<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-49415
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ABGENIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2836 94-3248826
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</TABLE>
ABGENIX, INC.
7601 DUMBARTON CIRCLE
FREMONT, CALIFORNIA 94555
(510) 608-6500
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
R. SCOTT GREER
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ABGENIX, INC.
7601 DUMBARTON CIRCLE
FREMONT, CALIFORNIA 94555
(510) 608-6500
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
COPIES TO:
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MARIO M. ROSATI, ESQ. ALAN C. MENDELSON, ESQ.
CHRIS F. FENNELL, ESQ. PATRICK A. POHLEN, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION FIVE PALO ALTO SQUARE
650 PAGE MILL ROAD 3000 EL CAMINO REAL
PALO ALTO, CA 94304 PALO ALTO, CA 94306
(650) 493-9300 (650) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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, 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 statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
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Common Stock, $0.0001 par value 3,450,000 $12.00 $41,400,000 $12,213(3)
==============================================================================================================================
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(1) Includes 450,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) Previously paid.
------------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 22, 1998
LOGO
3,000,000 SHARES
COMMON STOCK
------------------------------
All of the 3,000,000 shares of Common Stock offered hereby are being sold
by Abgenix, Inc. ("Abgenix" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $10.00 and
$12.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"ABGX."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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==============================================================================================================
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Per Share.......................... $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3)........................... $ $ $
==============================================================================================================
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $750,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 450,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS LEHMAN BROTHERS
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
[ARTWORK]
Antibody products with human protein sequences may be desirable for therapy
in humans since they tend to minimize undesirable side effects. Various
approaches have evolved to engineer mouse antibodies so that they contain
proportionately more human protein sequences and thus appear more human-like to
a patient's immune system. The Company's XenoMouse technology has been developed
to produce antibodies with 100% human protein sequences.
[ARTWORK]
Abgenix believes that its XenoMouse technology offers several significant
advantages over other approaches. These advantages include generating high
affinity antibodies in vivo without the need for further antibody engineering,
as well as allowing production of such antibodies for preclinical and clinical
trials without the need for recombinant cell line development. As a result, the
Company believes that its XenoMouse technology offers the potential to develop
antibody therapeutic product candidates over a shorter timeline.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements........... 19
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
The Company................................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 29
Management.................................................. 48
Certain Transactions........................................ 57
Principal Stockholders...................................... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 67
Legal Matters............................................... 68
Experts..................................................... 68
Additional Information...................................... 69
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Abgenix and the Abgenix logo are trademarks of the Company. XenoMouse is a
registered trademark of Xenotech, L.P. ("Xenotech"). All other trademarks or
service marks appearing in this Prospectus are the property of their respective
holders.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports containing unaudited interim financial information for
each of the first three fiscal quarters of each fiscal year of the Company.
Abgenix has the right to use XenoMouse technology through Xenotech, its
joint venture equally owned with a subsidiary of Japan Tobacco Inc. ("Japan
Tobacco"). The Company's principal executive offices are located at 7601
Dumbarton Circle, Fremont, California 94555, and its telephone number is (510)
608-6500.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and gives effect to (i) the automatic
conversion of all outstanding shares of the Company's Redeemable Convertible
Preferred Stock ("Preferred Stock") into an aggregate of 7,844,352 shares of
Common Stock upon the closing of this offering and (ii) the filing, upon the
closing of this offering, of a Restated Certificate of Incorporation.
THE COMPANY
Abgenix, a biopharmaceutical company, develops and intends to commercialize
antibody therapeutic products for the prevention and treatment of a variety of
disease conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, and cancer. The Company has developed a proprietary
technology which it believes enables it to quickly generate high affinity, fully
human antibody product candidates to essentially any disease target appropriate
for antibody therapy ("XenoMouse technology"). Abgenix intends to use its
XenoMouse technology to build and commercialize a large and diversified product
portfolio through the establishment of corporate collaborations and internal
product development programs. The Company has recently established collaborative
arrangements with Pfizer Inc. ("Pfizer"), Schering-Plough Research Institute
("Schering-Plough") and Genentech, Inc. ("Genentech"). In addition, the Company
has four proprietary antibody product candidates that are under development
internally, two of which are in human clinical trials. In certain instances, the
Company intends to commercialize select products on its own in niche markets
such as graft versus host disease ("GVHD").
Abgenix believes that its XenoMouse technology offers the following
advantages: (i) producing antibodies with fully human protein sequences; (ii)
generating a diverse antibody response to essentially any disease target
appropriate for antibody therapy; (iii) generating high affinity antibodies
which do not require further engineering; (iv) enabling more efficient product
development; and (v) providing flexibility in choosing manufacturing processes.
The Company has established collaborative arrangements with Pfizer,
Schering-Plough and Genentech in order to generate fully human antibodies to
specific antigens in the fields of cancer, inflammation and growth factor
modulation, respectively. Pursuant to their respective collaborative
arrangements, Pfizer, Schering-Plough and Genentech are obligated to make
payments upon completion of certain research and may make additional payments
upon achievement of other milestones. In connection with its collaborative
arrangement, Pfizer also made an equity investment of approximately $1.3 million
in the Company. Abgenix also has a collaborative arrangement with Cell Genesys,
Inc. ("Cell Genesys") based on antibodies generated with XenoMouse technology in
the field of gene therapy. In addition, Abgenix intends to form proprietary
product collaborations with potential pharmaceutical partners involving
antibodies generated against antigen targets sourced by the Company.
The Company's lead product candidate, ABX-CBL, is a proprietary in-licensed
antibody in Phase II clinical trials. ABX-CBL targets the CBL antigen which is
selectively expressed on activated immune cells. Abgenix believes that ABX-CBL
has the ability to reverse unwanted immune responses by selectively destroying
activated immune cells without adversely affecting the entire immune system. As
of March 1, 1998, ABX-CBL had been tested in 90 patients in various
transplant-related conditions including GVHD and organ transplant rejection.
Based in part on data from these initial clinical trials, the Company commenced
a multi-center confirmatory Phase II clinical study in GVHD in January 1998 and
anticipates completion of this trial in 1998. In addition, the Company has
applied its XenoMouse technology to develop a fully human antibody, ABX-RB2,
targeting the CBL antigen for potential use in organ transplant rejection and
autoimmune disorders, indications where chronic drug administration may be
required. ABX-RB2 is in preclinical development.
In April 1998, Abgenix initiated Phase I clinical trials in psoriasis with
ABX-IL8, a fully human antibody product candidate generated with XenoMouse
technology that binds with high affinity to interleukin-8 ("IL-8"). A number of
preclinical studies suggest that excess IL-8 may be associated with certain
inflammatory disorders. Additionally, Abgenix is in preclinical development with
ABX-EGF, a fully human antibody product candidate that has been shown in mouse
models to eradicate certain human tumors.
