if necessary. Our pending patent applications may not result in the
issuance of patents. Our patent applications may not have priority over others'
applications, and even if issued, any of our patents may not offer protection
against competitors with similar technologies. Any patents issued to us may be
challenged, invalidated or circumvented and the rights created thereunder may
not afford us a competitive advantage.
Our commercial success also depends in part on us neither infringing valid,
enforceable patents or proprietary rights of third parties, nor breaching any
licenses that may relate to our technologies and products. We are aware of
third-party patents that may relate to our technology. It is possible that we
may unintentionally infringe these patents or other patents or proprietary
rights of third parties. We have received and may in the future receive notices
claiming infringement from third parties as well as invitations to take licenses
under third-party patents. Any legal action against us or our collaborative
partners claiming damages and seeking to enjoin commercial activities relating
to our products and processes affected by third-party rights, may require us or
our collaborative partners to obtain licenses in order to continue to
manufacture or market the affected products and processes. In addition, these
actions may subject us to potential liability for damages. We or our
collaborative partners may not prevail in an action and any license required
under a patent may not be made available on commercially acceptable terms, or at
all.
There are a significant number of U.S. and foreign patents and patent
applications held by third parties in our areas of interest, and we believe that
there may be significant litigation in the industry regarding patent and other
intellectual property rights. If we become involved in litigation, it could
consume a substantial portion of our managerial and financial resources, which
could have a material adverse effect on us. Additionally, the defense and
prosecution of interference proceedings before the U.S. Patent and Trademark
Office ("USPTO") and related administrative proceedings would result in
substantial expense to us and significant diversion of effort by our technical
and management personnel. We may in the future become subject to USPTO
interference proceedings to determine the priority of inventions. In addition,
laws of some foreign countries do not protect intellectual property to the same
extent as do laws in the U.S., which may subject us to additional difficulties
in protecting our intellectual property in those countries.
13
<PAGE>
We also rely upon trade secrets, technical know-how and continuing
inventions to develop and maintain our competitive position. Others may
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose our
technology and we may not be able to meaningfully protect our trade secrets, or
be capable of protecting our rights to our trade secrets. We seek to protect our
technology and patents, in part, by confidentiality agreements with our
employees and contractors. Our employees may breach their existing Proprietary
Information, Inventions, and Dispute Resolution Agreements and these agreements
may not protect our intellectual property. This could have a material adverse
effect on us.
FAILURE TO OBTAIN REGULATORY APPROVALS WOULD ADVERSELY AFFECT US
We anticipate that the manufacturing, labeling, distribution and marketing
of a number of our diagnostic products will be subject to regulation in the U.S.
and other countries. We may not be able to obtain necessary regulatory approvals
or clearances for our products on a timely basis, or at all. Delays in receipt
of or failure to receive approvals or clearances, the loss of previously
received approvals or clearances, limitations on intended uses imposed as a
condition of approvals or clearances, or failure to comply with existing or
future regulatory requirements would have a material adverse effect on us.
In the U.S., the Food and Drug Administration ("FDA") regulates, as medical
devices, most diagnostic tests and IN VITRO reagents that are marketed as
finished test kits and equipment. Pursuant to the Federal Food, Drug, and
Cosmetic Act, the FDA regulates the preclinical and clinical testing, design,
efficacy, safety, manufacture, labeling, distribution and promotion of medical
devices. We will not be able to commence marketing or commercial sales in the
U.S. of these products until we receive clearance or approval from the FDA,
which can be a lengthy, expensive and uncertain process. We have not applied for
FDA or other regulatory approvals with respect to any of our products under
development. We may experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products. Regulatory
clearance or approval or clearance of any new products may not be granted by the
FDA or foreign regulatory authorities on a timely basis, if at all.
Noncompliance with applicable FDA requirements can result in:
- Administrative sanctions or judicially imposed sanctions such as
injunctions,
- Civil penalties, recall or seizure of products,
- Total or partial suspension of production, failure of the government to
grant premarket clearance or premarket approval for devices,
- Withdrawal of marketing clearances or approvals, and
- Criminal prosecution.
The FDA also has the authority to request recall, repair, replacement or
refund of the cost of any device manufactured or distributed by us. Any devices
manufactured or distributed by us pursuant to FDA clearance or approvals are
subject to pervasive and continuing regulation by the FDA and certain state
agencies.
OUR DEPENDENCE ON SUPPLIERS MAY ADVERSELY AFFECT US
Key components and raw materials used in the manufacture of our products are
provided from limited sources or in some cases by single-source vendors.
Although we believe that alternative sources for these components and raw
materials are available, any supply interruption in a sole-sourced component of
raw material would have a material adverse effect on our ability to manufacture
our products until a new source of supply is qualified and, as a result, could
have a material adverse effect on us. In addition, an uncorrected impurity or
supplier's variation in a raw material, either unknown to us or incompatible
with our manufacturing process, could have a material adverse effect on our
ability to manufacture products. We may be unable to find a sufficient
alternative supply channel in a reasonable time period, or on commercially
reasonable terms, if at all. Failure to obtain a supplier for the manufacture of
components of our future products, if any, could have a material adverse effect
on us.
14
<PAGE>
OUR LIMITED MANUFACTURING EXPERIENCE AND POTENTIAL INABILITY TO SCALE UP
MANUFACTURING COULD ADVERSELY AFFECT US
We have no experience manufacturing products for commercial purposes. We
rely on subcontractors to manufacture the limited quantities of semiconductor
microchips and other components we require for internal and collaborative
purposes, as well as for use in clinical trials and prototype products.
Manufacturing, supply and quality control problems may arise as we either
alone or with subcontractors attempt to scale up manufacturing procedures.
Scale-up may not be achieved in a timely manner or at a commercially reasonable
cost. Any failure to surmount problems could lead to delays or pose a threat to
the ultimate commercialization of our products and result in a material adverse
effect on us.
If we or any of our contract manufacturers encounter manufacturing
difficulties, including:
- The ability to scale up manufacturing capacity,
- Production yields,
- Quality control and assurance, or
- Shortages of components or qualified personnel,it could have a
material adverse effect on us.
Our manufacturing facilities and those of our contract manufacturers are or
will be subject to periodic regulatory inspections by the FDA and other federal
and state regulatory agencies and these facilities are subject to Quality System
Regulation ("QSR") requirements of the FDA. Failure by us or our third-party
manufacturers to maintain its facilities in accordance with QSR regulations,
other international quality standards or other regulatory requirements would
have a material adverse effect on us.
OUR LIMITED MARKETING AND SALES CAPABILITY COULD ADVERSELY AFFECT US
We have limited product marketing and sales capabilities. In attracting,
establishing and maintaining a marketing and sales force, or entering into
third-party marketing or distribution arrangements with other companies, we
expect to incur significant additional expenses. We may not be able to
successfully establish a sales and marketing capability or enter into
third-party marketing or distribution arrangements or be successful in achieving
marketplace acceptance for our products. This failure would have a material
adverse affect on us.
A FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT US
We expect to continue to experience growth in the number of our employees
and the scope of our operating and financial systems. This growth has resulted
in an increase in responsibilities for both existing and new management
personnel. Our ability to manage growth effectively will require us to continue
to implement and improve our operational, financial and management information
systems and to recruit, train, motivate and manage our employees. We may not be
able to manage our growth and expansion, and a failure to do so could have a
material adverse effect on us.
