<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 2000
REGISTRATION NO. 333-45864
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
RIGEL PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 94-3248524
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation ororganization) Classification Code Number)
</TABLE>
240 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 624-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
JAMES M. GOWER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RIGEL PHARMACEUTICALS, INC.
240 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 624-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT L. JONES, ESQ. GREGORY C. SMITH, ESQ.
SUZANNE SAWOCHKA HOOPER, ESQ. ANDREA L. NICOLAS, ESQ.
COOLEY GODWARD LLP SCOTT JOACHIM, ESQ.
FIVE PALO ALTO SQUARE SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP
3000 EL CAMINO REAL 525 UNIVERSITY AVENUE, SUITE 220
PALO ALTO, CA 94306-2155 PALO ALTO, CA 94301
(650) 843-5000 (650) 470-4500
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box./ /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Registration No. 333-45864
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER 17, 2000
9,000,000 SHARES
[RIGEL LOGO]
COMMON STOCK
-----------------
RIGEL PHARMACEUTICALS, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING, AND NO ESTABLISHED PUBLIC MARKET CURRENTLY EXISTS FOR
OUR COMMON STOCK. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $8 AND $10.
-------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "RIGL."
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS RIGEL
-------- ------------- -----------
<S> <C> <C> <C>
PER SHARE................................................... $ $ $
TOTAL....................................................... $ $ $
</TABLE>
---------
RIGEL PHARMACEUTICALS, INC. HAS GRANTED THE UNDERWRITERS AN OPTION TO PURCHASE
UP TO AN ADDITIONAL 1,350,000 SHARES OF OUR COMMON STOCK TO COVER
OVER-ALLOTMENTS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON
, 2000.
-------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
ROBERTSON STEPHENS
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 27
Scientific Advisory Board................................... 45
Clinical Advisory Board..................................... 46
Management.................................................. 47
Related Party Transactions.................................. 60
Principal Stockholders...................................... 61
Description of Securities................................... 63
Shares Eligible for Future Sale............................. 66
Underwriters................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 70
Index to Financial Statements............................... F-1
</TABLE>
------------------------
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock. In this prospectus, the
"Company," "we," "us" and "our" refer to Rigel Pharmaceuticals, Inc.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS SELLING SHARES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
"Rigel" and the Rigel logo are trademarks of Rigel Pharmaceuticals, Inc.
Other trademarks and trade names appearing in this prospectus are the property
of their holders.
------------------------
Rigel was incorporated in Delaware on June 14, 1996. Our principal executive
offices are located at 240 East Grand Avenue, South San Francisco, California
94080. Our telephone number is (650) 624-1100. Our website is
http://www.rigel.com. The information found on our website is not intended to be
a part of this prospectus.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. WE URGE YOU TO READ THIS ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND OUR FINANCIAL
STATEMENTS AND THE NOTES TO THESE STATEMENTS.
OUR BUSINESS
We use post-genomics combinatorial biology technology to discover novel drug
targets. Post-genomics combinatorial biology technology is designed to identify
molecules which play an important role in regulating a human cell's response to
disease by testing a very large number of proteins in a very large number of
cells to determine which proteins will change the cell's response to the
disease. Our technology provides a new and rapid way to find those protein
molecules and to confirm or validate the role of those molecules in disease
without first knowing the identity or sequence of the genes involved. We can
identify those protein molecules that may be drug targets by creating a
disease-like setting that enables us to detect a change in the cellular
response. By creating a map of these protein molecules and their interactions in
cells that are involved in a disease process, we can select for drug development
protein targets that are specific to the diseases we study and reduce the
probability of developing drugs with significant side effects. After selecting
these targets, we continue drug development with the goal of developing small
molecule drugs. Small molecule drugs are chemical compounds which provide the
advantage that they can generally be administered orally. In our first three and
one-half years of research, we have succeeded in identifying 23 new drug targets
in nine of our ten programs and have generated compounds in six of our programs,
including compounds which are candidates for preclinical testing in two of these
programs. Our technology is applicable across a broad range of diseases and
disorders. We currently have programs in asthma/allergy, autoimmunity,
transplant rejection, rheumatoid arthritis, inflammatory bowel disease,
cancerous tumor growth and hepatitis C. We have a collaboration with
Pfizer Inc. and multi-year collaborations with Cell Genesys, Inc., Janssen
Pharmaceutica N.V. and Novartis Pharma AG. In addition, we have collaborated
with Neurocrine Biosciences, Inc. in order to obtain rights to a library of
small chemical compounds. We believe that our innovative technology and
corporate collaborations enable us to create value through the discovery of
novel drug targets.
THE PROBLEM
Pharmaceutical companies face enormous pressure to develop new drugs and are
actively seeking to develop drugs that act on previously unknown targets within
cells. Despite revolutionary advances made in molecular biology and genomics,
until recently only approximately 500 out of thousands of possible drug targets
have been identified, and there has been no efficient way to identify additional
appropriate targets for drug development. Efforts to identify the sequence of
the complete set of human genes have generated huge amounts of fundamentally
important genetic information, and these efforts have provided useful
information about which particular genes are associated with particular disease
conditions. However, there has been limited progress using this information to
identify drug targets quickly and systematically. The result is a shortage of
validated drug targets and limited tools to determine which new targets have
clinical promise.
OUR SOLUTION
Our drug target discovery process bypasses the need to know the identity or
sequence of the genes. We have developed two core technologies which we believe
enhance our ability to simultaneously identify and initially validate new drug
targets for further development.
Our retroviral technology introduces up to 100 million different peptides or
proteins into an equal number of normal or diseased cells and stimulates the
cells to induce a disease-like behavioral response. These cells are then sorted
at a rate of up to 60,000 cells per second to collect data on up to five
different parameters, which means that a sort of 100 million cells can be
completed in approximately half an hour. By analyzing the approximately
500 million resulting data points, we can rapidly identify those few cells
containing a protein that interacts with a protein target in a way that causes a
cell to change its behavior from diseased back to normal. We believe we can
identify the relatively few targets useful for identifying new drugs and
initially validate them in the context of a disease-specific cellular response.
Our pathway mapping technology enables us to map interactions between
proteins, identify specific proteins which bind with other proteins and select
targets for drug development that are specific to the disease
1
<PAGE>
we are seeking to affect, avoiding targets that have a role in other diseases or
cells. As a result of mapping the interactions of proteins in cells, we
establish comprehensive sets of these interactions, referred to as pathways,
which carry the information or signals necessary to regulate both diseased and
normal cells.
We believe that our technologies have a number of advantages over
traditional and genomics-based drug discovery approaches, including:
<TABLE>
<S> <C> <C> <C>
- improved target identification; - better informed target selection;
- rapid validation of protein targets; - more efficient compound screening; and
- improved pathway mapping; - reduced risk of failure in the drug development
process.
</TABLE>
OUR STRATEGY
Our strategy is to develop a large portfolio of drug candidates, out-license
drug candidates at a relatively late stage of development and focus on diseases
that represent large unmet medical needs. Also, we plan to focus on developing
small molecule drugs delivered to protein targets within cells and to establish
strategic collaborations with pharmaceutical and biotechnology companies to
enhance product development and commercialization. We structure our
collaboration agreements to permit multiple collaborations in each disease area
by focusing the scope of our agreements on disease pathways and targets.
PRODUCT DEVELOPMENT PROGRAMS
We currently have six product development programs in immune disorders,
three in cancer and one in infectious diseases:
IMMUNE DISORDERS
ASTHMA/ALLERGY. IgE is a class of antibody which plays an important role in
the activation of the body's immune system. We have identified compounds that
inhibit IgE's role in the secretion of inflammatory factors from mast cells.
This program has entered preclinical studies in animal models. In our second
program we have identified a novel drug target that regulates the production of
IgE in B cells and a compound in this program.
AUTOIMMUNITY AND TRANSPLANT REJECTION. These programs seek selective and
specific immune system therapeutics which do not negatively affect the
protective activities of the immune system. We have identified novel drug
targets in T cells and B cells and have initiated high throughput screening.
RHEUMATOID ARTHRITIS AND INFLAMMATORY BOWEL DISEASE. We are characterizing
and developing specific inhibitors of protein-degrading enzymes, named E-3
ubiquitin ligases, and have identified several compounds. We also seek to block
the inflammatory signals associated with tumor necrosis factor-alpha pathway, a
proven link in the inflammatory process. We have identified and validated
several novel members of this signaling pathway.
CANCER
TUMOR GROWTH. We have identified and validated two targets, one of which
has entered small molecule compound screening in our program for cell cycle
checkpoint control, a process which regulates cell proliferation. We have also
identified a preclinical candidate compound which is a potent and non-toxic
inhibitor of E-3 ubiquitin ligases. In addition, we have identified drug targets
in the pathway associated with angiogenesis, a process of blood vessel
formation.
INFECTIOUS DISEASES
HEPATITIS C. We have initiated a viral research program based upon
technology acquired from Questcor Pharmaceuticals, Inc. in September 2000. In
this program, we are seeking to block the IRES translation mechanism of the
hepatitis C virus. This program has identified and validated targets, high
throughput screens and initial compounds.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us..................... 9,000,000 shares
Common stock to be outstanding after the
offering..................................... 39,628,596 shares
Over-allotment option.......................... 1,350,000 shares
Use of proceeds................................ For research and development activities, for
financing possible acquisitions and investments
in technology, for possibly expanding our
facilities as well as for working capital and
general corporate purposes.
Dividend policy................................ We do not intend to pay dividends on our common
stock.
Nasdaq National Market symbol.................. RIGL
</TABLE>
The 39,628,596 shares of our common stock to be outstanding immediately
after the offering is based on 29,517,485 shares outstanding at September 30,
2000. This number:
- includes 24,836,343 shares of common stock issuable upon conversion of all
preferred stock outstanding at September 30, 2000;
- includes 1,111,111 shares of common stock to be sold in a private
placement to Novartis concurrent with the closing of this initial public
offering;
- excludes 5,725,828 shares of our common stock issuable upon the exercise
of options outstanding as of September 30, 2000, at a weighted average
exercise price of $2.36 per share;
- excludes 540,038 shares of our common stock issuable upon the exercise of
warrants as of September 30, 2000, at a weighted average exercise price of
$1.16 per share; and
- excludes 1,625,530 additional shares of our common stock available for
future grant as of September 30, 2000; an additional 400,000 shares made
available under our employee stock purchase plan; and 300,000 shares of
our common stock made available under our non-employee directors' stock
option plan.
Except as otherwise indicated, information in this prospectus:
- assumes the automatic conversion of all outstanding shares of our
preferred stock into common stock on a one-to-one basis;
- excludes 1,350,000 shares issuable upon the exercise of the underwriters'
over-allotment option; and
- assumes the sale of 1,111,111 shares of common stock in a private
placement to Novartis concurrent with the closing of this initial public
offering at an assumed price of $9.00 per share.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following tables summarize our financial data. The pro forma information
contained in the statements of operations data and the balance sheet data gives
effect to the automatic conversion of all convertible preferred stock into
common stock upon the completion of this offering. The pro forma as adjusted
balance sheet data reflects the pro forma balance sheet data at September 30,
2000 adjusted for the sale of 9,000,000 shares of our common stock in this
offering at an assumed price to the public of $9.00 per share, after deducting
the estimated underwriting discounts, commissions and estimated offering
expenses payable by us, and the sale of 1,111,111 shares of common stock in a
private placement to Novartis concurrent with the closing of this initial public
offering at an assumed price of $9.00 per share.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 14, 1996) NINE MONTHS ENDED
THROUGH YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------ -------------------
1996 1997 1998 1999 1999 2000
--------------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Contract revenues from collaborations.... $ -- $ -- $ 28 $ 8,984 $ 5,898 $ 10,008
Total operating expenses................. 133 5,601 10,522 21,064 13,707 29,619
------ ------- -------- -------- ------- --------
Loss from operations..................... (133) (5,601) (10,494) (12,080) (7,809) (19,611)
Interest income (expense), net........... -- 85 (110) (286) (120) 18
------ ------- -------- -------- ------- --------
Net loss................................. (133) (5,516) (10,604) (12,366) (7,929) (19,593)
Deemed dividend to Series E preferred
stockholders........................... -- -- -- -- -- (10,133)
------ ------- -------- -------- ------- --------
Net loss allocable to common
stockholders........................... $ (133) $(5,516) $(10,604) $(12,366) $(7,929) $(29,726)
====== ======= ======== ======== ======= ========
Net loss per common share, basic and
diluted................................ $ (.12) $ (2.20) $ (4.01) $ (4.39) $ (2.87) $ (6.92)
====== ======= ======== ======== ======= ========
Weighted average shares used in computing
net loss per common share, basic and
diluted................................ 1,089 2,512 2,643 2,818 2,764 4,297
Pro forma net loss per common share,
basic and diluted...................... $ (.52) $ (1.04)
======== ========
Weighted average shares used in computing
pro forma net loss per common share,
basic and diluted...................... 23,996 28,709
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
----------------------------------------
(UNAUDITED)
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
BALANCE SHEET DATA -------- -------------- ------------
<S> <C> <C> <C>
Cash, cash equivalents and available-for-sale securities.... $ 10,970 $ 10,970 $ 95,300
Working capital............................................. 4,844 4,844 89,174
Total assets................................................ 21,454 21,454 105,784
Capital lease obligations, less current portion............. 5,390 5,390 5,390
Deferred stock compensation................................. (7,249) (7,249) (7,249)
Accumulated deficit......................................... (48,212) (48,212) (48,212)
Total stockholders' equity.................................. 7,379 7,379 91,709
</TABLE>
4
<PAGE>
RISK FACTORS
THE SHARES OF COMMON STOCK THAT WE ARE OFFERING THROUGH THIS PROSPECTUS
INVOLVE A SUBSTANTIAL RISK OF LOSS. BEFORE MAKING AN INVESTMENT IN THE COMMON
STOCK, YOU SHOULD CAREFULLY READ THIS ENTIRE PROSPECTUS AND SHOULD GIVE
PARTICULAR ATTENTION TO THE FOLLOWING RISK FACTORS. THE RISKS THAT WE NOW
FORESEE MIGHT AFFECT US TO A GREATER OR DIFFERENT DEGREE THAN WE CURRENTLY
EXPECT. THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS PROSPECTUS. THESE FACTORS INCLUDE, WITHOUT
LIMITATION, THE RISK FACTORS LISTED BELOW AND OTHER FACTORS PRESENTED THROUGHOUT
THIS PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
OUR SUCCESS AS A COMPANY IS UNCERTAIN DUE TO OUR LIMITED OPERATING HISTORY,
OUR HISTORY OF OPERATING LOSSES AND THE UNCERTAINTY OF FUTURE PROFITABILITY.
Due in large part to the significant research and development expenditures
required to identify and validate new drug candidates, we have not been
profitable and have generated operating losses since we were incorporated in
June 1996. Currently, our revenues are generated solely from research payments
from our collaboration agreements and licenses and are insufficient to generate
profitable operations. As of September 30, 2000, we had an accumulated deficit
of approximately $48.2 million. We expect to incur losses for at least the next
several years and expect that these losses will actually increase as we expand
our research and development activities, incur significant clinical and testing
costs and possibly expand our facilities. Moreover, our losses are expected to
continue even if our current research projects are able to successfully identify
potential drug targets. If the time required to generate revenues and achieve
profitability is longer than anticipated or if we are unable to obtain necessary
capital, we may not be able to fund and continue our operations.
BECAUSE MOST OF OUR EXPECTED FUTURE REVENUES ARE CONTINGENT UPON
COLLABORATIVE AND LICENSE AGREEMENTS, WE MIGHT NOT MEET OUR STRATEGIC
OBJECTIVES.
Our ability to generate revenues in the near term depends on our ability to
enter into additional collaborative agreements with third parties and to
maintain the agreements we currently have in place. To date, all of our revenue
has been related to the research phase of each of our collaborative agreements,
which revenue is for specified periods and is partially offset by corresponding
research costs. Following the completion of the research phase of each
collaborative agreement, additional revenue may come only from milestone
payments and royalties, which may not be paid, if at all, until some time well
into the future. The risk is heightened due to the fact that unsuccessful
research efforts may preclude us from receiving any contingent funding under
these agreements. Our receipt of revenue from collaborative arrangements is also
significantly affected by the timing of efforts expended by us and our
collaborators and the timing of lead compound identification. Under many
agreements, milestone payments may not be earned until the collaborator has
advanced products into clinical testing, which may never occur or may not occur
until some time well into the future.
Our business plan contemplates that we will need to generate meaningful
revenues from royalties and licensing agreements. To date, we have not yet
received any revenue from royalties for the sale of commercial drugs, and we do
not know when we will receive any such revenue, if at all. Likewise, we have not
licensed any lead compounds or drug development candidates to third parties, and
we do not know whether any such license will be entered into on acceptable terms
in the future, if at all.
We are unable to predict when, or if, we will become profitable and even if
we are able to achieve profitability at any point in time, we do not know if our
operations will be able to maintain profitability during any future periods.
5
<PAGE>
THERE IS A HIGH RISK THAT EARLY-STAGE DRUG DISCOVERY AND DEVELOPMENT MIGHT
NOT SUCCESSFULLY GENERATE GOOD DRUG CANDIDATES.
At the present time, our operations are in the early stages of drug
identification and development. To date, we have only identified a few potential
drug compounds, all of which are still in very early stages of development and
have not yet been put into preclinical or clinical testing. It is statistically
unlikely that the few compounds that we have identified as potential drug
candidates will actually lead to successful drug development efforts, and we do
not expect any drugs resulting from our research to be commercially available
for several years, if at all. Our leads for potential drug compounds will be
subject to the risks and failures inherent in the development of pharmaceutical
products based on new technologies. These risks include, but are not limited to,
the inherent difficulty in selecting the right drug target and avoiding unwanted
side effects as well as the unanticipated problems relating to product
development, testing, regulatory compliance, manufacturing, marketing and
competition, and additional costs and expenses that may exceed current
estimates.
WE MIGHT NOT BE ABLE TO COMMERCIALIZE OUR DRUG CANDIDATES SUCCESSFULLY IF
PROBLEMS ARISE IN THE TESTING AND APPROVAL PROCESS.
Commercialization of our product candidates depends upon successful
completion of preclinical studies and clinical trials. Preclinical testing and
clinical development are long, expensive and uncertain processes and we do not
know whether we, or any of our collaborative partners, will be permitted to
undertake clinical trials of any potential products. It may take us or our
collaborative partners several years to complete any such testing, and failure
can occur at any stage of testing. Interim results of trials do not necessarily
predict final results, and acceptable results in early trials may not be
repeated in later trials. A number of companies in the pharmaceutical industry,
including biotechnology companies, have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials.
Moreover, if and when our projects reach clinical trials, we or our
collaborative partners may decide to discontinue development of any or all of
these projects at any time for commercial, scientific or other reasons. There is
also a risk that competitors and third parties may develop similar or superior
products or have proprietary rights that preclude us from ultimately marketing
our products, as well as the potential risk that our products may not be
accepted by the marketplace.
IF OUR CURRENT CORPORATE COLLABORATIONS OR LICENSE AGREEMENTS ARE
UNSUCCESSFUL OR IF CONFLICTS DEVELOP WITH THESE RELATIONSHIPS, OUR RESEARCH AND
DEVELOPMENT EFFORTS COULD BE DELAYED.
Our strategy depends upon the formation and sustainability of multiple
collaborative arrangements and license agreements with third parties in the
future. We rely on these arrangements for not only financial resources, but also
for expertise that we expect to need in the future relating to manufacturing,
sales and marketing, and for licenses to technology rights. To date, we have
entered into five such arrangements with corporate collaborators; however, we do
not know if such third parties will dedicate sufficient resources or if any such
development or commercialization efforts by third parties will be successful.
Should a collaborative partner fail to develop or commercialize a compound or
product to which it has rights from us, we may not receive any future milestone
payments and will not receive any royalties associated with such compound or
product. In addition, the continuation of some of our partnered drug discovery
and development programs may be dependent on the periodic renewal of our
corporate collaborations. For example, our two-year collaboration with Pfizer is
scheduled to expire in January 2001, and we do not expect that this
collaboration will be renewed. More generally, our corporate collaboration
agreements may terminate before the full term of the collaborations or upon a
breach or a change of control. We may not be able to renew these collaborations
on acceptable terms, if at all, or negotiate additional corporate collaborations
on acceptable terms, if at all.
We are also a party to various license agreements that give us rights to use
specified technologies in our research and development processes. The agreements
pursuant to which we have in-licensed
6
<PAGE>
technology permit our licensors to terminate the agreements under certain
circumstances. If we are not able to continue to license these and future
technologies on commercially reasonable terms, our product development and
research may be delayed.
Conflicts might also arise with respect to our various relationships with
third parties. If any of our corporate collaborators were to breach or terminate
their agreement with us or otherwise fail to conduct the collaborative
activities successfully and in a timely manner, the preclinical or clinical
development or commercialization of the affected product candidates or research
programs could be delayed or terminated. We generally do not control the amount
and timing of resources that our corporate collaborators devote to our programs
or potential products. We do not know whether current or future collaborative
partners, if any, might pursue alternative technologies or develop alternative
products either on their own or in collaboration with others, including our
competitors, as a means for developing treatments for the diseases targeted by
collaborative arrangements with us. Conflicts also might arise with
collaborative partners concerning proprietary rights to particular compounds.
While our existing collaborative agreements typically provide that we retain
milestone payments and royalty rights with respect to drugs developed from
certain derivative compounds, any such payments or royalty rights may be at
reduced rates and disputes may arise over the application of derivative payment
provisions to such drugs, and we may not be successful in such disputes.
IF WE FAIL TO ENTER INTO NEW COLLABORATIVE ARRANGEMENTS IN THE FUTURE, OUR
BUSINESS AND OPERATIONS WOULD BE NEGATIVELY IMPACTED.
Although we have established several collaborative arrangements and various
license agreements, we do not know if we will be able to establish additional
arrangements, or whether current or any future collaborative arrangements will
ultimately be successful. For example, there have been and may continue to be a
significant number of recent business combinations among large pharmaceutical
companies that have resulted and may continue to result in a reduced number of
potential future corporate collaborators, which may limit our ability to find
partners who will work with us in developing and commercializing our drug
targets. If business combinations involving our existing corporate collaborators
were to occur, the effect could be to diminish, terminate or cause delays in one
or more of our corporate collaborations.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUFFICIENTLY FUND OUR
OPERATIONS AND RESEARCH.
We will require additional financing in the future to fund our operations.
Our operations require significant additional funding in large part due to our
research and development expenses, future preclinical and clinical-testing
costs, the possibility of expanding our facilities and the absence of any
meaningful revenues over the foreseeable future. The amount of future funds
needed will depend largely on the success of our collaborations and our research
activities and we do not know whether additional financing will be available
when needed, or that, if available, we will obtain financing on terms favorable
to our stockholders or us. We have consumed substantial amounts of capital to
date and operating expenditures are expected to increase over the next several
years as we expand our infrastructure and research and development activities.
We believe that the net proceeds from this offering, together with the
proceeds from the concurrent private placement with Novartis, will be sufficient
to support our current operating plan through at least the next 24 months.
Nonetheless, our future funding requirements will depend on many factors,
including, but not limited to:
- any changes in the breadth of our research and development programs;
- the results of research and development, preclinical studies and clinical
trials conducted by us or our collaborative partners or licensees, if any;
- the acquisition or licensing of technologies or compounds, if any;
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- our ability to maintain and establish new corporate relationships and
research collaborations;
- our ability to manage growth;
- competing technological and market developments;
- the time and costs involved in filing, prosecuting, defending and
enforcing patent and intellectual property claims;
- the receipt of contingent licensing or milestone fees from our current or
future collaborative and license arrangements, if established; and
- the timing of regulatory approvals.
To the extent we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. To the extent that we raise
additional funds through collaboration and licensing arrangements, we may be
required to relinquish some rights to our technologies or product candidates, or
grant licenses on terms that are not favorable to us. If adequate funds are not
available, we will not be able to continue developing our products.
OUR SUCCESS IS DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS HELD BY US AND
THIRD PARTIES AND OUR INTEREST IN SUCH RIGHTS IS COMPLEX AND UNCERTAIN.
Our success will depend to a large part on our own, our licensees' and our
licensors' ability to obtain and defend patents for each party's respective
technologies and the compounds and other products, if any, resulting from the
application of such technologies. One patent has been issued to us as of the
date of this prospectus, and we have numerous applications awaiting approval. In
the future, our patent position might be highly uncertain and involve complex
legal and factual questions. No consistent policy regarding the breadth of
claims allowed in biotechnology patents has emerged to date. Accordingly, we
cannot predict the breadth of claims allowed in our or other companies' patents.
The degree of future protection for our proprietary rights is uncertain and
we cannot ensure that:
- we were the first to make the inventions covered by each of our pending
patent applications;
- we were the first to file patent applications for these inventions;
- others will not independently develop similar or alternative technologies
or duplicate any of our technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
- we will develop additional proprietary technologies that are patentable;
or
- the patents of others will not have a negative effect on our ability to do
business.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require employees, collaborators and consultants
to enter into confidentiality agreements, we may not be able to adequately
protect our trade secrets or other proprietary information in the event of any
unauthorized use or disclosure or the lawful development by others of such
information.
We are a party to certain in-license agreements which are important to our
business, and we generally do not control the prosecution of in-licensed
technology. Accordingly, we are unable to exercise the same degree of control
over this intellectual property as we exercise over our internally developed
technology. Moreover, some of our academic institution licensors, research
collaborators and scientific advisors have
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rights to publish data and information in which we have rights. If we cannot
maintain the confidentiality of our technology and other confidential
information in connection with our collaborations, then our ability to receive
patent protection or protect our proprietary information will be impaired. In
addition, some of the technology we have licensed relies on patented inventions
developed using U.S. government resources. The U.S. government retains certain
rights, as defined by law, in such patents, and may choose to exercise such
rights.
For additional information concerning our intellectual property, see
"Business--Intellectual Property."
IF A DISPUTE ARISES REGARDING THE INFRINGEMENT OR MISAPPROPRIATION OF THE
PROPRIETARY RIGHTS OF OTHERS, SUCH DISPUTE COULD BE COSTLY AND RESULT IN DELAYS
IN OUR RESEARCH AND DEVELOPMENT ACTIVITIES.
Our success will also depend, in part, on our ability to operate without
infringing on or misappropriating the proprietary rights of others. There are
many issued patents and patent applications filed by third parties relating to
products or processes that are similar or identical to ours or our licensors,
and others may be filed in the future. There can be no assurance that our
activities, or those of our licensors, will not infringe patents owned by
others. We believe that there may be significant litigation in the industry
regarding patent and other intellectual property rights, and we do not know if
we or our collaborators would be successful in any such litigation. Any legal
action against our collaborators or us claiming damages or seeking to enjoin
commercial activities relating to the affected products, our methods or
processes could:
- require our collaborators or us to obtain a license to continue to use,
manufacture or market the affected products, methods or processes, which
may not be available on commercially reasonable terms, if at all;
- prevent us from using the subject matter claimed in the patents held by
others;
- subject us to potential liability for damages;
- consume a substantial portion of our managerial and financial resources;
and
- result in litigation or administrative proceedings which may be costly,
whether we win or lose.