4
<PAGE> 6
THE OFFERING
Common Stock to be Offered by the
Company............................. 3,000,000 shares
Common Stock Outstanding after the
Offering............................ 11,137,512 shares(1)
Use of Proceeds..................... For research and development, including
the performance of preclinical and
clinical trials, cross-license and
settlement payment, working capital and
other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market
Symbol.............................. ABGX
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- -------- -------- -------
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STATEMENT OF OPERATIONS DATA(2):
Total revenues(2).......................... $6,600 $ 6,200 $ 6,200 $ 4,719 $ 1,954 $ 335 $ 891
Operating expenses:
Research and development................. 4,629 7,921 11,879 9,433 11,405 2,078 5,366
General and administrative............... 1,019 1,955 2,603 2,565 3,525 1,004 918
Charge for cross-license and
settlement(3).......................... -- -- -- -- 22,500 15,000 --
------ ------- ------- ------- -------- -------- -------
Total operating expenses............... 5,648 9,876 14,482 11,998 37,430 18,082 6,284
------ ------- ------- ------- -------- -------- -------
Operating income (loss).................... 952 (3,676) (8,282) (7,279) (35,476) (17,747) (5,393)
Interest income (expense), net............. -- -- -- 179 (404) 47 48
------ ------- ------- ------- -------- -------- -------
Net income (loss).......................... $ 952 $(3,676) $(8,282) $(7,100) $(35,880) $(17,700) $(5,345)
====== ======= ======= ======= ======== ======== =======
Pro forma net loss per share(4)............ $ (9.22) $ (0.67)
======== =======
Shares used in computing pro forma net loss
per share(4)............................. 3,894 7,953
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(5) ADJUSTED(6)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 13,340 $13,340 $ 39,530
Working capital............................................. 5,145 5,145 35,085
Total assets................................................ 20,197 20,197 46,387
Long-term debt, less current portion........................ 3,559 3,559 3,559
Redeemable convertible preferred stock...................... 35,125 -- --
Accumulated deficit......................................... (57,819) (57,819) (57,819)
Total stockholders' equity (net capital deficiency)......... (27,468) 7,657 37,597
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes (i)
1,703,633 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1998, with a weighted average exercise price of
$1.98 per share, (ii) 121,667 shares of Preferred Stock issuable upon
exercise of warrants outstanding as of March 31, 1998, with an exercise
price of $6.00 per share, (iii) 25,000 shares of Common Stock issuable
pursuant to the terms of a license agreement and (iv) an aggregate of
1,394,457 shares of Common Stock reserved for future issuance under the
Company's 1996 Incentive Stock Plan, 1998 Employee Stock Purchase Plan and
1998 Director Option Plan. See "Capitalization," "Management -- Stock
Plans," "Description of Capital Stock" and Note 7 of Notes to the Company's
Financial Statements.
(2) The statement of operations of the Company includes the revenues and
expenses of Abgenix as a business unit within Cell Genesys prior to July 15,
1996. During the years ended December 31, 1993, 1994, 1995 and 1996, the
Company's revenues were derived principally from Xenotech for the
development of XenoMouse technology, which was essentially completed in
1996.
(3) In the year ended December 31, 1997, the Company incurred a non-recurring
charge for cross-license and settlement of $22.5 million, $15.0 million of
which was a noncash allocation. The Company recorded the initial settlement
amount of $15.0 million in March 1997. The remaining $7.5 million was
recorded in December 1997. See Note 6 of Notes to the Company's Financial
Statements.
(4) See Note 1 of Notes to the Company's Financial Statements for an explanation
of shares used in computing pro forma net loss per share.
(5) Pro forma information gives effect to the conversion, upon the closing of
this offering, of all outstanding shares of Preferred Stock into an
aggregate of 7,844,352 shares of Common Stock.
(6) Adjusted to give effect to the sale of the 3,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$11.00 per share (the midpoint of the range set forth on the front cover of
this Prospectus) and the application of the estimated net proceeds therefrom
after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this Prospectus,
the words "anticipate," "believe," "estimate" and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus. An investment in the shares of Common
Stock offered in this Prospectus involves a high degree of risk. In addition to
the other information in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing shares of the Common Stock offered hereby.
UNCERTAINTY ASSOCIATED WITH XENOMOUSE TECHNOLOGY
The Company's XenoMouse technology is a new approach to the generation and
development of antibody therapeutic products. To date, the Company has not
commercialized any antibody products based on its XenoMouse technology. In
addition, the Company is not aware of any commercialized antibody therapeutic
product that has been generated or developed from any transgenic technologies.
Current antibody product candidates based on, utilizing or derived from
XenoMouse technology are at a very early stage of development. To date, the
Company has begun clinical trials with respect to only one such antibody product
candidate. While to date XenoMouse technology has been able to generate
antibodies against the antigens to which it had been exposed, there can be no
assurance that it will be able to do so with respect to all future antigens.
Failure of the Company's XenoMouse technology to generate antibody product
candidates that lead to the successful development and commercialization of
products would have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company believes
that its XenoMouse technology offers certain advantages, there can be no
assurance that these advantages will be realized or, if realized, that XenoMouse
technology will result in any meaningful benefits to current or potential
collaborative partners or patients. There can be no assurance that the Company's
XenoMouse technology will enable the Company or any of its collaborative
partners to identify, generate, develop or commercialize antibody therapeutic
products or product candidates in an efficient and timely manner, if at all. See
"Business -- The Abgenix Solution -- XenoMouse Technology."
EARLY STAGE OF DEVELOPMENT; HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE
PROFITABILITY
The Company is at an early stage of development and must be evaluated in
light of the uncertainties and complexities present in an early stage
biopharmaceutical company. The product candidates under development by the
Company are in the research or preclinical development stage or are in the early
stage of clinical trials. Significant investment in additional research and
development, preclinical and clinical testing, regulatory and sales and
marketing activities will be necessary in order for the Company to commercialize
its current and any future product candidates. There can be no assurance that
the Company's product candidates under development will be successfully
developed or that such product candidates, if successfully developed, will
generate sufficient or sustainable revenues to enable the Company to be
profitable.
Since inception, the Company has funded its research and development
activities primarily through contributions from Cell Genesys, revenues from
collaborative arrangements, private placements of preferred stock, equipment
leaseline financings and loan facilities. The Company has incurred net losses in
each of the last three years of operation, including net losses of approximately
$8.3 million, $7.1 million, $35.9 million and $5.3 million in 1995, 1996, 1997
and the three months ended March 31, 1998, respectively, and as of March 31,
1998, had an accumulated deficit of approximately $57.8 million. The Company's
losses have resulted principally from costs incurred in performing research and
development to develop its XenoMouse technology and subsequent antibody product
candidates, from the non-recurring cross-license and settlement charge and from
general and administrative costs associated with the Company's operations. The
Company expects to incur
6
<PAGE> 8
additional operating losses until at least the year 2000 as a result of
increases in its expenditures for research and product development, including
costs associated with conducting preclinical testing and clinical trials. The
Company expects that the amount of such losses will fluctuate significantly from
quarter to quarter as a result of increases or decreases in the Company's
research and development efforts, the execution or termination of collaborative
arrangements, or the initiation, success or failure of clinical trials.
The Company expects that substantially all of its revenues for the
foreseeable future will result from payments under collaborative arrangements,
including fees upon signing, reimbursement for research and development and
milestone payments. To date, all of the Company's revenues have resulted
primarily from research and development funding and milestone payments and may
not be indicative of the Company's future performance or of the ability of the
Company to continue to achieve such milestones. The Company's ability to
generate revenue or achieve profitability depends in part on its ability to
enter into further collaborative or licensing arrangements, successfully
complete preclinical or clinical trials, obtain regulatory approval for its
product candidates and develop the capacity, either alone or through third
parties, to manufacture, market and sell its products. There can be no assurance
that the Company will enter into further collaborative arrangements,
successfully complete preclinical or clinical trials, obtain required regulatory
approvals, or successfully develop, manufacture and market product candidates.
Failure to do so will have a material adverse effect on the Company's business,
financial condition, and results of operations. There can be no assurance that
the Company will ever achieve product revenues or profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Product Development Programs."
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
All of the Company's product candidates are in the early stages of research
and development and only ABX-CBL and ABX-IL8 have been used in human clinical
trials. All of the Company's product candidates will require significant
additional preclinical or clinical testing prior to obtaining regulatory
approval for commercial use. In addition, the Company must file a product
approval application with the United States Food and Drug Administration (the
"FDA") prior to commercialization of any of the Company's products. The Company
currently does not expect to file a product approval application with the FDA or
corresponding regulatory filings in Europe for its product candidates at least
prior to 1999 and does not expect to have any products commercially available at
least prior to 2000, if at all.
In addition, the Company's strategy includes building a large and
diversified product portfolio, including a mix of out-licensed and internally
developed product candidates. There can be no assurance that the Company will be
able to implement this strategy or that current or future product candidates
will ever result in viable commercial products. In order to develop a single
product, the Company must develop and test multiple product candidates.