OUR PRODUCT LIABILITY EXPOSURE AND THE INADEQUACY OR UNAVAILABILITY OF INSURANCE
COVERAGE COULD ADVERSELY AFFECT US
The testing, manufacturing and marketing of our products entails an inherent
risk of product liability claims. Any claims against us could have a material
adverse effect on us. We may not be able to obtain insurance on acceptable terms
with adequate coverage, or at reasonable costs. Potential product liability
claims may exceed the amount of our insurance coverage or may be excluded from
coverage under the terms of the policy. Our insurance once obtained may not be
renewed at a cost and level of coverage comparable to that then in effect.
15
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its excess cash primarily in U.S. government securities and
marketable debt securities of financial institutions and corporations with
strong credit ratings. These instruments have maturities of ninety days or less
when acquired. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions or
transactions in any material fashion. Accordingly, we believe that, while the
instruments we hold are subject to changes in the financial standing of the
issuer of such securities, we are not subject to any material risks arising from
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices or other market changes that affect market risk sensitive
instruments.
16
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NANOGEN, INC.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) On April 13, 1998, our Registration Statement on Form S-1 (File No.
333-42791) was declared effective by the Securities and Exchange
Commission (the "IPO Registration Statement"). The IPO Registration
Statement registered a total of 3,900,000 shares of common stock,
all of which were issued and sold by us (the "Offering") upon the
termination of the Offering in April 1998. The Offering was led by a
group consisting of Morgan Stanley Dean Witter, Lehman Brothers and
SBC Warburg Dillion Read Inc. The shares sold by us were sold at an
aggregate offering price of $42.9 million, netting proceeds of
approximately $38.7 million to us after underwriting fees of
approximately $3.0 million and other offering expenses of
approximately $1.2 million. None of these fees and expenses were
paid to any director, officer, or 10% or greater stockholder of the
Company or an affiliate of these persons.
Since the effective date of the IPO Registration Statement, the net
offering proceeds have been applied to the following uses in the
following approximate amounts:
<TABLE>
<S> <C>
Repayment of indebtedness $ 3,500,000
Working capital $30,393,000
Temporary investments $ 4,807,000
</TABLE>
The temporary investments specified above consist primarily of
highly liquid investments, which include marketable debt securities
of financial institutions and corporations with strong credit
ratings with maturities of ninety days or less when acquired. None
of the payments noted above have been paid to any director, officer,
or 10% or greater stockholder of the Company or an affiliate of
these persons.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Collaborative Research and Development Agreement by and between
Aventis Research & Technologies GMBH & Co. KG and Nanogen, Inc.
dated as of September 27, 1999.+
27.1 Financial Data Schedule.
___________________
+ Confidential Treatment has been requested with respect to certain portions
of this agreement.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended
September 30, 1999.
17
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NANOGEN, INC.
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
NANOGEN, INC.
DATE NOVEMBER 15, 1999 /s/ Howard C. Birndorf
------------------------ ----------------------------------
HOWARD C. BIRNDORF
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE NOVEMBER 15, 1999 /s/ Kieran T. Gallahue
------------------------ ----------------------------------
KIERAN T. GALLAHUE
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL OFFICER)
18
<PAGE>
NANOGEN, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.1 Collaborative Research and Development Agreement by and between
Aventis Research & Technologies GMBH & Co. KG and Nanogen, Inc.
dated as of September 27, 1999.+ ................................................
27.1 Financial Data Schedule..........................................................
</TABLE>
___________________
+ Confidential Treatment has been requested with respect to certain portions
of this agreement.
19
<PAGE>
EXHIBIT 10.1
CONFIDENTIAL TREATMENT REQUEST. CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
By and Between
AVENTIS RESEARCH & TECHNOLOGIES GMBH & CO. KG
and
NANOGEN, INC.
September 27, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions.............................................1
2. Research Programs.......................................6
3. Payment.................................................7
4. Reports and Records.....................................8
5. Confidentiality and Non-disclosure......................9
6. Intellectual Property Licenses..........................9
7. Intellectual Property and Patent Rights.................9
8. Term and Termination...................................10
9. Contemplated Commercial Terms..........................11
10. Representations and Warranties.........................12
11. Disclaimers............................................13
12. Insurance..............................................13
13. Notices................................................13
14. Dispute Resolution.....................................14
15. Miscellaneous..........................................14
Exhibits
Exhibit A Annual Budget
Exhibit B Program Inventions
Exhibit C Research Programs
Exhibit D CPR Procedures
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<PAGE>
COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
THIS COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT is entered into
as of September 27, 1999 by and between AVENTIS RESEARCH & TECHNOLOGIES GMBH &
CO. KG, a German company, having a place of business at Industrial Park Hoechst,
Building G830, D-65926 Frankfurt am Main, Germany (hereinafter, "Aventis R&T"),
and NANOGEN, INC., a Delaware corporation, having its principal office and place
of business at 10398 Pacific Center Court, San Diego, California 92121
(hereinafter, "Nanogen").
W I T N E S S E T H :
WHEREAS, Nanogen has developed certain technology related to
electronically addressable microchip oligonucleotide arrays ("Nanogen Array
Technology"); and
WHEREAS, Aventis R&T wishes to fund a collaborative research and
development program at Nanogen relating to the application of Nanogen Array
Technology for the development of a high throughput screening microtiter plate
kinase assay system (the "HTS Kinase Assay Program") and a gene expression assay
system (the "Gene Expression Assay Program"); and
WHEREAS, Aventis R&T and Nanogen wish to perform certain research and
development activities as contemplated in the HTS Kinase Assay Program and the
Gene Expression Assay Program.
NOW THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, the parties hereby agree as follows:
1. DEFINITIONS As used in this Agreement:
1.1 "Affiliate" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein shall
mean the ownership directly or indirectly of fifty percent (50%) or more of the
voting stock of a corporation or a fifty percent (50%) or greater interest in
the income of such corporation or other business entity or the ability otherwise
of a party to secure that the affairs of such corporation or other business
entity are managed in accordance with its wishes.
1.2 "Agreement" shall mean this Agreement and any exhibits, appendices,
attachments or addenda hereto, and any renewals or extensions of this Agreement.
1.3 "Aventis R&T Intellectual Property" shall mean and include all
patentable and unpatentable inventions, ideas, discoveries, improvements, design
rights, semiconductor mask works, works of authorship, trade secrets, know-how
and any equivalents thereof which are in existence as of the Effective Date or
thereafter, as are necessary to make, have made, use or sell a Product and are
owned by or licensed to Aventis R&T. In the event any patentable and
-1-
<PAGE>
unpatentable inventions, ideas, discoveries, improvements, design rights,
semiconductor mask works, works of authorship, trade secrets, know-how and any
equivalents thereof which are in existence as of the Effective Date or
thereafter, as are necessary to make, have made, use or sell a Product and are
owned by or licensed to Affiliates of Aventis R&T, Aventis R&T shall use its
best efforts to secure for Nanogen a worldwide, royalty-free license or covenant
not to sue from such Affiliate(s).