M&E Biotech A/S, a Danish biotechnology company, has received patent
protection in European countries for a process similar to certain aspects of our
technologies. M&E has notified us of its belief that we have infringed, and are
contributorily infringing, certain claims of that European patent. We are
currently reviewing their patent file and evaluating the appropriate course of
action. If legal action were initiated on this patent, it could be lengthy,
costly and require significant management time and other resources which could
adversely affect the pursuit of scientific and business goals. In addition, any
such legal action could result in the award of damages or a court order
preventing us from using the technology covered by the M&E patent. Currently, we
are not in discussions with M&E with respect to a license of its patented
technology. In addition, any license or other transfer of rights to the patent
by M&E to a third party could adversely impact our ability to obtain a license
to the patent. In the event we desire to seek a license to the patent, we may
not be able to obtain a license on acceptable terms. Furthermore, such failure
might adversely impact our collaborations with European partners or may
materially adversely affect our business in the jurisdictions that may be
covered by the patent protection. We are also aware that M&E has sought patent
protection in Australia and the U.S., and has the option to seek patent
protection in other parts of the world. If M&E were to receive such patent
protection, it might conflict with or overlap with the patent rights we are
pursuing. We currently do not, and do not plan to, operate in any country
outside the United States.
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We are aware of the existence of a United States patent directed towards a
general cloning system. It is possible that this patent could be construed to
cover certain aspects of our technologies. If legal action were initiated on
this patent, it could have the effects discussed above.
IF WE ARE UNABLE TO OBTAIN REGULATORY APPROVAL TO MARKET PRODUCTS IN THE
UNITED STATES AND FOREIGN JURISDICTIONS, WE MIGHT NOT BE PERMITTED TO
COMMERCIALIZE PRODUCTS FROM OUR RESEARCH.
Due, in part, to the early stage of our drug candidate research and
development process, we cannot predict whether regulatory clearance will be
obtained for any product we or our collaborative partners hope to develop.
Satisfaction of regulatory requirements typically takes many years, is dependent
upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Of particular significance to us are the
requirements covering research and development and testing.
Before commencing clinical trials in humans, we, or our collaborative
partners, will need to submit and receive approval from the FDA of an
Investigational New Drug application, or IND. If regulatory clearance of a
product is granted, this clearance will be limited to those disease states and
conditions for which the product is demonstrated through clinical trials to be
safe and efficacious. We cannot ensure that any compound developed by us, alone
or with others, will prove to be safe and efficacious in clinical trials and
will meet all of the applicable regulatory requirements needed to receive
marketing clearance.
Outside the United States, our ability or that of our collaborative partners
to market a product is contingent upon receiving a marketing authorization from
the appropriate regulatory authorities. This foreign regulatory approval process
typically includes all of the risks associated with FDA clearance described
above and may also include additional risks.
For additional information concerning the regulatory approval process, see
"Business--Government Regulation."
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH AND THESE DIFFICULTIES
COULD INCREASE OUR LOSSES.
We have experienced a period of rapid and substantial growth that has placed
and will continue to place a strain on our human and capital resources. The
number of our employees increased from 31 at December 31, 1997 to 102 at
September 30, 2000. Our ability to manage our operations and growth effectively
requires us to continue to use funds to improve our operational, financial and
management controls, reporting systems and procedures and to attract and retain
sufficient numbers of talented employees. If we are unable to manage this growth
effectively, our losses will increase.
IF OUR COMPETITORS DEVELOP TECHNOLOGIES THAT ARE MORE EFFECTIVE THAN OURS,
OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR ELIMINATED.
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Many of the drugs
that we are attempting to discover will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
that target the same diseases and conditions that we are targeting. We face
competition from pharmaceutical and biotechnology companies both in the United
States and abroad. Our competitors may utilize discovery technologies and
techniques or partner with collaborators in order to develop products more
rapidly or successfully than we or our collaborators are able to do. Many of our
competitors, particularly large pharmaceutical companies, have substantially
greater financial, technical and human resources than we do. In addition,
academic institutions, government agencies and other public and private
organizations conducting research may seek patent protection with respect to
potentially competitive products or technologies and may establish exclusive
collaborative or licensing relationships with our competitors.
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We believe that our ability to compete is dependent, in part, upon our
ability to create, maintain and license scientifically advanced technology and
upon our and our strategic partners' ability to develop and commercialize
pharmaceutical products based on this technology, as well as our ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary technology or processes and secure sufficient capital
resources for the expected substantial time period between technological
conception and commercial sales of products based upon our technology. The
failure by us or any of our collaborators in any of those areas may prevent the
successful commercialization of our potential drug targets.
Our competitors might develop technologies and drugs that are more effective
or less costly than any which are being developed by us or which would render
our technology and potential drugs obsolete and noncompetitive. In addition, our
competitors may succeed in obtaining the approval of the FDA or other regulatory
approvals for drug candidates more rapidly than us or our strategic partners.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage, including certain patent and
FDA marketing exclusivity rights that would delay or prevent our ability to
market certain products. Any drugs resulting from our research and development
efforts, or from our joint efforts with our existing or future collaborative
partners, might not be able to compete successfully with competitors' existing
or future products or products under development or obtain regulatory approval
in the United States or elsewhere.
OUR ABILITY TO GENERATE REVENUES WILL BE DIMINISHED IF OUR COLLABORATIVE
PARTNERS FAIL TO OBTAIN ACCEPTABLE PRICES OR AN ADEQUATE LEVEL OF REIMBURSEMENT
FOR PRODUCTS FROM THIRD-PARTY PAYORS.
The drugs we hope to develop may be rejected by the marketplace due to many
factors, including cost. Our ability to commercially exploit a drug may be
limited due to the continuing efforts of government and third-party payors to
contain or reduce the costs of health care through various means. For example,
in some foreign markets, pricing and profitability of prescription
pharmaceuticals are subject to government control. In the United States, we
expect that there will continue to be a number of federal and state proposals to
implement similar government control. In addition, increasing emphasis on
managed care in the United States will likely continue to put pressure on the
pricing of pharmaceutical products. Cost control initiatives could decrease the
price that any of our collaborators would receive for any products in the
future. Further, cost control initiatives could adversely affect our
collaborators' ability to commercialize our products and our ability to realize
royalties from this commercialization.
Our ability to commercialize pharmaceutical products with collaborators may
depend in part on the extent to which reimbursement for the products will be
available from:
- government and health administration authorities;
- private health insurers; and
- other third-party payors.
Significant uncertainty exists as to the reimbursement status of newly
approved healthcare products. Third-party payors, including Medicare, are
challenging the prices charged for medical products and services. Government and
other third-party payors increasingly are attempting to contain healthcare costs
by limiting both coverage and the level of reimbursement for new drugs and by
refusing, in some cases, to provide coverage for uses of approved products for
disease indications for which the FDA has not granted labeling approval.
Third-party insurance coverage may not be available to patients for any products
we discover and develop, alone or with collaborators. If government and other
third-party payors do not provide adequate coverage and reimbursement levels for
our products, the market acceptance of these products may be reduced.
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IF CONFLICTS ARISE BETWEEN OUR COLLABORATORS OR ADVISORS AND US, ANY OF THEM
MAY ACT IN THEIR SELF-INTEREST, WHICH MAY BE ADVERSE TO YOUR INTERESTS.
If conflicts arise between us and our corporate collaborators or scientific
advisors, the other party may act in its self-interest and not in the interest
of our stockholders. Some of our corporate collaborators are conducting multiple
product development efforts within each disease area that is the subject of the
collaboration with us. In some of our collaborations, we have agreed not to
conduct independently, or with any third party, any research that is competitive
with the research conducted under our collaborations. Our collaborators,
however, may develop, either alone or with others, products in related fields
that are competitive with the products or potential products that are the
subject of these collaborations. Competing products, either developed by our
collaborators or to which our collaborators have rights, may result in their
withdrawal of support for our product candidates.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY
INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF
OUR PRODUCTS.
The testing and marketing of medical products entail an inherent risk of
product liability. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our products. We currently do not have product liability
insurance and our inability to obtain sufficient product liability insurance at
an acceptable cost to protect against potential product liability claims could
prevent or inhibit the commercialization of pharmaceutical products we develop,
alone or with corporate collaborators. We or our corporate collaborators might
not be able to obtain insurance at a reasonable cost, if at all. While under
various circumstances we are entitled to be indemnified against losses by our
corporate collaborators, indemnification may not be available or adequate should
any claim arise.
OUR RESEARCH AND DEVELOPMENT EFFORTS WILL BE SERIOUSLY JEOPARDIZED IF WE ARE
UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES AND RELATIONSHIPS.
Being a small company with only 102 employees as of September 30, 2000, our
success depends on the continued contributions of our principal management and
scientific personnel and on our ability to develop and maintain important
relationships with leading academic institutions, scientists and companies in
the face of intense competition for such personnel. In particular, our research
programs depend on our ability to attract and retain highly skilled chemists and
other scientists. If we lose the services of any of our personnel, including, in
particular, Donald Payan, our research and development efforts could be
seriously and adversely affected. Although we generally have not experienced
problems retaining key employees, our employees can terminate their employment
with us at any time. We also expect to encounter increasing difficulty in
attracting enough qualified personnel as our operations expand and the demand
for these professionals increases, and this difficulty could impede
significantly the achievement of our research and development objectives.
WE DEPEND ON OUR SCIENTIFIC ADVISORS FOR THE SUCCESS AND CONTINUATION OF OUR
RESEARCH EFFORTS.
We are dependent on the members of our Scientific Advisory Board (SAB) and
Clinical Advisory Board (CAB) who conduct research and provide us with access to
technology developed by them. The potential success of our drug discovery
programs depends in part on continued collaborations with these advisors. We and
various members of our management and research staff rely heavily on members of
the SAB and CAB for expertise in screening research. Our scientific advisors are
not employees of ours and may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to us. All
members of the SAB and CAB have entered into scientific advisory agreements with
us. These agreements provide for indefinite terms of service on the SAB and CAB
and are generally terminable at any time by written notice by either us or the
advisor. Certain members of the SAB and CAB also have entered into separate
consulting agreements with us. We do not know if we will be able to
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maintain such consulting agreements or that such scientific advisors will not
enter into consulting arrangements, exclusive or otherwise, with competing
pharmaceutical or biotechnology companies, any of which would have a detrimental
impact on our research objectives and could have a material adverse effect on
our business, financial condition and results of operations.
IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY
OR VIOLATES LAWS, WE MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result, and any liability could exceed our
resources. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with, or any potential
violation of, these laws and regulations could be significant.
OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE
OCCURRENCE OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO
OUR FACILITIES AND EQUIPMENT, WHICH COULD REQUIRE US TO CEASE OR CURTAIL
OPERATIONS.
Our facilities are located in the San Francisco Bay Area near known
earthquake fault zones and are vulnerable to significant damage from
earthquakes. We are also vulnerable to damage from other types of disasters,
including fires, floods, power loss, communications failures and similar events.
If any disaster were to occur, our ability to operate our business at our
facilities would be seriously, or potentially completely, impaired and our
research could be lost or destroyed. In addition, the unique nature of our
research activities and of much of our equipment could make it difficult for us
to recover from a disaster. The insurance we maintain may not be adequate to
cover or losses resulting from disasters or other business interruptions.
RISKS RELATED TO THIS OFFERING
WE MAY ALLOCATE THE NET PROCEEDS FROM THIS OFFERING IN WAYS THAT YOU AND
OTHER STOCKHOLDERS MAY NOT APPROVE.
Management will have significant flexibility in applying the net proceeds of
this offering and could use these proceeds for purposes other than those
contemplated at the time of the offering.
IF OUR OFFICERS, DIRECTORS AND LARGEST STOCKHOLDERS CHOOSE TO ACT TOGETHER,
THEY MAY BE ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS, ACTING IN THEIR BEST
INTERESTS AND NOT NECESSARILY THOSE OF OTHER STOCKHOLDERS.
Following completion of the public offering and the concurrent private
placement with Novartis, our directors, executive officers and principal
stockholders and their affiliates will beneficially own approximately 27.6% of
our common stock, based on their beneficial ownership as of September 30, 2000.
Accordingly, they collectively will have the ability to determine the election
of all of our directors and to determine the outcome of most corporate actions
requiring stockholder approval. They may exercise this ability in a manner that
advances their best interests and not necessarily those of other stockholders.
THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.
An active trading market for our common stock may not develop following this
offering. You may not be able to sell your stock quickly or at the market price
if trading in our stock is not active. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters based upon a number of factors. The initial public offering price
may not be indicative of prices that will prevail in the trading market.
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OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN OUR STOCK COULD
DECLINE IN VALUE.
Prior to this offering, there has been no public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price will be
determined by negotiations between the representatives of the underwriters and
us and may not be indicative of future market prices. Among the factors to be
considered in determining the initial public offering price of the common stock,
in addition to prevailing market conditions, will be:
- estimates of our business potential and earnings prospects;
- an assessment of our management; and
- the consideration of the above factors in relation to market valuations of
companies in related businesses.
The market prices for securities of biotechnology companies in general have
been highly volatile and may continue to be highly volatile in the future. The
following factors, in addition to other risk factors described in this section,
may have a significant impact on the market price of our common stock:
- announcements of technological innovations or new commercial products by
our competitors or us;
- developments concerning proprietary rights, including patents;
- developments concerning our collaborations;
- publicity regarding actual or potential medical results relating to
products under development by our competitors or us;
- regulatory developments in the United States and foreign countries;
- litigation;
- economic and other external factors or other disaster or crisis; or
- period-to-period fluctuations in financial results.
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK AFTER THE
PUBLIC OFFERING, THE MARKET PRICE OF OUR COMMON STOCK MAY FALL.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. After completion of the public offering
and the concurrent private placement to Novartis, we will have 39,628,596
outstanding shares of common stock, which assumes no exercise of outstanding
options or warrants after September 30, 2000 and no exercise of the
underwriters' over-allotment option.
We intend to file a registration statement on Form S-8 covering an aggregate
of 8,051,358 shares issuable upon exercise of options to purchase common stock
and common stock reserved for issuance under our stock plans after the effective
date of the registration statement of which this prospectus is a part.
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ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US, WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS, MORE
DIFFICULT.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would benefit our stockholders.
These provisions:
- establish that members of the board of directors may be removed only for
cause upon the affirmative vote of stockholders owning at least two-thirds
of our capital stock;
- authorize the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- limit who may call a special meeting of stockholders;
- prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders;
- establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon at
stockholder meetings; and
- provide for a board of directors with staggered terms.
In addition, Section 203 of the Delaware General Corporation Law may discourage,
delay or prevent a third party from acquiring us.
THE PUBLIC OFFERING AND THE CONCURRENT PRIVATE PLACEMENT WILL CAUSE DILUTION
IN NET TANGIBLE BOOK VALUE.
Purchasers in the public offering will experience immediate and substantial
dilution in the net tangible book value of the common stock from the initial
public offering price. Additional dilution is likely to occur upon exercise of
options and warrants granted by us.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"anticipates," "believes," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "seeks," "should," "will" or "would" or the negative
of these terms or similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors discussed under "Risk Factors."
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 9,000,000 shares of
common stock that we are selling in the public offering will be approximately
$74.3 million, or approximately $85.6 million if the underwriters'
over-allotment option is exercised in full, based on an assumed initial public
offering price of $9.00 per share and after deducting the estimated underwriting
discount, commissions and estimated offering expenses payable by us. In
addition, we expect to receive proceeds of approximately $10.0 million from the
private placement of our common stock with Novartis concurrent with the closing
of this offering.
We intend to use approximately 65% of the net proceeds for continued
research and development activities, approximately 20% for general corporate
purposes, approximately 15% for working capital and capital leasing obligations
and the balance, if any, for financing possible acquisitions and investments in
technology and for our facilities. We may also use a portion of the net proceeds
to acquire or invest in businesses, products and technologies that are
complementary to our own, although no acquisitions are planned or being
negotiated as of the date of this prospectus, and no portion of the net proceeds
has been allocated for any specific acquisition. Pending these uses, the net
proceeds will be invested in investment-grade, interest-bearing securities.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus, we cannot specify with certainty all of the particular uses for the
net proceeds we will have upon completion of the public offering and the
concurrent private placement. Accordingly, our management will have broad
discretion in the application of net proceeds.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
Delaware law and our certificate of incorporation do not require our board of
directors to declare dividends on our common stock. We currently intend to
retain earnings, if any, to support the development of our business and do not
anticipate paying cash dividends for the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of our convertible preferred stock upon the completion
of this offering; and
- on a pro forma as adjusted basis to give effect to the sale of 9,000,000
shares of common stock by us in this public offering at an assumed price
of $9.00 per share, less the estimated underwriting discounts, commissions
and estimated offering expenses payable by us, and the sale of
1,111,111 shares of common stock in a private placement to Novartis
concurrent with the closing of this initial public offering at an assumed
price of $9.00 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, less current portion............. $ 5,390 $ 5,390 $ 5,390
Stockholders' equity:
Convertible preferred stock, $.001 par value; 26,750,000
authorized, 24,836,343 shares issued and outstanding,
actual; none issued and outstanding pro forma and pro
forma as adjusted....................................... 25 -- --
Common stock,$.001 par value; 37,500,000 shares authorized
(100,000,000 shares pro forma); 4,681,142 shares issued
and outstanding, actual; 29,517,485 shares issued and
outstanding, pro forma and 39,628,596 shares issued and
outstanding, pro forma as adjusted (1).................. 5 30 40
Additional paid-in capital.................................. 62,810 62,810 147,130
Deferred stock compensation................................. (7,249) (7,249) (7,249)
Accumulated deficit......................................... (48,212) (48,212) (48,212)
-------- -------- --------
Total stockholders' equity.................................. 7,379 7,379 91,709
-------- -------- --------
Total capitalization........................................ $ 12,769 $ 12,769 $ 97,099
======== ======== ========
</TABLE>
------------------------
(1) Excludes:
- 5,725,828 shares issuable upon the exercise of options outstanding as of
September 30, 2000, at a weighted average exercise price of $2.36 per
share;
- 540,038 shares issuable upon the exercise of warrants outstanding as of
September 30, 2000, at a weighted average exercise price of $1.16 per
share; and
- 1,625,530 additional shares available for future grant under our equity
incentive plan; an additional 400,000 shares made available for future
grant under our employee stock purchase plan; and 300,000 shares made
available for future grant under our non-employee directors' stock option
plan.
18
<PAGE>
DILUTION
The pro forma net tangible book value on September 30, 2000, giving effect
to the automatic conversion of all shares of preferred stock outstanding as of
that date into shares of common stock upon the closing of this public offering
was approximately $7.4 million, or $.25 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities divided by the number of shares of common stock outstanding.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of our common
stock immediately afterwards. Assuming our sale of 9,000,000 shares of common
stock offered by this prospectus at an assumed initial public offering price of
$9.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses, and giving effect to the sale of
1,111,111 shares of common stock to Novartis concurrent with the closing of this
initial public offering at an assumed price of $9.00 per share, our pro forma
net tangible book value after this offering would have been approximately
$91.7 million, or $2.31 per share. This represents an immediate decrease in net
tangible book value of $6.69 per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Pro forma net tangible book value per share as of
September 30, 2000...................................... $ .25
Increase per share attributable to new investors.......... 2.06
------
Pro forma net tangible book value per share after this
offering.................................................. 2.31
------
Dilution per share to new investors......................... $ 6.69
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
2000, the differences between the total consideration paid and the average price
per share paid by the existing stockholders and the purchasers of shares of
common stock in this initial public offering and the concurrent private
placement. We have assumed an initial public offering price of $9.00 per share
and no exercise of the underwriters' over-allotment option, and we have not
deducted estimated underwriting discounts and commissions and estimated offering
expenses in our calculations.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
--------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing investors...................... 29,517,485 74.5% $ 43,062,000 32.1% $1.46
New investors........................... 10,111,111 25.5 91,000,000 67.9 9.00
---------- ----- ------------ -----
Total................................... 39,628,596 100.0% $134,062,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants at September 30, 2000. The exercise of all options and
warrants outstanding as of September 30, 2000 having an exercise price less than
the offering price would increase the dilutive effect to new investors to $6.73
per share.
19
<PAGE>
SELECTED FINANCIAL DATA
The statements of operations data for the years ended December 31, 1997,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 have
been derived from our audited financial statements which have been audited by
Ernst & Young LLP, our independent auditors and included elsewhere in this
prospectus. The audited balance sheet data as of December 31, 1997 has been
derived from our audited financial statements not included in this prospectus.
The statements of operations data for the nine months ended September 30, 1999
and 2000 and the balance sheet data as of September 30, 2000 have been derived
from our unaudited financial statements included elsewhere in this prospectus.
The statement of operations data for the period from inception (June 14, 1996)
through December 31, 1996 and the balance sheet data as of December 31, 1996 are
derived from our unaudited financial statements not included in this prospectus.
The unaudited financial statements have been prepared on a basis consistent with
our audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, we consider necessary for the fair presentation of
the information. Historical results are not necessarily indicative of future
results. See notes to the financial statements for an explanation of the method
used to determine the number of shares used in computing pro forma basic and
diluted net loss per share. The following selected financial data should be read
in conjunction with the financial statements and the notes to such statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected financial data in this section is not intended to
replace the financial statements.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 14, 1996)
THROUGH FISCAL YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
--------------- ------------------------------ -------------------------
1996 1997 1998 1999 1999 2000
--------------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
---------------------------------------------------
Contract revenues from collaborations.............. $ -- $ -- $ 28 $ 8,984 $ 5,898 $ 10,008
Costs and expenses:
Research and development (see Note A).............. -- 4,568 8,305 17,112 10,615 24,609
General and administrative (see Note A)............ 133 1,033 2,217 3,952 3,092 5,010
----- ------- -------- -------- ------- --------
Total costs and expenses....................... 133 5,601 10,522 21,064 13,707 29,619
----- ------- -------- -------- ------- --------
Loss from operations............................... (133) (5,601) (10,494) (12,080) (7,509) (19,611)
Interest income (expense), net..................... -- 85 (110) (286) (120) 18
----- ------- -------- -------- ------- --------
Net loss........................................... (133) (5,516) (10,604) (12,366) (7,929) (19,593)
Deemed dividend to Series E preferred
stockholders..................................... -- -- -- -- -- (10,133)
----- ------- -------- -------- ------- --------
Net loss allocable to common stockholders.......... $(133) $(5,516) $(10,604) $(12,366) $(7,929) $(29,726)
===== ======= ======== ======== ======= ========
Net loss per common share, basic and diluted....... $(.12) $ (2.20) $ (4.01) $ (4.39) $ (2.87) $ (6.92)
===== ======= ======== ======== ======= ========
Weighted average shares used in computing net loss
per common share, basic and diluted.............. 1,089 2,512 2,643 2,818 2,764 4,297
Pro forma net loss per common share, basic and
diluted.......................................... $ (.52) $ (1.04)
======== ========
Weighted average shares used in computing pro forma
net loss per common share, basic and diluted..... 23,996 28,709
Note A:
Includes charges for stock-based compensation as
follows:
Research and development........................... $ -- $ -- $ 6 $ 2,321 $ 430 $ 7,594
General and administrative......................... $ -- $ -- $ -- $ 254 $ 113 $ 757
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------- -------------------
1996 1997 1998 1999 2000
----------- -------- -------- -------- -------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
---------------------------------------------------
Cash, cash equivalents and available-for-sale
securities....................................... $ 2 $ 9,144 $ 9,493 $ 5,836 $ 10,970
Working capital (deficit).......................... (71) 8,109 4,547 (990) 4,844
Total assets....................................... 2 11,330 12,956 17,169 21,454
Capital lease obligations, less current portion.... -- 1,172 1,652 5,478 5,390
Deferred stock compensation........................ -- -- -- (5,814) (7,249)
Accumulated deficit................................ (133) (5,649) (16,253) (28,619) (48,212)
Total stockholders' equity/(net capital
deficiency)...................................... (71) 8,819 5,445 756 7,379
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ WITH OUR FINANCIAL
STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS
APPLYING TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We use post-genomics combinatorial biology technology to discover novel drug
targets. Our technology provides a new and rapid way to find novel drug targets
and to validate the role of those targets in disease. We intend to develop a
portfolio of novel drug candidates and commercialize the resulting drug products
in partnership with corporate collaborators. We have incurred net losses since
inception and expect to incur substantial and increasing losses for the next
several years as we expand our research and development activities and move our
pre-clinical drug candidates into later stages of development. To date, we have
funded our operations primarily through the sale of equity securities,
non-equity payments from collaborative partners and capital asset lease
financings. We received our first funding from our collaborative partners in
December 1998. Including both research funding and equity investments, we
received an aggregate of $6.5 million, $14.9 million and $10.4 million in 1998,
1999 and the first nine months of 2000, respectively, from our collaborative
partners. As of September 30, 2000, our accumulated deficit was approximately
$48.2 million.
We expect our sources of revenue for the next several years to consist
primarily of payments under our current and future corporate collaborations.
Under these arrangements, sources of revenue may include up-front payments,
funded research, milestone payments and royalties. The process of carrying out
our research programs for our collaborative partners and the development of our
own non-partnered products to the later stages of development will require
significant additional research and development expenditures including
preclinical testing and clinical trials. These activities, together with our
general and administrative expenses, are expected to result in substantial
operating losses for the foreseeable future. We will not receive product revenue
unless we or our collaborative partners complete clinical trials, obtain
regulatory approval and successfully commercialize one or more of our products.
To date, we have entered into three collaborations with major pharmaceutical
companies that are currently contributing to our revenues. A summary of these
partnerships is as follows:
<TABLE>
<CAPTION>
PARTNER RESEARCH PROGRAM COMMENCEMENT DATE
--------------------- --------------------------------------------------- -----------------
<S> <C> <C>
Janssen Pharmaceutica Tumor Growth--Cell Cycle Inhibition December 4, 1998
Pfizer Asthma/Allergies--IgE Production in B Cells January 31, 1999
Novartis Transplant Rejection--T Cell Activation May 26, 1999
Autoimmunity Disease--B Cell Activation August 1, 1999
Pulmonary Lung Inflammation (conducted at Novartis) January 1, 2000
</TABLE>
Under the terms of the existing collaborations identified above, our
partners have agreed to provide future research funding up to approximately
$27.5 million over the next four years, $18.3 million of which is subject to
possible cancellation. In addition, we may receive additional payments upon the
achievement of specific research and development milestones and royalties upon
commercialization of any products.
In order to maintain and increase proceeds from collaborations, we are
addressing several alternatives, including the exploration of new opportunities
with existing and new potential collaborators. All of our partnerships to date
have generally focused on the early stages of drug discovery, specifically
21
<PAGE>
target discovery and validation. We expect to continue to engage in
collaborations focused on the early stages of drug discovery. In addition, we
currently anticipate that we will self-fund some of our own research programs to
later stages of development prior to partnering with collaborative partners.
Therefore, it is expected that any future collaborative partnerships will have
an expanded focus and could include cell pathway mapping, high throughput
screening, combinatorial chemistry and/or pre-clinical evaluations. For some
programs, we may also seek to enter into collaborations for the development of
compounds that we have discovered. The timing, the amount of funds received and
the scope of any new collaboration are uncertain and any compound collaboration
will depend on the successful progress of clinical trials. New, expanded or
larger collaborations will also be necessary to offset any decrease in proceeds
as collaborations come to the end of their terms. Specifically, our
collaboration with Pfizer is a two-year agreement terminating on January 31,
2001 and our collaboration with Janssen Pharmaceutica is a three-year agreement
terminating on December 31, 2001. Our Novartis programs are five-year agreements
terminating in 2004 and 2005. Although all of our agreements provide for
potential extension, we do not expect that our collaboration with Pfizer will be
renewed and we cannot ensure that our collaborative partners will exercise these
extension rights. As our collaborations reach termination, our partners and we
may evaluate the status of the collaboration and, if appropriate, seek to extend
the collaboration agreement or negotiate alternative terms.