Development of the Company's current and any future product candidates are
subject to the risks of failure inherent in the development of new
pharmaceutical products and products based on new technologies. These risks
include the possibility that the Company will experience delays in development,
testing or marketing, that such development, testing or marketing will result in
unplanned expenditures or in expenditures above those anticipated by the
Company, that the Company's products will not be proven safe or effective, that
the Company's product candidates will not be easy to use or cost-effective, that
third parties will develop and market superior or equivalent products, that any
or all of the Company's product candidates will fail to receive any necessary
regulatory approvals, that such product candidates will be difficult or
uneconomical to manufacture on a commercial scale, that proprietary rights of
third parties will preclude the Company or its collaborative partners from
marketing such products and that the Company's products will not achieve market
acceptance. As a result of these risks, there can be no assurance that research
and development efforts conducted by the Company or its collaborative partners
will result in any commercially viable products. If a significant portion of the
Company's development programs are not successfully completed, required
regulatory approvals are not obtained,
7
<PAGE> 9
or any approved products are not commercially successful, there will be a
material adverse effect on Company's business, financial condition and results
of operations. See "Business -- Product Development Programs."
DEPENDENCE ON COLLABORATIVE ARRANGEMENTS
The Company's strategy for the development and commercialization of
antibody therapeutic products depends, in large part, upon the formation and
maintenance of collaborative and licensing arrangements with several corporate
partners. In order to successfully develop and commercialize new products and
product candidates, the Company must enter into such collaborations, including
collaborations with pharmaceutical and biotechnology companies, academic
institutions and other entities to access proprietary antigens, to fund and
complete its research and development activities, preclinical and clinical
testing and manufacturing, to seek and obtain regulatory approvals and to
achieve successful commercialization of existing and future product candidates.
The Company has recently entered into collaborative arrangements with Pfizer,
Schering-Plough and Genentech to generate fully human antibodies to specific
antigens in the fields of cancer, inflammation and growth factor modulation,
respectively. To date, only a limited number of antibody product candidates have
been generated pursuant to such collaborations, and there can be no assurance
that any such collaboration will be successful. There can also be no assurance
that the Company will be able to establish additional collaborative or licensing
arrangements, that any such arrangements or licenses will be on terms favorable
to the Company, that any such collaborative arrangements or licenses will result
in commercially successful products or that the current or any future
collaborative or licensing arrangements will ultimately be successful. Failure
of the Company to maintain its significant collaborative arrangements or enter
into additional collaborative arrangements would have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's dependence on collaborative and licensing arrangements with
third parties subjects it to a number of risks. Agreements with collaborative
partners typically allow such partners significant discretion in electing
whether to pursue any of the planned activities. The Company cannot control the
amount and timing of resources its collaborative partners may devote to the
product candidates, and there can be no assurance that such partners will
perform their obligations as expected. Business combinations or significant
changes in a corporate partner's business strategy may adversely affect such
partners ability to complete its obligations under the arrangements. If any
collaborative partner were to terminate or breach its agreement with the
Company, or otherwise fail to complete its obligations in a timely manner, such
conduct could have a material adverse effect on the Company's business,
financial condition and results of operations. To the extent that the Company is
not able to establish further collaborative arrangements or that any or all of
the Company's existing collaborative arrangements are terminated, the Company
would be required to seek new collaborative arrangements or to undertake product
development and commercialization at its own expense, which could significantly
increase the Company's capital requirements, place additional strain on its
human resource requirements and limit the number of product candidates which the
Company would be able to develop and commercialize. In addition, there can be no
assurance that existing and future collaborative partners will not pursue
alternative technologies or develop alternative products either on their own or
in collaboration with others, including the Company's competitors. There can
also be no assurance that disputes will not arise in the future with respect to
the ownership of rights to any technology or products developed with any future
collaborative partner. Lengthy negotiations with potential new collaborative
partners or disagreements between established collaborative partners and the
Company could lead to delays or termination in the research, development or
commercialization of certain product candidates or result in litigation or
arbitration, which would be time consuming and expensive. Failure by any
collaborative partner to develop or commercialize successfully any product
candidate to which it has obtained rights from the Company or the decision by a
collaborative partner to pursue alternative technologies or develop alternative
products, either on their own or in collaboration with others, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has an option to obtain licenses from
Xenotech to
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commercialize antibody products generated by XenoMouse technology. Such option
is for a certain number of targets each year. There can be no assurance that in
any year the Company will exercise its rights for the full number of targets
subject to such option or that such option will not limit the Company's ability
to fully realize the commercial potential of its XenoMouse technology. In
addition, disputes with Japan Tobacco could result in the loss of the right to
commercialize a product candidate by either party. See "Business--Collaborative
Arrangements."
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any
products, the Company must demonstrate through preclinical testing and clinical
trials that its product candidates are safe and effective for use in the target
disease indication. With the exception of the recently initiated multi-center
confirmatory Phase II trial in GVHD, clinical trials of the Company's ABX-CBL
product candidate were conducted by third parties prior to the Company obtaining
license rights to technologies related to this product candidate. As of March 1,
1998, ABX-CBL had only been administered to a total of 90 patients in GVHD and
organ transplant rejection indications, and Phase I clinical trials for ABX-IL8
in psoriasis commenced in April 1998. As a result, patient follow up has been
limited and clinical data obtained thus far have been insufficient to
demonstrate safety and efficacy under applicable FDA guidelines to support an
application for regulatory approval. In addition, the results from preclinical
testing and early clinical trials may not be predictive of results obtained in
later clinical trials. A number of new drugs and biologics have shown promising
results, even in later stage clinical trials, but subsequently failed to
establish sufficient safety and efficacy data to obtain necessary regulatory
approvals in advanced clinical trials. There can be no assurance that clinical
trials conducted by the Company or by third parties on behalf of the Company
will demonstrate sufficient safety and efficacy to obtain the requisite
regulatory approvals for ABX-CBL or ABX-IL8. In addition, the Company's other
two product candidates are still in preclinical development. The Company has not
submitted investigational new drug applications ("IND") nor begun clinical
trials for these two product candidates. No assurance can be given that any of
the Company's preclinical or clinical development programs will be successfully
completed, that any further IND will be filed or become effective, that
additional clinical trials will be allowed by the FDA or other regulatory
authorities, or that clinical trials will commence as planned.
The commencement and rate of completion of clinical trials conducted by the
Company may be delayed by many factors, including inability to manufacture
sufficient quantities of materials used for clinical trials, slower than
expected rate of patient recruitment, inability to adequately follow patients
after treatment, unforeseen safety issues or any other adverse event reported
during the clinical trials. The Company has limited experience in conducting or
managing clinical trials and relies, and will continue to rely, on third parties
to assist the Company in managing and monitoring clinical trials. Dependence on
such third parties may result in delays in completing, or failure to complete,
such trials if such third parties fail to perform under their agreements with
the Company. Completion of trials may take several years or more, and the length
of time generally varies substantially with the type, complexity, novelty and
intended use of the product candidate. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. In addition, delays or rejections
by regulatory authorities may be encountered as a result of many factors,
including changes in regulatory policy during the period of product development.
There can be no assurance that the Company will be permitted by regulatory
authorities to undertake any additional clinical trials for its potential
products or, if such additional trials are conducted, that any of the Company's
product candidates will prove to be safe and efficacious or will receive
regulatory approvals. In addition, the Company's clinical trials are often
conducted with patients who have failed conventional treatments and, in the case
of GVHD, patients are often in the most advanced stages of the disease. During
the course of treatment, these patients can die or suffer adverse medical
effects for reasons that may not be related to the pharmaceutical agent being
tested but which can nevertheless adversely affect the interpretation of
clinical trial results. Failure of the Company's product candidates to
demonstrate safety and efficacy in clinical trials could result in
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delays in developing other product candidates and conducting related preclinical
testing and clinical trials, as well as a potential need for additional
financing, any or all of which would have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
any delays in, or termination of, the Company's clinical trials would also have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be
permitted by regulatory authorities to undertake any additional clinical trials
for its product candidates or, if such additional trials are conducted, that any
of the Company's product candidates will prove to be safe and efficacious or
will receive regulatory approvals. See "Business -- Product Development
Programs" and "-- Government Regulation."