1.3 "Aventis R&T Patent Rights" shall mean all patents and patent
applications owned by or licensed to Aventis R&T, which are in existence as of
the Effective Date or thereafter, and which contain a claim necessary to make,
have made, use or sell a Product, including all divisionals, continuations,
continuations-in-part, re-examinations, reissues, and all foreign equivalents of
any of the foregoing in whole or in part. In the event any patents and patent
applications owned by or licensed to Affiliates of Aventis R&T which are in
existence as of the Effective Date or thereafter, and which contain a claim
necessary to make, have made, use or sell a Product, including all divisionals,
continuations-in-part, re-examinations, reissues, and all foreign equivalents of
any of the foregoing in whole or in part, Aventis R&T shall use its best efforts
to secure for Nanogen a worldwide, royalty-free license or covenant not to sue
from such Affiliate(s).
1.4 "Effective Date" shall mean November 1, 1999.
1.5 "Executive Committee" shall mean a committee which shall (i) be
responsible for overseeing the Research Management Committee, (ii) set strategic
goals under this Agreement, (iii) approve annual budgets for the Research
Program, (the budget for the period from the Effective Date through December 31,
2000 (the "Initial Term") is set forth in Exhibit A hereto), (iv) establish
research milestones and (v) decide when milestones have been completed. The
Executive Committee shall consist of three (3) members appointed by Nanogen and
three (3) members appointed by Aventis R&T. All decisions of the Executive
Committee must be by unanimous consent of all members of the Executive
Committee. In consideration of the fact that Affiliates of Aventis R&T may have
an interest in the progress of the research and development activities
hereunder, the parties will grant a limited number of Aventis R&T Affiliate
senior management or technical representatives non-voting visitation rights to
attend Executive Committee meetings. Aventis R&T will provide Nanogen with
advance written notice of the names and titles of any such visitors pursuant to
this Paragraph.
1.6 "Nanogen Intellectual Property" shall mean and include all
patentable and unpatentable inventions, ideas, discoveries, improvements, design
rights, semiconductor mask works, works of authorship, trade secrets, know-how
and any equivalents thereof which are in existence as of the Effective Date or
thereafter, are necessary to make, have made, use or sell a Product and are
owned by or licensed to Nanogen or its Affiliates.
1.7 "Nanogen Patent Rights" shall mean all patents and patent
applications owned by or licensed to Nanogen or its Affiliates which are in
existence as of the Effective Date or thereafter, and which contain a claim
necessary to make, have made, use or sell a Product, including all divisionals,
continuations, continuations-in-part, re-examinations, reissues, and all foreign
equivalents of any of the foregoing in whole or in part.
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<PAGE>
1.8 "Products" shall mean products or applications developed pursuant
to this Agreement utilizing jointly developed technology.
1.9 "Program Inventions" shall mean and include all patentable and
unpatentable inventions, ideas, discoveries, improvements, design rights,
semiconductor mask works, works of authorship, trade secrets, know-how and any
equivalents thereof, and any patent applications or patents based thereon, made
or conceived by either party during and as a result of the Research Programs,
all of which shall be identified in Exhibit B to this Agreement, which Exhibit
shall be amended from time to time as warranted.
1.10 (a) "Reimbursable Costs" shall mean all direct and indirect costs
incurred by Nanogen in performing its obligations under this Agreement, which
may include without limitation, as applicable:
(i) salaries and wages,
(ii) payroll taxes,
(iii) contract labor,
(iv) fringe benefits,
(v) expenses incurred in occupying facilities (including
leasehold improvements) and equipment-related expenses, excluding
depreciation and amortization expenses,
(vi) recruitment and relocation,
(vii) communications expense,
(viii) supplies,
(ix) development and prototype materials,
(x) freight and transportation,
(xi) training and education,
(xii) travel expenses,
(xiii) data processing costs,
(xiv) patent, trademark and license fees and filing,
prosecution and maintenance expenses for Program Inventions as
set forth in Exhibit B,
(xv) insurance,
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<PAGE>
(xvi) professional services,
(xvii) depreciation and amortization of facilities
(including leasehold improvements) and equipment,
(xviii) a financing charge for capital acquisitions made by
Nanogen for use in performing work under this Agreement,
(xix) outside purchased services,
(xx) sales and use taxes (including such taxes applicable to
the acquisition, use, transfer or deemed transfer of property),
(xxi) periodic lease and rental payments under capital or
financing leases,
(xxii) costs of applying for regulatory approvals on Products
approved by the Executive Committee, and fees payable to governmental
agencies, including the United States Food and Drug Administration (the
"FDA") and comparable foreign regulatory authorities, including
expenses resulting from generation of chemical, toxicological,
microbiological and pharmacological data and techniques, clinical data
and product formulations and specifications, and
(xxiii) periodic and special reports, including reports to the
Research Management Committee.
(b) In determining Reimbursable Costs, Nanogen will employ the
following accounting policies:
(i) General use capital equipment, facilities and leasehold
improvements will be assigned an estimated economic useful life and
salvage value, if any, and depreciation and amortization will be
computed using the straight-line method. Depreciation and amortization
will be allocated to Reimbursable Costs under this Agreement directly
or through overhead rates applied to direct head count.
(ii) Such capital equipment purchased pursuant to agreement
between both parties for use in connection with this Agreement will be
charged directly against the budget in the quarter the expense was
incurred.
(iii) Total facilities expenses of Nanogen, excluding
leasehold improvement amortization allocated to specific functional
areas and net of any sublease revenues, will be allocated to
Reimbursable Costs under this Agreement based on the ratio of direct
personnel engaged in work under this Agreement to the total Nanogen
head count.
(iv) General and administrative expenses of Nanogen will be
allocated to this Agreement directly or based on the ratio of total
Reimbursable Costs to total operating expenses of Nanogen, excluding
(in both instances) general and
-4-
<PAGE>
administrative expenses subject to such allocation, as agreed between
the Controllers of both parties.
(v) All other indirect expenses not covered in Paragraphs (i)
through (iv) of this Paragraph 1.11(b) which are in support of the
Research Program will be allocated to Reimbursable Costs under this
Agreement through overhead rates applied to Nanogen direct head count,
as agreed between the Controllers of both parties.
(c) The term "capital acquisition" as used herein shall mean that
portion of capital equipment, facilities, leasehold improvements or other
property, whenever acquired by Nanogen, which are capitalized on Nanogen's
accounting records and which are either: (i) purchased directly by Nanogen; (ii)
financed by Nanogen under a conditional sale contract; (iii) financed by Nanogen
through a secured loan; or (iv) assets constructed in-house by Nanogen. Assets
acquired under capital or financing leases will not be considered capital
acquisitions for purposes of this Paragraph.
(d) With respect to capital acquisitions financed by Nanogen with
specific borrowing, the financing charge referred to above will be in the amount
and at the time of the actual financing costs incurred by Nanogen. With respect
to capital acquisitions not financed by Nanogen with specific borrowing, the
financing charge will be based on the prime lending rate in effect from time to
time at Citibank N.A., New York, New York, plus two (2) percentage points, to
the extent permitted by applicable law, applied to Nanogen's net book value.
"Net book value" is defined as the gross capital acquisition value excluding
capital acquisitions financed by Nanogen with specific borrowing, less related
accumulated depreciation and amortization. The financing charge for each billing
period will be prorated to the extent depreciation or amortization of the
capital acquisitions has been allocated to work other than work under this
Agreement during such period. The financing charge will be calculated monthly
based on the net book value at the end of the preceding fiscal month.