We recognize revenues from our research collaboration agreements as earned
upon the achievement of performance requirements of the agreements. In addition,
these agreements provide for research funding for a specified number of full
time researchers working on their associated projects. Payments received that
are related to future performance are deferred and recognized as revenue as the
related work is performed. As of September 30, 2000, we had deferred revenues of
approximately $3.0 million.
In February 2000, we completed a private placement of 2,508,330 shares of
Series E preferred stock at $6.00 per share for net proceeds of approximately
$15.1 million. At the date of issuance, we believed the per share price of $6.00
represented the fair value of the preferred stock. Subsequent to the
commencement of our initial public offering process, we re-evaluated the fair
value of our common stock as of February 2000 and determined it to be $9.00 per
share. Accordingly, the increase in fair value has resulted in a beneficial
conversion feature of $10.0 million that has been recorded as a deemed dividend
to the preferred stockholders in 2000. We recorded the deemed dividend at the
date of issuance by offsetting charges and credits to additional paid in capital
without any effect on total stockholders' equity. The preferred stock dividend
increases the net loss allocable to common stockholders in the calculation of
basic and diluted net loss per common share for the nine months ended
September 30, 2000. Also in February 2000, we issued 50,000 shares of Series E
preferred stock for a license of technology. We valued the license at $500,000
and have expensed this amount in the nine months ended September 30, 2000 as the
useful life is deemed to be less than one year.
In August 2000, we issued 33,333 shares of Series E preferred stock to one
of our directors. We recorded a deemed dividend of approximately $100,000 at the
time of issuance.
In September 2000, we entered into a Technology Transfer Agreement with
Questcor Pharmaceuticals, Inc. and acquired the license and technology to a
hepatitis C research program. Under the terms of this agreement, we have paid a
nonrefundable and noncreditable fee of $500,000, have issued Questcor 83,333
shares of Series E preferred stock, and will be responsible for satisfying
certain milestones and royalties. We are also committed to invest a total of
$2.0 million in research and development expenses over a two-year period through
2002. The agreement terminates upon the expiration of the last patent within the
agreement. We have accounted for the Series E preferred stock at $9.00 per share
based on the deemed fair value of our common stock at the date of grant. We have
expensed the aggregate value of approximately $1.2 million in September 2000 as
the acquired technology is not yet fully developed and has no alternative use.
22
<PAGE>
DEFERRED STOCK COMPENSATION
We recorded deferred stock compensation with respect to options granted to
employees of approximately $7.1 million in the year ended December 31, 1999 and
$5.2 million for the nine months ended September 30, 2000, representing the
difference between the deemed fair value of our common stock for financial
reporting purposes on the date these options were granted and the exercise
price. These amounts have been reflected as components of stockholders' equity
and the deferred expense is being amortized to operations over the vesting
period of the options, generally four to five years, using the graded vesting
method. We amortized deferred stock compensation of $1.3 million in 1999, with
$1.0 million recorded as a research and development expense and $.3 million as a
general and administration expense. In the nine months ended September 30, 2000,
we amortized deferred stock compensation of $3.8 million, with $3.0 million
recorded as research and development expense and $0.8 million as a general and
administration expense. At September 30, 2000, we had a total of $7.2 million
remaining to be amortized over the vesting periods of the stock options. For the
year ending December 31, 2000, the total amortization of deferred stock
compensation is expected to be approximately $5.1 million. We also expect to
record deferred stock compensation for options granted from July 1, 2000 through
September 30, 2000 to new hires who will commence employment with us at a later
date. The deferred stock compensation will be recorded based on the fair value
of our common stock at the date employment commences and amortized in accordance
with our policy.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUES. Collaborative research and development revenues were
$10.0 million for the nine months ended September 30, 2000, compared with
$5.9 million for the nine months ended September 30, 1999. In the first nine
months of 2000, revenues were earned from technology access fees and research
support from all collaborations, including Janssen Pharmaceutica, Pfizer and
three Novartis projects. Revenues for the first nine months of 1999 consisted
primarily of revenues from the Janssen Pharmaceutica and Pfizer collaborations,
with Novartis contributing an insignificant amount of revenue since the
agreement was signed in late May 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$24.6 million for the nine months ended September 30, 2000, compared with
$10.6 million for the nine months ended September 30, 1999, an increase of
$14.0 million. This increase was primarily attributable to increases in employee
costs as our science headcount was 58 at September 30, 1999 and 85 individuals
at September 30, 2000 and also the higher occupancy costs associated with the
new building in South San Francisco, California, which we occupied from
March 1999. In addition, the research and development expenses included
$7.6 million and $0.5 million in stock compensation expenses in the nine months
ended September 30, 2000 and 1999, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $5.0 million for the six months ended September 30, 2000, compared with
$3.1 million for the nine months ended September 30, 1999, an increase of
$1.9 million. This increase was primarily attributable to higher employee and
occupancy costs. General and administrative expenses included $757,000 and
$113,000 in stock compensation expenses in the nine months ended September 30,
2000 and 1999, respectively.
NET INTEREST INCOME. Net interest income was $18,000 for the nine months
ended September 30, 2000, compared with a net interest expense of $120,000 for
the corresponding period in 1999 due mainly to higher cash balances in 2000 from
the sale of the Series E preferred stock.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUES. Contract revenues from collaborations were $9.0 million in 1999
compared to $28,000 in 1998. Revenues in 1998 and 1999 were due to the
initiation of three of our corporate collaborations. The
23
<PAGE>
collaboration with Janssen Pharmaceutica was signed in December 1998 with
research support beginning on January 1, 1999 while the Pfizer collaboration was
initiated on January 31, 1999. The Novartis collaboration, which was signed on
May 26, 1999, consists of five research programs. Of these five programs, one
was started on May 26, 1999 with a second program initiated on August 1, 1999.
We expect contract revenue from collaborations to be a significant component of
our total revenues for the foreseeable future.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$17.1 million in 1999 from $8.3 million in 1998 and $4.6 million in 1997, an
increase of $8.8 million and $3.7 million, respectively. These increases are
primarily attributable to increases in employee costs as our science headcount
increased to 66 individuals from 41 in 1998 and 22 in 1997 and the higher
occupancy costs associated with our new building in South San Francisco,
California, which we occupied in March 1999. Research and development expenses
in 1999 included $1.0 million related to the amortization of deferred stock
compensation in connection with options granted to employees and $1.3 million
related to compensation on options granted to consultants and the issuance of
stock for consultant services. We expect research and development expenses to
increase in future periods in connection with the addition of new collaborative
partner research programs. In addition, we anticipate research and development
expenses will increase with the advancement of our non-partnered research
programs into later stages of development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $4.0 million in 1999, compared with $2.2 million in 1998 and $1.0 million
in 1997, an increase of $1.8 million and $1.2 million, respectively. These
increases were primarily attributable to higher employee costs, infrastructure
costs to support the growing research and development activities and increased
occupancy costs. The general and administrative expenses in 1999 included
$.3 million related to the amortization of deferred stock in connection with
options granted to employees. We expect that general and administrative expenses
will increase in the future to support the continued growth of our research and
development efforts and to accommodate the new demands associated with operating
as a public company.
NET INTEREST EXPENSE. Net interest expense was $286,000 in 1999, compared
with a net interest expense of $110,000 in 1998 and net interest income of
$85,000 in 1997. Interest income results from our interest bearing balances
while interest expense is the result of our debt associated with fixed asset
purchases.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through sales of
preferred stock, contract payments payable to us under our collaboration
agreements and equipment financing arrangements. As of September 30, 2000, we
had received $43.1 million from the sale of equity securities, including
$10.0 million from collaborators, and received $21.8 million in research funding
from collaborators. In addition, as of September 30, 2000, we had financed
through leases and loans the purchase of equipment and leasehold improvements
totaling approximately $12.1 million.
As of September 30, 2000, we had $11.0 million in cash, cash equivalents and
available-for-sale securities as compared to $5.8 million as of December 31,
1999, an increase of $5.2 million. This increase is derived principally from the
sale of our Series E preferred stock, from which we received net proceeds of
$15.2 million, offset by our usage of $8.4 million for the funding of operations
and the investment of $2.6 million in capital equipment and leasehold
improvements. We made $1.7 million in payments associated with our equipment
financing arrangements, offset by the receipt of $2.1 million from our equipment
financing arrangements and the receipt of $15.7 million in net proceeds from
equity securities.
As of September 30, 2000, we had $8.1 million in capitalized lease
obligations in association with our financed purchase of equipment and leasehold
improvements. These obligations are secured by the equipment financed, bear
interest rates in a range of 7% to 15% and are due in monthly installments
24
<PAGE>
through 2004. Under the terms of our three equipment financing agreements, two
of these have balloon payments at the end of each loan term, while the other
agreement allows us to purchase the assets financed at the fair market value or
20% of the original acquisition cost at the end of the financing term. As of
September 30, 2000, we had completely utilized our existing equipment financing
agreements and on August 22, 2000, we completed negotiations for a new equipment
financing agreement that could provide an incremental $5.0 million of equipment
financing proceeds to be utilized over the next twelve to eighteen months, of
which the first equipment financing of $1.1 million was utilized in August,
2000. Under the terms of this new lease, payments are due in monthly
installments over four years and bear interest at a rate of 11%.
On February 3, 2000, we received approximately $15.1 million, net of
issuance costs, in a private placement in which we sold 2,508,330 shares of
Series E preferred stock at $6.00 per share. In addition, in September 2000, we
exercised our right within the Novartis collaboration agreement to have Novartis
purchase shares of our common stock in a private placement concurrent with this
initial public offering at the initial public offering price. We anticipate
receiving an additional $10.0 million in proceeds from the concurrent private
placement to Novartis. We believe our existing cash resources, including the
proceeds from the private placement, plus the proceeds of this public offering
and anticipated proceeds from corporate collaborations will be sufficient to
satisfy our anticipated cash requirements through at least 24 months. Our future
capital uses and requirements depend on numerous forward-looking factors. These
factors include and are not limited to the following:
- our ability to maintain our existing collaboration partnerships;
- our ability to establish and the scope of our new collaborations;
- the progress and number of research programs carried out at Rigel;
- our ability to meet the milestones identified in our collaborative
agreements which trigger payments;
- the progress and success of preclinical and clinical trials of our drug
candidates;
- the costs and timing of obtaining, enforcing and defending our patent and
intellectual rights;
- the costs and timing of regulatory approvals; and
- expenses associated with unforeseen litigation.
In addition, we are constantly reviewing potential opportunities to expand
our technologies or add to our portfolio of drug candidates. In the future, we
may need further capital in order to acquire or invest in technologies, products
or businesses. For the next several years, we do not expect the cash generated
from our operations to generate the amount of cash required by our future cash
needs. We expect to finance future cash needs through the sale of equity
securities, strategic collaborations and debt financing. We cannot assure you
that additional financing or collaboration and licensing arrangements will be
available when needed or that, if available, this financing will be obtained on
terms favorable to us or our stockholders. Insufficient funds may require us to
delay, scale back or eliminate some or all of our research or development
programs, to lose rights under existing licenses or to relinquish greater or all
rights to product candidates at an earlier stage of development or on less
favorable terms than we would otherwise choose or may adversely affect our
ability to operate as a going concern. If additional funds are obtained by
issuing equity securities, substantial dilution to existing stockholders may
result.
25
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will decline. To minimize this risk in the future, we
intend to maintain our portfolio of cash equivalents and short-term investments
in a variety of securities, including commercial paper, money market funds,
government and non-government debt securities. In 1998, 1999 and the nine months
ended September 30, 2000, we maintained an investment portfolio primarily in
depository accounts and corporate commercial paper. Due to the short-term nature
of these investments, we believe we have no material exposure to interest rate
risk arising from our investments. Therefore, no quantitative tabular disclosure
is provided.
We have operated primarily in the United States, and all funding activities
with our collaborators to date have been made in U.S. dollars. Accordingly, we
have not had any exposure to foreign currency rate fluctuations.
26
<PAGE>
BUSINESS
OVERVIEW
We use post-genomics combinatorial biology technology to discover novel drug
targets. In only three and one-half years of research using our technology, we
have succeeded in identifying 23 new drug targets in nine of our ten programs
and have generated compounds in six programs, including compounds which are
candidates for preclinical testing in two of these programs. We currently have
programs in asthma/ allergy, autoimmunity, transplant rejection, rheumatoid
arthritis, inflammatory bowel disease, cancerous tumor growth and hepatitis C.
We have a collaboration with Pfizer and multi-year collaborations with Cell
Genesys, Janssen Pharmaceutica and Novartis. In addition, we have collaborated
with Neurocrine in order to obtain rights to a library of small chemical
compounds.
BACKGROUND
GENERAL
We were incorporated in the State of Delaware on June 14, 1996. Our results
of operations from June 14, 1996 to December 31, 1996 were immaterial. We
matured from a development stage to an operating company in 1998. The company
has funded its operations primarily through the sale of private equity
securities, payments from corporate collaborators and capital asset lease
financings. We have no subsidiaries.
PHARMACEUTICAL INDUSTRY NEED FOR NEW DRUGS AND NOVEL TARGETS
In order to sustain growth, each major pharmaceutical company needs to bring
approximately two or more new drugs to market each year. However, it is
currently estimated that, using traditional drug discovery and development
methodologies, each major pharmaceutical company is bringing to market, on
average, less than one new drug per year. As a result, major pharmaceutical
companies have a discovery and product pipeline gap. In addition, we believe
this demand for new products will be increased by the expiration in coming years
of patents on numerous significant revenue-generating drugs.
We believe that several thousand of the more than 100,000 genes in the human
genome will provide potential drug targets directed at specific diseases.
Despite this potential, researchers have only identified and validated
approximately 500 distinct targets for existing drug interventions which serve
as the basis for many pharmaceutical products today. We feel that the existing,
relatively small, pool of potential targets limits pharmaceutical companies'
opportunities to develop new drug candidates to satisfy their growth objectives.
Moreover, we believe this situation creates a critical need for tools directed
at novel ways to expand the pool of targets by rapidly identifying and
successfully validating new targets which lead to new chemical entities.
TRADITIONAL DRUG DISCOVERY
The traditional drug discovery process involves testing or screening
compounds in disease models. The process is often undertaken with little
knowledge of the intracellular processes underlying the disease or the specific
drug target within the cell. Consequently, it is necessary to screen a very
large number of arbitrarily-selected compounds in order to obtain a desired
change in a disease model. While this approach sometimes successfully produces
drugs, it has a number of disadvantages:
- INEFFICIENCY: it is labor intensive, time consuming and inefficient at
identifying and validating targets;
- LACK OF PRODUCTIVITY: it results in relatively few new drug candidates, or
"hits";
- LACK OF INFORMATION: it produces limited information about the
intracellular processes or targets to guide target selection and
subsequent drug development; and
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- RISK OF SIDE EFFECTS: it often produces drug candidates with a high risk
of serious side effects, including toxicity.
SUBSEQUENT BIOLOGICAL ADVANCES AND GENOMICS
Beginning in the mid 1970s, pharmaceutical companies began to use a growing
knowledge of cellular and molecular biology to enlarge their understanding of
biochemical interactions within and between cells in order to understand the
cellular basis for disease processes. For example, researchers equipped with a
more thorough understanding of cellular mechanisms relating to blood pressure
regulation were able to identify proteins called angiotensin converting enzymes
(ACE) which regulate molecules causing high blood pressure. By identifying
compounds that act as ACE inhibitors, the researchers developed a family of
highly specific drugs that lower blood pressure without causing serious side
effects.
More recently, pharmaceutical companies have begun to look at the genetic
basis for disease. For example, the Human Genome Project was undertaken to
identify the DNA sequence of all the genes in the human genome, with the hope
that knowledge of the human genome would enable a comprehensive understanding of
the molecular causes of all diseases, and therefore provide a source of targets
for drug discovery. However, merely developing sequence data with respect to
genes does not, on its own, provide information about the cellular function of
the proteins encoded by the genes expressed in a particular tissue at a
particular time under particular disease circumstances. In addition, it fails to
tell us which proteins might make useful targets for compound screening to
identify drug candidates to modulate any of these functions. With more than
100,000 genes in the human genome, the number of possible combinations of
expressed proteins in a cell and the number of possible interactions of those
proteins produce a volume of information which often obscures rather than
illuminates the functional role of any particular gene in a disease process.
Later efforts to link genes to disease, or functional genomics, have focused
on the genes that are responsible for changes in the behavior of cells under
disease conditions. However, the functional connection between particular genes
and their expressed proteins on the one hand, and cellular behavior seen in
disease conditions on the other hand, has remained unknown in the majority of
diseases. For this reason, pharmaceutical companies have sought better means to
identify the genes that are important to cellular behavior and to understand
their role in causing or preventing disease. Whether through gene sequencing or
functional genomics, understanding the functional role of a gene is critical to
understanding, identifying and validating a gene's expressed protein as a target
for compound screening. We believe that there remains a critical need for
research methods that will be able to utilize the information currently
available to identify protein targets quickly and systematically, with increased
probability of discovering new drug candidates.
ROLE OF TARGET VALIDATION
The identification of intracellular protein targets is an important step in
the process of identifying potential drugs. Most drugs are discovered today by
screening collections of libraries of chemical compounds against protein targets
which are part of signaling, or information-transmitting, pathways within cells.
These signaling pathways participate in the regulation of cell behavior in both
normal and diseased cells. However, drug discovery and development often occurs
without first validating the drug target and mechanism of action. If
pharmaceutical companies were to validate a target's role in a disease at an
early stage, they would reduce risks involved in the drug development process,
such as the pursuit of unsuccessful discovery pathways, regulatory delay and
drug side effects.
A target is regarded as validated if a causal link is established between an
intracellular protein target and a cellular response important in a disease
process. Each drug discovery company has its own standards for deciding whether
a target has been sufficiently validated.
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OUR SOLUTION
Our drug target discovery process bypasses the need to know the identity or
sequence of the genes. We have developed two core technologies which we believe
provide us with an enhanced ability to simultaneously identify and initially
validate new drug targets for further development.
Our technologies are designed to identify protein targets for compound
screening and validate the role of those targets in the disease process. Unlike
genomics-based approaches, which begin by identifying genes and then search for
their functions, our approach identifies proteins that are demonstrated to have
an important role in a disease pathway. By understanding the disease pathway, we
attempt to avoid studying genes that will not make good drug targets and focus
only on the sub-set of expressed proteins of genes that we believe are
specifically implicated in the disease process.
We begin by developing assays which model the key events in a disease
process at the cellular level. We then efficiently search hundreds of millions
of cells to identify potential protein targets. In addition, we identify the
proteins involved in the intracellular process and prepare a map of their
interactions, thus giving us a comprehensive picture of the intracellular
disease pathway. We believe that our approach has a number of advantages:
- IMPROVED TARGET IDENTIFICATION: it focuses only on the sub-set of
expressed proteins of genes believed to be specifically implicated in the
disease process;
- RAPID VALIDATION OF PROTEIN TARGETS: it produces validated protein targets
more quickly because it uses key events in the disease process as the
basis to design the functional, disease-based screen;
- IMPROVED DISEASE PATHWAY MAPPING: it produces a comprehensive map of the
intracellular disease pathway enabling the identification of a larger
number of potential protein targets;
- BETTER INFORMED TARGET SELECTION: it provides a variety of different types
of targets and information concerning the role each plays to better select
targets more susceptible to pharmaceutical intervention;
- MORE EFFICIENT COMPOUND SCREENING: it increases the probability and speed
that compound screening will identify "hits" because it provides more
detailed knowledge of the target which can be used to guide the design of
the compound screen; and
- RISK REDUCTION: it may reduce the risk of failure in the drug development
process due to serious side effects, including toxicity or other reasons,
by selecting only targets that are specific to the disease in question and
which have no apparent role in other cell types or signaling pathways.
Because of the very large number of cells and proteins employed, our
technology is labor intensive. The complexity of our technology requires a high
degree of skill and diligence to perform successfully. In addition, successful
application of our technology depends on a highly diverse collection of proteins
to test in cells. We believe we have been able to and will continue to meet
these challenges successfully. Although one or more other companies may utilize
technologies similar to certain aspects of our technology, we are unaware of any
other company which employs the same combination of technologies as we do.
TECHNOLOGY
Our retroviral and pathway mapping technologies enable us to identify and
validate new protein targets and establish a map of the intracellular proteins
that define a specific signaling pathway controlling cellular responses. We
believe that, together, these technologies allow for rapid pathway mapping of
complex biological processes and increase our ability to identify targets for
drug discovery.
Our retroviral technology introduces up to 100 million different peptides or
proteins into an equal number of normal or diseased cells. Each retrovirus
delivers a specific gene into an individual cell, causing the cell to produce a
specific protein. Then, we stimulate the cells in a manner known to produce a
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disease-like behavioral response or phenotype of the disease process. Once in
the cell, the expressed protein interacts with potential protein targets in the
cell. Then, we sort the cells at a rate of up to 60,000 cells/second to collect
data on up to five different parameters which means that a sort of 100 million
cells can be completed in approximately half an hour. By analyzing the
approximately 500 million resulting data points, we can rapidly identify those
few cells containing an expressed protein that has interacted with a protein
target in a way that causes the cell to change its behavior from diseased back
to normal. Using this method we believe that we can identify the relatively few
targets that are validated in the context of a disease-specific cellular
response.
Our pathway mapping technology identifies specific proteins that bind with
other proteins that are known to be part of a signaling pathway, either because
we identified them using our retroviral technology or because the proteins have
been described in the scientific literature. This pathway mapping technology is
directed at:
- mapping an entire protein-protein intracellular functional pathway in
disease relevant cells;
- finding new proteins interacting with other new and known proteins; and
- eliminating potential targets rapidly because they interact with multiple
signaling pathways, thus identifying the protein as a less desirable
target.
Using our pathway mapping technology, we split a protein that gives a
detectable signal (reporter protein), such as fluorescence, into two inactive
parts. One part of the reporter protein is fused with a specific protein known
to be involved in a signaling disease-relevant pathway (bait protein). Multiple
copies of the other part of the reporter protein are fused one by one with all
the proteins known to be present in the cell type being studied (library
protein). When the bait protein binds to a specific library protein, the two
parts of the reporter protein reunite and become active again, thereby
generating a detectable signal. We employ an improved version of the two hybrid
protein interaction method in yeast cells. In addition, we have developed a
patented method of employing the two hybrid protein interaction technology in
mammalian cells. Mammalian cells offer the opportunity to monitor
protein-protein interactions in a potentially more relevant cellular
environment.
We also use this pathway mapping technology to screen identified protein
targets against a library of peptides in order to identify each active
interaction site on the target. This information is useful in directing our
chemistry efforts to identify compounds specifically designed to bind to the
interaction site on the target.
TARGET VALIDATION
The first step of our target validation occurs when we use our retroviral
technology to identify targets. We design a screen that reflects a key event in
a disease process so that when one of our proteins changes the behavior of a
specific cell, this indicates a causal relationship between the protein-target
interaction and the specific disease response. This approach saves time and
enhances the probability that those targets which are identified and pursued are
disease relevant. It also tells us that the protein interacts with a functional
site on the target since the interaction results in a change in the behavior of
the cell. We further validate the function of specific targets by:
- using technology to knock out the target from specific cells and seeing if
the loss of the target from the cell alters the cell's responses to
disease-causing stimuli;
- altering the structure of the target in order to identify which part of
the target is functionally important; and
- using peptides that attach to specific sites on the target to change the
way the target works inside the cell.
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OUR DISCOVERY PROGRESS: 1997 - 2000
Since 1997, we have detected more than 500 million protein-protein
interactions in cells. We have also discovered more than 10,000 signaling
pathway members which modify cellular function. We have mapped the protein
interactions of over 150 disease modifying protein targets in nine disease
relevant pathways. We have identified 23 new targets in our programs suitable
for screening compounds for drugs: asthma/ allergy, autoimmunity, transplant
rejection, rheumatoid arthritis (both E-3 ubiquitin ligase and tumor necrosis
factor (TNF) pathway), inflammatory bowel disease, cancerous tumor growth (both
cell cycle inhibition and E-3 ubiquitin ligase) and hepatitis C. We have
identified small molecule compounds in six of our programs, including compounds
which are candidates for preclinical testing in two of these programs.
[GRAPHIC-RIGEL PROGRESS 1997-2000]
<TABLE>
<S> <C>
Functional interactions detected 500,000,000
Signaling pathway members discovered with cellular modifying
function 10,000
Disease modifying proteins 150
Drug targets 23
Small molecule compounds 6
</TABLE>
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OTHER TECHNOLOGIES
Our drug discovery technologies utilize the following additional
technologies:
HIGH THROUGHPUT COMPOUND SCREENING
Using our cell sorter system, we conduct screening of small molecule
compounds in the same cell-based disease-specific screens that we use to
identify the protein targets. This enables us to screen thousands of compounds
in a matter of a few hours, while simultaneously examining multiple
physiological parameters. In addition, we have established conventional high
throughput screens of small molecule compounds using biochemical methods similar
to those widely used in the biotechnology and pharmaceutical industry. We have a
library of approximately 135,000 synthetic small molecule compounds having
highly diverse molecular structures for our compound screening activities.
We select for compound screening only those protein drug targets we judge to
meet several criteria:
- the target's causal relationship to the disease of interest is
established;
- the target's activity is determined to be specific to the disease of
interest;
- the target is of a protein type, such as an enzyme, for which there is
experience indicating that intervention by a synthetic small molecule
compound would be an effective therapeutic; and
- the target is novel and provides us freedom of action to pursue drug
discovery without interference from the rights of third parties.
PROTEOMICS
Our proteomics program is an integral part of our target discovery and
validation effort. In contrast to our retroviral and pathway mapping
technologies which can be used to find single protein-protein interactions,
proteomics techniques can be used to find protein complexes comprised of several
protein targets and to study protein-protein interactions in order to map active
interaction sites on potential protein targets. To this end, we believe our
protein chemistry group uses the most advanced proteomic technologies, including
high resolution two dimensional gel electrophoresis in conjunction with in-gel
tryptic digests followed by mass spectrometry, in order to identify specific
drug targets.
MEDICINAL AND COMBINATORIAL CHEMISTRIES
Our medicinal chemistry group carries out traditional structure-activity
relationship studies of potential lead compounds and makes improvements to those
compounds by utilizing chemistry techniques to synthesize new analogs of a lead
compound with improved properties. Our chemistry group synthesizes compounds
incorporating desirable molecular features.
OUR STRATEGY
Our strategy is to develop a large portfolio of drug candidates that may be
developed into small molecule therapeutics. We believe that producing a
portfolio of many drug candidates and working in conjunction with pharmaceutical
companies to further develop the candidates greatly increases our probability of
commercial success. By utilizing our technology to rapidly discover and validate
new targets and drug candidates that regulate them, we believe that we are well
positioned to help fill the product pipeline gap of major pharmaceutical
companies.
The key elements of our scientific and business strategy are to:
- expand, enhance and protect our technology;
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- focus on diseases that represent large medical markets with significant
populations that are currently under served;
- structure corporate partnering agreements to permit multiple
collaborations in each disease area by focusing on disease pathways and
targets;
- establish strategic collaborations with pharmaceutical and biotechnology
companies to enhance product development and commercialization and to
partner our future research programs in the later stages of drug
development; and
- develop small molecule drugs, which can be delivered to intracellular
targets.
PRODUCT DEVELOPMENT
We believe that, with a steadily aging population, the main focus of
medicine in the United States and other developed countries is shifting to a
greater emphasis on the prevention and treatment of chronic diseases such as
asthma and rheumatoid arthritis. The parallel trends of the increasing knowledge
of drug targets and the increasing incidence of the diseases treated with small
molecule compounds allow us to exploit our technology for large and fast growing
segments of the pharmaceutical marketplace on a worldwide basis. Our programs
address asthma/allergy, autoimmunity, transplant rejection, rheumatoid
arthritis, inflammatory bowel disease affecting the immune system as well as
cancerous tumor growth. These programs offer potential opportunities to develop
drugs for many therapeutic indications. We believe that there are significant
unmet medical and quality-of-life needs for these diseases that represent large
commercial markets.