UNCERTAINTY OF PATENT POSITION AND DEPENDENCE ON PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain patents,
protect trade secrets, operate without infringing upon the proprietary rights of
others and prevent others from infringing on the proprietary rights of the
Company. The Company's policy is to seek to protect its proprietary position by,
among other methods, filing United States and foreign patent applications
related to its proprietary technology, inventions and improvements that are
important to the development of its business. Proprietary rights relating to the
Company's technologies will be protected from unauthorized use by third parties
only to the extent that they are covered by valid and enforceable patents or are
effectively maintained as trade secrets. There can be no assurance that any
patents owned by, or licensed to, the Company will afford protection against
competitors or that any pending patent applications now or hereafter filed by,
or licensed to, the Company will result in patents being issued. In addition,
the laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United States. The
patent position of biopharmaceutical companies involves complex legal and
factual questions and, therefore, their enforceability cannot be predicted with
certainty. There can be no assurance that any of the Company's patents or patent
applications, if issued, will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection or
competitive advantages to the Company against competitors with similar
technology. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company.
While the Company has multiple patent applications pending in the United
States, to date, the Company has no United States patents relating to XenoMouse
technology. One issued European Patent owned by the Company relating to
XenoMouse technology is currently undergoing opposition proceedings within the
European Patent Office, and no assurance can be given regarding the outcome of
this opposition. The Company intends to continue to file patent applications as
appropriate for patents covering both its product candidates and processes.
There can be no assurance that patents will issue from any of these
applications, that any patent will issue on technology arising from additional
research or that patents that may issue from such applications will be
sufficient to protect the Company's technologies.
Pursuant to the cross-license and settlement agreement with GenPharm
International, Inc., a subsidiary of Medarex, Inc., ("GenPharm"), the Company
entered into a cross-license agreement with Cell Genesys, Xenotech, Japan
Tobacco and GenPharm, whereby the Company has licensed on a non-exclusive basis
certain patents, patent applications, third party licenses, and inventions
pertaining to the development and use of certain transgenic rodents including
mice that produce fully human antibodies that are integral to the Company's
products and business. Breach of the cross-license agreement would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Research has been conducted for many years in the antibody field. This has
resulted in a substantial number of issued patents and an even larger number of
patent applications. Patent applications in the United States are, in most
cases, maintained in secrecy until patents issue, and publication of discoveries
in the scientific or patent literature frequently occurs substantially later
than the date on which the underlying discoveries were made. The commercial
success of the Company
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depends significantly on its ability to operate without infringing the patents
and other proprietary rights of third parties. There can be no assurance that
the Company's technologies do not and will not infringe the patents or violate
other proprietary rights of third parties. In the event of such infringement or
violation, the Company and its corporate partners may be enjoined from pursuing
development or commercialization of their products. Such action would have a
material adverse affect on the Company's business, financial condition and
results of operations.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and the Company recently settled litigation regarding certain patents and other
intellectual property rights. The defense and prosecution of intellectual
property suits, United States Patent and Trademark Office ("USPTO") interference
proceedings and related legal and administrative proceedings in the United
States and internationally involve complex legal and factual questions. As a
result, such proceedings are costly and time-consuming to pursue and their
outcome is uncertain. Litigation may be necessary to enforce patents issued or
licensed to the Company, to protect trade secrets or know-how owned by or
licensed by the Company or to determine the enforceability, scope and validity
of the proprietary rights of others. Any litigation, interference or other
administrative proceedings will result in substantial expense to the Company and
significant diversion of effort and resources by the Company's technical and
management personnel. An adverse determination in such proceedings to which the
Company may become a party could subject the Company to significant liabilities
to third parties or require the Company to seek licenses which may not be
available from third parties or prevent the Company from selling its products in
certain markets, if at all. Although patent and intellectual property disputes
are often settled through licensing or similar arrangements, costs associated
with such arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that the necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could restrict or prevent the Company from manufacturing and
selling its products, if any, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through confidentiality and
proprietary information agreements. There can be no assurance that such
confidentiality or proprietary information agreements will provide meaningful
protection or adequate remedies for the Company's technology in the event of
unauthorized use or disclosure of such information, that the parties to such
agreements will not breach such agreements or that the Company's trade secrets
will not otherwise become known to or be independently developed by competitors.
See "Business -- Intellectual Property."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. The Company is aware of
several pharmaceutical and biotechnology companies, which are actively engaged
in research and development in areas related to antibody therapy, that have
commenced clinical trials of antibody therapeutics products or have successfully
commercialized antibody products. Many of these companies are addressing
diseases and disease indications which are being targeted by the Company or its
collaborative partners. Certain of these competitors have specific expertise or
technology related to antibody development, such as Centocor, Inc., Protein
Design Labs, Inc., IDEC Pharmaceuticals Corporation, Cambridge Antibody
Technology Group, Inc. and GenPharm. Certain of the Company's competitors are
developing or testing product candidates that may be directly competitive with
the Company's product candidates. For example, the Company is aware that several
companies, including Genentech, Inc., have potential product candidates that may
inhibit the activity of IL-8. Furthermore, the Company is aware that ImClone
Systems, Inc. has a potential product candidate in clinical development that may
inhibit the activity of EGF. Many of these companies and institutions, either
alone or together with their corporate partners, have substantially greater
financial resources and larger research and development staffs than the Company.
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In addition, many of these competitors, either alone or together with their
corporate partners, have significantly greater experience than the Company in
developing products, undertaking preclinical testing and human clinical trials,
obtaining FDA and other regulatory approvals of products and manufacturing and
marketing products. Accordingly, the Company's competitors may succeed in
obtaining patent protection, receiving FDA approval or commercializing products
more rapidly than the Company. If the Company commences commercial sales of
products, it will be competing against companies with greater marketing and
manufacturing capabilities, areas in which it has limited or no experience.
In addition to biotechnology and pharmaceutical companies, the Company
faces, and will continue to face, competition from academic institutions,
government agencies and research institutions. There are numerous competitors
working on products to treat each of the diseases for which the Company is
seeking to develop therapeutic products. In addition, any product candidate
successfully developed by the Company may compete with existing therapies that
have long histories of safe and effective use. Competition may also arise from
other drug development technologies and methods of preventing or reducing the
incidence of disease and new small molecule or other classes of therapeutic
agents. There can be no assurance that developments by others will not render
the Company's product candidates or technologies obsolete or noncompetitive. The
Company faces and will continue to face intense competition from other
companies, including Japan Tobacco, for collaborative arrangements with
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions, and for licenses to proprietary technology.
These competitors, either alone or with their corporate partners, may succeed in
developing technologies or products that are more effective than those of the
Company. The Company's collaborative partners may elect to develop other
antibody products which compete with the Company's products. See
"Business -- Competition."
SIGNIFICANT GOVERNMENT REGULATIONS; NO ASSURANCE OF REGULATORY APPROVALS
All new biopharmaceutical products, including the Company's product
candidates under development and anticipated future products, are subject to
extensive and rigorous regulation by the federal government, principally the FDA
under the Federal Food, Drug and Cosmetic Act (the "FD&C Act") and other laws
including the Public Health Service Act, and by state and local governments.
Such regulations govern, among other things, the development, testing,
manufacture, safety, efficacy, record keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of such products. If
biopharmaceutical products are marketed abroad, they also are subject to
extensive regulation by foreign governments. To date, none of the Company's
product candidates has been approved for sale in the United States or any
foreign market. The regulatory review and approval process, which includes
preclinical studies and clinical trials of each product candidate, is lengthy,
expensive and uncertain. Securing FDA approvals requires the submission of
extensive preclinical and clinical data and supporting information to the FDA
for each indication to establish the product candidates' safety and efficacy.
The approval process takes many years, requires the expenditure of substantial
resources, involves post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. Delays in obtaining regulatory
approvals could adversely affect the successful commercialization of any drugs
developed by the Company or its collaborative partners, impose costly procedures
upon the Company's or its collaborative partners' activities, diminish any
competitive advantages that the Company or its collaborative partners may attain
and adversely affect the Company's receipt of revenues or royalties. There can
be no assurance that regulatory approval will be obtained for any therapeutic
product candidate developed by the Company or its collaborative partners.
Furthermore, regulatory approval may entail limitations on the indicated uses of
a drug. Product approvals, if granted, can be withdrawn for failure to comply
with ongoing regulatory requirements or upon the occurrence of unforeseen
problems following initial marketing.