1.12 "Research Management Committee" shall mean a committee which shall
be responsible for preparing the Research Programs and supervising, managing and
monitoring the progress of the Research Programs, for conducting marketing
studies and for facilitating the open exchange of information between the
parties. The Research Management Committee shall consist of two (2) employees of
Aventis R&T and two (2) employees of Nanogen, at least one of whom from each
company shall be at the research director level (or equivalent) or higher.
Decisions that are not taken unanimously by the Research Management Committee
are to be referred to the Executive Committee for resolution. In consideration
of the fact that Affiliates of Aventis R&T may have an interest in the progress
of the research and development activities hereunder, the parties will grant a
limited number of Aventis R&T Affiliate senior management or technical
representatives non-voting visitation rights to attend Research Management
Committee meetings. Aventis R&T will provide Nanogen with advance written notice
of the names and titles of any such visitors pursuant to this Paragraph.
1.13 "Research Programs" shall consist of the HTS Kinase Assay Program
and the Gene Expression Assay Program and shall mean the cumulative endeavors of
the parties to produce Products in accordance with the specifications,
timetables, milestones, reports and deliverables, as set forth in Exhibit C
hereto, as it may be amended from time to time.
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<PAGE>
2. RESEARCH PROGRAMS
2.1 Each of Aventis R&T and Nanogen shall use reasonable efforts to
perform their respective activities in accordance with the Research Programs.
Subject to the terms and conditions of this Agreement, Aventis R&T and Nanogen
are free to independently develop, market and sell any products other than
Products.
2.2 Each of Aventis R&T and Nanogen shall promptly notify the other
party, in writing, through the Research Management Committee, of the existence
of any new Program Inventions.
2.3 The Research Management Committee shall meet from time to time, but
at least once every three (3) months during the term of this Agreement,
alternating between the headquarters of Aventis R&T and Nanogen or at a mutually
agreed location or by telephonic or videoconference, to: (a) review progress and
ongoing resource allocation and budgeting matters of the Research Programs; (b)
amend the Research Programs as agreed by the parties; (c) disclose Program
Inventions which have not previously been disclosed in accordance with Paragraph
2.2; and (d) review the status of patent filings with respect to Program
Inventions. All decisions taken by the Research Management Committee must be by
unanimous consent of all the members of the Research Management Committee. In
order to facilitate the disclosure of Program Inventions and the review of the
status of patent filings with respect to Program Inventions, patent attorneys
for Aventis R&T and Nanogen may participate in all such meetings.
2.4 Within five (5) business days following each meeting pursuant to
Paragraph 2.3, the Research Management Committee shall cause to be prepared a
written summary of such meeting, which summary shall include, at a minimum: (a)
a list of all Program Inventions which have come into existence since the
Effective Date or since the previous meeting, whichever is applicable; (b) all
patent filings with respect to Program Inventions since the Effective Date or
since the previous meeting, whichever is applicable; and (c) a report regarding
the progress of the Research Programs, which shall include the tracking of the
Research Program to budget and a report on any material budgetary implications
for changes to the Research Program. Such written summary shall be provided to
the Executive Committee.
2.5 The Executive Committee shall meet from time to time, but at least
once every three (3) months during the term of this Agreement, alternating
between the headquarters of Aventis R&T and Nanogen, a mutually agreed location
or by telephonic or video conference, to: (a) receive a report on the progress
of the Research Programs by the Research Management Committee; (b) review the
strategic goals pursuant to this Agreement; (c) approve annual budgets under the
Research Programs and review the progress of the Research Programs against the
budget; (d) establish, review and revise milestones where appropriate, and (e)
determine the level of progress toward achievement of milestones and determine
milestone completion. Within five (5) business days after each meeting, the
Executive Committee shall cause minutes to be prepared and distributed to each
party accurately documenting such meeting.
2.6 Aventis R&T and Nanogen may, upon reasonable notice during normal
business hours, (a) consult informally, during such visits and by telephone or
videoconference, with personnel of the other party performing work on the
Research Programs, and (b) with the other
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party's prior approval, which approval shall not be unreasonably withheld,
visit the sites of any tests or experiments being conducted by such other
party in connection with the Research Programs, but only to the extent in
each case as such trials or other experiments relate to the Research
Programs. On such visits an employee of the host company conducting the
research or development activities shall accompany the employee(s) of the
visiting party. If requested by the visiting party, the other party shall
cause appropriate individuals working on the Research Programs to be
available for meetings at the location of the facilities where such
individuals are employed at times reasonably convenient to the party
responding to such request. All information revealed to representatives of
Aventis R&T and Nanogen during the visits and consultations provided for in
this Paragraph 2.5 shall be treated as confidential information in accordance
with Paragraph 5 of this Agreement.
3. PAYMENT.
3.1 Upon execution of this Agreement, Aventis R&T shall pay Nanogen an
up-front fee of Two Million Dollars ($2,000,000) (the "Up Front Fee").
3.2 Aventis R&T shall pay all of its own research and development costs
and shall pay all of Nanogen's Reimbursable Costs incurred in performing its
obligations under this Agreement (the "Fee"). Neither party makes any warranty
that these costs and fees will be sufficient to complete the Research Program.
The Fee shall be payable by Aventis R&T to Nanogen as follows:
(a) The budget for the Initial Term is attached as Exhibit A. Funding
for the Initial Term shall be guaranteed by Aventis R&T. In the event this
Agreement is extended beyond its Initial Term, the Research Management Committee
shall develop successive annual budgets for the Research Programs, including
anticipated quarterly expenditures by each party. The Research Management
Committee shall meet at least ninety (90) days prior to the expiration of the
Initial Term to determine whether the Agreement will be extended through
calendar year 2001 and, if so, to prepare an annual budget for that annual
period. The Research Management Committee shall submit the final budget for
calendar year 2001 to the Executive Committee for its review and approval at
least forty-five (45) days prior to the expiration of the Initial Term. The
Executive Committee shall review such budget and inform the Research Management
Committee of its determination with respect to same within thirty (30) days
following its receipt of same. If the budget is not approved, the Research
Management Committee shall confer with the Executive Committee to attempt to
develop a mutually acceptable budget. If the Executive Committee cannot resolve
the dispute, then such dispute shall be resolved in accordance with the
provisions of Paragraph 13 hereof. Unless otherwise agreed in writing between
the parties, the maximum funding from Aventis R&T for the Research Programs,
including the Up Front Fee, shall not exceed Twelve Million Dollars
($12,000,000).
(b) The Fee shall be payable to Nanogen in quarterly installments
commencing on November 1, 1999. Each quarterly installment shall be due not
later than five (5) business days following the first day of each quarter.
Should a major positive balance arise due to underuse of the budget, this will
be balanced with the fourth quarter payment in each year. All installments shall
be based upon an estimate of the Reimbursable Costs expected to be incurred by
Nanogen during its next quarterly period beginning on such date, up to a maximum
of Nanogen's budgeted amount for such quarter. Such estimate shall be set forth
in an invoice prepared by Nanogen in
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reasonable detail, signed by a duly authorized officer of Nanogen and
submitted to the Research Management Committee at least twenty (20) days
prior to the beginning of the quarterly period with respect to which such
payment is to be made. Each such invoice shall be due and payable in full by
Aventis R&T prior to the beginning of such quarterly period. Beginning with
the second invoice under this Agreement, such invoice shall include a
reconciliation and adjustment for the period covered by the preceding invoice
to reflect any difference between actual Reimbursable Costs incurred by
Nanogen and estimated Reimbursable Costs for such period, up to a maximum of
Nanogen's budgeted amount for such quarter. Any amounts in excess of the
budgeted amount shall be subject to the review and approval of the Executive
Committee.