The following table summarizes key information in ten programs we are
conducting at Rigel that focus on specific disease mechanisms:
<TABLE>
<CAPTION>
COLLABORATIVE
DISORDER/DISEASE MECHANISM STATUS KEY ACHIEVEMENTS PARTNER
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IMMUNE DISORDERS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asthma/allergy IgE receptor Preclinical - Testing in animal models underway None
pathway on mast development(1) - Preclinical candidate compounds
cells identified
- Cell based high throughput screening
(HTS) underway
- Protein interaction pathway map
established
- Novel drug targets identified and
validated
--------------------------------------------------------------------------------------------------
IgE production in B Target screening(2) - Target screening underway Pfizer
cells
--------------------------------------------------------------------------------------------------
IgE production in B Compound - Compounds identified(5) None
cells screening(3) - HTS underway(5)
- Protein interaction pathway map
established(5)
- Novel drug targets identified and
validated(5)
--------------------------------------------------------------------------------------------------------------------------
Autoimmunity B cell activation Compound - HTS underway Novartis
and transplant screening(3) - Protein interaction pathway map
rejection established
- Novel drug targets identified
--------------------------------------------------------------------------------------------------
T cell activation Compound - HTS underway Novartis
screening(3) - Protein interaction pathway map
established
- Novel drug targets identified
--------------------------------------------------------------------------------------------------------------------------
(TABLE CONTINUED ON FOLLOWING PAGE)
</TABLE>
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<TABLE>
<CAPTION>
COLLABORATIVE
DISORDER/DISEASE MECHANISM STATUS KEY ACHIEVEMENTS PARTNER
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Rheumatoid arthritis E-3 ubiquitin Compound - Compounds identified None
and inflammatory ligase screening(3) - HTS underway
bowel disease - Novel drug targets identified and
validated
--------------------------------------------------------------------------------------------------
Selected TNF Target - Protein interaction pathway map None
pathway targets validation(4) established
- Novel drug targets identified
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CANCER
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tumor growth Cell cycle Compound - Compounds identified Janssen
inhibition screening(3) - HTS underway Pharmaceutica
- Protein interaction pathway map
established
- Novel drug targets identified and
validated
--------------------------------------------------------------------------------------------------
E-3 ubiquitin Preclinical - Preclinical candidate compound None
ligase development(1) identified
- HTS underway
- Novel drug targets identified and
validated
--------------------------------------------------------------------------------------------------
Angiogenesis Target screening(2) - HTS underway Cell Genesys
- Novel drug targets identified
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INFECTIOUS DISEASES
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hepatitis C Inhibition of viral Compound - Compounds identified None
replication screening(3) - HTS underway
- Novel drug targets identified
</TABLE>
------------------------------
(1) "Preclinical development": Pharmacology and toxicology testing in animal
models to gather data necessary to comply with applicable regulatory
protocols prior to submission of an Investigational New Drug application to
the FDA.
(2) "Target screening": Disease modeled screening in cells using our
post-genomics combinatorial biology technology.
(3) "Compound screening": Screening of small molecule compounds in biochemical
and cell based assays to identify a compound which binds to a functionally
active site of a validated target.
(4) "Target validation": Testing to establish a causal link between an
intracellular protein target and a cellular response important in a disease
process.
(5) These key achievements occurred not as part of the Pfizer collaboration, but
through our own separate research efforts.
IMMUNE DISORDERS
Many diseases and disorders result from defects in the immune system. Over
50 million people in the United States suffered from allergic and asthmatic
disorders in 1999. Anti-asthmatic and allergy relief medications exceeded
$5 billion in worldwide sales in 1997 and have been growing at a 5% annual
growth rate. In 1999, another 3 million to 5 million patients in the United
States were treated for other immune disorders. We currently have six programs
in immunology focused on asthma/allergy (two programs), autoimmunity, transplant
rejection, rheumatoid arthritis and inflammatory bowel disease and three
programs in cancer focused on tumor growth.
ASTHMA/ALLERGY
IGE RECEPTOR ON MAST CELLS. The goal of this program is to identify
compounds that inhibit the secretion of inflammatory factors resulting from IgE
binding to its receptor on mast cells. IgE is one of several immunoglobulins
produced by the body's immune system. Currently, we have identified preclinical
candidate compounds. Preliminary studies demonstrate that these compounds
inhibit the ability of IgE to activate its receptor on mast cells. There is
evidence in animal models and early clinical studies that
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blocking IgE from binding to mast cells can reduce allergic symptoms in multiple
species, including humans. However, most programs in development today are
intravenous therapeutic antibodies. We believe that small molecule inhibitors of
IgE signaling pathways could play an important role in treatment of such chronic
disorders.
IGE PRODUCTION IN B CELLS. In this program, we have been working with our
partner, Pfizer, since January 1999 to identify intracellular drug targets that
control the production of IgE in B cells. We have identified, not as part of the
Pfizer collaboration, but separately through our own research efforts, a protein
target that appears to regulate a key event in this pathway that leads to
allergic and asthmatic symptoms and a compound in this program.
AUTOIMMUNITY AND TRANSPLANT REJECTION
Autoimmunity disorders and organ transplant rejection are the result of
inappropriate activation of the immune system. Most existing therapies for
inflammatory diseases also have toxic side effects. A challenge facing all
research groups in this field has been the design of selective and specific
immune system therapeutics that affect only the pathological activities without
negatively affecting the protective activities of the immune system.
Our programs are designed to identify and validate novel molecules which
specifically signal cell activation and cell death, or apoptosis, of T cells and
B cells. Activation and apoptosis determine the quality, magnitude, and duration
of immune responses. Activation pathways are initiated by the binding of antigen
(foreign protein) to specific surface receptors on T cells or B cells. This sets
off an intracellular cascade of signals, resulting in changes in gene expression
and the production of proteins that drive the immune response or lead to
antibody production and secretion in B cells. The apoptosis signals prevent self
activation, overactivation or prolonged activation of the T and B cells, which
can lead to auto-immune disease or organ rejection. We are identifying T cell
and B cell-specific drug targets that are effective in modulating
immune-mediated processes.
B CELL ACTIVATION. The goal of the B cell activation program is to prevent
antibody secretion by activated B cells, an important mechanism in autoimmunity
transplantation rejection. We have identified novel drug targets using our
post-genomics combinatorial biology technology and have initiated high
throughput screening. This program has been partnered with Novartis since
August 1999.
T CELL ACTIVATION. The goal of our T cell program is to identify early
steps in the process of T cell activation. T cells are responsible for
cell-mediated inflammatory and humoral responses, both of which are important
mechanisms of transplant rejection and autoimmune diseases. We have identified
novel drug targets using our post-genomics combinatorial biology technology and
have initiated high throughput screening. This program has been partnered with
Novartis since May 1999.
RHEUMATOID ARTHRITIS AND INFLAMMATORY BOWEL DISEASE
We have programs directed at two different cellular pathways for these
inflammatory diseases:
E-3 UBIQUITIN LIGASE. This program is focused on characterizing and
developing specific inhibitors of protein-degrading enzymes, named E-3 ubiquitin
ligases, in inflammation. The levels of many intracellular proteins that play a
critical role in signaling pathways are regulated by this protein-degrading
process. Many signaling proteins control cell function through active
intermediates whose levels vary rapidly during different phases of a physiologic
response. Disease processes can be treated by up-regulating or down-regulating
these key signaling proteins as a way to enhance or dampen specific cellular
responses. This principle has been successfully used in the design of a number
of therapeutics for the treatment of inflammation. We also anticipate that, as
the field of E-3 ubiquitin ligase biology evolves, inhibitors can be identified
which will have clinical utility in metabolic diseases and possibly in
neurodegenerative processes. We have screened over 100,000 small molecules
against several members of the E-3 ubiquitin ligase family,
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and have identified several small molecule compounds which, based on preliminary
data, appear to be potent and specific inhibitors.
SELECTED TNF PATHWAY TARGETS. This second program focuses on blocking the
inflammatory signals of the Tumor Necrosis Factor, or TNF pathway, a pathway
validated by existing antibody therapies as an important site for therapeutic
intervention. We have identified and validated several novel members of this
signaling pathway which are moving into both biochemical and cell based high
throughput compound screens. Our preliminary results suggest that the targets we
have identified in the TNF pathway regulate inflammatory responses in specific
cell types, thus potentially making small molecule compounds directed at these
targets more disease specific. In addition, these small molecules will be less
likely to exhibit the side effects of chronic administration of anti-TNF
antibodies or antibodies directed at the TNF receptor.
Additionally, our scientists have identified potential drug targets in the
TNF pathway that protect T cells from apoptotic signals, and have used those
interactions to identify a protective protein termed Toso. When T cells are
activated, Toso production is activated and in turn causes other intracellular
proteins to block apoptotic signals. Thus Toso may protect activated T cells
from apoptosis. We are investigating Toso inhibition as a method of selectively
killing activated disease-causing T cells.
CANCER
Cancer is a group of diseases characterized by the uncontrolled growth and
proliferation of cells. This growth invades vital organs and often results in
death. The United States market for branded cancer drugs totaled approximately
$7.0 billion in 1999 and is projected to grow at an 11% annual growth rate.
Cancer is the second leading cause of death in the United States, exceeded only
by cardiovascular disease. In 1999, an estimated 1.2 million people were
diagnosed with cancer, and more than 500,000 patients died of cancer in the
United States. Although there have been improvements in cancer therapies over
the last decade, there remains a significant medical need for the development of
both more effective and less toxic drugs for these diseases.
We are currently pursuing three important pathways directed against tumor
growth:
CELL CYCLE INHIBITION. This program is directed toward the cell cycle
checkpoint pathway. The proliferation of normal cells is controlled by built-in
safety mechanisms in the cell cycle, termed checkpoints, that ensure that only
cells with normal genetic material can progress through the cell cycle and
divide. Cells with genetic mutations are recognized and shunted into the
apoptosis pathway to protect the organism from cancer and other genetic
disorders. It is estimated that more than 50 percent of all human tumors contain
cancer cells that have lost one or more crucial checkpoint genes. Cancer cells
also can carry mutations in another group of normal cell genes that mimic
extracellular proliferation signals, causing tumor cells to continue to divide
even in the absence of normal cell growth signals. The net result of these
genetic mutations is uncontrolled cell division and disease. We have
collaborated with our partner Janssen Pharmaceutica since December 1998 to
identify intracellular drug targets involved in cell cycle control. We have
identified several novel drug targets in this program, one of which has been
accepted by Janssen Pharmaceutica as validated and has entered small molecule
screens.
E-3 UBIQUITIN LIGASE. Our second antitumor program is focused on the E-3
ubiquitin ligase pathway unique to malignancies. The goal of this program is to
examine specific inhibitors of ubiquitin ligases implicated in regulating
mitosis, or cell division, in a number of transformed cell lines and normal
cells. We also have identified a preclinical candidate compound in this program.
ANGIOGENESIS. Our third antitumor program is directed toward the
angiogenesis pathway. Angiogenesis is defined as the growth of new blood
vessels. In diseased circumstances or in oxygen deficient conditions,
angiogenesis is stimulated by the synthesis and release of specific
pro-angiogenic factors. In contrast to normal angiogenesis, tumor angiogenesis
is a continuous process. As a significant proportion of tumors are dependent on
continued angiogenesis, inhibition of this process blocks tumor growth which
often leads to complete tumor deterioration. Thus, we believe therapeutic
intervention of
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tumor-promoted angiogenesis represents an important form of anti-tumor therapy.
We have established and initiated two screens in human capillary endothelial
cells using our post-genomics combinatorial biology technology in order to
identify targets in the angiogenesis pathway.
INFECTIOUS DISEASES
HEPATITIS C. We have initiated a viral research program based upon
technology acquired from Questcor in September 2000. Hepatitis C is a major
cause of chronic hepatitis, cirrhosis and hepatocellular carcinoma. The goal of
this program is to interfere with the IRES translation mechanism of the
hepatitis C virus. We are attempting to discover and develop a highly specific
inhibitor of IRES translation in the form of a small molecule compound. Targets
have been identified and validated, a high throughput screen has been
established and initial compounds have been identified as part of this program.
Under the terms of our agreement with Questcor, we are obligated to assign
back to Questcor all of our rights in the technology and intellectual property
to which we are entitled pursuant to the agreement if we commit a material
breach of the agreement and if Questcor follows certain procedures set forth in
the agreement.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses were $24.6 million in the nine months
ended September 30, 2000, $17.1 million in 1999, $8.3 million in 1998 and
$4.6 million in 1997.
CORPORATE COLLABORATIONS
To fund a wide array of research and development programs, we have
established and will continue to pursue corporate collaborations with
pharmaceutical and biotechnology companies. We currently have collaborations on
six of our ten research programs, including one with Janssen Pharmaceutica
relating to oncology therapeutics and diagnostics, one with Pfizer relating to
asthma and allergy therapeutics, three with Novartis relating to immunology, and
one with Cell Genesys relating to angiogenesis. In addition, we have
collaborated with Neurocrine in order to obtain rights to small chemical
compounds.
As of September 30, 2000, we had received a total of $31.8 million from our
collaborators. Included in this amount is $10.0 million from participation in
our preferred equity financing and $21.8 million for technology access and
research funding, of which $3.0 million has been deferred at September 30, 2000.
In addition, we have a number of scientific collaborations with academic
institutions and biotechnology companies under which we have in-licensed
technology. We intend to pursue further collaborations as appropriate.
In most of our collaborations, inventions are intended to be owned by the
employer of the inventor or inventors thereof in accordance with United States
patent law, subject to licenses or assignments granted in the agreements.
JANSSEN PHARMACEUTICA
Effective December 1998, we entered into a three-year research
collaboration, ending December 2001, with Janssen Pharmaceutica, a Johnson &
Johnson company, to identify, discover, and validate novel drug targets that
regulate cell cycle, and, specifically, the identification of drug targets and
the active peptides that bind to them that can restore a mutated cell's ability
to stop uncontrolled cell division. Under the agreement, we will provide certain
assays and associated technology to Janssen Pharmaceutica for the assessment of
the alteration or normalization of the dysfunctional cell cycles of cancer cells
for Janssen Pharmaceutica's internal research purposes. Subsequently, in an
amendment to the collaboration in July 2000, Janssen Pharmeceutica expanded the
collaboration whereby we will be performing compound screening and medicinal
chemistry on validated targets accepted by Janssen Pharmeceutica.
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Janssen Pharmaceutica has accepted the first target identified during the
collaboration as fully validated. Rigel and Janssen Pharmaceutica each has
commenced high throughput screening of its respective compound libraries.
Under the collaboration, Janssen Pharmaceutica has the exclusive right to
utilize our technology and technology developed during the collaboration to
discover, develop, identify, make, and commercialize certain products on a
worldwide basis. These products are:
- diagnostic products which are either a component of a drug target and
associated active peptide, identified by or on behalf of us or Janssen
Pharmaceutica in an assay developed during the collaboration, or
identified in a Janssen Pharmaceutica screening assay as a result of
Janssen Pharmaceutica's internal research;
- products identified by or on behalf of Janssen Pharmaceutica as a result
of Janssen Pharmaceutica's internal research;
- products identified by or on behalf of either us or Janssen Pharmaceutica
in an assay which incorporates a drug target and associated active peptide
delivered to Janssen Pharmaceutica by us; and
- products which contain a component of a drug target and associated active
peptide, or the functional equivalent of a component.
Janssen Pharmaceutica also has a non-exclusive right to use our technology,
and technology developed during the research collaboration, to the extent
necessary to use the assays we transfer to Janssen Pharmaceutica for internal
research. Janssen Pharmaceutica's rights are subject to its obligation to
provide research funding for the collaboration, make milestone payments and
technology access payments to us, and pay royalties to us on the sales of
products, as described above.
We will have the non-exclusive right to use any technology developed by
Janssen Pharmaceutica during the research collaboration, and any improvements to
our technology developed by Janssen Pharmaceutica during its internal research,
on a royalty-free and worldwide basis. However, during the first 18 months after
the signing date of the agreement, we may not enter into a research
collaboration with a third party to identify drug targets and the associated
active peptides which cause alterations in the cell cycle of human tumor cells.
The research collaboration will terminate (three years after the effective
date of the agreement) unless the agreement is terminated, or the research
collaboration is extended for up to two additional one year periods at Janssen
Pharmaceutica's option.
The Johnson & Johnson Development Corporation, the investment entity
affiliated with Janssen Pharmaceutica, purchased 1,500,000 shares of our
Series D preferred stock at a price per share of $2.00 in connection with our
Series D financing and in February 2000, purchased 166,666 shares of our
Series E preferred stock at a price per share of $6.00 in connection with our
Series E financing.
PFIZER
Effective January 1999, we entered into a two-year research collaboration
with Pfizer, ending January 31, 2001 and renewable at Pfizer's option for an
additional year. Pfizer is required to notify us of its election to renew the
collaboration beyond January 31, 2001 no later than January 12, 2001.We do not,
however, expect that our collaboration with Pfizer will be renewed. The goal of
the collaboration is to identify intracellular drug targets that control the
production of IgE, a key mediator in allergic reactions and asthma in B cells.
We will provide the following technology developed or identified during and
pursuant to the research collaboration to Pfizer:
- drug targets;
- technology associated with identified drug targets;
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- technology necessary for Pfizer's performance of its research
collaboration obligations; and
- technology necessary for Pfizer's performance of its research
collaboration obligations; and
- technology necessary for Pfizer's performance of high throughput
screening, or HTS, on identified drug targets.
Pfizer will exclusively own drug targets for which it has initiated HTS. We
will have no obligation to Pfizer with regard to any drug target Pfizer does not
select for HTS. During the research collaboration, we may not conduct research
within the scope of the research collaboration by ourselves or with any third
party except in connection with the research collaboration with Pfizer.
We and Pfizer each have the non-exclusive right to use for research purposes
the technology of the other which is disclosed or developed during the research
collaboration, excluding our peptide libraries and proprietary cell lines. Under
the collaboration, Pfizer also has the exclusive, worldwide right to develop and
market diagnostic and therapeutic products for humans and animals which were
identified by Pfizer in HTS and modulate the activity of a drug target
identified in the research collaboration. Pfizer's rights to develop and market
such products are subject to its obligation to provide research funding to us
for a minimum of two years, as well as cash for equity, technology access
payments, research milestones, and royalties on the sales of these products.
In addition to typical termination events, Pfizer may terminate this
agreement if Dr. Donald Payan's association with us as our chief scientific
officer or similar role ends and we and Pfizer cannot agree on a successor
acceptable to Pfizer.
Pfizer purchased 1,000,000 shares of Series D preferred stock at a price per
share of $2.00 in connection with our Series D financing.
NOVARTIS
In May 1999, we signed an agreement for the establishment of a broad
collaboration with Novartis, whereby the two companies will work on five
different five-year research projects to identify drug targets for products that
can treat, prevent, or diagnose the effects of human disease. Two of the
research projects will be conducted jointly by Novartis and us, and the other
three research projects will be conducted at Novartis. The first research
project, a joint research project, is focused on identifying small molecule drug
targets that regulate T cells. The second research project, also a joint
research project, relates to the identification and validation of small molecule
drug targets that can mediate specific functions of B cells. The third research
project, a project carried out at Novartis, is focused on identifying small
molecule drug targets that regulate pulmonary inflammation. Novartis will select
the remaining two projects by May 2001.
Once a drug target from any of the five research projects has been
identified and validated, Novartis shall have the right to conduct compound
screening on such drug target on an exclusive basis for two years thereafter.
Novartis will have the option to extend this exclusive right for up to five
additional one-year periods so long as Novartis pays us an annual fee for such
right and satisfies certain diligence conditions. Upon the expiration or
termination of this right, both we and Novartis shall have the non-exclusive
right to use, and allow others to use, such drug target for compound screening.
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Under the agreement, Novartis has the non-exclusive right to utilize our
post-genomics combinatorial biology technology and two hybrid protein
interaction technology for confirmational and similar uses relating to validated
drug targets, including uses necessary for the further development,
registration, and commercialization of products whose principal mechanism of
action is based upon, derived or discovered from, or discovered with the use of,
a drug target. Novartis also has the exclusive right to utilize other of our
technology and technology developed during the collaboration, to make and
commercialize these products. Novartis' rights are subject to its obligation to
provide research funding for the joint research projects, to pay milestone
payments and technology access payments to us, and to pay third party royalties
associated with Novartis' use of certain of our technology.
Under the agreement, we will have the non-exclusive right to use any
improvements to our post-genomics combinatorial biology technology and two
hybrid protein interaction technology developed during a research project on a
royalty-free and worldwide basis.
Novartis may terminate the joint research projects two years after the
applicable commencement date, or three and one half years after the applicable
commencement date if Novartis gives six months prior notice of its termination.
In some circumstances, Novartis also may terminate either of the joint research
projects after the expiration of 12 months after the applicable commencement
date. Novartis may terminate the research projects to be conducted at Novartis
at any time.
Novartis purchased 2,000,000 shares of our Series D preferred stock at a per
share purchase price of $2.00 in connection with our Series D financing.
Novartis agreed, in certain circumstances, to purchase up to $10.0 million of
our stock at our option. In September 2000, we exercised this right to sell
$10.0 million of our common stock in a private placement transaction concurrent
with this public offering at the price per share at which our common stock will
be sold in this offering.
CELL GENESYS
In September 1999, we established a research collaboration and license
agreement with Cell Genesys. The goal of the research collaboration is to use
our post-genomics combinatorial biology technology to identify novel therapeutic
peptide, protein, and gene products in the field of gene therapy. Cell Genesys
also will be granted exclusive, royalty-free worldwide rights to make, use, and
commercialize therapeutic peptide, protein and gene products in the field of
gene therapy. Cell Genesys also will be granted the right to make and use the
intracellular drug targets with which their gene therapy products bind for the
sole purpose of the research and development of gene therapy products. Cell
Genesys also has the option to obtain rights under some of our cell lines and
associated technology to make and commercialize gene therapy products.
In exchange for our performance of the research and the license granted to
Cell Genesys, we were granted a royalty-free, worldwide right to some Cell
Genesys patents and technology pertaining to retroviral gene delivery technology
for use in the field of our post-genomics combinatorial biology. Each company
will pay to the other company third-party sublicensing fees and royalties
associated with the grant of the licenses discussed above, and fund their own
research.
NEUROCRINE BIOSCIENCES
In addition to our nine programs focusing on specific disease mechanisms,
effective December 1997, we conducted a research collaboration with Neurocrine
to discover novel molecular targets involved in glial cell activation.
Under the terms of the agreement, Neurocrine has the exclusive, royalty-free
right to utilize our technology and technology developed during the research
collaboration to develop, make and commercialize on a worldwide basis, products
which incorporate or are discovered using a drug target involved in glial cell
activation or a peptide identified or produced by us which binds to this type of
drug
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target. We have the exclusive, royalty-free right to utilize Neurocrine
technology and technology developed during the research collaboration to
develop, make and commercialize on a worldwide basis, products which incorporate
or are discovered using a drug target not involved in glial cell activation or a
peptide identified or produced by Neurocrine which does not bind to this type of
drug target. Each company will assign to the other company its rights in
proprietary technology and technology developed during the research
collaboration which is related to the other company's products described above.
INTELLECTUAL PROPERTY
We will be able to protect our technology from unauthorized use by third
parties only to the extent that it is covered by valid and enforceable patents
or are effectively maintained as trade secrets. Accordingly, patents or other
proprietary rights are an essential element of our business. We have 57 pending
patent applications and one issued patent in the United States as well as
corresponding foreign patent applications. At least seven patent applications
had been filed in the United States by or on behalf of universities which had
granted us exclusive license rights to the technology. To date, no patents have
issued to us but we have received notification from the United States Patent
Office that it intends to allow claims in three of our patent applications. Our
policy is to file patent applications to protect technology, inventions and
improvements to inventions that are commercially important to the development of
our business. We seek United States and international patent protection for a
variety of technologies, including: new screening methodologies and other
research tools; target molecules that are associated with disease states
identified in our screens; and lead compounds that can affect disease pathways.
We also intend to seek patent protection or rely upon trade secret rights to
protect other technologies that may be used to discover and validate targets and
that may be used to identify and develop novel drugs. We seek protection, in
part, through confidentiality and proprietary information agreements. We are a
party to various other license agreements that give us rights to use
technologies in our research and development.
M&E has notified us that it has received patent protection in European
countries for a process similar to certain aspects of our technologies. M&E has
also notified us of its belief that we have infringed, and are contributorily
infringing, certain claims of that European patent. We are currently reviewing
their patent file and evaluating the appropriate course of action. If legal
action were initiated on this patent, it could be lengthy, costly and require
significant management time and other resources which could adversely affect the
pursuit of scientific and business goals. In addition, any such legal action
could result in the award of damages or a court order preventing us from using
the technology covered by the M&E patent. We are also aware that M&E has sought
patent protection in Australia and the U.S., and has the option to seek patent
protection in other parts of the world. If M&E were to receive such patent
protection, it might conflict with or overlap with the patent rights we are
pursuing. We currently do not, and do not plan to, operate in any country
outside the United States.
COMPETITION
We face, and will continue to face, intense competition from pharmaceutical
and biotechnology companies, as well as academic and research institutions and
government agencies, both in the United States and abroad. Some of these
competitors are pursuing the development of pharmaceuticals that target the same
diseases and conditions as our research programs. Our major competitors include
fully integrated pharmaceutical companies that have extensive drug discovery
efforts and are developing novel small molecule pharmaceuticals. We face
significant competition from organizations that are pursuing the same or similar
technologies, including the discovery of targets that are useful in compound
screening, as the technologies used by us in our drug discovery efforts. Our
competitors or their collaborative partners may utilize discovery technologies
and techniques or partner more rapidly or successfully than we or our
collaborators are able to do.
Many of these companies and institutions, either alone or together with
their collaborative partners, have substantially greater financial resources and
larger research and development staffs than we do. In
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addition, many of these competitors, either alone or together with their
collaborative partners, have significantly greater experience than we do in:
- identifying and validating targets;
- screening compounds against targets; and
- undertaking preclinical testing and clinical trials.
Accordingly, our competitors may succeed in obtaining patent protection,
identifying or validating new targets or discovering new drug compounds before
us.
Competition may also arise from:
- new or better methods of target identification or validation;
- other drug development technologies and methods of preventing or reducing
the incidence of disease;
- new small molecules; or
- other classes of therapeutic agents.
Developments by others may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions and for licenses to additional technologies.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
Our ability to compete successfully will depend, in part, on our ability to:
- identify and validate targets;
- discover candidate drug compounds which interact with the targets we
identify;
- attract and retain scientific and product development personnel;
- obtain patent or other proprietary protection for our new drug compounds
and technologies; and
- enter commercialization agreements for our new drug compounds.
GOVERNMENT REGULATION
If our potential preclinical compounds become ready to enter clinical
testing, our ongoing development activities will be subject to extensive
regulation by numerous governmental authorities in the United States and other
countries, including the FDA under the Federal Food, Drug and Cosmetic Act. The
regulatory review and approval process is expensive and uncertain. Securing FDA
approval requires the submission of extensive preclinical and clinical data and
supporting information to the FDA for each indication to establish a product
candidate's safety and efficacy. The approval process takes many years, requires
the expenditure of substantial resources and may involve ongoing requirements
for post-marketing studies. Before commencing clinical investigations in humans,
we must submit to, and receive approval from, the FDA of an IND. Clinical trials
are subject to oversight by institutional review boards and the FDA and:
- must be conducted in conformance with the FDA's IND regulations;
- must meet requirements for institutional review board oversight;
- must meet requirements for informed consent;
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- must meet requirements for good clinical practices;
- are subject to continuing FDA oversight;
- may require large numbers of participants; and
- may be suspended by us, our strategic partners, or the FDA at any time if
it is believed that the subjects participating in these trials are being
exposed to unacceptable health risks or if the FDA finds deficiencies in
the IND or the conduct of these trials.