Certain material changes to an approved product such as manufacturing
changes or additional labeling claims are subject to further FDA review and
approval. There can be no assurance that any approvals that are required, once
obtained, will not be withdrawn or that compliance with other
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regulatory requirements can be maintained. Further, failure to comply with
applicable FDA and other regulatory requirements at any stage during the
regulatory process can result in sanctions being imposed on the Company or the
manufacturers of its products, including delays, warning letters, fines, product
recalls or seizures, injunctions, refusal of the FDA to review pending market
approval applications or supplements to approval applications, total or partial
suspension of production, civil penalties, withdrawals of previously approved
marketing applications and criminal prosecutions. The Company may rely on its
collaborative partners to file INDs and generally direct the regulatory approval
process. There can be no assurance that the Company's collaborative partners
will be able to conduct clinical testing or obtain necessary approvals from the
FDA or other regulatory authorities for any product candidates. Failure to
obtain required governmental approvals will delay or preclude the Company's
collaborative partners from marketing drugs or diagnostic products developed
through the Company's research or limit the commercial use of such product
candidates and could have a material adverse effect on the Company's business,
financial condition and results of operations.
Manufacturers of biopharmaceutical products also are required to comply
with the applicable FDA current good manufacturing practice ("cGMP")
regulations, which include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA, including
unannounced inspection, and must be approved before they can be used in
commercial manufacturing of the Company's products. There can be no assurance
that the Company or its suppliers will be able to comply with the applicable
cGMP requirements and other FDA regulatory requirements. Such failure would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that the Company's product candidates will gain
any significant degree of market acceptance among physicians, patients,
healthcare payors and the medical community in general even if clinical trials
demonstrate safety and efficacy and necessary regulatory and reimbursement
approvals are obtained. The degree of market acceptance of any product
candidates developed by the Company will depend on a number of factors,
including the establishment and demonstration of the clinical efficacy and
safety as well as cost-effectiveness of the product candidates, their potential
advantage over alternative treatment methods and reimbursement policies of
government and third-party payors. Physicians will not recommend therapies using
the Company's products until such time, if at all, as clinical data or other
factors demonstrate the efficacy of such procedures as compared to conventional
drug and other treatments. Even if the clinical efficacy of therapies using the
Company's products were established, physicians may elect not to recommend the
therapies for any number of other reasons. The Company's product candidates, if
successfully developed, will compete with a number of alternative drugs and
therapies manufactured and marketed by major pharmaceutical and other
biotechnology companies, and possibly new products currently under development
by such companies and others. There can be no assurance that physicians,
patients, third-party payors or the medical community in general will accept and
utilize any product candidates that may be developed by the Company or its
collaborative partners. Failure of the Company's products to achieve significant
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Product Development Programs," "-- Competition," and
"-- Pharmaceutical Pricing and Reimbursement."
LIMITED MANUFACTURING EXPERIENCE
The Company currently has limited experience in manufacturing its product
candidates and lacks the resources or capability to manufacture any of its
products on a commercial scale. While the Company currently manufactures limited
quantities of antibody products for preclinical testing, the Company relies on
contract manufacturers to produce ABX-CBL and ABX-IL8. With respect to
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products other than ABX-CBL and ABX-IL8, the Company will either be responsible
for manufacturing or contract out manufacturing to third parties.
The Company's contract manufacturers have limited experience in
manufacturing ABX-CBL and ABX-IL8 in quantities sufficient for conducting
clinical trials. Contract manufacturers often encounter difficulties in scaling
up production, including problems involving production yields, quality control
and quality assurance and shortage of qualified personnel. Furthermore, there
are only a limited number of other third-party contract manufacturers who have
the ability and capacity to produce the Company's product candidates. Failure by
any contract manufacturer to deliver the required quantities of the Company's
products candidates for either clinical or commercial use on a timely basis and
at commercially reasonable prices and failure by the Company to find a
replacement manufacturer would have a material adverse affect on the Company's
business, financial condition and results of operations.
In addition, the Company and its third party manufacturers are required to
register their manufacturing facilities with the FDA and foreign regulatory
authorities. The facilities will then be subject to inspections confirming
compliance with cGMP established by the FDA or corresponding foreign
regulations. Failure to maintain compliance with the cGMP requirements would
materially adversely effect the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."
NO MARKETING AND SALES EXPERIENCE
The Company has no experience in marketing or selling pharmaceutical
products and currently does not have a marketing, sales or distribution
capability. The Company intends to enter into arrangements with third parties to
market and sell most of its products. For select products, the Company may
establish an internal marketing and sales force. There can be no assurance that
the Company will be able to enter into marketing and sales arrangements with
others on acceptable terms, if at all. To the extent that the Company enters
into marketing and sales arrangements with other companies, any revenues to be
received by the Company will be dependent on the efforts of others. There can be
no assurance that such efforts will be successful. If the Company is unable to
enter into such third party arrangements, then the Company must develop a
marketing and sales force, which may be substantial in size, in order to achieve
commercial success for any product candidate approved by the FDA. There can be
no assurance that the Company will successfully develop such experience or have
sufficient resources to do so. If the Company develops its own marketing and
sales capabilities, it will compete with other companies that have experienced
and well-funded marketing and sales operations. The Company's failure to
establish successful marketing and sales capabilities or to enter into
successful marketing arrangements with third parties would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND
CONSULTANTS
The Company is highly dependent on the principal members of its scientific
and management staff. The loss of any of these persons could have a material
adverse effect on the Company's business, financial condition and results of
operations. In order to pursue its product development, marketing and
commercialization plans, the Company will be required to hire additional
qualified scientific personnel to perform research and development, as well as
personnel with expertise in clinical testing, government regulation,
manufacturing and marketing. Attracting and retaining qualified personnel will
be critical to the Company's success. There can be no assurance that the Company
will be able to attract and retain personnel on acceptable terms given the
competition for such personnel among biotechnology, pharmaceutical and
healthcare companies, universities and non-profit research institutions. In
addition, the Company relies on members of its Scientific and Medical Advisory
Boards and other consultants to assist the Company in formulating its research
and development strategy. All of the Company's consultants and the members of
the Company's Scientific and Medical Advisory Boards are employed by entities
other than the Company, and may have commitments to, or advisory or consulting
agreements with, other entities that may limit their availability to the
Company. The loss of
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services of any of these personnel could impede the achievement of the Company's
development objectives and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Scientific and Medical Advisory Boards."
SIGNIFICANT INFLUENCE BY CELL GENESYS, INC.
After the completion of this offering, Cell Genesys will beneficially own
40.3% of the outstanding capital stock. As a result, Cell Genesys will have
significant influence over all matters requiring the approval of the Company's
stockholders, including the election of the Company's Board of Directors and
changes in control of the Company. Cell Genesys and the Company have entered
into a governance agreement, as amended (the "Governance Agreement"), which
provides that so long as Cell Genesys or a group to which it belongs owns (i) a
majority of the outstanding voting stock of the Company, Cell Genesys or the
group shall have the right to nominate four out of the seven directors of the
Company, (ii) less than a majority but greater than 25% of the outstanding
voting stock of the Company, then Cell Genesys or such group shall have the
right to nominate three out of the seven directors of the Company, or (iii) less
than 25% but greater than 15% of the outstanding voting stock of the Company,
then Cell Genesys or such group shall have the right to nominate one out of the
seven directors of the Company. The Governance Agreement also provides that Cell
Genesys and each officer and director of the Company who owns voting stock shall
agree to vote for the persons nominated as set forth above. There can be no
assurance that the Company will not be adversely impacted by the significant
influence which Cell Genesys will have with respect to matters affecting the
Company. See "Certain Transactions" and "Management -- Board Composition."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED
ENTITIES
The Company's directors, executive officers, principal stockholders and
affiliated entities will, in the aggregate, beneficially own approximately 51.0%
of the Company's outstanding Common Stock following the completion of this
offering. These stockholders, if acting together, would be able to control
substantially all matters requiring approval by the stockholders of the Company,
including the election of directors and the approval of mergers or other
business combination transactions. There can be no assurance that the Company
will not be adversely impacted by the control which such stockholders will have
with respect to matters affecting the Company. See "Principal Stockholders."