3.3 If Aventis R&T fails to make prompt and timely payment, Nanogen may
give written notice thereof, and unless Aventis R&T within fifteen (15) days
following receipt of such notice makes such payment, Nanogen may at any time
thereafter until Aventis R&T makes such payment suspend the research and
development services under this Agreement on written notice to Aventis R&T.
3.4 In the event Nanogen, in the course of its research under this
Agreement, is required to lease equipment which Nanogen would ordinarily not
otherwise be required to lease, and Aventis R&T agrees to such lease, Aventis
R&T will be responsible for such lease payments.
4. REPORTS AND RECORDS.
4.1 Aventis R&T and Nanogen shall provide to the Research Management
Committee within forty-five (45) days following the end of each quarterly
period, a report in such reasonable detail as the Research Management Committee
may request setting forth:
(a) the Reimbursable Costs incurred by Nanogen and the costs incurred
by Aventis R&T in performing its obligations under the Research Program during
such period;
(b) the work performed by such party during such period; and
(c) the status of the research and development at the end of the
period.
4.2 Nanogen shall keep and maintain, in accordance with generally
accepted accounting principles and practices, proper and complete records and
books of account documenting all Reimbursable Costs. Each party agrees to permit
either nationally recognized certified public accountants or Controllers from
the other party to verify on a once annually basis the Reimbursable Costs or
costs billed or incurred pursuant to this Agreement; and Nanogen shall provide
annually a certification by nationally recognized certified public accountants
or its internal Controller as to Reimbursable Costs billed to Aventis R&T in
that year. Aventis R&T will keep confidential, and will not disclose to any
third party, except such disclosures as may be required by law, without the
prior written consent of Nanogen, information in statements delivered to Aventis
R&T or obtained by Aventis R&T through access of its independent certified
public accounting firm or Controller to the books and records of Nanogen.
Aventis R&T shall provide similar access and similar certifications to Nanogen
regarding its costs incurred under the Research Programs and Nanogen shall
similarly keep such information confidential.
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5. CONFIDENTIALITY AND NON-DISCLOSURE.
5.1 That certain Mutual Confidential Disclosure Agreement effective as
of February 20, 1997, between Aventis R&T and Nanogen, (the "Confidentiality
Agreement"), shall remain in full force and effect.
6. INTELLECTUAL PROPERTY LICENSES.
6.1 (a) Aventis R&T hereby grants to Nanogen, solely during the term of
this Agreement, a worldwide, royalty-free, nonexclusive license in and to
Aventis R&T Intellectual Property and Aventis R&T Patent Rights, solely for use
in research and development activities pursuant to the Research Programs under
this Agreement.
(b) Nanogen hereby grants to Aventis R&T, solely during the
term of this Agreement, a worldwide, royalty-free, nonexclusive license in and
to Program Inventions, Nanogen Intellectual Property and Nanogen Patent Rights,
solely for use in research and development activities pursuant to the Research
Programs under this Agreement.
6.2 Except as provided therein, the licenses granted in accordance with
Paragraphs 6.1(a) and (b) do not include a right to grant sublicenses.
6.3 In the event that any substantial and continuing infringement of
any of the Aventis R&T Patent Rights or Nanogen Patent Rights licensed hereunder
comes to the attention of either party hereto, such party shall promptly notify
the Executive Committee, which Committee will determine an appropriate action in
accordance with its authority.
7. INTELLECTUAL PROPERTY AND PATENT RIGHTS.
7.1 The entire right, title and interest in and to all Program
Inventions shall be owned by Nanogen, subject to the license granted to Aventis
R&T pursuant to Paragraph 6.1 (b).
7.2 Each party hereto promptly shall disclose to the other party the
making, conception or reduction to practice of Program Inventions by employees
or others acting on behalf of such party.
7.3 Following any disclosure of Program Inventions pursuant to
Paragraph 2.2 and Paragraph 7.2, Nanogen shall, in its sole discretion,
determine whether patent applications should be prepared and filed for such
disclosed Program Inventions. Nanogen shall inform Aventis R&T of the filing of
all patent applications relating to Program Inventions. In the event Nanogen
determines not to file a patent application covering a particular Program
Invention in a particular country or countries, Aventis R&T may, after written
waiver by Nanogen, file such patent application in such country or countries and
shall pay, without right to reimbursement thereof, all costs and expenses for
filing, prosecution and maintenance of such patent applications in such country
or countries. Such patent applications filed hereunder shall remain, for
purposes of this Agreement, Program Inventions as defined herein.
7.4 Upon request, each party shall execute and deliver to the other all
descriptions, applications, assignments and other documents and instruments as
are necessary or proper to
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carry out the provisions of Paragraphs 7.1, 7.2 and 7.3 without further
compensation, and the parties shall cooperate with and assist each other or
their nominees in all reasonable ways and at all reasonable times, including,
but not limited to, testifying in all legal proceedings, signing all lawful
papers and in general performing all lawful acts reasonable, necessary or
proper, to aid in obtaining, maintaining, defending and enforcing all lawful
patents, copyrights, trade secrets, and related know-how.
7.5 Except as otherwise provided in this Agreement, under no
circumstances shall either party, as a result of this Agreement, obtain any
ownership interest or other right in any technology, know-how, trade secrets,
patents, pending patent applications or products of the other party, including
items owned, controlled or developed by the other, or transferred by the other
to such party at any time pursuant to this Agreement. During the term of this
Agreement and upon its expiration or termination, all Program Inventions arising
hereunder shall be the sole property of Nanogen subject to the license granted
to Aventis R&T pursuant to Paragraph 6.1 (b). It is understood and agreed by the
parties hereto that this Agreement does not grant to either party any license or
other right, other than the licenses granted in Paragraph 6 or the assignments
granted in this Paragraph 7.
7.6 (a) During the term of this Agreement, Aventis R&T and Nanogen
each acknowledge each other's interest in publishing certain of its results
to obtain recognition within the scientific community and to advance the
state of scientific knowledge. Each party also recognizes the mutual interest
in obtaining valid patent protection and protecting business interests.
Consequently, each party, its employees or consultants wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the
Research Program (the "Publishing Party") shall transmit to the Research
Management Committee a copy of the proposed written publication at least
forty-five (45) days prior to submission for publication, or an outline of
such oral disclosure at least fifteen (15) days prior to presentation. The
Research Management Committee shall have the right (i) to propose
modifications to the publication for patent reasons and (ii) to request a
reasonable delay in publication in order to protect patentable information.
(b) If the Research Management Committee requests such a delay, the
Publishing Party shall delay submission or presentation of the publication for a
period of ninety (90) days to enable Nanogen to prepare and file patent
applications protecting its rights in such information to be filed in accordance
with this Article 7. Upon the expiration of forty-five (45) days, in the case of
proposed written disclosures, or fifteen (15) days, in the case of proposed oral
disclosures, from transmission to the Research Management Committee, the
Publishing Party shall be free to proceed with the written publication or the
presentation, respectively, unless the Research Management Committee has
requested the delay described above.