Even if we are able to achieve success in our clinical testing, we, or our
collaborative partners, must provide the FDA and foreign regulatory authorities
with clinical data that demonstrates the safety and efficacy of our products in
humans before they can be approved for commercial sale. None of the product
candidates that we have internally developed has advanced to the stage of human
testing designed to determine safety, known as Phase I clinical trials. We do
not know when or if clinical trials will begin and, once begun, will not know
whether any such clinical trials will be successful or if such trials will be
completed on schedule or at all. We do not know whether any future clinical
trials will demonstrate sufficient safety and efficacy necessary to obtain the
requisite regulatory approvals or will result in marketable products. Our
failure, or the failure of our strategic partners, to adequately demonstrate the
safety and efficacy of our products under development will prevent receipt of
FDA and similar foreign regulatory approval and, ultimately, commercialization
of our products.
Any clinical trial may fail to produce results satisfactory to the FDA.
Preclinical and clinical data can be interpreted in different ways, which could
delay, limit or prevent regulatory approval. Negative or inconclusive results or
adverse medical events during a clinical trial could cause a clinical trial to
be repeated or a program to be terminated. In addition, delays or rejections may
be encountered based upon additional government regulation from future
legislation or administrative action or changes in FDA policy or interpretation
during the period of product development, clinical trials and FDA regulatory
review. Failure to comply with applicable FDA or other applicable regulatory
requirements may result in criminal prosecution, civil penalties, recall or
seizure of products, total or partial suspension of production or injunction, as
well as other regulatory action against our potential products, collaborative
partners or us. Additionally, we have no experience in working with our partners
in conducting and managing the clinical trials necessary to obtain regulatory
approval.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union, or EU, registration
procedures are available to companies wishing to market a product in more than
one EU member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process involves
all of the risks associated with FDA clearance.
Because we moved to a new facility in March 1999 designed to comply with all
applicable federal, state and local environmental and hazardous waste
regulations, we expect no additional substantial expenditures for this purpose.
The facility was also designed to comply with current earthquake design
criteria.
EMPLOYEES
As of September 30, 2000, we employed 102 persons, of whom 29 hold PhD or MD
degrees and seven hold other advanced degrees. Approximately 85 employees are
engaged in research and development, and 17 support administration, finance,
management information systems, facilities and human resources. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced work stoppages. We believe that our relations with our employees are
good.
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FACILITIES
Our facilities consist of approximately 61,000 square feet of research and
office space located at 240 East Grand Avenue, South San Francisco, California
that is leased to us until 2016. We have options to renew this lease for two
additional periods of five years each. We believe our facility will meet our
space requirements for research and development and administration functions
through the year 2001.
LEGAL PROCEEDINGS
We are not a party to any pending material litigation.
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SCIENTIFIC ADVISORY BOARD
We utilize scientists and physicians to advise us on scientific and medical
matters as part of our Scientific Advisory Board including, experts in human
genetics, mouse genetics, molecular biology, biochemistry, cell biology,
chemistry, infectious diseases, immunology and structural biology. Generally,
each of our scientific and medical advisors and consultants receives an option
to purchase our common stock and an honorarium for time spent assisting us. The
following is a list of our Scientific Advisory Board members:
GARRY P. NOLAN, PHD, our co-founder and Chairman of the Scientific Advisory
Board, is Associate Professor in the Department of Molecular Pharmacology and
Department of Microbiology and Immunology at Stanford University Medical Center.
ROBIN G. COOPER, DSC, PHD is a former Research Advisor at Eli Lilly and Co.,
and presently President of Cooper Consulting Inc.
CHARLES S. CRAIK, PHD is Professor of Pharmaceutical Chemistry and
Pharmacology, Biochemistry and Biophysics, and Director of the Chemistry and
Chemical Biology Graduate Group at the University of California San Francisco.
DANIEL R. LITTMAN, MD, PHD is the Coordinator of the Molecular Pathogenesis
Program, Skirball Institute of Biomolecular Medicine and Professor of
Microbiology and Pathology at the New York University School of Medicine and
Investigator, Howard Hughes Medical Institute.
RICHARD M. LOCKSLEY, MD is Professor, Departments of Medicine and
Microbiology/Immunology, Chief of the Division of Infectious Diseases and
Investigator, Howard Hughes Medical Institute, at the University of California
San Francisco.
RICHARD SCHELLER, PHD is Professor of Molecular and Cellular Physiology and
Investigator, Howard Hughes Medical Institute at Stanford University.
KEVAN M. SHOKAT, PHD is Associate Professor of Cellular and Molecular
Pharmacology at the University of California San Francisco and Associate
Professor, Department of Chemistry at University of California Berkeley.
JOHN B. TAYLOR, DSC, PHD is the former Sr. Vice President for WW
Pharmaceutical Discovery Operations with Rhone Poulenc Rorer (Aventis) and
presently a Pharmaceutical R&D Consultant.
RICHARD ULEVITCH, PHD is Chairman of the Department of Immunology at the
Scripps Research Institute.
MATTHIAS WABL, PHD is Professor of Microbiology and Immunology in the
Department of Microbiology and Immunology at the University of California San
Francisco.
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CLINICAL ADVISORY BOARD
In addition to our Scientific Advisory Board, we utilize a number of
scientists and physicians to advise us on the scientific and medical matters
associated with clinical trials. This group is known as our Clinical Advisory
Board. The following is a list of our Clinical Advisory Board members:
THOMAS A. RAFFIN, MD, our co-founder and Chairman of our Clinical Advisory
Board, is the Colleen and Robert Haas Professor of Medicine and Biomedical
Ethics, Chief of the Division of Pulmonary and Critical Care Medicine and
Co-Director of the Center for Biomedical Ethics at Stanford University Medical
Center.
DENNIS A. CARSON, MD is Professor of Medicine in the Department of Medicine
at the University of California San Diego and Director of the Sam and Rose Stein
Institute on Aging.
ALAN R. LEFF, MD is Professor of Medicine, Neurobiology, Pharmacology and
Physiology, Pediatrics, Anesthesia and Critical Care, Clinical Pharmacology and
Cell Physiology, and Senior Director for Research and Development for the
Biological Science Division at the University of Chicago, Chicago, Illinois.
ROBERT S. MUNFORD, MD is Professor of Internal Medicine and Microbiology at
the University of Texas Southwestern Medicine Center in Dallas, Texas.
GLENN D. ROSEN, MD is Associate Professor of Medicine in the Division of
Pulmonary and Critical Care Medicine at Stanford University Medical Center.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the
business experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ------------------------------------------
<S> <C> <C>
James M. Gower............................ 52 President, Chief Executive Officer and
Director
Donald G. Payan, MD....................... 52 Executive Vice President and Chief
Scientific Officer and Director
Brian C. Cunningham....................... 57 Senior Vice President, Chief Operating
Officer, Chief Financial Officer and
Secretary
James H. Welch............................ 42 Vice President, Finance and Administration
and Assistant Secretary
Raul R. Rodriguez......................... 39 Vice President, Business Development
Jean Deleage, PhD(1)...................... 59 Director
Alan D. Frazier(2)........................ 48 Director
Walter H. Moos, PhD(1)(2)................. 46 Director
Stephen A. Sherwin, MD(1)................. 51 Director
Thomas S. Volpe........................... 49 Director
</TABLE>
------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
JAMES M. GOWER joined us as our President, Chief Executive Officer and as a
member of our board of directors in January 1997. From 1992 to March 1996,
Mr. Gower was President and Chief Executive Officer of Tularik, Inc., a
biotechnology company developing small-molecule drugs regulating gene
expression. Prior to Tularik, Mr. Gower spent ten years at Genentech, Inc., a
biopharmaceutical company, where he most recently served as Senior Vice
President. During his ten years at Genentech, Mr. Gower was responsible for
business development and sales and marketing functions. In addition, he
established and managed Genentech's foreign operations in Canada and Japan and
served as President of Genentech Development Corporation. Mr. Gower serves on
the board of directors of Cell Genesys, Inc. He holds a BS and an MBA in
operations research from the University of Tennessee.
DONALD G. PAYAN, MD is our co-founder, has been a member of our board of
directors since July 1996 and has served as our Executive Vice President and
Chief Scientific Officer since January 1997. From January 1997 to July 1998, he
also served as our Chief Operating Officer. From July 1996 to January 1997,
Dr. Payan served as our President and Chief Executive Officer. From
December 1995 to May 1996, Dr. Payan was Vice President of AxyS
Pharmaceuticals, Inc., a biopharmaceutical company. From September 1993 to
December 1995, Dr. Payan was the founder and Executive Vice President and Chief
Scientific Officer of Khepri Pharmaceuticals, Inc., which merged with AxyS
Pharmaceuticals. Dr. Payan continues his association with the University of
California, San Francisco, which began in 1982, where he is currently an Adjunct
Professor of Medicine and Surgery. Dr. Payan holds a BS and an MD from Stanford
University.
BRIAN C. CUNNINGHAM has been our Secretary since July 1996. In July 1998, he
joined us as Senior Vice President and Chief Operating Officer, and in
February 1999, he also became our Chief Financial Officer. From January 1989 to
September 1998, Mr. Cunningham was a partner in the law firm Cooley Godward LLP
where he was head of the Life Sciences Group and the Health Care Group and is
currently Of Counsel. From May 1982 to December 1989, he served as Vice
President, Secretary and General Counsel
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of Genentech Inc. Mr. Cunningham holds a BS in engineering science and a JD from
Washington University.
JAMES H. WELCH joined us as our Vice President, Finance and Administration
and Assistant Secretary in May 1999. From June 1998 to May 1999, he served as an
independent consultant at various companies. From February 1997 to June 1998,
Mr. Welch served as Chief Financial Officer of Biocircuits Corporation, a
manufacturer of medical diagnostic equipment, and from June 1992 to
February 1997, he served as Corporate Controller of Biocircuits. Previously,
Mr. Welch held various positions at NeXT Computer, Inc., most recently as
Division Controller. Mr. Welch holds a BA in business administration from
Whitworth College and an MBA from Washington State University.
RAUL R. RODRIGUEZ joined us as our Vice President, Business Development in
April 2000. From 1997 to March 2000, he served as Senior Vice President,
Business Development and Operations for Ontogeny, Inc., a biotechnology company.
From 1994 to 1997, he served as the Executive Director, Business Development and
Market Planning for Scios, Inc., a pharmaceutical company. Mr. Rodriguez holds
an AB in history and science from Harvard College, an MPH from the University of
Illinois and an MBA from Stanford University.
JEAN DELEAGE, PHD joined us as a director in January 1997. Dr. Deleage is a
founder and managing director of Alta Partners, a venture capital firm investing
in information technologies and life sciences companies. From 1979 to 1996,
Dr. Deleage was a managing partner of Burr, Egan, Deleage & Co., a venture
capital firm. Dr. Deleage was the founder of Sofinnova, a venture capital
organization in France, and Sofinnova, Inc., the U.S. subsidiary of Sofinnova.
Dr. Deleage currently serves on the board of directors of Flamel Technologies
S.A., Aclara Biosciences, Inc. and Telik, Inc. Dr. Deleage received a
Baccalaureate in France, a Masters Degree in electrical engineering from the
Ecole Superieure d'Electricite and a PhD in Economics from the Sorbonne.
ALAN D. FRAZIER joined us as a director in October 1997. In 1991,
Mr. Frazier founded Frazier & Company, a venture capital firm, and has served as
the managing principal since its inception. From 1983 to 1991, Mr. Frazier
served as Executive Vice President, Chief Financial Officer and Treasurer of
Immunex Corporation, a biopharmaceutical company. From 1980 to 1983,
Mr. Frazier was a principal in the Audit Department of Arthur Young & Company
(now Ernst & Young). He also serves on the board of trustees of the Fred
Hutchinson Cancer Research Center, the Technology Alliance of Washington,
Voyager Capital's Advisory Board and the Washington Venture Capital Association.
Mr. Frazier holds a BA in economics from the University of Washington.
WALTER H. MOOS, PHD joined us as a director in March 1997. Since 1997,
Dr. Moos has served as the Chairman and Chief Executive Officer of MitoKor, a
biotechnology company. From 1991 to 1997, he served as Corporate Vice President
and Vice President, Research and Development in the Technologies Division of
Chiron Corporation, a biotechnology company. From 1982 to 1991, Dr. Moos held
several positions at the Parke-Davis Pharmaceutical Research Division of the
Warner-Lambert Company, last holding the position of Vice President,
Neuroscience and Biological Chemistry. He has been an Adjunct Professor at the
University of California, San Francisco, since 1992. Dr. Moos holds an AB from
Harvard University and a PhD in chemistry from the University of California,
Berkeley.
STEPHEN A. SHERWIN, MD joined us as a director in March 2000. Since
March 1990, he has served as President, Chief Executive Officer and director of
Cell Genesys, Inc. and as Chairman of the Board of Cell Genesys since
March 1994. From 1983 to 1990, Dr. Sherwin held various positions at
Genentech Inc., most recently as Vice President, Clinical Research. He received
his MD from Harvard Medical School and his BA from Yale University. Dr. Sherwin
also currently serves as a director of Abgenix, Inc. and Neurocrine
Biosciences, Inc.
THOMAS S. VOLPE joined as a director in August 2000. Since December 1999, he
has served as the Chairman of Prudential Volpe Technology Group. Mr. Volpe also
serves on the board of directors of
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Linear Technology Corporation. From 1986 to 1999, Mr. Volpe was President, CEO
and founder of Volpe Brown Whelan & Company, a risk capital and investment
banking firm focused on rapidly growing entrepreneurial companies. Prior to
forming Volpe Brown Whelan & Company, he was President, CEO and a member of the
Board of Directors and Management Committee of Hambrecht & Quist Incorporated.
Before joining Hambrecht & Quist, Mr. Volpe was Head of the Science and
Technology Group of Blyth Eastman PaineWebber. Mr. Volpe holds an AB in
Economics from Harvard University, a MSc in economics from the London School of
Economics and an MBA from the Harvard Business School.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers. No director has
a contractual right to serve as a member of our board of directors.
BOARD COMMITTEES
AUDIT COMMITTEE
Our audit committee, consisting of Drs. Deleage, Sherwin and Moos, reviews
our internal accounting procedures and the services provided by our independent
auditors.
COMPENSATION COMMITTEE
Our compensation committee, consisting of Mr. Frazier and Dr. Moos, reviews
and recommends to our board of directors the compensation and benefits of all
our officers and establishes and reviews general policies relating to
compensation and benefits of our employees.
DIRECTOR COMPENSATION
We do not provide cash compensation to members of our board of directors for
serving on our board of directors or for attendance at committee meetings.
Members of our board of directors are reimbursed for some expenses in connection
with attendance at board and committee meetings. In consideration for services
as a non-employee director, on November 12, 1998, we granted an option to
purchase 20,000 shares of common stock to Dr. Moos at an exercise price of $.20
per share. The $.20 per share exercise price for these options was equal to the
fair market value of the common stock on the date of grant as determined by our
board of directors. These options vest in a series of 36 equal monthly
installments beginning on the grant date of the option. On March 8, 2000 and
August 2, 2000, we granted options to purchase 20,000 and 6,341 shares of common
stock to Dr. Sherwin at exercise prices of $11.00 and $4.50 per share,
respectively. These options vest in a series of 24 equal monthly installments
beginning on the grant date of the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Mr. Frazier and Dr. Moos.
Mr. Gower served on our compensation committee from February 1998 to
January 2000. No current member of the compensation committee has been an
officer or employee of ours at any time. None of our executive officers serves
as a member of the board of directors or compensation committee of any other
company that has one or more executive officers serving as a member of our board
of directors or compensation committee. Prior to the formation of a compensation
committee in February 1998, the board of directors as a whole made decisions
relating to compensation of our executive officers.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and each of the four other
most highly compensated executive officers that earned more than $100,000 during
1999. All option grants were made under our 1997 Stock Option Plan.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- -----------------------
SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS/SARS
--------------------------- -------- -------- -----------------------
<S> <C> <C> <C>
James M. Gower...................................... $255,000 -- 450,000
President, Chief Executive Officer
and Director
Donald G. Payan..................................... 235,417 -- 150,000
Executive Vice President and Chief
Scientific Officer and Director
Brian C. Cunningham(1).............................. 250,000 -- --
Senior Vice President, Chief Operating
Officer, Chief Financial Officer and Secretary
James H. Welch(2)................................... 100,000 $25,000 150,000
Vice President, Finance and
Administration and Assistant Secretary
Donald W. Perryman(3)............................... 140,000 -- --
Former Vice President, Business Development
</TABLE>
------------------------
(1) In January 2000, we granted Mr. Cunningham an option to purchase 200,000
shares of common stock at an exercise price of $4.50 per share, which was
equal to the fair market value of the common stock on the date of grant as
determined by the board of directors. These options vest monthly over a
four-year period from the date of grant.
(2) Mr. Welch joined Rigel in May 1999. His annualized 1999 salary was $150,000.
In January 2000, we granted Mr. Welch an option to purchase 50,000 shares of
common stock at an exercise price of $4.50 share, which was equal to the
fair market value of the common stock on the date of grant as determined by
the board of directors. These options vest monthly over a four-year period.
(3) Mr. Perryman resigned as Vice President, Business Development, effective
January 15, 2000.
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and each of our four other most
highly paid executive officers during 1999. Options granted to purchase shares
of our common stock under our 1997 Stock Option Plan generally vest over a
four-year or five-year period. The exercise price per share is equal to the fair
market value of our common stock on the date of grant as determined by our board
of directors. In determining the fair market value of our common stock on the
date of grant our board of directors considered many factors, including:
- the fact that option grants involved illiquid securities in a nonpublic
company;
- prices of preferred stock issued by Rigel to outside investors in
arm's-length transactions, and the rights, preferences and privileges of
the preferred stock over the common stock;
- Rigel's performance and operating results at the time of grant;
- the status of Rigel's research and development efforts;
- Rigel's stage of development and business strategy; and
- the likelihood of achieving a liquidity event for the shares of common
stock underlying these options, such as an initial public offering or a
sale of Rigel.
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<PAGE>
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by:
- multiplying the number of shares of common stock under the option by the
assumed initial public offering price of $9.00 per share;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
- subtracting from that result the aggregate option exercise price.
Percentages shown under "Percentage of Total Options Granted to Employees in
1999" are based on an aggregate of 2,449,000 options granted to employees under
our 1997 Stock Option Plan during 1999.
OPTION GRANTS IN LAST FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------ ANNUAL RATES OF
NUMBER OF APPRECIATION OF STOCK
SECURITIES % OF TOTAL OPTIONS EXERCISE PRICE FOR OPTION TERM
UNDERLYING GRANTED TO PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED EMPLOYEES IN 1999 $/SH DATE 5% 10%
---- --------------- ------------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James M. Gower.............. 450,000 18.4% $.20 2/11/09 6,507,023 10,414,657
Donald G. Payan............. 150,000 6.1% .20 2/11/09 2,169,008 3,471,552
Brian C. Cunningham......... -- --% -- -- -- --
James H. Welch.............. 150,000 6.1% .20 5/11/09 2,169,008 3,471,552
Donald W. Perryman.......... -- --% -- -- -- --
</TABLE>
The following table sets forth summary information regarding the number and
value of options held as of December 31, 1999 for our Chief Executive Officer
and each of our four most highly compensated executive officers. In the
nine-month period ended September 30, 2000, Mr. Cunningham, our Chief Operating
Officer and Chief Financial Officer acquired 100,000 shares and Mr. Welch, our
Vice President, Finance and Administration, acquired 37,500 shares upon the
exercise of options. Neither our Chief Executive Officer nor any of our four
most highly compensated executive officers acquired any shares upon exercise of
options in 1999. Amounts shown in the value of unexercised in-the-money options
at December 31, 1999 column are based on an initial public offering price of
$9.00 per share without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the aggregate exercise price payable for these shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
----------------------------- -------------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
James M. Gower............................ 75,000 375,000 $ 660,000 $ 3,300,000
Donald G. Payan........................... 25,000 125,000 220,000 1,100,000
Brian C. Cunningham....................... 141,666 358,334 1,253,744 3,171,256
James H. Welch............................ -- 150,000 -- 1,320,000
Donald W. Perryman........................ 58,333 41,667 519,164 370,836
</TABLE>
51
<PAGE>
2000 EQUITY INCENTIVE PLAN
Our board of directors adopted our 2000 Equity Incentive Plan on
January 27, 2000, which was subsequently approved by our stockholders on
March 15, 2000. The 2000 Equity Incentive Plan is an amendment and restatement
of our 1997 Stock Option Plan.
SHARE RESERVE
We have reserved a total of 9,525,000 shares of our common stock for
issuance under the incentive plan. If the recipient of a stock award does not
purchase the shares subject to such stock award before the stock award expires
or otherwise terminates, the shares that are not purchased will again become
available for issuance under the incentive plan.
ADMINISTRATION
The board administers the incentive plan unless it delegates administration
to a committee. The board has the authority to construe, interpret and amend the
incentive plan as well as to determine:
- who will receive awards under the incentive plan;
- the dates on which such awards will be granted;
- the number of shares subject to the awards;
- the vesting and/or exercisability of the awards;
- the exercise price of the awards;
- the type of consideration that may be used to satisfy the exercise price;
and
- the other terms of the awards.
ELIGIBILITY
The board may grant incentive stock options that qualify under Section 422
of the Internal Revenue Code to our employees and to the employees of our
affiliates. The board also may grant nonstatutory stock options, stock bonuses
and restricted stock purchase awards to our employees, directors and consultants
as well as to the employees, directors and consultants of our affiliates.
Our incentive plan includes the following features:
- a stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) during a specified period
of time.
- an incentive stock option is a stock option that meets the requirements of
Section 422 of the Internal Revenue Code. The holder of such an option
will not be required to pay tax on either the date of grant or the date of
exercise. If two holding period tests are met-more than two years between
grant date and sale date and more than one year between exercise date and
sale date-the optionholder will be taxed on the profit received on the
subsequent disposition of the option stock as long-term capital gain. If
the holding periods are not met, there has been a disqualifying
disposition, and the difference between the exercise price and the fair
market value of the shares on the exercise date will be taxed at ordinary
income rates. The difference between the fair market value on date of
exercise and the exercise price is an item of adjustment for purposes of
the alternative minimum tax unless there is a disqualifying disposition in
the year of exercise.
- a nonstatutory stock option is a stock option that does not meet the
Internal Revenue Code criteria for qualifying as an incentive stock
option. Upon exercise of a nonstatutory option, the option holder will be
required to pay state and federal income tax and, if applicable, federal
employment taxes on the difference between the exercise price and the fair
market value on the exercise date.
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<PAGE>
- a restricted stock purchase award is an offer to purchase shares at a
price that is at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of our shares at no cost to the
recipient in consideration for past services rendered. Such awards
generally are subject to a vesting schedule pursuant to which we may
reacquire the shares subject to the award at the original purchase price
(which is zero in the case of a stock bonus) if the recipient's service to
us and our affiliates terminates before the shares vest.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns or is deemed to own stock possessing more than 10% of
our total combined voting power or the total combined voting power of an
affiliate of ours, unless the exercise price is at least 110% of the fair market
value of the stock on the grant date and the option term is no more than five
years.
LIMITS ON OPTION GRANTS
There are limits on the number of shares that the board may grant under an
option.
- section 162(m) of the Internal Revenue Code denies a deduction to publicly
held corporations for compensation paid to the corporation's chief
executive officer and its four highest compensated officers in a taxable
year to the extent that the compensation for each such officer exceeds
$1,000,000. When we become subject to Section 162(m), in order to prevent
options granted under the incentive plan from being included in such
compensation, the incentive plan provides that the board may not grant
options under the incentive plan to any employee covering an aggregate of
more than 1,500,000 shares in any calendar year.
- an employee may not receive incentive stock options that exceed the
$100,000 per year limitation set forth in Section 422(d) of the Internal
Revenue Code. In calculating the $100,000 per year limitation, we consider
the aggregate number of shares under all incentive stock options granted
to that employee that will become exercisable for the first time during a
calendar year. For this purpose, we include incentive stock options
granted under the incentive plan as well as under any other stock plans
that we and our affiliates maintain. We then determine the aggregate fair
market value of shares subject to all such incentive stock options as of
the grant date of the options. Taking the options into account in the
order in which they were granted, we treat only the options covering the
first $100,000 worth of stock as incentive stock options. We treat any
options covering stock in excess of $100,000 as nonstatutory stock
options.
OPTION TERMS
The board may grant incentive stock options with an exercise price of 100%
or more of the fair market value of a share of our common stock on the grant
date. It may grant nonstatutory stock options with an exercise price as low as
85% of the fair market value of a share on the grant date.
THE MAXIMUM OPTION TERM IS TEN YEARS
The maximum term of options granted under our equity incentive plan is ten
years. The board may provide for exercise periods of any length following an
optionholder's termination of service in individual option grants. However,
generally options will provide that they terminate three months after the
optionholder's service to us and our affiliates terminates. If such termination
is due to the optionholder's disability, the exercise period generally is
extended 12 months unless the term of the option expires prior to that date in
accordance with the terms of the individual's option agreement. If such
termination is due to the optionholder's death, or if the optionholder dies
within three months after his or her service terminates, the exercise period
generally is extended to 18 months following the optionholder's death unless the
term of the option expires prior to that date in accordance with the terms of
the individual's option agreement.
53
<PAGE>
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
option rights will pass to his or her heirs will or the laws of descent and
distribution.
TERMS OF OTHER STOCK AWARDS
The board determines the purchase price of other stock awards, which may not
be less than 85% of the fair market value of our common stock on the grant date.
However, the board may award stock bonuses in consideration of past services
without a cash purchase price. Shares that we sell or award under the incentive
plan may, but need not be, restricted and subject to a repurchase option in our
favor in accordance with a vesting schedule that the board determines. The
board, however, may accelerate the vesting of such awards.
OTHER PROVISIONS
Transactions not involving our receipt of consideration, such as a merger,
consolidation, reorganization, stock dividend, or stock split, may change the
class and number of shares subject to the incentive plan and to outstanding
awards. In that event, the board will appropriately adjust the incentive plan as
to the class and the maximum number of shares subject to the incentive plan and
to the Section 162(m) limit. It also will adjust outstanding awards as to the
class, number of shares and price per share applicable to such awards.
If we dissolve or liquidate, then-outstanding stock awards will terminate
immediately prior to such event. However, we treat outstanding stock awards
differently in the following situations:
- a sale, lease or other disposition of all or substantially all of our
assets or securities;
- a merger or consolidation in which we are not the surviving corporation;
or
- a reverse merger in which we are the surviving corporation but the shares
of our common stock outstanding immediately before the merger are
converted by virtue of the merger into other property, such as securities
or cash.
In these situations, the surviving corporation may either assume all
outstanding awards under the incentive plan or substitute other awards for the
outstanding awards. If the surviving corporation does not assume or substitute,
then, for award holders who are then providing services to us or our affiliates,
the vesting and exercisability of the awards will accelerate and the awards will
terminate immediately prior to the occurrence of the event described above. The
vesting and exercisability of awards held by award holders who are no longer
providing services to us or one of our affiliates will not accelerate. However,
those awards will also terminate immediately prior to the occurrence of the
event described above.