FUTURE CAPITAL REQUIREMENTS
The Company plans to continue to expend substantial resources for the
expansion of research and development, including costs associated with
conducting preclinical testing and clinical trials. The Company may be required
to expend greater-than-anticipated funds if unforeseen difficulties arise in the
course of completing required additional development of product candidates,
performing preclinical testing and clinical trials of such product candidates,
obtaining necessary regulatory approvals or other aspects of the Company's
business. The Company's future liquidity and capital requirements will depend on
many factors, including continued scientific progress in its research and
development programs, the size and complexity of these programs, the scope and
results of preclinical testing and clinical trials, the time and expense
involved in obtaining regulatory approvals, if any, competing technological and
market developments, the establishment of further collaborative arrangements, if
any, the time and expense of filing and prosecuting patent applications and
enforcing patent claims, the cost of establishing manufacturing capabilities,
conducting commercialization activities and arrangements, product in-licensing
and other factors not within the Company's control. Although the Company
believes that the proceeds from this offering, together with the Company's
current cash balances, cash equivalents, short-term investments and cash
generated from collaborative arrangements will be sufficient to meet the
Company's operating and capital requirements for at least the next two years,
there can be no assurance that the Company will not require additional financing
within this timeframe. The Company may be required to raise additional funds
through public or private financing, collaborative relationships or other
arrangements. There can be no assurance that such
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additional funding, if needed, will be available on terms attractive to the
Company, if at all. Furthermore, any additional equity financing may be dilutive
to stockholders, and debt financing, if available, may involve restrictive
covenants. Collaborative arrangements, if necessary to raise additional funds,
may require the Company to relinquish its rights to certain of its technologies,
products or marketing territories. The failure of the Company to raise capital
when needed could have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY RELATING TO REIMBURSEMENT; UNCERTAINTY RELATING TO HEALTHCARE REFORM
In both domestic and foreign markets, sales of the Company's potential
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the cost
effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. The Company may need to conduct post-marketing studies in order to
demonstrate the cost-effectiveness of its products. Such studies may require
significant amount of resources to be provided by the Company. There can be no
assurance that the Company's product candidates will be considered cost
effective or that adequate third-party reimbursement will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. Both federal and state governments in
the United States and foreign governments continue to propose and pass
legislation designed to reduce the cost of healthcare. Accordingly, legislation
and regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for pharmaceuticals. If adequate
coverage and reimbursement rates are not provided by the government and
third-party payors for the Company's potential products, the market acceptance
of these products could be adversely affected, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Pharmaceutical Pricing and Reimbursement."
POTENTIAL PRODUCT LIABILITY EXPOSURE AND LIMITED INSURANCE COVERAGE
The use of any of the Company's product candidates in clinical trials, and
the sale of any approved products, may expose the Company to liability claims
resulting from such use or sale of its products. These claims might be made
directly by consumers, healthcare providers or by pharmaceutical companies or
others selling such products. There can be no assurance that the Company will
not experience financial losses in the future due to product liability claims.
Abgenix has obtained limited product liability insurance coverage for its
clinical trials in the amount of $5.0 million per occurrence and $5.0 million in
the aggregate. The Company intends to expand its insurance coverage to include
the sale of commercial products if marketing approval is obtained for product
candidates in development. However, insurance coverage is becoming increasingly
expensive and no assurance can be given that the Company will be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect the Company against losses. A successful product liability claim or
series of claims brought against the Company for uninsured liabilities or in
excess of insured liabilities could have a material adverse effect on its
business, financial condition and results of operations.
HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS
The Company's research and development processes involve the controlled use
of hazardous and radioactive materials, chemicals and waste products. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and waste
products. The risk of accidental contamination or injury from these materials
and waste products cannot be completely eliminated and the Company does not
expect to make material capital expenditures for environmental control
facilities in the near-term. There can be no assurance that the Company will not
be required to incur significant costs to comply with environmental laws and
16
<PAGE> 18
regulations in the future, or that the operations, business or assets of the
Company will not be materially adversely affected by the costs of compliance
with current or future environmental laws or regulations.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that a regular trading market will
develop and continue after this offering or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price will be determined through negotiations between the
Company and the representatives of the Underwriters and may not be indicative of
the market price of the Common Stock following this offering. Among the factors
considered in such negotiations are prevailing market conditions, certain
financial information of the Company, market valuations of other companies that
the Company and the representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. See
"Underwriting."
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of biotechnology and pharmaceutical
companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new therapeutic products by the Company or others, clinical trial
results, developments concerning strategic alliance agreements, government
regulation, developments in patent or other proprietary rights, public concern
as to the safety of products developed by the Company or others, future sales of
substantial amounts of Common Stock by existing stockholders, comments by
securities analysts and general market conditions can have an adverse effect on
the market price of the Common Stock. In addition, the realization of any of the
risks described in these "Risk Factors" could have a dramatic and adverse impact
on market price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of Common Stock (including shares issued upon the exercise of
outstanding options and warrants) in the public market after this offering could
materially adversely affect the market price of the Common Stock. Such sales
also might make it more difficult for the Company to sell equity securities or
equity-related securities in the future. Upon the completion of this offering,
based on the number of shares outstanding as of March 31, 1998, the Company will
have 11,137,512 shares of Common Stock outstanding assuming (i) the issuance by
the Company of shares of Common Stock offered hereby, (ii) no exercise of
outstanding options, warrants or other obligations to issue shares after March
31, 1998 and (iii) no exercise of the Underwriter's over-allotment option to
purchase 450,000 shares of Common Stock. Of these shares, the 3,000,000 shares
offered hereby will be freely tradable (unless held by affiliates of the
Company) and the remaining 8,137,512 shares will be restricted securities within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
Ninety days after the date of this Prospectus, 29,668 shares of Common Stock
will be freely tradable without restriction under the Securities Act (unless
held by affiliates of the Company). The Company's directors, executive officers
and certain stockholders and optionholders have entered into lock-up agreements
under which they have agreed not to sell, directly or indirectly, any shares
owned by them for a period of 180 days after the date of this Prospectus without
the prior written consent of BancAmerica Robertson Stephens. Upon expiration of
the 180-day lock-up agreements, 4,680,159 shares of Common Stock will become
eligible for public resale, subject to volume limitations imposed by Rule 144.
The remaining 3,427,685 shares held by existing stockholders will become
eligible for public resale at various times over a period of less than one year
following the completion of this offering, subject to volume limitations. In
addition, as of March 31, 1998, 1,703,633 shares were subject
17
<PAGE> 19
to outstanding options. Approximately 1,592,752 of these shares are subject to
the 180-day lockup agreement described above. Of the remaining 110,881 shares
subject to outstanding options, approximately 44,101 were vested as of March 31,
1998. After the offering, the holders of 7,844,352 shares of Common Stock will
be entitled to certain demand and piggyback rights with respect to registration
of such shares under the Securities Act. If such holders, exercising the demand
registration rights, causes a large number of securities to be registered and
sold in the public market, such shares could have an adverse effect on the
market price for the Company's Common Stock. If the Company were to initiate a
registration and include shares held by such holders pursuant to the exercise of
their piggyback registration rights, such sales may have an adverse effect on
the Company's ability to raise capital. Additionally, 121,667 shares issuable
pursuant to warrants and subject to the 180-day lock-up agreement will also be
entitled to such registration rights. See "Shares Eligible for Future Sale" and
"Underwriting."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may make it more difficult for a third party to acquire, or discourage a third
party from attempting to acquire, control of the Company. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions allow the
Company to issue up to 5,000,000 shares of Preferred Stock without any vote or
further action by the stockholders, eliminate the right of stockholders to act
by written consent without a meeting, specify procedures for director
nominations by stockholders and submission of other proposals for consideration
at stockholder meetings. In addition, the Company is subject to certain
provisions of Delaware law, including Section 203, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years unless certain conditions are met. The
possible issuance of Preferred Stock, the elimination of the right of
stockholders to act by written consent without a meeting, the procedures
required for director nominations and stockholder proposals and Delaware law
could have the effect of delaying, deferring or preventing a change in control
of the Company, including without limitation, discouraging a proxy contest or
making more difficult the acquisition of a substantial block of the Company's
Common Stock. These provisions could also limit the price that investors might
be willing to pay in the future for shares of the Company's Common Stock. See
"Description of Capital Stock -- Preferred Stock" and "-- Certain Charter and
Bylaw Provisions and Delaware Law."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price will be substantially higher than the
book value per share of Common Stock. Assuming an initial public offering price
of $11.00 per share, investors purchasing shares of Common Stock in this
offering will incur immediate, substantial dilution of $7.62 per share in the
net tangible book value of Common Stock. Additional dilution will occur upon the
exercise of outstanding options and warrants. See "Dilution." The Company has
never declared or paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy."