8. TERM AND TERMINATION.
8.1 The Initial Term of this Agreement shall be for the period from the
Effective Date through December 31, 2000 with an option to extend the term of
this Agreement for additional one (1) year periods upon mutual agreement of
Aventis R&T and Nanogen. Funding for the Initial Term shall be guaranteed by
Aventis R&T. This Agreement will terminate upon the earliest of:
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(a) the institution of voluntary or involuntary proceedings by or
against either party in bankruptcy, or under any insolvency law, or for
corporate reorganization pursuant to Chapter 11 of the Bankruptcy Code or
similar provision, the appointment of a receiver, or petition for the
dissolution of such party for the benefit of creditors;
(b) (i) the date mutually agreed to in writing for termination by both
parties or (ii) the date Aventis R&T provides written notice of termination for
any reason after the expiration of the Initial Term, subject to the proviso in
both (i) and (ii) above that funding for the Initial Term shall be guaranteed by
Aventis R&T , and further subject to the proviso that, in the event the
Agreement is not extended beyond the Initial Term or is terminated for any
reason during the 2001 calendar year, the provisions of Paragraph 8.3 shall
apply; or
(c) as otherwise provided in this Agreement.
8.2 Subject to the guaranteed funding requirement for the Initial Term
as set forth in Paragraphs 3.2 (a) and 8.1 above and subject to the payments
required under Paragraph 8.3 below, this Agreement may be terminated by either
party upon default or breach of a material obligation or condition by the other
party, such termination being effective sixty (60) days after receipt by the
alleged defaulting or breaching party of written notice of such termination
under this Paragraph specifying the default or breach; provided, however, that
if the default or breach is cured or shown to be nonexistent within the sixty
(60) day period after receipt of written notice, the notice shall be deemed
automatically withdrawn and of no effect.
8.3 In case the Agreement is not extended beyond the Initial Term or,
if extended, is terminated for any reason at any time during the first six (6)
months of the 2001 calendar year, Aventis R&T shall be obliged to pay Nanogen
for Reimbursable Costs at a maximum of the agreed budgeted level for three (3)
months following such notice. In case the Agreement is extended beyond the
Initial Term but is terminated for any reason at any time during the last six
(6) months of the 2001 calendar year, Aventis R&T shall be obliged to pay
Nanogen for Reimbursable Costs at a maximum of the agreed budgeted level up to
and including December 31, 2001. Any excess budget already prepaid as of the
date of termination shall be reconciled against the amounts due hereunder. In
either case, Nanogen shall use it reasonable efforts to minimize such costs.
8.4 All records required to be maintained pursuant to Paragraph 4.2
shall be retained for a period of at least three (3) years following the
termination of this Agreement.
9. CONTEMPLATED COMMERCIAL TERMS.
9.1 In the event the Agreement is extended beyond the Initial Term and
Aventis R&T has committed to fully funding the Agreement through calendar year
2001, the parties will meet no later than October 1, 2001 to discuss the terms
for commercialization of Products hereunder. As currently contemplated, the
parties agree as follows:
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<PAGE>
(a) Nanogen will retain full commercial rights to make, use,
have made and sell Products. In the event Nanogen commercializes HTS Kinase
Assay Products, Nanogen shall pay Aventis R&T a royalty of *** Nanogen will not
be obligated to pay Aventis R&T any royalties on the sale of Gene Expression
Products hereunder.
(b) Aventis R&T will grant to Nanogen a perpetual, worldwide,
royalty-free non-exclusive license, without the right to sublicense except to
its Affiliates and manufacturing partners, in and to all Aventis R&T
Intellectual Property and Aventis R&T Patent Rights and will secure for Nanogen
and its Affiliates all necessary licenses or covenants not to sue from Aventis
R&T Affiliates to enable Nanogen and its Affiliates to make, have made, use and
sell Products.
(c ) Nanogen will grant to Aventis R&T a perpetual worldwide,
royalty-free, non-exclusive license, without the right to sublicense except to
its Affiliates, in and to all Program Inventions, Nanogen Intellectual Property
and Nanogen Patent Rights solely for the noncommercial, research-only use in
connection with internal HTS Kinase Assays and Gene Expression Assays. (For
clarification, the license to Aventis R&T and its Affiliates covers the use of
the enumerated intellectual property rights for internal use to make and use
assays for the research and development of commercial drug products, but does
not include the right to sell the assays or otherwise derive profit from the
assays from third parties).
(d) The field of the contemplated license to Aventis R&T and
its Affiliates will include only HTS Kinase Assay and Gene Expression Assay
applications. No other rights are granted. If the parties wish to expand the
field of the contemplated license to include additional applications beyond HTS
Kinase Assays and Gene Expression Assays, they will engage in good faith
discussions toward concluding such a license on terms to be agreed.
(e) It is the intention of the parties to conclude definitive
documents reflecting the foregoing terms in this Paragraph 9, and other terms to
be agreed, within ninety (90) days after the expiration of this Agreement.
10. REPRESENTATIONS AND WARRANTIES.
10.1 Aventis R&T hereby represents and warrants to Nanogen that it has
full authority and power to enter into this Agreement, that it has secured any
and all necessary approvals, permits or consents deemed necessary or advisable
for the consummation of the transactions contemplated hereby and that, upon
execution by Aventis R&T and Nanogen, this Agreement shall immediately be a
valid and binding obligation of Aventis R&T, enforceable in accordance with its
terms.
10.2 Nanogen hereby represents and warrants to Aventis R&T that it has
full authority and power to enter into this Agreement, that it has secured any
and all necessary approvals, permits or consents deemed necessary or advisable
for the consummation of the transactions contemplated hereby and that, upon
execution by Aventis R&T and Nanogen, this Agreement shall immediately be a
valid and binding obligation of Nanogen enforceable in accordance with its
terms.
*** - Confidential treatment requested.
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<PAGE>
11. DISCLAIMERS.
11.1 THE PARTIES EACH HEREBY DISCLAIM ANY AND ALL REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THEIR RESPECTIVE RESEARCH AND
DEVELOPMENT EFFORTS HEREUNDER, INCLUDING, WITHOUT LIMITATION, (A) WHETHER ANY
PRODUCT CAN BE SUCCESSFULLY DEVELOPED BY EITHER OF THE PARTIES, (B) WHETHER THE
PRODUCTS AS DEVELOPED BY EITHER OF THE PARTIES HEREUNDER CAN BE COMMERCIALLY
MARKETED, (C) THE ACCURACY, PERFORMANCE, UTILITY, RELIABILITY, TECHNOLOGICAL OR
COMMERCIAL VALUE, COMPREHENSIVENESS, MERCHANTABILITY OR SUITABILITY FOR ANY
PARTICULAR PURPOSE WHATSOEVER OF ANY PRODUCT, AND (D) WHETHER ANY PRODUCTS
MANUFACTURED WILL NOT INFRINGE ANY THIRD-PARTY PATENT, COPYRIGHT OR SIMILAR
RIGHT.
12. INSURANCE
12.1 The parties shall each, at all times during the term of this
Agreement, carry and maintain such insurance as each believes to be commercially
reasonable against risks from actions contemplated under this Agreement. Such
insurance shall be with insurers of recognized responsibility and may be carried
under blanket policies maintained by each of the parties.