STOCK AWARDS GRANTED
As of September 30, 2000, 2,073,642 shares were issued upon the exercise of
options under our equity incentive plan, 2,500 shares of which have been
repurchased; 100,000 shares were issued upon stock bonuses; options to purchase
5,725,828 shares were outstanding; and 1,625,530 shares remained available for
grant.
PLAN TERMINATION
The incentive plan will terminate in 2010 unless the board terminates it
sooner.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board of directors adopted the 2000 Non-Employee Directors' Stock Option
Plan on August 18, 2000, which was subsequently approved by our stockholders on
September 11, 2000. The directors' plan
54
<PAGE>
will become effective on the effective date of this initial public offering. The
directors' plan provides for the automatic grant to our non-employee directors
of options to purchase shares of our common stock.
SHARE RESERVE
We have reserved a total of 300,000 shares of our common stock for issuance
under the directors' plan.
If an optionholder does not purchase the shares subject to such option
before the option expires or otherwise terminates, the shares that are not
purchased again become available for issuance under the directors' plan.
ADMINISTRATION
The board administers the directors' plan. The board has the authority to
construe, interpret and amend the directors' plan, but the directors' plan
specifies the essential terms of the options, including:
- who will receive options under the directors' plan;
- the dates on which such options will be granted;
- the number of shares subject to the options;
- the vesting schedule applicable to the options;
- the exercise price of the options; and
- the type of consideration that may be used to satisfy the exercise price.
ELIGIBILITY
Each non-employee director who is serving on the effective date of this
offering will automatically be granted an option to purchase 20,000 shares of
common stock. Each person who is elected or appointed to be a non-employee
director for the first time after the effective date of this offering will be
granted an option to purchase 20,000 shares of common stock upon such election
or appointment. In addition, each non-employee director who continues to serve
as a non-employee director automatically will be granted an option to purchase
5,000 shares of common stock on the day following each annual meeting of our
stockholders commencing in 2001. The number of shares subject to the grants to
be made following each annual meeting will be pro-rated for any non-employee
director who has not continuously served as a director for the entire 12-month
period prior to the date of grant. The options will vest over two years in equal
monthly installments provided that the non-employee director continues to
provide services to us or one of our affiliates.
OPTION TERMS
Options granted under the directors' plan will have an exercise price equal
to 100% of the fair market value of the common stock on the grant date and a
term of two years. As long as a non-employee director continues to serve with us
or with an affiliate of ours, whether in the capacity of a director, an employee
or a consultant, the non-employee's option will continue. Options will terminate
three months after the optionholder's service terminates. However, if such
termination is due to the optionholder's disability, the exercise period will be
extended to 12 months unless the term of the option expires prior to that date
in accordance with the terms of the individual's option agreement. If such
termination is due to the optionholder's death or if the optionholder dies
within three months after his or her service terminates, the exercise period
will be extended to 18 months following death unless the term of the option
expires prior to that date in accordance with the terms of the individual's
option agreement.
55
<PAGE>
Optionholders may transfer options granted under the directors' plan by gift
to immediate family or, under certain circumstances, to a trust for
estate-planning purposes. Optionholders also may designate a beneficiary to
exercise their options following the optionholder's death. Otherwise, option
exercise rights will pass by the optionholder's will or by the laws of descent
and distribution.
OTHER PROVISIONS
Transactions not involving our receipt of consideration, such as a merger,
consolidation, reorganization, stock dividend or stock split, may change the
class and number of shares subject to the directors' plan and to outstanding
options. In that event, the board will appropriately adjust the directors' plan
as to the class and the maximum number of shares subject to the directors' plan.
It also will adjust outstanding options as to the class, number of shares and
price per share applicable to such options.
If we dissolve or liquidate, then outstanding options will terminate
immediately prior to such event. However, we treat outstanding options
differently in the following situations:
- a sale, lease or other disposition of all or substantially all of our
assets or securities;
- a merger or consolidation in which we are not the surviving corporation;
or
- a reverse merger in which we are the surviving corporation but the shares
of our common stock outstanding immediately before the merger are
converted by virtue of the merger into other property, such as securities
or cash.
In these situations, the surviving corporation will either assume the
options outstanding under the directors' plan or substitute other options for
the outstanding options. If the surviving corporation does not assume or
substitute all outstanding options under the directors' plan, then for
optionholders who are then providing services to us or one of our affiliates,
the vesting and exercisability of the options will accelerate and the options
will terminate if they are not exercised prior to the event described above. The
vesting and exercisablity of options held by optionholders who are no longer
providing services to us or one of our affiliates will not accelerate. However,
these options also will terminate immediately prior to the occurrence of the
event described above.
OPTIONS ISSUED
We have not issued any options under the directors' plan.
PLAN TERMINATION
The directors' plan will terminate in 2010 unless the board terminates it
sooner.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted the 2000 Employee Stock Purchase Plan on
August 18, 2000, which was subsequently approved by our stockholders on
September 11, 2000. The employee stock purchase plan will become effective on
the effective date of this initial public offering.
SHARE RESERVE
We have authorized the issuance of 400,000 shares of our common stock
pursuant to purchase rights granted to eligible employees under the purchase
plan. On each anniversary of the effective date of this offering, starting with
the anniversary of this offering in 2001, the share reserve will automatically
be increased by a number of shares equal to the lesser of:
- 1% of our then outstanding shares of common stock;
- 400,000 shares; or
- a number determined by our board of directors.
56
<PAGE>
ELIGIBILITY
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. The purchase
plan provides a means by which eligible employees may purchase our common stock
through payroll deductions. We implement the purchase plan by offerings of
purchase rights to eligible employees. Generally, all of our full-time employees
and full-time employees of our affiliates incorporated in the United States may
participate in offerings under the purchase plan. However, no employee may
participate in the purchase plan if, immediately after we grant the employee a
purchase right, the employee has voting power over 5% or more of our outstanding
capital stock. As of the date hereof, no shares of common stock had been
purchased under the purchase plan.
ADMINISTRATION
Under the purchase plan, the board may specify offerings of up to
27 months. Unless the board otherwise determines, common stock will be purchased
for accounts of participating employees at a price per share equal to the lower
of:
- 85% of the fair market value of a share on the first day of the offering;
or
- 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, we will offer shares registered on a Form S-8
registration statement. Eligible employees will be permitted to authorize
payroll deductions under the offering following the date on which the Form S-8
registration becomes effective. The fair market value of the shares on the first
date of this offering will be the price per share at which our shares are first
sold to the public as specified in the final prospectus with respect to our
initial public offering. Otherwise, fair market value generally means the
closing sales price (rounded up where necessary to the nearest whole cent) for
such shares (or the closing bid, if no sales were reported) as quoted on the
Nasdaq National Market on the trading day prior to the relevant determination
date, as reported in The Wall Street Journal.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 15% of their compensation (including overtime pay, bonus,
incentive pay and commissions) for the purchase of stock under the purchase
plan. Generally employees may end their participation in the offering at any
time up to ten days before a purchase period ends. Their participation ends
automatically on termination of their employment or loss of full-time status.
OTHER PROVISIONS
The board may grant eligible employees purchase rights under the purchase
plan only if the purchase rights, together with any other purchase rights
granted under other employee stock purchase plans established by us or by our
affiliates, if any, do not permit the employee's rights to purchase our stock to
accrue at a rate which exceeds $25,000 of fair market value of our stock for
each calendar year in which the purchase rights are outstanding.
Upon a change in control, a surviving corporation may assume outstanding
purchase rights or substitute other purchase rights therefor. If the surviving
corporation does not assume or substitute the purchase rights, the participant's
accumulated payroll deductions shall be used to purchase our stock immediately
before the change in control and the participant's rights under the offering
shall terminate following such purchase.
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<PAGE>
DESCRIPTION OF 401(k) PLAN
We maintain a retirement and deferred savings plan for our employees. The
retirement and deferred savings plan is intended to qualify as a tax-qualified
plan under Section 401 of the Internal Revenue Code. The retirement and deferred
savings plan provides that each participant may contribute up to 20% of his or
her pre-tax compensation (up to a statutory limit, which is $10,500 in calendar
year 2000). Under the plan, each employee is fully vested in his or her deferred
salary contributions. Employee contributions are held and invested by the plan's
trustee. The retirement and deferred savings plan also permits us to make
discretionary contributions, subject to established limits and a vesting
schedule. To date, we have not made any discretionary contributions to the
retirement and deferred savings plan on behalf of participating employees.
LIMITATIONS OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
In connection with the consummation of this offering, we will adopt and file
an amended and restated certificate of incorporation and amended and restated
bylaws. As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors to the fullest extent permitted by Delaware law.
In addition, our amended and restated bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by Delaware law, subject to limited exceptions;
- we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise prohibited by law,
our amended and restated certificate of incorporation, our amended and
restated bylaws or agreements;
- we are required to advance expenses to our directors and executive
officers as incurred in connection with legal proceedings against them for
which they may be indemnified; and
- the rights conferred in the amended and restated bylaws are not exclusive.
We have entered into indemnification agreements with each of our directors
and certain officers. These agreements, among other things, require us to
indemnify each director and officer to the fullest extent permitted by Delaware
law, including indemnification for expenses such as attorneys' fees, judgments,
fines and settlement amounts incurred by the director or officer in any action
or proceeding, including any action by or in the right of Rigel, arising out of
the person's services as a director or officer of us, any subsidiary of ours or
any other company or enterprise to which the person provides services at our
request. At present, we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification would be required or permitted. We believe that our
charter provisions and indemnification agreements are necessary to attract and
retain qualified persons as directors and officers.
58
<PAGE>
EMPLOYMENT AGREEMENTS
We have an employment agreement with Dr. Payan, dated as of January 16,
1997, and continuing indefinitely. Under the agreement, Dr. Payan is entitled to
receive an annualized base salary of $185,000 and was issued 750,000 shares of
our common stock. As of January 16, 2000, all such shares were fully vested and
not subject to repurchase by us. Either Rigel or Dr. Payan may terminate his
employment at any time for any reason. If we terminate Dr. Payan without cause,
he will receive a severance payment equal to one year's base salary.
59
<PAGE>
RELATED PARTY TRANSACTIONS
Stock option grants to our executive officers and directors are described in
this prospectus under
the heading "Management--Director Compensation, --Executive Compensation and
--Employment Agreements."
From January 31, 1997 through September 30, 2000, the following executive
officers, directors and holders of more than 5% of our voting securities
purchased securities in the amounts and as of the dates set forth below.
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------------------------------------
EXECUTIVE OFFICERS, DIRECTORS AND COMMON SERIES D
5% STOCKHOLDERS(1) STOCK SERIES A SERIES B SERIES C SERIES D WARRANTS SERIES E
--------------------------------- -------- --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS
Tak W. Mak(2)............... 50,000 -- -- -- -- -- --
Thomas S. Volpe............. -- -- -- -- -- -- 33,333
FIVE PERCENT STOCKHOLDERS
Entities affiliated with Alta
Partners(3)............... -- -- 2,500,000 1,403,509 613,747 -- 166,667
Entities affiliated with
Frazier and
Company, Inc.(4)......... -- -- -- 3,649,123 573,596 -- 125,000
Johnson & Johnson Development
Corporation............... -- -- -- -- 1,500,000 -- 166,666
Entities affiliated with
Lombard Odier & Cie....... -- -- 3,750,000 2,105,263 837,161 83,460 500,000
Novartis Pharma AG......... -- -- -- -- 2,000,000 -- --
Price Per Share............... $4.50 $.80 $1.14 $2.00 $2.00 $6.00
Date(s) of Purchase........... 1/00 1/97 11/97 12/98-5/99 12/98 2/00-8/00
</TABLE>
--------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Dr. Mak resigned as a director on March 8, 2000.
(3) Dr. Deleage, one of our directors, is the managing general partner of Alta
Partners.
(4) Mr. Frazier, one of our directors, is the managing principal of Frazier and
Company, Inc.
Upon the closing of this offering, all shares of our outstanding preferred
stock will automatically convert into shares of common stock on a one-for-one
basis.
We have entered into an Amended and Restated Registration Rights Agreement
with each of the purchasers of preferred stock set forth above, pursuant to
which these and other stockholders will have registration rights with respect to
their shares of common stock issuable upon conversion of their preferred stock
following this offering.
We have entered into indemnification agreements with our directors and
certain officers for the indemnification and advancement of expenses to these
persons to the fullest extent permitted by law. We also intend to enter into
those agreements with our future directors and officers.
In September 1999, we established a research collaboration and license
agreement with Cell Genesys, Inc. James Gower, our President and Chief Executive
Officer, serves on the board of directors of Cell Genesys. Stephen A.
Sherwin, MD, who serves on our board of directors, is President, Chief Executive
Officer and Chairman of the Board of Cell Genesys.
We anticipate that we will sell 1,111,111 shares of our common stock to
Novartis in a private placement concurrent with this offering pursuant to our
agreement with Novartis, dated May 26, 1999.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to us than could
be obtained from unaffiliated third parties.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows information known to us with respect to the
beneficial ownership of our common stock as of September 30, 2000, and as
adjusted to reflect the sale of the shares of common stock offered in the public
offering under this prospectus and the concurrent private placement by:
- each person or group who beneficially owns more than 5% of our common
stock;
- our chief executive officer;
- each of our four other most highly compensated executive officers whose
compensation exceeded $100,000 during 1999;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all shares of common stock held by them. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of
September 30, 2000 and not subject to repurchase as of that date are deemed
outstanding for calculating the percentage of outstanding shares of the person
holding these options, but are not deemed outstanding for calculating the
percentage of any other person. Applicable percentage ownership in the following
table is based on 29,517,485 shares of common stock outstanding as of
September 30, 2000, assuming the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering, and
39,628,596 shares of common stock outstanding immediately following the
completion of this offering, including the shares to be issued to Novartis in
the concurrent private placement. Unless otherwise indicated, the address of
each of the named individuals is c/o Rigel Pharmaceuticals, Inc., 240 East Grand
Avenue, South San Francisco, California 94080.
61
<PAGE>
<TABLE>
<CAPTION>
SHARES ISSUABLE
PURSUANT TO PERCENT OF TOTAL
OPTIONS OUTSTANDING
EXERCISABLE SHARES BENEFICIALLY
WITHIN 60 OWNED
OUTSTANDING DAYS OF ------------------------
SHARES OF SEPTEMBER 30, PRIOR TO THE AFTER THE
BENEFICIAL OWNER COMMON STOCK 2000 OFFERINGS OFFERINGS
---------------- ---------------------------- ------------------------- ------------ ---------
<S> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS
Entities affiliated with Lombard Odier &
Cie(1).................................... 7,275,884 -- 24.7% 18.4%
11. rue de la Corraterie
1211 Geneve 11
Switzerland
Entities affiliated with Alta Partners(2)... 4,683,923 -- 15.9 11.8
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Entities affiliated with Frazier and
Company, Inc.(3).......................... 4,347,719 -- 14.7 11.0
601 Union Street, Suite 2110
Seattle, WA 98101
Novartis Pharma AG(4)....................... 2,000,000 -- 6.8 7.9
Head Financial Investments
CH-4002
Basil, Switzerland
Johnson & Johnson Development Corporation... 1,666,666 -- 5.7 4.2
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
DIRECTORS AND NAMED EXECUTIVE OFFICERS
James M. Gower.............................. 500,000 157,500 2.2 1.7
Donald G. Payan............................. 750,000 52,500 2.7 2.0
Brian C. Cunningham......................... 100,000 166,666 * *
James H. Welch.............................. 37,500 17,916 * *
Donald W. Perryman(5)....................... 63,333 13,333 * *
Jean Deleage(2)............................. 4,683,923 -- 15.9 11.8
Alan D. Frazier(3).......................... 4,347,719 -- 14.7 11.0
Walter H. Moos.............................. -- 13,333 * *
Stephen A. Sherwin.......................... -- 8,780 * *
Thomas S. Volpe............................. 33,333 2,500 * *
All executive officers and directors as a
group (11 people) (6)..................... 10,515,808 432,528 37.1% 27.6%
</TABLE>
--------------------------
* Less than one percent (1%).
(1) Includes 5,087,161 shares held by Lombard Odier & Cie and 2,105,263 shares
held by Ryco and Co. Also includes 83,460 shares issuable upon the exercise
of warrant within 60 days of September 30, 2000.
(2) Includes 4,579,305 shares held by Alta California Partners, L.P. and
104,618 shares held by Alta Embarcadero Partners, LLC. Dr. Deleage, a
managing general partner of Alta Partners, disclaims beneficial ownership of
the shares held by funds affiliated with Alta Partners except to the extent
of his proportionate pecuniary interest therein.
(3) Includes 15,144 shares held by Frazier and Company, Inc. and
4,332,575 shares held by Frazier Healthcare II, L.P. Mr. Frazier, a managing
principal of Frazier and Company, Inc., disclaims beneficial ownership of
the shares held by Frazier and Company, Inc. and Frazier
Healthcare II, L.P. except to the extent of his proportionate pecuniary
interest therein.
(4) Percent of total outstanding shares beneficially owned after the offerings
includes the sale of 1,111,111 shares of common stock to be acquired in a
private placement concurrent with the closing of this initial public
offering.
(5) Mr. Perryman resigned as Vice President, Business Development, effective
January 15, 2000.
(6) Includes 83,460 shares issuable upon the exercise of a warrant that is
exercisable within 60 days of September 30, 2000.
62
<PAGE>
DESCRIPTION OF SECURITIES
Upon the closing of this offering and the filing of our amended and restated
certificate of incorporation, our authorized capital stock will consist of
100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred stock, $.001 par value.
COMMON STOCK
As of September 30, 2000, there were 29,517,485 shares of common stock
outstanding that were held of record by approximately 155 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio. There will be 39,628,596 shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options) after giving effect to the sale of the shares of common
stock offered by this prospectus and the concurrent private placement to
Novartis.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive ratably any dividends out of assets legally
available therefor as our board of directors may from time to time determine.
Upon liquidation, dissolution or winding up of Rigel, holders of our common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding shares of
preferred stock. Holders of common stock have no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable.
PREFERRED STOCK
Pursuant to our amended and restated certificate of incorporation, our board
of directors will have the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of preferred stock, in one or
more series. Our board shall determine the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of any series. The issuance of preferred stock could adversely affect the voting
power of holders of common stock, and the likelihood that holders of preferred
stock will receive dividend payments and payments upon liquidation may have the
effect of delaying, deferring or preventing a change in control of Rigel, which
could depress the market price of our common stock. We have no preset plan to
issue any shares of preferred stock.
WARRANTS
As of September 30, 2000, three warrants to purchase an aggregate of 150,000
shares of our common stock were outstanding. These warrants shall expire upon
the earlier of (i) June 1, 2008 or (ii) seven years after the closing of the
initial public offering of our stock and entitle the holders of these warrants
to purchase up to 150,000 shares of our common stock at a price of $1.14 per
share, subject to adjustment in the event of a merger, reorganization or sale of
Rigel. These warrants give the holders the right of a net issue election.
As of September 30, 2000, one warrant to purchase 175,000 shares of our
Series B preferred stock was outstanding. This warrant automatically converts
upon the earlier of (i) April 30, 2004 or (ii) a merger or reorganization
involving Rigel and entitles the holder of this warrant to purchase up to
175,000 shares of our Series B preferred stock at a price of $.80 per share,
subject to adjustment in the event of a merger, reorganization or sale of Rigel.
This warrant gives the holder the right of a net issue election.
63
<PAGE>
As of September 30, 2000, one warrant to purchase 131,578 shares of our
Series C preferred stock was outstanding. This warrant shall expire upon
June 30, 2005 and entitles the holder of this warrant to purchase up to 131,578
shares of our Series C preferred stock at a price of $1.14 per share, subject to
adjustment in the event of a merger, reorganization or sale of us. This warrant
gives the holder the right of a net issue election.
As of September 30, 2000, one warrant to purchase an aggregate of 83,460
shares of our Series D preferred stock was outstanding. This warrant shall
expire upon the earlier of (i) the closing of the initial public offering of our
stock, (ii) a reorganization, merger or sale of Rigel or (iii) December 3, 2003
and entitle the holder of this warrant to purchase up to 83,460 shares of our
Series D preferred stock at a price of $2.00 per share, subject to adjustment in
the event of a merger, reorganization or sale of us. This warrant gives the
holder the right of a net issue election.
REGISTRATION RIGHTS
Upon completion of this offering and the concurrent private placement to
Novartis, holders of an aggregate of 25,282,454 shares of common stock and
warrants to purchase an aggregate of 306,578 shares of common stock will be
entitled to rights to register these shares under the Securities Act. These
rights are provided under an Amended and Restated Registration Rights Agreement,
dated February 3, 2000, and under agreements with similar registration rights.
If we propose to register any of our securities under the Securities Act, either
for our own account or for the account of others, the holders of these shares
are entitled to notice of the registration and are entitled to include, at our
expense, their shares of common stock in the registration and any related
underwriting, provided, among other conditions, that the underwriters may limit
the number of shares to be included in the registration and in some cases,
including this offering, exclude these shares entirely. In addition, the holders
of these shares may require us, at our expense and on not more than two
occasions at any time beginning six months from the date of the closing of this
offering, to file a registration statement under the Securities Act with respect
to their shares of common stock, and we will be required to use our best efforts
to effect the registration. Further, the holders may require us at our expense
to register their shares on Form S-3 when this form becomes available.
ANTI-TAKEOVER PROVISIONS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CHARTER
CERTIFICATE ON INCORPORATION AND BYLAWS
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to the date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and by employee stock plans in which shares
held subject to the plan will be tendered in a tender or exchange offer;
or
- on or subsequent to this date, the business combination is approved by our
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
64
<PAGE>
- Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our amended and restated certificate of incorporation requires that upon
completion of the offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Additionally, our
amended and restated certificate of incorporation:
- substantially limits the use of cumulative voting in the election of
directors;
- provides that the authorized number of directors may be changed only by
resolution of our board of directors; and
- authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares.
Our amended and restated bylaws provide that candidates for director may be
nominated only by our board of directors or by a stockholder who gives written
notice to us no later than 60 days prior nor earlier than 90 days prior to the
first anniversary of the last annual meeting of stockholders. The authorized
number of directors is fixed in accordance with our amended and restated
certificate of incorporation. Our board of directors may appoint new directors
to fill vacancies or newly created directorships. Our amended and restated
bylaws also limit who may call a special meeting of stockholders.
Upon completion of the offering, the terms of the board of directors will be
divided into three classes each with a term of three years: Class I, whose term
will expire at the annual meeting of stockholders to be held in 2001; Class II,
whose term will expire at the annual meeting of stockholders to be held in 2002;
and Class III, whose term will expire at the annual meeting of stockholders to
be held in 2003. The Class I directors are Mr. Frazier and Dr. Deleage, the
Class II directors are Dr. Moos, Dr. Sherwin and Mr. Volpe and the Class III
directors are Mr. Gower and Dr. Payan. At each annual meeting of stockholders
after the initial classification, the successors to directors whose terms expire
will be elected to serve a term of three years. This classification of directors
may have the effect of delaying or preventing changes in our control.
Delaware law and these charter provisions may have the effect of deterring
hostile takeovers or delaying changes in control of our management, which could
depress the market price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Wells Fargo Bank
Minnesota, N.A.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering and the concurrent private placement to
Novartis, we will have outstanding an aggregate of 39,628,596 shares of common
stock, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants after September 30, 2000. Of these
shares, all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 30,628,596 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be available
for sale in the public market as follows:
- no shares will be eligible for sale upon completion of this offering;
- 29,400,819 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
- 1,881,258 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
LOCK-UP AGREEMENTS
All of our officers, directors and stockholders and option holders have
agreed not to transfer or dispose of, directly or indirectly, any shares of our
common stock or any securities convertible into shares or exercisable or
exchangeable for shares of our common stock, for a period of at least 180 days
after the date of this prospectus. Transfers or dispositions can be made sooner
only with the prior written consent of Morgan Stanley & Co. Incorporated. Morgan
Stanley & Co. Incorporated may release any of the shares subject to these
lock-up agreements at any time without notice.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 396,286 shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Rigel.
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<PAGE>
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. 6,300,308
shares of our common stock will qualify as "144(k) shares" within 180 days after
the date of this prospectus.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors, other than affiliates, who purchase
or receive shares from us in connection with a compensatory stock purchase plan
or option plan or other written agreement will be eligible to resell their
shares beginning 90 days after the date of this prospectus, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.
REGISTRATION RIGHTS
Upon completion of this offering and the concurrent private placement to
Novartis, the holders of an aggregate of 25,282,454 of our common stock and
warrants to purchase an aggregate of 306,578 shares of common stock, or their
transferees, will be entitled to rights with respect to the registration of
their shares under the Securities Act. Registration of their shares under the
Securities Act would result in these shares becoming freely tradeable without
restriction under the Securities Act, except for shares purchased by affiliates,
immediately upon the effectiveness of such registration.
STOCK OPTIONS
Following this offering, we intend to file a registration statement on
Form S-8 under the Securities Act covering the shares of common stock reserved
for issuance under our 2000 Equity Incentive Plan, 2000 Employee Stock Purchase
Plan and 2000 Non-Employee Directors' Stock Option Plan that will become
effective upon filing. Accordingly, shares registered under that registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market after the filing, except those shares
subject to lock-up agreements.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc. and FleetBoston Robertson
Stephens, Inc. are acting as representatives, have severally agreed to purchase,
and Rigel has agreed to sell to them, an aggregate of 9,000,000 shares of common
stock. The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................
Lehman Brothers Inc......................................
Robertson Stephens, Inc..................................
---------
Total.................................................. 9,000,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered hereby are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered hereby, other than those covered by the over-allotment
option described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain other dealers. After the
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives of the
underwriters.
Rigel has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to 1,350,000 additional shares
of common stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if any, made in
connection with this offering of common stock. To the extent this option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of additional shares
of common stock as the number set forth next to the underwriter's name in the
preceding table bears to the total number of shares of common stock set forth
next to the names of all underwriters in the preceding table. The following
table provides information regarding the amount of the discount to be paid by us
to the underwriters:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions to be paid by
us....................................................... $ $ $
</TABLE>
We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses, but
excluding underwriting discounts and commissions, will be approximately $1
million.
68
<PAGE>
Rigel, our directors and officers and certain other stockholders have each
agreed, without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the underwriters, during the period ending 180 days after the date
of this prospectus, subject to certain exceptions, not to, directly or
indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise. The foregoing
restrictions shall not apply to (1) the sale of any shares to the underwriters,
(2) transactions relating to shares of our common stock (other than shares
acquired in the directed share program) or other securities acquired in open
market transactions after the date of this prospectus or (3) the transfer of
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock to a member of the stockholder's immediate family
or to a trust of which the stockholder or an immediate family member is the
beneficiary if certain conditions are met. Morgan Stanley & Co. Incorporated may
release any of the shares subject to these lock-up agreements at any time
without notice.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Our common stock will be quoted on the Nasdaq National Market under the
symbol "RIGL."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously distributed
shares of common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities and may
end any of these activities at any time.
The underwriting agreement provides that Rigel and the underwriters will
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
DIRECTED SHARE PROGRAM PROSPECTUS DISCLOSURE
At the request of Rigel, the underwriters have reserved for sale at the
initial offering price, up to 450,000 shares in this offering for directors,
officers, employees, business associates and related persons of Rigel. The
shares of common stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares in this offering.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the securities.