18
<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus including without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others: uncertainty
associated with XenoMouse technology; early stage of development; history of
losses and uncertainty of future profitability; no assurance of successful
product development; dependence on collaborative arrangements; uncertainties
related to clinical trials; uncertainty of patent position and dependence on
proprietary rights; intense competition and rapid technological change;
significant government regulations and no assurance of regulatory approvals; no
assurance of market acceptance; limited manufacturing experience; and other
factors referenced in this Prospectus. Certain of these factors are discussed in
more detail elsewhere in this Prospectus, including, without limitation, under
the captions "Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 are estimated to be $29,940,000 ($34,543,500 if the
Underwriters' over-allotment option is exercised in full) after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
Over the next 12 months, the Company intends to use approximately $15.0
million of the net proceeds of this offering for research and development,
including the performance of preclinical and clinical trials, and approximately
$3.8 million for the final cross-license and settlement payment. The balance of
the net proceeds will be used for working capital and for other general
corporate purposes over such 12 month period and thereafter. The Company may
also use a portion of the net proceeds to acquire or invest in businesses,
products or technologies that are complementary to those of the Company. The
amounts actually expended for each purpose and the timing of such expenditures
may vary significantly depending upon numerous factors, including the results of
clinical trials and preclinical testing, the achievement of milestones under
collaborative arrangements, the ability of the Company to maintain existing and
establish additional collaborative arrangements, the timing and outcome of
regulatory actions regarding the Company's potential products, the costs and
timing of expansion of marketing, sales and manufacturing activities, the costs
involved in preparing, filing, protecting, maintaining and enforcing patent
claims and other intellectual property rights and competing technological and
market developments. Pending the foregoing uses, the Company intends to invest
the net proceeds of this offering in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain its future earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future. The Company's loan and security
agreement prohibits the payment of dividends without the consent of the lender.
THE COMPANY
The Company was incorporated on June 24, 1996 and subsequently on July 15,
1996 was organized pursuant to a Stock Purchase and Transfer Agreement between
the Company and Cell Genesys. The business and operations of Abgenix were
started in 1989 by Cell Genesys and prior to the organization of Abgenix were
conducted within Cell Genesys. In 1991, Cell Genesys and JT Immunotech USA,
Inc., the predecessor company to JT America, Inc. ("JT America") and a medical
subsidiary of Japan Tobacco, formed Xenotech, an equally owned joint venture, to
develop genetically modified strains of mice which can produce fully human
monoclonal antibodies (the "XenoMouse") and to commercialize products generated
from these mice. Upon the organization of Abgenix, Cell Genesys assigned
substantially all of its rights in Xenotech to Abgenix.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth, as of March 31, 1998, (i) the actual
capitalization of the Company, (ii) the actual capitalization of the Company on
a pro forma basis to give effect to the conversion of all outstanding Preferred
Stock into Common Stock and the authorization of 5,000,000 shares of
undesignated Preferred Stock upon the closing of this offering, and (iii) the
pro forma capitalization as adjusted to give effect to the sale of the 3,000,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $11.00 per share and the application of the estimated
net proceeds therefrom after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company. The capitalization
information set forth below should be read in conjunction with the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term payable to related party........... $ 3,750 $ 3,750 $ --
============ ============ ============
Long-term debt, less current portion.......... $ 3,559 $ 3,559 $ 3,559
Redeemable convertible preferred stock,
$0.0001 par value; 20,000,000 shares
authorized, 7,844,352 issued and outstanding
actual; none authorized, issued and
outstanding pro forma and pro forma as
adjusted.................................... 35,125 -- --
Stockholders' equity (net capital deficiency):
Preferred stock, $0.0001 par value; none
authorized, issued and outstanding actual;
5,000,000 shares authorized, none issued and
outstanding pro forma and pro forma as
adjusted.................................... -- -- --
Common stock, $0.0001 par value; 50,000,000
shares authorized, 293,160 shares issued and
outstanding actual; 8,137,512 shares issued
and outstanding pro forma; 11,137,512 shares
issued and outstanding pro forma as
adjusted(1)................................. 397 35,522 65,462
Contributions from parent..................... 29,277 29,277 29,277
Additional paid-in capital.................... 2,296 2,296 2,296
Deferred compensation......................... (1,619) (1,619) (1,619)
Accumulated deficit........................... (57,819) (57,819) (57,819)
------------ ------------ ------------
Total stockholders' equity (net capital
deficiency).............................. (27,468) 7,657 37,597
------------ ------------ ------------
Total capitalization................ $ 11,216 $ 11,216 $ 41,156
============ ============ ============
</TABLE>
- ---------------
(1) Excludes (i) 1,703,633 shares of Common Stock issuable upon exercise of
options outstanding as of March 31, 1998, with a weighted average exercise
price of $1.98 per share, (ii) 121,667 shares of Preferred Stock issuable
upon exercise of warrants outstanding as of March 31, 1998, with an exercise
price of $6.00 per share, (iii) 25,000 shares of Common Stock issuable
pursuant to the terms of a license agreement and (iv) an aggregate of
1,394,457 shares of Common Stock reserved for future issuance under the
Company's 1996 Incentive Stock Plan, 1998 Employee Stock Purchase Plan and
1998 Director Option Plan. See "Management -- Stock Plans," "Description of
Capital Stock" and Note 7 of Notes to the Company's Financial Statements.
21
<PAGE> 23
DILUTION
The net tangible book value of the Company as of March 31, 1998, was
$7,657,000 or $0.94 per share of Common Stock. "Net tangible book value" per
share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of Common Stock outstanding (assuming the
conversion of all then outstanding Preferred Stock into Common Stock). After
giving effect to the receipt of the net proceeds from the sale of the 3,000,000
shares of Common Stock offered by the Company hereby (after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company) at an assumed initial public offering price of $11.00 per share, the
Company's net tangible book value as of March 31, 1998 would have been
$37,597,000 or $3.38 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.44 per share to existing stockholders
and an immediate dilution of $7.62 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Net tangible book value as of March 31, 1998.............. $0.94
Increase in net tangible book value attributable to new
investors.............................................. 2.44
-----
Net tangible book value after offering...................... 3.38
------
Dilution to new investors................................... $ 7.62
======
</TABLE>
The following table sets forth the total consideration paid and the average
price per share paid by the existing stockholders and by new investors, before
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company at the assumed initial public offering price of $11.00
per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 8,137,512 73.1% $37,061,382 52.9% $ 4.55
New investors................... 3,000,000 26.9 33,000,000 47.1 11.00
---------- ----- ----------- -----
Total...................... 11,137,512 100.0% $70,061,382 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations assume no exercise of stock options or warrants
after March 31, 1998. As of March 31, 1998, there were outstanding options to
purchase 1,703,633 shares of Common Stock, with a weighted average exercise
price of $1.98 per share, outstanding warrants to purchase 121,667 shares of
Preferred Stock, with an exercise price of $6.00 per share, and 25,000 shares of
Common Stock issuable pursuant to the terms of a license agreement. In addition,
1,394,457 shares of Common Stock are reserved for future issuance under the
Company's 1996 Incentive Stock Plan, 1998 Employee Stock Purchase Plan and 1998
Director Option Plan. To the extent that any shares available for issuance upon
exercise of outstanding options or warrants, or reserved for future issuance
under the terms of a license agreement or pursuant to the Company's stock plans
are issued, there will be further dilution to new public investors. See
"Management -- Stock Plans" and "Description of Capital Stock."