13. NOTICES
13.1 Any notice, request, demand, waiver, consent, approval, or other
communication which is required or permitted hereunder shall be in writing and
shall be deemed given only if delivered personally, by facsimile (upon receipt
of appropriate written confirmation) or sent by registered or certified mail,
return receipt requested, or by overnight courier service, postage prepaid as
follows:
If to Nanogen:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Attn: Chief Executive Officer
Facsimile: (858) 410-4949
with a copy to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Attn: General Counsel
Facsimile: (858) 410-4949
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and if to Aventis R&T:
Aventis Research & Technologies GmbH & Co. KG
Industrial Park Hoechst
Gebaude G830
D-65926 Frankfurt am Main
Attn: Dr. Rainer Henning
Facsimile - 011-49-69-309588
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so received (in case of personal delivery, facsimile or overnight
courier service delivery) or upon refusal to accept delivery thereof.
14. DISPUTE RESOLUTION.
14.1 Every reasonable effort will be made by the parties hereto to
resolve disputes arising hereunder with litigation as a last resort. Any dispute
arising out of or relating to this Agreement which is not resolved by the
Executive Committee or is not within the purview of the Executive Committee
shall be submitted to the Chief Executive Officer of Nanogen and the President
of Aventis R&T for resolution. If those officers cannot resolve the dispute with
twenty (20) days of submission of such dispute, then within ten (10) days
thereafter, either party may, but shall not be obligated to, initiate nonbinding
mediation of the controversy or claim under the Center for Public Resources
Model ADR Procedures for Mediation of Business Disputes attached hereto as
Exhibit D (the "CPR Procedures"). Once the mediation is initiated by one party,
the other party agrees to participate in and conduct mediation in accordance
with the CPR Procedures in good faith and not to pursue other remedies while
such mediation is proceeding. If neither party initiates mediation within ten
(10) days of the officers referenced above failing to resolve the dispute, or if
the dispute has not been resolved by such mediation within sixty (60) days
following initiation of mediation, either party may pursue all available
remedies. All applicable statutes of limitations and defenses based upon the
passage of time shall be tolled while the negotiation and mediation procedures
set forth in this Paragraph 14 are pending. The parties will take such action,
if any, as may be reasonably be required to effectuate such tolling.
Notwithstanding the foregoing, the remedy at law for any breach of the
provisions of this Agreement may be inadequate, and, accordingly, an aggrieved
party seeking equitable relief or remedies for such a breach shall have the
right and is hereby granted the privilege, in addition to all other remedies at
law or in equity, to proceed directly in a court of competent jurisdiction to
seek temporary or preliminary equitable relief. Each party shall pay its own
costs incurred in attempting to resolve a dispute pursuant to the mediation
procedures set forth in this Paragraph 14 without the right to recover such
costs from the other party and shall share equally the cost of mediation.
15. MISCELLANEOUS.
15.1 This Agreement and the Confidentiality Agreement together
constitute the entire understanding among the parties with respect to the
subject matter hereof and supersede and
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replace all prior agreements, understandings, writings and discussions
between the parties relating to said subject matter.
15.2 This Agreement may be amended only by a written instrument
executed by the parties hereto. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect its rights
at a later time to enforce the same. No waiver by any party of any condition or
term in any one or more instances shall be construed as a further or continuing
waiver of such condition or term or any other condition or term.
15.3 The terms and provisions contained in this Agreement are for the
sole benefit of the parties and their successors and assigns, and they shall not
be construed as conferring and are not intended to confer any rights on any
other persons.
15.4 Any delays in or failure of performance by any party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations, or laws
of any government; strikes or other considered acts of workers; fires; floods;
explosions; riots; wars; rebellion; and sabotage; and any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
15.5 This Agreement shall not be assignable by either party, nor shall
any of its obligations hereunder be delegated to a third party, without the
prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. In the event that the other party does not
respond to a request from a party for consent to an assignment or delegation
within fifteen (15) days following written notice requesting such consent, such
party's shall be deemed to be granted. In addition, a condition to any
assignment or delegation hereunder shall be that the successor in interest
expressly agrees in writing to assume the assigning or delegating party's
obligations hereunder. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
permitted successors and assigns. No such assignment shall release the assigning
party from its obligations hereunder. Notwithstanding the foregoing, the consent
of the other party shall not be required in connection with a merger involving
either Aventis R&T or Nanogen or with respect to an assignment of this Agreement
in connection with, as the case may be, the acquisition, sale of all or
substantially all of the assets of Aventis R&T or Nanogen, or a change of
control or similar transaction.
15.6 If any provision(s) of this Agreement are or become invalid, or
are ruled illegal by any court of competent jurisdiction, or are deemed
unenforceable under then current applicable law from time to time in effect
during the term hereof, it is the intention of the parties hereto that the
remainder of this Agreement shall not be affected thereby. It is further the
intention of the parties that in lieu of each such provision which is invalid,
illegal, or unenforceable, there be substituted or added as part of this
Agreement, a provision which shall be as similar as possible in economic and
business objectives as intended by the parties to such invalid, illegal, or
unenforceable provision, but which shall be valid, legal, and enforceable, and
shall be mutually agreed by the parties.
15.7 This Agreement shall be governed by and construed in accordance
with the laws of the State of California without regard to its choice of laws
principles. This Agreement shall be
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construed and interpreted without application of any principle or rule to the
effect that ambiguities are to be construed against the party responsible for
drafting the agreement. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning of this Agreement.
15.8 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement through
duly authorized representatives as of the Effective Date.
NANOGEN, INC.
By /s/ Harry J. Leonhardt
---------------------------------------------
Harry J. Leonhardt
Sr. Vice President and General Counsel
- ----------------------------------------------
(Print Name and Title)
Date September 24, 1999
-----------------------------------------
AVENTIS RESEARCH & TECHNOLOGIES GMBH & CO. KG
By /s/ Dr. Wolfgang Schuller
---------------------------------------------
Wolfgang Schuller
President, CFO
- ----------------------------------------------
(Print Name and Title)
Date September 27, 1999
- ----------------------------------------------
AVENTIS RESEARCH & TECHNOLOGIES GMBH & CO. KG
By /s/ Rainer Henning
--------------------------------------------
Rainer Henning
Vice President Operative Research
- ----------------------------------------------
(Print Name and Title)
Date September 27, 1999
- ----------------------------------------------
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EXHIBIT A
BUDGET FOR INITIAL TERM
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
YEAR HTS KINASE ASSAY PROGRAM GENE EXPRESSION ASSAY PROGRAM
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
11/1/99 - 12/31/99 $ *** $ ***
01/01/00 - 12/31/00 $ *** $ ***
</TABLE>
*** - Confidential treatment requested
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EXHIBIT B
PROGRAM INVENTIONS
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EXHIBIT C
RESEARCH PROGRAMS
***
*** - Confidential treatment requested
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EXHIBIT D
CPR PROCEDURES
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CPR LEGAL PROGRAM
T O D E V E L O P A L T E R N A T I V E S T O L I T I G A T I O N
MODEL ADR PROCEDURES
MEDIATION OF BUSINESS DISPUTES
(Revised 1991)
CENTER FOR PUBLIC RESOUCES, INC.
366 Madison Ave. New York, NY 10017-3122 Tel (212) 949-6490 Fax (212)949-8859
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II. THE MODEL PROCEDURE
A. PROPOSING MEDIATION
Any party to a business dispute may unilaterally initiate a mediation
process by contacting the other party or parties, orally or in writing, and
suggesting the use of a neutral mediator to mediate efforts to arrive at a
resolution. If the parties have made a contractual commitment to mediate
disputes between them, or if they have subscribed to the CPR Corporate Policy
Statement on Alternatives to Litigation, that commitment or policy will be
invoked.