The initial public offering price will be determined by negotiations between
Rigel and the underwriters. Among the factors to be considered in determining
the initial public offering price will be the future prospects of Rigel and its
industry in general, sales, earnings and certain other financial and operating
information of Rigel in recent periods, and the price-earnings ratios,
price-sales ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to those of
Rigel. The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
69
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Palo Alto, California, will provide us with an opinion
as to the validity of the common stock offered under this prospectus. Skadden,
Arps Slate, Meagher & Flom LLP, Palo Alto, California, will pass upon certain
legal matters related to this offering for the underwriters. As of the date of
this prospectus, certain partners and associates of Cooley Godward LLP own an
aggregate of 78,860 shares of our common stock through investment partnerships.
Brian Cunningham, our Senior Vice President, Chief Operating Officer, Chief
Financial Officer and Secretary, is Of Counsel with Cooley Godward and
participates in their investment partnerships. Mr. Cunningham currently holds
200,000 shares of our common stock and holds options to purchase 500,000 shares
of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and December 31, 1999, and for the years ended
December 31, 1997, 1998 and 1999, as set forth in their report. We have included
our financial statements in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock offered under this prospectus. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedule to the registration statement. For further information with respect
to us and our common stock, we refer you to the registration statement and to
the exhibits and schedule to registration statement. Statements contained in
this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and in each instance, we refer you to
the copy of the contract or other document filed as an exhibit to the
registration statement. Each of these statements is qualified in all respects by
this reference. You may inspect a copy of the registration statement without
charge at the SEC's principal office in Washington, D.C., and copies of all or
any part of the registration statement may be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
Web site is http://www.sec.gov. The SEC's toll free investor information service
can be reached at 1-800-SEC-0330. Information contained on our website does not
constitute part of this prospectus.
Upon completion of the offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first two fiscal quarters of each fiscal year containing
unaudited interim financial information. Our telephone number is
(650) 624-1100.
70
<PAGE>
RIGEL PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Rigel Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Rigel
Pharmaceuticals, Inc. as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rigel Pharmaceuticals, Inc.
at December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
February 25, 2000
F-2
<PAGE>
RIGEL PHARMACEUTICALS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- SEPTEMBER 30, SEPTEMBER 30,
1998 1999 2000 2000
-------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 9,493 $ 5,836 $ 7,016
Available-for-sale securities........................ -- -- 3,954
Accounts receivable.................................. -- 2,348 462
Prepaid expenses and other current assets............ 112 346 710
-------- -------- --------
Total current assets............................... 9,605 8,530 12,142
Property and equipment, net............................ 3,218 8,398 9,081
Other assets........................................... 133 241 231
-------- -------- --------
$ 12,956 $ 17,169 $ 21,454
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 484 $ 883 $ 1,017
Accrued compensation................................. 104 288 429
Accrued liabilities.................................. 916 1,403 651
Deferred revenue..................................... 2,833 4,770 2,522
Capital lease obligations............................ 721 2,176 2,679
-------- -------- --------
Total current liabilities.......................... 5,058 9,520 7,298
Capital lease obligations.............................. 1,652 5,478 5,390
Long-term portion of deferred revenue.................. 639 956 496
Other long-term liabilities............................ 162 459 891
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value;
22,000,000, 24,000,000 and 26,750,000 shares
authorized in 1998, 1999 and September 30, 2000,
respectively (none pro forma), issuable in series;
19,033,707, 22,053,887 and 24,836,343 shares issued
and outstanding in 1998, 1999 and September 30,
2000, respectively (none pro forma); (aggregate
liquidation preference of $27,475 at 1999 and
$43,739 at September 30, 2000)..................... 19 22 25 --
Common stock, $0.001 par value; 35,000,000 shares
authorized in 1998, 37,500,000 shares authorized in
1999 and September 30, 2000, (100,000,000 shares
pro forma); 2,675,333, 3,095,834 and
4,681,142 shares issued and outstanding in 1998,
1999 and September 30, 2000, respectively
(29,517,485 shares pro forma)...................... 3 3 5 30
Additional paid-in capital............................. 21,676 35,164 62,810 62,810
Deferred stock compensation............................ -- (5,814) (7,249) (7,249)
Accumulated deficit.................................... (16,253) (28,619) (48,212) (48,212)
-------- -------- -------- --------
Total stockholders' equity............................. 5,445 756 7,379 $ 7,379
-------- -------- -------- ========
$ 12,956 $ 17,169 $ 21,454
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
RIGEL PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract revenues from collaborations........ $ -- $ 28 $ 8,984 $ 5,898 $ 10,008
Costs and expenses:
Research and development (see Note A)...... 4,568 8,305 17,112 10,615 24,609
General and administrative (see Note A).... 1,033 2,217 3,952 3,092 5,010
------- -------- -------- ------- --------
Total costs and expenses..................... 5,601 10,522 21,064 13,707 29,619
------- -------- -------- ------- --------
Loss from operations......................... (5,601) (10,494) (12,080) (7,809) (19,611)
Interest income (expense), net............... 85 (110) (286) (120) 18
------- -------- -------- ------- --------
Net loss..................................... (5,516) (10,604) (12,366) (7,929) (19,593)
Deemed dividend to Series E preferred
stockholders............................... -- -- -- -- (10,133)
------- -------- -------- ------- --------
Net loss allocable to common stockholders.... $(5,516) $(10,604) $(12,366) $(7,929) $(29,726)
======= ======== ======== ======= ========
Net loss per common share, basic and
diluted.................................... $ (2.20) $ (4.01) $ (4.39) $ (2.87) $ (6.92)
======= ======== ======== ======= ========
Weighted average shares used in computing net
loss per common share, basic and diluted... 2,512 2,643 2,818 2,764 4,297
Pro forma net loss per common share, basic
and diluted (unaudited).................... $ (0.52) $ (1.04)
======== ========
Weighted average shares used in computing
pro forma net loss per common share, basic
and diluted (unaudited).................... 23,996 28,709
</TABLE>
------------------------
Note A:
Includes charges for stock-based compensation as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Research and development..................... $ -- $ 6 $ 2,321 $ 450 $ 7,594
General and administrative................... $ -- $ -- $ 254 $ 113 $ 757
</TABLE>
See accompanying notes.
F-4
<PAGE>
RIGEL PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- -------------------- PAID-IN STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- -------- --------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... 665,000 1 2,400,000 3 58 -- (133)
Issuance of common stock at $0.001
per share for cash in January
1997............................ -- -- 110,000 -- -- -- --
Issuance of Series B convertible
preferred stock at $0.80 per
share in January 1997 for cash,
net of issuance cost............ 7,500,000 8 -- -- 5,961 -- --
Issuance of warrants to purchase
Series B preferred stock for
financing arrangement........... -- -- -- -- 47 -- --
Issuance of Series C preferred
stock at $1.14 per share in
November 1997 for cash, net of
issuance cost................... 7,236,843 7 -- -- 8,202 -- --
Issuance of Series C preferred
stock at $1.14 per share in
August 1997 for license
rights.......................... 150,000 -- -- -- 171 -- --
Issuance of options to consultants
for services.................... -- -- -- -- 5 -- --
Issuance of common stock upon
exercise of options............. -- -- 46,667 -- 5 -- --
Net loss and comprehensive loss... -- -- -- -- -- -- (5,516)
---------- ---- --------- ---- ------ ---- -------
Balance at December 31, 1997...... 15,551,843 16 2,556,667 3 14,449 -- (5,649)
Issuance of warrants to purchase
Series C preferred stock for
financing arrangement........... -- -- -- -- 86 -- --
Issuance of Series D preferred
stock at $2.00 per share in
December 1998 for cash, net of
issuance costs.................. 3,481,864 3 -- -- 6,938 -- --
Issuance of warrants to purchase
Series D preferred stock for
financing arrangement........... -- -- -- -- 185 -- --
Compensation expense related to
options granted to
consultants..................... -- -- -- -- 6 -- --
Issuance of common stock upon
exercise of options............. -- -- 118,666 -- 12 -- --
Net loss and comprehensive loss... -- -- -- -- -- -- (10,604)
---------- ---- --------- ---- ------ ---- -------
Balance at December 31, 1998...... 19,033,707 19 2,675,333 3 21,676 -- (16,253)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1996...... (71)
Issuance of common stock at $0.001
per share for cash in January
1997............................ --
Issuance of Series B convertible
preferred stock at $0.80 per
share in January 1997 for cash,
net of issuance cost............ 5,969
Issuance of warrants to purchase
Series B preferred stock for
financing arrangement........... 47
Issuance of Series C preferred
stock at $1.14 per share in
November 1997 for cash, net of
issuance cost................... 8,209
Issuance of Series C preferred
stock at $1.14 per share in
August 1997 for license
rights.......................... 171
Issuance of options to consultants
for services.................... 5
Issuance of common stock upon
exercise of options............. 5
Net loss and comprehensive loss... (5,516)
-------
Balance at December 31, 1997...... 8,819
Issuance of warrants to purchase
Series C preferred stock for
financing arrangement........... 86
Issuance of Series D preferred
stock at $2.00 per share in
December 1998 for cash, net of
issuance costs.................. 6,941
Issuance of warrants to purchase
Series D preferred stock for
financing arrangement........... 185
Compensation expense related to
options granted to
consultants..................... 6
Issuance of common stock upon
exercise of options............. 12
Net loss and comprehensive loss... (10,604)
-------
Balance at December 31, 1998...... 5,445
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE.)
F-5
<PAGE>
RIGEL PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- -------------------- PAID-IN STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- -------- --------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series C preferred
stock at $1.14 per share for
financing arrangement.......... 20,000 -- -- -- 23 -- --
Issuance of Series D preferred
stock at $2.00 per share for
cash, net of issuance cost..... 3,000,000 3 -- -- 5,925 -- --
Issuance of Series D preferred
stock upon exercise of warrant
at $2.00 per share............. 180 -- -- -- -- -- --
Issuance of common stock upon
exercise of options............ -- -- 420,501 -- 51 -- --
Compensation expense related to
options granted to
consultants.................... -- -- -- -- 406 -- --
Deferred stock compensation...... -- -- -- -- 7,083 (7,083) --
Amortization of deferred stock
compensation................... -- -- -- -- -- 1,269 --
Net loss and comprehensive
loss........................... -- -- -- -- -- (12,366)
---------- ------- --------- ------- ------- ------- --------
Balance at December 31, 1999..... 22,053,887 22 3,095,834 3 35,164 (5,814) (28,619)
Issuance of Series E preferred
stock at $6.00 per share for
cash, net of issuance cost
(unaudited).................... 2,541,663 3 -- -- 15,247 -- --
Issuance of Series E preferred
stock in exchange for a
technology license
(unaudited).................... 133,333 -- -- -- 1,250 -- --
Issuance of Series D preferred
stock upon exercise of warrant
at $2.00 per share
(unaudited).................... 107,460 -- -- -- 215 -- --
Issuance of common stock upon
exercise of options
(unaudited).................... -- -- 1,485,308 2 248 --
Issuance of common stock for
services (unaudited)........... -- -- 100,000 -- 900 -- --
Compensation expense related to
options granted to consultants
(unaudited).................... -- -- -- -- 4,570 -- --
Deferred stock compensation
(unaudited).................... -- -- -- -- 5,216 (5,216) --
Amortization of deferred stock
compensation (unaudited)....... -- -- -- -- -- 3,781 --
Net loss and comprehensive loss
(unaudited).................... -- -- -- -- -- -- (19,593)
---------- ------- --------- ------- ------- ------- --------
Balance at September 30, 2000
(unaudited).................... 24,836,343 $ 25 4,681,142 $ 5 $62,810 $(7,249) $(48,212)
========== ======= ========= ======= ======= ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Issuance of Series C preferred
stock at $1.14 per share for
financing arrangement.......... 23
Issuance of Series D preferred
stock at $2.00 per share for
cash, net of issuance cost..... 5,928
Issuance of Series D preferred
stock upon exercise of warrant
at $2.00 per share............. --
Issuance of common stock upon
exercise of options............ 51
Compensation expense related to
options granted to
consultants.................... 406
Deferred stock compensation...... --
Amortization of deferred stock
compensation................... 1,269
Net loss and comprehensive
loss........................... (12,366)
--------
Balance at December 31, 1999..... 756
Issuance of Series E preferred
stock at $6.00 per share for
cash, net of issuance cost
(unaudited).................... 15,250
Issuance of Series E preferred
stock in exchange for a
technology license
(unaudited).................... 1,250
Issuance of Series D preferred
stock upon exercise of warrant
at $2.00 per share
(unaudited).................... 215
Issuance of common stock upon
exercise of options
(unaudited).................... 250
Issuance of common stock for
services (unaudited)........... 900
Compensation expense related to
options granted to consultants
(unaudited).................... 4,570
Deferred stock compensation
(unaudited).................... --
Amortization of deferred stock
compensation (unaudited)....... 3,781
Net loss and comprehensive loss
(unaudited).................... (19,593)
--------
Balance at September 30, 2000
(unaudited).................... $ 7,379
========
</TABLE>
See accompanying notes.
F-6
<PAGE>
RIGEL PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $(5,516) $(10,604) $(12,366) $(7,929) $(19,593)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 409 1,103 1,906 1,086 1,907
Stock compensation expense................... -- -- 1,675 563 8,351
Issuances of equity instruments for noncash
benefits................................... 230 192 23 23 1,250
Changes in assets and liabilities:
Accounts receivable.......................... -- -- (2,348) (1,160) 1,886
Prepaid expenses and other current assets.... (104) (9) (234) (231) (364)
Other assets................................. (149) 17 (108) 54 10
Accounts payable............................. 176 234 399 (64) 134
Accrued compensation......................... 44 60 184 89 141
Accrued liabilities.......................... 412 503 487 (402) 148
Deferred revenue............................. -- 3,472 2,254 914 (2,708)
Long-term liabilities........................ 200 (39) 297 (162) 432
------- -------- -------- ------- --------
Net cash used in operating activities...... (4,298) (5,071) (7,831) (7,219) (8,406)
------- -------- -------- ------- --------
INVESTING ACTIVITIES
Purchase of available-for-sale securities...... (3,954)
Capital expenditures........................... (2,341) (2,389) (7,086) (6,255) (2,590)
------- -------- -------- ------- --------
Net cash used in investing activities...... (2,341) (2,389) (7,086) (6,255) (6,544)
------- -------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from capital lease financing.......... 1,847 1,427 6,696 6,231 2,122
Principal payments on capital lease
obligations.................................. (242) (571) (1,415) (1,011) (1,707)
Net proceeds from issuances of common stock.... 5 12 51 25 250
Net proceeds from issuances of convertible
preferred stock.............................. 14,171 6,941 5,928 5,928 15,465
------- -------- -------- ------- --------
Net cash provided by financing
activities............................... 15,781 7,809 11,260 11,173 16,130
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 9,142 349 (3,657) (2,301) 1,180
Cash and cash equivalents at beginning of
period......................................... 2 9,144 9,493 9,493 5,836
------- -------- -------- ------- --------
Cash and cash equivalents at end of
period................................... $ 9,144 $ 9,493 $ 5,836 $ 7,192 $ 7,016
======= ======== ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.................................. $ 71 $ 161 $ 597 $ 433 $ 677
======= ======== ======== ======= ========
SCHEDULE OF NON CASH TRANSACTIONS
Deferred stock compensation.................... $ -- $ -- $ 7,083 $ 4,727 $ 5,216
======= ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Rigel Pharmaceuticals, Inc. ("Rigel" or the "Company") was incorporated in
the state of Delaware on June 14, 1996. The Company is engaged in the discovery
and development of a broad range of new small molecule drug candidates.
The Company's current operating plan anticipates that the Company will
require additional capital to fund its operations and continue its research and
development programs. As of December 31, 1999, the Company has funded its
operations primarily through the sale of private equity securities, payments
from corporate collaborators and capital asset lease financings. The Company
plans to seek additional funding through public or private financing
arrangements with third parties.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
INTERIM FINANCIAL INFORMATION
The financial information at September 30, 2000 and for the nine months
ended September 30, 1999 and 2000 is unaudited but, in the opinion of
management, has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of the
financial position at such date and the operating results and cash flow for such
periods. Results for the nine months ended September 30, 2000 are not
necessarily indicative of the results to expected for any subsequent period.
UNAUDITED PRO FORMA INFORMATION
In August 2000, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public
Offering. If the offering contemplated by this prospectus is consummated, the
preferred stock outstanding as of the closing date will automatically be
converted into shares of the Company's common stock. In addition, at the closing
of the Initial Public Offering, the Company expects to exercise its put option
to Novartis Pharma AG for the sale of $10 million of common stock. The unaudited
pro forma stockholders' equity at September 30, 2000 has been adjusted for the
assumed conversion of preferred stock based on the shares of preferred stock
outstanding at September 30, 2000.
CASH, CASH EQUIVALENTS AND AVAILABLE-FOR-SALE SECURITIES
The Company invests its excess cash in deposits, money market accounts, and
high quality marketable debt securities. The Company considers all highly liquid
investments with a maximum original maturity of 90 days or less at the time of
purchase to be cash equivalents.
The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115").
F-8
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under SFAS 115, all affected debt and equity securities must be stated at
fair value and classified as held-to-maturity, trading, or available-for-sale.
Management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
All investments in debt securities have been designated as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity, if material. Realized gains and losses and declines in
value judged to be other-than-temporary, if any, on available-for-sale
securities are included in other income. The cost of securities sold is based on
the specific identification method. Interest on securities classified as
available-for-sale is included in interest income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities and accrued compensation are
carried at cost, which management believes approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the assets or the term
of the lease, whichever is shorter.
REVENUE RECOGNITION
Non-refundable up-front payments received in connection with research and
development collaboration agreements, including technology access fees, are
deferred and recognized on a straight-line basis over the relevant periods
specified in the agreement, generally the research term.
Revenue related to collaborative research with the Company's corporate
collaborators are recognized as research services are performed over the related
funding periods for each contract. Under these agreements, the Company is
required to perform research and development activities as specified in each
respective agreement. The payments received under each respective agreement are
not refundable and are generally based on a contractual cost per full-time
equivalent employee working on the project. Research and development expenses
under the collaborative research agreements approximate or exceed the revenue
recognized under such agreements over the term of the respective agreements.
Deferred revenue may result when the Company does not incur the required level
of effort during a specific period in comparison to funds received under the
respective contracts. Milestone and royalty payments, if any, will be recognized
pursuant to collaborative agreements upon the achievement of specified
milestones.
RESEARCH AND DEVELOPMENT
Research and development expenditures, including direct and allocated
expenses, are charged to expense as incurred. Collaboration agreements generally
specify minimum levels of research effort required to be performed by the
Company.
F-9
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE LOSS
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires components of other comprehensive income,
including gains and losses on available-for-sale investments, to be included as
part of total comprehensive income. For all periods presented, the comprehensive
loss is equal to the net loss and has been disclosed in the statement of
stockholders' equity.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews
long-lived assets, including property and equipment, for impairment whenever
events or changes in business circumstances indicate that the carrying amount of
the assets may not be fully recoverable. Under SFAS 121, an impairment loss
would be recognized when estimated undiscounted future cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount. Impairment, if any, is assessed using discounted cash flows.
Through September 30, 2000, there have been no such losses.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131") establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. The Company has determined that it operates in only one
segment. Accordingly, the adoption of SFAS 131 had no impact on the Company's
financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock option grants ("APB 25") and to disclose the pro forma effect of SFAS 123
(see Note 6). Pro forma net loss information, as required by ("SFAS 123"), is
included in Note 6. Options granted to consultants are accounted for using the
Black-Scholes method prescribed by SFAS 123 and in accordance with Emerging
Issues Task Force Consensus No. 96-18 ("EITF 96-18") the options are subject to
periodic re-valuation over their vesting terms.
NET LOSS PER SHARE
Net loss per share has been computed according to the Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effects of options, shares subject to repurchase,
warrants, and convertible securities. Diluted earnings per share includes the
impact of potentially dilutive securities. Following the guidance given by the
Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and preferred stock that has been issued or granted for nominal
F-10
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net loss per
common share as if these shares had been outstanding for all periods presented.
To date, the Company has not issued or granted shares for nominal consideration.
Pro forma net loss per share includes shares issuable upon the conversion of
outstanding shares of preferred stock (using the as if method) from the original
date of issuance.
A reconciliation of shares used in the calculations is as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ---------------------
1997 1998 1999 1999 2000
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Weighted-average shares of common stock
outstanding..................................... 2,512 2,643 2,818 2,764 4,297
===== ===== =====
Adjustment to reflect weighted-average effect of
assumed conversions of preferred stock
(unaudited)..................................... 21,178 24,412
------ ------
Weighted-average shares used in pro forma net loss
per common share, basic and diluted
(unaudited)..................................... 23,996 28,709
====== ======
</TABLE>
During all periods presented, the Company had securities outstanding, which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share, as their effect
would have been antidilutive. These outstanding securities consist of the
following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ---------------------
1997 1998 1999 1999 2000
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Convertible preferred stock..................... 15,552 19,034 22,054 22,034 24,836
Outstanding options............................. 1,475 3,354 5,242 5,132 5,726
Warrants........................................ 175 648 647 648 540
</TABLE>
SOFTWARE COSTS
In 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1"),
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE". SOP 98-1 requires the capitalization of direct costs incurred in
connection with developing or obtaining software for internal-use, including
external direct costs of materials and services and payroll and payroll-related
costs for employees who are directly associated with and devote time to an
internal use software development project. The Company's policy is to capitalize
all such costs and include them as computers and software to be amortized over
their estimated useful lives. Through September 30, 2000, the Company had no
costs related to the implementation of internal-use software.
F-11
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE
FINANCIAL INSTRUMENTS AND FOR HEDGING ACTIVITIES" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. In June 1999, FASB issued Financial
Accounting Standards No. 137 which deferred the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. The adoption of SFAS 133 is not
anticipated to have an impact on the Company's results of operations of
financial condition when adopted as the Company holds no derivative financial
instruments and does not currently engage in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition. The
adoption of SAB 101 had no significant impact on the Company's revenue
recognition policy or results of operations.
In March 2000, the FASB issued No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock compensation--an Interpretation of APB 25." This
Interpretation clarifies (a) the definition of employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
adoption of FIN 44 does not have a material impact on the Company's financial
statements.
2. SPONSORED RESEARCH AND LICENSE AGREEMENTS
RESEARCH AGREEMENTS
In April 1997, Rigel entered into a two-year sponsored research agreement
with Leland Stanford Junior University ("Stanford") for certain patent rights,
materials and other know-how relating to the discovery of viral delivery
systems. Under the terms of this agreement, Rigel is required to pay research
funding fees to be used for salaries and for costs associated with supplies and
equipment necessary to perform the research. Stanford retains ownership of all
technologies discovered under this agreement, and Rigel has an option to extend
the agreement by one year and to acquire all such technologies.
In December 1997, the Company entered into a collaborative agreement with
Neurocrine Biosciences, Inc. to discover novel molecular drug targets. The
Company granted Neurocrine the right to utilize its technologies in the drug
discovery process while Neurocrine granted to the Company the right to utilize
various proprietary technologies and compounds. Both companies agreed to fund
their own research.
On December 4, 1998, the Company entered into a research collaboration
agreement with Janssen Pharmaceutica NV ("Janssen") to research and identify
novel targets for drug discovery. Under the terms
F-12
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
2. SPONSORED RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
of the contract, Janssen paid an one time fee and will provide support for
research activities during the three-year research period, as well as various
milestones and royalties. As part of this collaborative research agreement,
Johnson & Johnson ("J&J"), a related company to Janssen, participated in the
Company's Series D and E preferred stock financings. J&J contributed $3,000,000
for 1,500,000 shares of Series D preferred stock and contributed $1,000,000 for
166,666 shares of Series E preferred stock.
On January 31, 1999, the Company entered into a two-year collaborative
research agreement with Pfizer Inc. to discover and develop various molecular
targets. Upon signing of the agreement, Pfizer was obligated to pay a one-time,
nonrefundable, noncreditable fee. Under the terms of the contract, Pfizer will
provide support for research for two years, as well as payment for various
milestones and royalty if certain conditions are met. In conjunction with the
agreement, Pfizer contributed an additional $2,000,000 in exchange for 1,000,000
shares of Series D preferred stock.
On May 28, 1999, the Company entered into a broad collaboration with
Novartis Pharma AG, whereby the Company and Novartis agreed to work on five
different research programs to identify various targets for drug development.
Two of the five programs were initiated in 1999, with the third program
initiated on January 1, 2000. The remaining two programs will be initiated no
later than May 28, 2001. Upon the initiation of each research program, Novartis
is obligated to pay a one-time, non-refundable, noncreditable fee. For each of
the first two programs, Novartis will provide support for research activities
for a period of five years. For all programs, Novartis will provide payment for
various milestones and royalties if certain conditions, as denoted in the
collaboration agreement, are met. In conjunction with the agreement, Novartis
contributed an additional $4,000,000 in exchange for 2,000,000 shares of
Series D preferred stock. The agreement also allows for an additional equity
investment of up to $10,000,000 which is callable by the Company up through an
IPO. The price of this additional equity investment is to be determined by the
most recent private financing price or IPO price.
In September 1999, the Company entered into a collaborative research and
technology agreement with Cell Genesys, Inc. Cell Genesys granted the Company
rights to some of its patents and technology. In exchange the Company granted
Cell Genesys right to utilize the Company's technology to discover targets in
certain therapeutic areas. Both companies will fund their own research.
LICENSE AGREEMENTS
In October 1996, Rigel entered into a license agreement with Stanford for
certain patent rights and other know-how relating to the use of retrovirally
produced peptide and protein libraries. Under the terms of this agreement, Rigel
is required to pay a nonrefundable license fee, minimum royalties and to issue
Stanford 65,000 shares of Series A preferred stock. The agreement terminates at
the earlier of 20 years or 10 years after the date of the first commercial sale.
In August 1997, Rigel signed a three-year agreement relating to the 1996
agreement to provide the Company with exclusivity to these patents. Under this
agreement, Rigel is required to pay a nonrefundable fee and an exclusivity fee
over the next three years and issued Stanford 150,000 shares of Series C
preferred stock.
At December 31, 1999, the Company's aggregate minimum commitment under all
its research and license agreements is approximately $3.1 million. The minimum
commitment is $0.4 million in 2000,
F-13
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
2. SPONSORED RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
$0.3 million in 2001, $0.3 million in 2002, $0.3 million in 2003, $0.3 million
in 2004, and $1.5 million thereafter.
TECHNOLOGY TRANSFER AGREEMENT
In September 2000, the Company entered into a Technology Transfer Agreement
with Questcor Pharmaceuticals, Inc. and acquired the license and technology to a
hepatitis C research program. Under the terms of this agreement, the Company is
required to pay a nonrefundable and noncreditable fee of $500,000, milestones
and royalties and to issue Questcor 83,333 shares of Series E preferred stock.
The Company is also committed to invest a total of $2 million in research and
development expenses over a two year period through 2002. The agreement
terminates upon the expiration of the last patent within the agreement. The
Company has accounted for the Series E preferred stock at $9.00 per share based
on the deemed fair value of its common stock at the date of grant. The Company
has expensed the aggregate value of approximately $1.2 million in
September 2000 as the acquired technology is not yet fully developed and has no
alternative use.
3. SIGNIFICANT CONCENTRATIONS
In 1998, Janssen represented 100% of total revenues. For the year ended
December 31, 1999, Pfizer, Janssen and Novartis accounted for 34%, 32% and 34%,
respectively. For the nine months ended September 30, 1999, Pfizer, Janssen and
Novartis accounted for 38%, 36% and 8%, respectively. For the nine months ended
September 30, 2000, Pfizer, Janssen and Novartis accounted for 25%, 22% and 52%,
respectively. Accounts receivable relate mainly to these three collaborative
partners. The Company does not require collateral or other security for accounts
receivable.
4. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities consist of the following (in thousands):
<TABLE>
<CAPTION>
AMORTIZED COST AND
FAIR VALUE AT
------------------------------
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------- --------------
(UNAUDITED)
<S> <C> <C>
Money market funds.......................................... $5,836 $ 6,601
Corporate commercial paper.................................. -- 3,954
------ -------
$5,836 $10,555
====== =======
Reported as:
Cash equivalents.......................................... $5,836 $ 6,601
Available-for-sale securities............................. -- 3,954
------ -------
$5,836 $10,555
====== =======
</TABLE>
At September 30, 2000, the average maturity of the available-for-sale
securities was approximately four months.
There were no gross realized gains or losses from sales of securities in the
periods presented. Unrealized gains and losses on available-for-sale securities
were not material at September 30, 2000.
F-14
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Laboratory and office equipment............................. $ 4,010 $ 8,589
Leasehold improvements...................................... 720 2,993
------- -------
4,730 11,582
Less accumulated depreciation and amortization.............. (1,512) (3,184)
------- -------
Property and equipment, net................................. $ 3,218 $ 8,398
======= =======
</TABLE>
At December 31, 1998 and 1999 equipment under capital leases was
approximately $3,317,000 and $9,936,000, respectively with accumulated
amortization of approximately $957,000 and $2,736,000, respectively.
6. LONG-TERM OBLIGATIONS
At December 31, 1999 future minimum lease payments under all noncancelable
leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2000..................................................... $ 2,901 $ 1,463
2001..................................................... 2,632 2,018
2002..................................................... 2,161 2,263
2003..................................................... 1,501 2,333
2004..................................................... -- 2,353
2005 and thereafter...................................... -- 23,035
------- -------
Total minimum payment required........................... 9,195 $33,465
=======
Less amount representing interest........................ (1,541)
-------
Present value of future lease payments................... 7,654
Less current portion..................................... (2,176)
-------
Noncurrent obligations under capital leases.............. $ 5,478
=======
</TABLE>
The Company leases its South San Francisco office and research facility
under a noncancelable operating lease which expires in February 2016. Rent
expense under all operating leases amounted to approximately $385,000, $381,000,
$1,756,000 for the years ended December 31, 1997, 1998 and 1999 and $1,672,000
for the nine months ended September 30, 2000, respectively.
In 1997, the Company entered into an equipment lease line agreement for up
to $2,000,000 which was fully utilized in 1998. In June 1998, the Company
entered into a second equipment lease line agreement for up to $3,000,000, which
was fully utilized in June 1999.
F-15
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
6. LONG-TERM OBLIGATIONS (CONTINUED)
In June 1999 and August 1999, the Company entered into two additional
equipment lease line agreements for an aggregate total of $6,000,000, or
$3,000,000 each. These lines were fully utilized in May 2000.
The lease periods for all equipment leases are for four years. The interest
on each lease is fixed at the time of the draw down with the interest rates
ranging from 7% to 15%. Obligations under all leases are secured by the assets
financed under the leases.
EQUIPMENT LEASE LINE
In August 2000, the Company entered into an additional equipment lease line
agreement for an aggregate total of $5,000,000. The Company has the ability to
draw down on this facility up to August 2001. The interest rate is fixed at the
time of each draw down with the interest rates ranging from 7% to 15%.
Obligations under this lease will be secured by the assets financed under the
lease. At September 30, 2000, the Company has utilized $1.1 million against this
facility at an interest rate of 11%.
7. STOCKHOLDERS' EQUITY
In February 2000, the Company completed a private placement of 2,508,330
shares of Series E preferred stock at $6.00 per share for net proceeds of
approximately $15.1 million. At the date of issuance, the Company believed the
per share price of $6.00 represented the fair value of the preferred stock.
Subsequent to the commencement of the Company's initial public offering process,
the Company re-evaluated the fair value of its common stock as of February 2000
and determined it to be $9.00 per share. Accordingly, the increase in fair value
has resulted in a beneficial conversion feature of $10.0 million that has been
recorded as a deemed dividend to the preferred stockholders in 2000. The Company
recorded the deemed dividend at the date of issuance by offsetting charges and
credits to additional paid in capital without any effect on total stockholders'
equity. The preferred stock dividend increases the net loss allocable to common
stockholders in the calculation of basic and diluted net loss per common share
for the nine months ended September 30, 2000. Also in February 2000, the Company
issued 50,000 shares of Series E preferred stock for a license of technology.
The Company valued the license at $500,000 and has expensed this amount in the
nine months ended September 30, 2000 as the useful life is deemed to be less
than one year.
In August 2000, the Company issued 33,333 shares of Series E preferred stock
to a director of the Company. The Company recorded a deemed dividend of
approximately $100,000 at the time of issuance.
All series of preferred stock are convertible at the stockholders' option at
any time into common stock on a one-for-one basis, subject to adjustment for
antidilution, and carry voting rights equivalent to common stock. Conversion is
automatic upon the closing of an underwritten public offering with aggregate
offering proceeds exceeding $15,000,000 and an offering price of at least $3.50
per share (appropriately adjusted for any stock splits, stock dividends,
recapitalization or similar events) or upon agreement of the majority of holders
of the outstanding shares.
Holders of Series A, B, C, D, and E convertible preferred stock are entitled
to noncumulative dividends of $0.008, $0.064, $0.0912, $0.16, and $0.48 per
share, respectively, if and when declared by the board of directors. These
dividends are to be paid in advance of any distributions to common stockholders.
F-16
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
In addition, dividends are to be paid to Series B, C, D, and E stockholders in
advance of Series A stockholders. No dividends have been declared through
September 30, 2000.
In the event of a liquidation or winding up of the Company, holders of
Series A, B, C, D, and E convertible preferred stock shall have a liquidation
preference of $0.10, $0.80, $1.14, $2.00, and $6.00 per share, respectively,
together with any declared but unpaid dividends, over holders of common shares.
Preference shall be given to Series B, C, D, and E stockholders over Series A
stockholders.
Preferred stockholders are entitled to the number of votes they would have
upon conversion of their preferred shares into common stock.
The authorized, issued and outstanding Series A, B, C, D, and E shares of
convertible preferred stock were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------------------------- ----------------------------------------
SHARES AGGREGATE SHARES AGGREGATE
SHARES ISSUED AND LIQUIDATION SHARES ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING PREFERENCE AUTHORIZED OUTSTANDING PREFERENCE
---------- ------------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series A............. 665 665 $ 66 665 665 $ 66
Series B............. 7,675 7,500 6,000 7,675 7,500 6,000
Series C............. 8,000 7,387 8,422 8,000 7,407 8,445
Series D............. 5,660 3,482 6,963 7,000 6,482 12,964
Series E............. -- -- -- -- -- --
Undesignated......... -- -- -- 660 -- --
------ ------ ------- ------ ------ -------
22,000 19,034 $21,451 24,000 22,054 $27,475
====== ====== ======= ====== ====== =======
<CAPTION>
SEPTEMBER 30, 2000 (UNAUDITED)
----------------------------------------
SHARES AGGREGATE
SHARES ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING PREFERENCE
---------- ------------- -----------
<S> <C> <C> <C>
Series A............. 665 665 $ 66
Series B............. 7,675 7,500 6,000
Series C............. 8,000 7,407 8,445
Series D............. 7,000 6,589 13,178
Series E............. 2,750 2,675 16,050
Undesignated......... 660 -- --
------ ------ -------
26,750 24,836 $43,739
====== ====== =======
</TABLE>
WARRANTS
In conjunction with the equipment lease line executed in April 1997, the
Company issued a warrant to purchase 175,000 shares of Series B preferred stock
at an exercise price of $0.80 per share. The warrant automatically converts upon
the earlier of April 30, 2004 or a merger or reorganization of the Company. The
fair value of this warrant, as determined using the Black-Scholes valuation
model, was approximately $47,000. The amount was expensed in 1997.
In conjunction with the equipment lease line executed in June 1998, the
company issued a warrant to purchase 131,578 shares of Series C preferred stock
at an exercise price of $1.14 per share. The warrant expires on June 30, 2005.
The fair value assigned to this warrant, as determined using the Black-Scholes
valuation model, was approximately $86,000. The amount was expensed in 1998.
In conjunction with the Series D preferred stock financing in
December 1998, the Company issued five warrants to purchase 191,100 shares of
Series D preferred stock at an exercise price of $2.00 per share. These warrants
expire at the earlier of the closing of an IPO or December 2003. The fair value
assigned to these warrants, as determined using the Black-Scholes valuation
model, was approximately $185,000. The amount was expensed in 1998. As of
December 31, 1999, warrants to purchase 190,920 shares of Series D preferred
stock were outstanding. As of September 30, 2000 warrants to purchase 83,460
shares of Series D preferred stock are outstanding.
In conjunction with the facilities lease entered into in June 1998, the
Company issued three warrants to purchase 150,000 shares of common stock at an
exercise price of $1.14 per share. The warrants are
F-17
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
exercisable at any time up to the earlier of June 1, 2008 or the seventh
anniversary of the closing of an initial public offering. The fair value of
these warrants was deemed to be immaterial and is not recorded in the financial
statements.
2000 STOCK OPTION PLAN
In January 2000, the Company adopted the 2000 Equity Incentive Plan (the
"2000 Plan"), which was approved in March 2000 by stockholders. The 2000 Equity
Incentive Plan is an amendment and restatement of the 1997 Stock Option Plan.
Under the 2000 Plan incentive stock options, nonstatutory stock options and
shares of common stock may be granted to employees, directors of, or consultants
to, the Company and its affiliates.
Options granted under the Stock Plan expire no later than 10 years from the
date of grant. The option price of each incentive stock option shall be at least
100% of the fair value on the date of grant, and the option price for each
nonstatutory stock option shall be not less than 85% of the fair value on the
date of grant, as determined by the board of directors. Options may be granted
with different vesting terms from time to time but not to exceed five years from
the date of grant.
As of September 30, 2000, a total of 9,525,000 shares of common stock have
been authorized for issuance under the 2000 Plan.
F-18
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Activity under the 2000 Plan through September 30, 2000 is as follows:
<TABLE>
<CAPTION>
SHARES AVAILABLE WEIGHTED-AVERAGE
FOR GRANT NUMBER OF OPTIONS EXERCISE PRICE
---------------- ----------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996............... --
Beginning authorized for grant................. 2,325,000 --
Granted...................................... (1,545,000) 1,545,000 $0.10
Exercised.................................... -- (46,667) 0.10
Cancelled.................................... 23,333 (23,333) 0.10
---------- ----------
Outstanding at December 31, 1997............... 803,333 1,475,000 0.10
Authorized for grant......................... 3,000,000 --
Granted...................................... (2,157,500) 2,157,500 0.16
Exercised.................................... -- (118,666) 0.10
Cancelled.................................... 159,584 (159,584) 0.12
---------- ----------
Outstanding at December 31, 1998............... 1,805,417 3,354,250 0.14
Authorized for grant......................... 4,200,000 --
Granted...................................... (2,783,000) 2,783,000 0.24
Exercised.................................... -- (423,001) 0.25
Cancelled.................................... 472,245 (472,245) 0.16
---------- ----------
Outstanding at December 31, 1999............... 3,694,662 5,242,004 0.19
Shares granted out of the Plan (unaudited)... (100,000) --
Granted (unaudited).......................... (2,335,609) 2,335,609 5.79
Exercised (unaudited)........................ -- (1,485,308) 0.16
Cancelled (unaudited)........................ 366,477 (366,477) 3.66
---------- ----------
Options outstanding at September 30, 2000
(unaudited).................................. 1,625,530 5,725,828 $2.36
========== ==========
</TABLE>
Details of the Company's stock options by exercise price is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------- ----------------------------
NUMBER OF WEIGHTED-AVERAGE WEIGHTED-
OUTSTANDING REMAINING AVERAGE NUMBER OF WEIGHTED-AVERAGE
EXERCISE PRICE OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------------- ----------- ---------------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.10-$0.30 5,242,004 8.84 $0.19 1,233,294 $0.15
--------- ---------
$0.10-$0.30 5,242,004 8.84 $0.19 1,233,294 $0.15
========= =========
</TABLE>
F-19
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------- ----------------------------
NUMBER OF WEIGHTED-AVERAGE WEIGHTED-
OUTSTANDING REMAINING AVERAGE NUMBER OF WEIGHTED-AVERAGE
EXERCISE PRICE OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------------- ----------- ---------------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.10 - $ 0.30 3,600,441 8.27 $0.20 773,634 $0.19
$4.50 - $ 7.65 1,683,943 9.56 $5.13 130,366 $4.62
$9.00 - $11.00 441,444 9.65 $9.40 12,916 $9.96
--------- ---------
$0.10 - $11.00 5,725,828 8.75 $2.36 916,916 $0.96
========= =========
</TABLE>
The weighted-average fair value of the options granted in 1997, 1998, 1999,
and the nine months ended September 30, 2000, was $0.02, $0.03, $0.06 and $1.51,
respectively.
Options outstanding includes options to purchase 190,000 shares granted to
new hires who will commence employment with the Company at a later date. The
stock compensation with respect to these options will be recorded based on the
fair value of the Company's common stock at the date employment commences and
amortized in accordance with the Company's policy.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by the Statement.
The fair value for these options was estimated at the date of grant using the
minimum value method with the following weighted-average assumptions for the
years ended December 31, 1997, 1998, 1999 and the nine months ended
September 30, 2000: risk-free interest rates of 4.5%, 5.5%, 6.0% and 6.0%,
respectively; an expected option life of five years; and no dividend yield.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1997 1998 1999 2000
-------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss allocable to common stockholders:
As reported...................................... $(5,516) $(10,604) $(12,366) $(29,276)
Pro forma........................................ (5,516) (10,604) (12,413) (30,094)
Basic and diluted net loss per common share:
As reported...................................... $ (2.20) $ (4.01) $ (4.39) (6.81)
Pro forma........................................ (2.20) (4.01) (4.40) (1.05)
</TABLE>
The effects of applying SFAS 123 for pro forma disclosures are not likely to
be representative of the effects as reported net loss for future years.
The Company granted 621,500 and 334,000 common stock options to consultants
in exchange for services in 1998 and 1999, respectively and 150,000 in the nine
months ended September 30, 2000. The Company has recorded compensation expense
related to these options. In accordance with SFAS 123 and EITF 96-18, options
granted to consultants are periodically revalued as they vest. In January 2000,
the
F-20
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Company recorded an expense of $664,000 related to the accelerated vesting of an
option to purchase 75,000 shares of common stock issued to a consultant for
services. Also in January 2000, the Company granted a total of 100,000 shares of
common stock to two individuals for consulting services performed in 1999. The
Company has recorded $900,000 of compensation expense related to these grants in
1999.
The Company has recorded deferred stock compensation with respect to options
granted to employees of approximately $7.1 million in the year ended
December 31, 1999 and $5.2 million for the nine months ended September 30, 2000,
representing the difference between the exercise price of the options and the
deemed fair value of the common stock. These amounts are being amortized to
operations over the vesting periods of the options using the graded vesting
method. Such amortization expense amounted to approximately $1.3 million for the
year ended December 31, 1999 and approximately $3.8 million for the nine months
ended in September 30, 2000 and is expected to be approximately $1.3 million for
the remainder of 2000; $3.3 million in 2001, $1.7 million in 2002, $0.8 million
in 2003 and $0.1 million in 2004.
RESERVED SHARES
As of December 31, 1999, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Warrants.................................................... 150,000
Incentive stock plan........................................ 8,936,666
Convertible preferred stock................................. 22,551,385
----------
31,638,051
==========
</TABLE>
In addition, the Company has reserved the following preferred stock for
future issuance upon exercise of warrants:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Series B.................................................... 175,000
Series C.................................................... 131,578
Series D.................................................... 190,920
</TABLE>
2000 EMPLOYEE STOCK PURCHASE PLAN
In August 2000, the Company adopted its 2000 Employee Stock Purchase Plan
(the "Purchase Plan") which was approved in September 2000 by shareholders. A
total of 400,000 shares of the Company's common stock have been reserved for
issuance under the Purchase Plan. In addition, the Purchase Plan provides for
annual increases in the number of shares available for issuance under the
Purchase Plan on each anniversary date of the effective date of the offering.
The number of shares reserved automatically is equal to the lesser of 400,000
shares, 1% of the outstanding shares on the date of the annual increase or such
amount as may be determined by the board. The Purchase plan permits eligible
employees to purchase common stock at a discount through payroll deductions
during defined offering periods. The price at which the stock is purchased is
equal to the lower of 85% of the fair market value of the common
F-21
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
stock on the first day of the offering or 85% of the fair market value of the
Company's common stock on the purchase date. The initial offering period will
commence on the effective date of the offering.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In August 2000, the Company adopted the 2000 Non-Employee Directors Stock
Option Plan, which was approved in September 2000 by stockholders, with a total
of 300,000 shares of common stock for issuance thereunder. Each non-employee
director who becomes a director of the Company will be automatically granted a
nonstatutory stock option to purchase 20,000 shares of common stock on the date
on which such person first becomes a director. At each board meeting immediately
following each annual stockholders meeting, beginning with the first board
meeting after the 2001 Annual Stockholders Meeting, each non-employee director
will automatically be granted a nonstatutory option to purchase 5,000 shares of
common stock. The exercise price of options under the Directors' Plan will be
equal to the fair market value of the common stock on the date of grant. The
maximum term of the options granted under the Directors' Plan is ten years. All
grants under the Directors' Plan will vest monthly over two years from date of
grant. The Directors' Plan will terminate in September 2009, unless terminated
earlier in accordance with the provisions of the Directors' Plan.
8. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $23.6 million and $4.1 million,
respectively. The Company also had federal and California research and
development tax credit carryforwards of approximately $700,000 and $500,000. The
federal net operating loss and credit carryforwards will expire at various dates
beginning in the year 2011 through 2019, if not utilized. The state of
California net operating losses will expire beginning in 2005 if not utilized.
Utilization of the federal and state net operating loss and credit
carryforwards may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986 (IRC). The
annual limitation may result in the expiration of net operating losses and
credits before utilization. As of December 31, 1999, an IRC section 382 analysis
has not been undertaken to determine the effects of the limitation.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant
F-22
<PAGE>
RIGEL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
components of the Company's deferred tax assets for federal and state income
taxes as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets.........................................
Net operating loss carryforwards............................ $ 5,100 $ 8,300
Research and development credits............................ 400 1,000
Capitalized research and development expenses............... 700 1,100
Other, net.................................................. 200 400
------- --------
Total deferred tax assets................................... 6,400 10,800
Valuation allowance......................................... (6,400) (10,800)
------- --------
Net deferred taxes.......................................... $ -- $ --
======= ========
</TABLE>
Due to the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2.5 million, $3.9 million and $4.4 million during the years ended
December 31, 1997, 1998 and 1999, respectively.
F-23
<PAGE>
[RIGEL LOGO]
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us, in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 30,000
NASD filing fee............................................. 11,000
Nasdaq National Market listing fee.......................... 91,000
Blue sky fees and expenses.................................. 25,000
Transfer agent and registrar fees........................... 3,500
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 350,000
Printing and engraving costs................................ 200,000
Miscellaneous expenses...................................... 39,500
----------
Total................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and certain officers. These agreements, among other things, require us to
indemnify each director and officer for certain expenses including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Rigel, arising
out of the person's services as our director or officer, any subsidiary of ours
or any other company or enterprise to which the person provides services at our
request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Rigel, our directors, our officers who sign the registration
statement, and our controlling persons for some liabilities, including
liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 15, 1996, Rigel has sold and issued unregistered securities to a
limited number of persons, as described below. None of these transactions
involved any underwriters, underwriting discounts or commissions, or any public
offering, and Rigel believes that each transaction was exempt from the
II-1
<PAGE>
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. We believe that all recipients had adequate access
to information about Rigel, through their relationships with Rigel.
Since July 15, 1996, Rigel has sold and issued the following unregistered
securities:
(1) From July 15, 1996 to September 30, 2000, we granted incentive stock
options and nonstatutory stock options to purchase an aggregate of
8,886,109 shares of Rigel's common stock at exercise prices ranging from
$.10 to $11.00 per share and an aggregate of 100,000 stock awards to
employees, directors and consultants under the Plan. Of these stock options
986,639 shares have been canceled without being exercised, 2,073,642 shares
have been exercised, 2,500 shares have been repurchased and 5,725,828
shares remain outstanding.
(2) In July 1996 and January 1997, we sold an aggregate of 2,860,000 shares of
our common stock to five purchasers at a purchase price of $.001 per share,
350,000 shares of which we repurchased.
(3) From July 1996 to January 1997, we sold an aggregate of 665,000 shares of
our Series A preferred stock to four purchasers at a purchase price of $.10
per share.
(4) In January 1997, we sold an aggregate of 7,500,000 shares of our Series B
preferred stock to nine purchasers at a purchase price of $.80 per share.
(5) In May 1997, we issued a warrant to purchase 175,000 shares of our
Series B preferred stock at a purchase price of $.80 per share.
(6) From November 1997 to January 1998, we sold an aggregate of 7,386,843
shares of our Series C preferred stock to twelve purchasers at a purchase
price of $1.14 per share.
(7) On March 27, 1998, we issued 20,000 shares of our Series C preferred stock
to one entity for a license for technology.
(8) In June 1998, we issued a warrant to purchase 131,578 shares of our
Series C preferred stock at an exercise price of $1.14 per share.
(9) From December 1998 to May 1999, we sold an aggregate of 6,481,864 shares of
our Series D preferred stock to ten purchasers at a purchase price of $2.00
per share.
(10) In December 1998, we issued five warrants to purchase an aggregate of
191,100 shares of Series D preferred stock at an exercise price of $2.00
per share, of which 180 shares have been exercised.
(11) On February 3, 2000, we sold an aggregate of 2,508,330 shares of our
Series E preferred stock to thirteen purchasers at a purchase price of
$6.00 per share, and issued 50,000 shares of Series E preferred stock to
one entity for a license for technology.
(12) On August 31, 2000, we sold 33,333 shares of our Series E preferred stock
to Thomas S. Volpe, one of our directors, at a purchase price of $6.00 per
share.
(13) On September 28, 2000, we issued 83,333 shares of our Series E preferred
stock to Questcor Pharmaceuticals, Inc. in exchange for a transfer of
technology.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
3.1* Amended and Restated Certificate of Incorporation of Rigel
to be filed upon the closing of the offering made pursuant
to this Registration Statement.
3.2* Amended and Restated Bylaws of Rigel to be adopted upon the
closing of the offering made pursuant to this Registration
Statement.
4.1* Specimen Common Stock Certificate.
4.2* Amended and Restated Investor Rights Agreement, dated
February 3, 2000, between Rigel and holders of Rigel's
Series B, Series C, Series D and Series E preferred stock.
4.3* Form of warrant to purchase shares of common stock.
4.4* Warrant issued to Lighthouse Capital Partners II, L.P. for
purchase of shares of Series B preferred stock.
4.5* Warrant issued to Lighthouse Capital Partners II, L.P. for
purchase of shares of Series C preferred stock.
4.6* Form of warrant to purchase shares of Series D preferred
stock.
5.1* Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement.
10.2* 2000 Equity Incentive Plan.
10.3* Form of Stock Option Agreement pursuant to 2000 Equity
Incentive Plan.
10.4* 2000 Employee Stock Purchase Plan.
10.5* 2000 Non-Employee Directors' Stock Option Plan.
10.6* Collaboration Agreement between Rigel and Janssen
Pharmaceutica N.V., dated December 4, 1998.
10.7* Collaborative Research and License Agreement between Rigel
and Pfizer Inc., dated January 31, 1999.
10.8* Collaboration Agreement between Rigel and Novartis Pharma
AG, dated May 26, 1999.
10.9+* License and Research Agreement between Rigel and Cell
Genesys, Inc., dated September 2, 1999.
10.10* Collaborative Research and Development Agreement between
Rigel and Neurocrine Biosciences, Inc., dated December
1997.
10.11* Employment agreement between Rigel and Donald Payan, dated
January 16, 1997.
10.12* Lease between Rigel and Britannia Pointe Grand Limited
Partnership, dated June 2, 1998.
10.13 Technology Transfer Agreement between Rigel and Questcor
Pharmaceuticals, Inc., dated September 22, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
------------------------
* Previously filed.
+ Confidential treatment requested as to specific portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
ITEM 17. UNDERTAKINGS
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as
II-3
<PAGE>
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of South San Francisco, State of California, on the 17th day of November,
2000.
<TABLE>
<S> <C> <C>
RIGEL PHARMACEUTICALS, INC.
By: /s/ JAMES M. GOWER
--------------------------------
James M. Gower
CHIEF EXECUTIVE OFFICER
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES M. GOWER President, Chief Executive Officer
--------------------------------- and Director November 17, 2000
James M. Gower (PRINCIPAL EXECUTIVE OFFICER)
Senior Vice President, Chief Financial
/s/ BRIAN C. CUNNINGHAM Officer, Chief Operating Officer
--------------------------------- and Secretary November 17, 2000
Brian C. Cunningham (PRINCIPAL FINANCE AND ACCOUNTING
OFFICER)
/s/ DONALD G. PAYAN
--------------------------------- Executive Vice President, Chief November 17, 2000
Donald G. Payan Scientific Officer and Director
/s/ JEAN DELEAGE
--------------------------------- Director November 17, 2000
Jean Deleage
/s/ ALAN D. FRAZIER
--------------------------------- Director November 17, 2000
Alan D. Frazier
/s/ WALTER H. MOOS
--------------------------------- Director November 17, 2000
Walter H. Moos
/s/ STEPHEN A. SHERWIN
--------------------------------- Director November 17, 2000
Stephen A. Sherwin
/s/ THOMAS S. VOLPE
--------------------------------- Director November 17, 2000
Thomas S. Volpe
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of Rigel
to be filed upon the closing of the offering made pursuant
to this Registration Statement.
3.2* Amended and Restated Bylaws of Rigel to be adopted upon the
closing of the offering made pursuant to this Registration
Statement.
4.1* Specimen Common Stock Certificate.
4.2* Amended and Restated Investor Rights Agreement, dated
February 3, 2000, between Rigel and holders of Rigel's
Series B, Series C, Series D and Series E preferred stock.
4.3* Form of warrant to purchase shares of common stock.
4.4* Warrant issued to Lighthouse Capital Partners II, L.P. for
purchase of shares of Series B preferred stock.
4.5* Warrant issued to Lighthouse Capital Partners II, L.P. for
purchase of shares of Series C preferred stock.
4.6* Form of warrant to purchase shares of Series D preferred
stock.
5.1* Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement.
10.2* 2000 Equity Incentive Plan.
10.3* Form of Stock Option Agreement pursuant to 2000 Equity
Incentive Plan.
10.4* 2000 Employee Stock Purchase Plan.
10.5* 2000 Non-Employee Directors' Stock Option Plan.
10.6* Collaboration Agreement between Rigel and Janssen
Pharmaceutica N.V., dated December 4, 1998.
10.7* Collaborative Research and License Agreement between Rigel
and Pfizer Inc., dated January 31, 1999.
10.8* Collaboration Agreement between Rigel and Novartis Pharma
AG, dated May 26, 1999.
10.9+* License and Research Agreement between Rigel and Cell
Genesys, Inc., dated September 2, 1999.
10.10* Collaborative Research and Development Agreement between
Rigel and Neurocrine Biosciences, Inc., dated December
1997.
10.11* Employment agreement between Rigel and Donald Payan, dated
January 16, 1997.
10.12* Lease between Rigel and Britannia Pointe Grand Limited
Partnership, dated June 2, 1998.
10.13 Technology Transfer Agreement between Rigel and Questcor
Pharmaceuticals, Inc., dated September 22, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
------------------------
* Previously filed.
+ Confidential treatment requested as to specific portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
II-6