B. SELECTING THE MEDIATOR
Once the parties have agreed in principle to a mediation process, or at
least to seriously consider mediation, they will discuss the selection of a
mediator. Any party may suggest one or more candidates, or they may request a
neutral organization, such as CPR, to propose candidates. The mediator must be
selected by agreement of all parties.
Any candidate for the role of mediator shall promptly disclose to the
parties any circumstances known to him or her which would cause reasonable doubt
regarding the candidate's impartiality. Each party shall promptly disclose any
such circumstances to the other party or parties. These disclosure obligations
shall be continuing until the mediation is concluded. If any such circumstances
have been disclosed, before or after the individual's appointment as mediator,
the individual shall not serve, unless all parties agree.
The mediator's compensation rate will be determined before appointment.
Such compensation, and any other costs of the process, will be shared equally by
the parties, unless they otherwise agree. If a party withdraws but the procedure
continues, the withdrawing party will not be responsible for any costs incurred
after its withdrawal. Before appointment the mediator will assure the parties of
his or her availability to conduct the proceeding expeditiously.
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<PAGE>
C. GROUNDRULES OF PROCEEDING
Once a mediator has been selected and has agreed to serve, the
representatives of the parties will meet jointly with the mediator to discuss
the following groundrules and any different or additional groundrules the
mediator or a party wishes to propose as to the manner in which the process is
to be conducted.
1. The process is voluntary and non-binding
2. Each party may withdraw at any time after attending the first session and
prior to execution of a written settlement agreement.
3. The mediator shall be neutral and impartial.
4. The mediator controls the procedural aspects of the mediation. The parties
will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each party.
(b) The mediator will decide when to hold joint meetings with the parties and
when to hold separate meetings. The mediator will fix the time and place of
each session and the agenda, in consultation with the parties. There shall
be no stenographic record of any meeting. Formal rules of evidence will not
apply.
(c) The mediator may request that there be no direct communication between the
parties or between their attorneys without the concurrence of the mediator.
5. Each party may be represented by more than one person, e.g. a business
executive and an attorney. Participation of a business executive is to be
particularly encouraged. The mediator may limit the number of persons
representing each party. At least one representative of each party will be
authorized to negotiate a settlement of the dispute.
6. The process will be conducted expeditiously. Each representative will make
every effort to be available for meetings.
7. The mediator will not transmit information received from any party to
another party or any third party unless authorized to do so by the party
transmitting the information.
8. The entire process is confidential. The parties and the mediator will not
disclose information regarding the process, including settlement terms, to
third parties, unless the parties otherwise agree. The process shall be
treated as a compromise negotiation for purposes of the Federal Rules of
Evidence and state rules of evidence.
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<PAGE>
9. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, insofar as they can do so without
prejudicing their legal rights.
10. Unless all parties and the mediator otherwise agree in writing,
(a) the mediator will be disqualified as a witness, consultant or expert in any
pending or future investigation, action or proceeding relating to the
subject matter of the mediation (including any investigation, action or
proceeding which involves persons not party to this mediation); and
(b) The mediator and any documents and information in the mediator's possession
will not be subpoenaed in any such investigation, action or proceeding, and
all parties will oppose any effort to have the mediator and documents
subpoenaed.
11. If the dispute goes into arbitration, the mediator shall not serve as
an arbitrator, unless the parties and the mediator otherwise agree in
writing.
12. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
13. The mediator may obtain assistance and independent expert advice with
the agreement of and at the expense of the parties. The disclosures
required by the second paragraph of Section II.B. shall apply to
independent experts.
14. Neither CPR nor the mediator shall be liable for any act or omission
in connection with the mediation.
15. The mediator may withdraw at any time by written notice to the parties
(I) for overriding personal reasons, (ii) if the mediator believes
that a party is not acting in good faith, or (iii) if the mediator
concludes that further mediation efforts would not be useful.
16. At the inception of the mediation process, each party and
representative will agree in writing to all provisions of this Model
Procedure, as modified by agreement of the parties. A model Submission
Agreement is attached hereto as Appendix B.
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<PAGE>
D. PRESENTATION TO THE MEDIATOR
Upon entering into mediation each party will submit to the mediator a
statement summarizing the background and present status of the dispute and such
other material and information as it deems necessary to familiarize the mediator
with the dispute. Submissions may be made in writing and orally. The parties may
agree to submit jointly certain records and other materials.
The mediator may request any party to provide clarification and
additional information. The mediator may raise legal questions and arguments and
may request any party's attorney to brief legal issues.
The mediator may request each party, separately or at a joint meeting,
to present its case informally to the mediator.
The parties are encouraged to exchange written statements and other
materials they submit to the mediator. Such an exchange is likely to further
each party's understanding of the other party's viewpoint. Except as the parties
otherwise agree, the mediator shall keep confidential any submitted written
materials or information. The parties and their representatives are not entitled
to receive or review any such materials or information submitted to the mediator
by another party or representative, without the concurrence of the latter. At
the conclusion of the mediation process, upon request of a party the mediator
will return to that party all written materials and information which that party
had provided to the mediator.
E. EXCHANGE OF INFORMATION
If any party has a substantial need for documents or other material in
the possession of another party, the parties shall attempt to agree on the
exchange of requested documents or other material. Should they fail to agree,
either party may request a joint meeting with the mediator who shall assist the
parties in reaching agreement. At the conclusion of the mediation process, upon
the request of a party which provided documents or other material to one or more
other parties, the recipients shall return the same to the originating party
without retaining copies thereof.
-25-
F. NEGOTIATION OF TERMS
The mediator may promote settlement in any manner the mediator believes
is appropriate. Once the mediator is familiar with the case, the mediator will
hold discussions with the parties' representatives. The mediator will decide
when to hold joint meetings and when to meet or confer separately with each
party.
The parties are expected to initiate proposals for settlement unless,
by prior agreement, they expect the mediator to be the first to propose the
terms of settlement. Each party or the mediator shall provide a rationale for
any settlement terms proposed.
If the parties fail to develop mutually acceptable settlement terms,
before terminating the procedure the mediator may submit to the parties a final
settlement proposal which the mediator considers fair and equitable to all
parties. The parties will carefully consider the mediator's proposal and, at the
request of the mediator, will discuss the proposal with the mediator. If a party
does not accept the final proposal, it shall advise the mediator of the specific
reasons why the proposal is unacceptable.
Efforts to reach a settlement will continue until (a) a written
settlement is reached, or (b) the mediator concludes and informs the parties
that further efforts would not be useful, or (c) one of the parties or the
mediator withdraws from the process; provided that there are more than two
parties, the remaining parties may elect to continue following the withdrawal of
a party.
G. SETTLEMENT
If a settlement is reached, the mediator, or a representative of a
party, will draft a written settlement document incorporating all settlement
terms, including mutual general releases from all liability which may relate to
the subject matter of the dispute. This draft will be circulated among the
parties, amended as necessary, and formally executed.
If litigation is pending, the settlement may provide that the
parties will arrange for dismissal of the case promptly upon execution of the
settlement agreement. The parties also may request the court to enter the
settlement agreement as a consent judgment.
-26-
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