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The statement of operations data for the years ended
December 31, 1995, 1996 and 1997 and the balance sheet data as of December 31,
1996 and 1997 are derived from the Company's Financial Statements that have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1993 and 1994 are derived from the Company's Financial Statements
audited by Ernst & Young LLP that are not included herein. The statement of
operations data for the three months ended March 31, 1997 and 1998 and the
balance sheet data as of March 31, 1998 are derived from the Company's unaudited
financial statements also included elsewhere in this Prospectus which have been
prepared on the same basis as the audited Financial Statements and in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of the Company for the unaudited interim
periods. The statement of operations data for the interim periods are not
necessarily indicative of results that may be expected for any other interim
period or for the year as a whole.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Revenue under collaborative agreements from
related parties................................ $6,600 $ 6,200 $ 6,200 $ 4,719 $ 1,343 $ 335 $ 291
Contract revenue................................. -- -- -- -- 611 -- 600
------ ------- ------- ------- -------- -------- --------
Total revenues(1)......................... 6,600 6,200 6,200 4,719 1,954 335 891
Operating expenses:
Research and development......................... 4,629 7,921 11,879 9,433 11,405 2,078 5,366
General and administrative....................... 1,019 1,955 2,603 2,565 3,525 1,004 918
Charge for cross-license and settlement(2)....... -- -- -- -- 22,500 15,000 --
------ ------- ------- ------- -------- -------- --------
Total operating expenses.................. 5,648 9,876 14,482 11,998 37,430 18,082 6,284
------ ------- ------- ------- -------- -------- --------
Operating income (loss)............................ 952 (3,676) (8,282) (7,279) (35,476) (17,747) (5,393)
Interest income (expense), net..................... -- -- -- 179 (404) 47 48
------ ------- ------- ------- -------- -------- --------
Net income (loss).................................. $ 952 $(3,676) $(8,282) $(7,100) $(35,880) $(17,700) $ (5,345)
====== ======= ======= ======= ======== ======== ========
Pro forma net loss per share(3).................... $ (9.22) $ (0.67)
======== ========
Shares used in computing pro forma net loss per
share(3)......................................... 3,894 7,953
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 10,172 $ 15,321 $ 13,340
Working capital............................................. 5,564 6,637 5,145
Total assets................................................ 14,357 22,084 20,197
Long-term debt, less current portion........................ 1,757 3,979 3,559
Redeemable convertible preferred stock...................... 10,150 31,189 35,125
Accumulated deficit......................................... (16,594) (52,474) (57,819)
Total stockholders' equity (net capital deficiency)......... (2,316) (22,318) (27,468)
</TABLE>
- ---------------
(1) The statement of operations of the Company include the revenues and expenses
of Abgenix as a business unit within Cell Genesys prior to July 15, 1996.
During the years ended December 31, 1993, 1994, 1995 and 1996, the Company's
revenues were derived principally from Xenotech for the development of
XenoMouse technology, which was essentially completed in 1996.
(2) In 1997, the Company incurred a non-recurring charge for cross-license and
settlement of $22.5 million, $15.0 million of which was a noncash
allocation. The Company recorded the initial settlement amount of $15.0
million in March 1997. The remaining $7.5 million was recorded in December
1997. See Note 6 of Notes to the Company's Financial Statements.
(3) See Note 1 of Notes to the Company's Financial Statements for an explanation
of shares used in computing pro forma net loss per share.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. The Company's actual results
and the timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The business and operations of Abgenix commenced in 1989 and were initially
conducted within Cell Genesys. On June 24, 1996, Abgenix was incorporated and
subsequently on July 15, 1996 was organized pursuant to a Stock Purchase and
Transfer Agreement between the Company and Cell Genesys. The agreement set forth
the terms and conditions for the transfer of the antibody business unit within
Cell Genesys to Abgenix. The accompanying financial statements include the
operations of Abgenix since July 15, 1996, and the revenues and expenses of the
Abgenix business unit within Cell Genesys prior to July 15, 1996. The balance
sheets and the statements of cash flows do not reflect the carve out balances
before July 15, 1996, as such information would not be meaningful. Prior to July
15, 1996, specifically identified revenues and expenses such as research and
development attributable to the antibody business unit were allocated to Abgenix
from Cell Genesys. General and administrative expenses were allocated based on
Abgenix research and development expense as a percentage of Cell Genesys' total
research and development expenses. From July 16, 1996 to July 31, 1997, Cell
Genesys performed certain general and administrative functions on behalf of
Abgenix.
OVERVIEW
Abgenix develops and intends to commercialize antibody therapeutic products
for the prevention and treatment of a variety of disease conditions, including
transplant-related diseases, inflammatory and autoimmune disorders, and cancer.
The Company has developed XenoMouse technology, a proprietary technology which
it believes enables it to quickly generate high affinity, fully human antibody
product candidates to essentially any disease target appropriate for antibody
therapy. Abgenix intends to use its XenoMouse technology to build and
commercialize a large and diversified product portfolio through the
establishment of corporate collaborations and internal product development
programs. The Company has recently established collaborative arrangements with
Pfizer, Schering-Plough and Genentech. In addition, the Company has four
proprietary antibody product candidates that are under development internally,
two of which are in human clinical trials. In certain instances, the Company
intends to commercialize select products on its own in niche markets such as
GVHD.
In 1991, Cell Genesys and JT America formed Xenotech, an equally owned
joint venture, to develop genetically modified strains of mice which can produce
human monoclonal antibodies and to commercialize products generated from these
mice. Upon the organization of Abgenix, Cell Genesys assigned its rights in
Xenotech to Abgenix. Xenotech funds its research and development activities
through capital contributions from the Company and JT America and the Company is
obligated to fund 50% of all Xenotech expenses. Pursuant to contractual
arrangements, the Company performs research for the joint venture and receives
payments for such research. The Company accounts for its investment in Xenotech
under the equity method of accounting.
The Company expects that substantially all of its revenues for the
foreseeable future will result from payments under collaborative arrangements,
including fees upon signing, reimbursement for research and development and
milestone payments. To date, all of the Company's revenues have resulted
primarily from research and development funding and milestone payments and may
not be indicative of the Company's future performance or of the ability of the
Company to continue to achieve such milestones.
24
<PAGE> 26
Since inception, the Company has funded its research and development
activities primarily through contributions from Cell Genesys, revenues from
collaborative arrangements, private placements of preferred stock and equipment
leaseline financings and loan facilities. The Company has incurred operating
losses in each of the last three years of operation, including net losses of
approximately $8.3 million, $7.1 million, $35.9 million and $5.3 million in
1995, 1996, 1997 and the three months ended March 31, 1998, respectively, and as
of March 31, 1998, had an accumulated deficit of approximately $57.8 million.
The Company's losses have resulted principally from costs incurred in performing
research and development to develop its XenoMouse technology and subsequent
antibody product candidates, from the non-recurring cross-license and settlement
charge and from general and administrative costs associated with the Company's
operations. The Company expects to incur additional operating losses until at
least the year 2000 as a result of increases in its expenditures for research
and product development, including costs associated with conducting preclinical
testing and clinical trials. The Company expects the amount of such losses will
fluctuate significantly from quarter to quarter as a result of increases or
decreases in the Company's research and development efforts, the execution or
termination of collaborative arrangements, or the initiation, success or failure
of clinical trials.
On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and
Japan Tobacco, that it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm that resolved all related litigation and
claims between the parties. As initial consideration for the cross-license and
settlement agreement, Cell Genesys issued a note to GenPharm due September 30,
1998 for $15.0 million payable by Cell Genesys and convertible into shares of
Cell Genesys common stock, currently at $8.62 per share. Of this note,
approximately $3.8 million satisfied certain of Xenotech's obligations under the
agreement. Japan Tobacco also made an initial payment. During 1997, two patent
milestones were achieved and Xenotech was obligated to pay $7.5 million for each
milestone. Xenotech paid $7.5 million to satisfy the first milestone and has
recorded a payable to GenPharm for the remaining $7.5 million. The Company has
recorded a liability of approximately $3.8 million in its balance sheet
representing its share of the Xenotech obligation. The payable is due on or
before November 1998. No additional payments will accrue under this agreement.
The Company has recognized, as a non-recurring charge for cross-license and
settlement, a total of $22.5 million. See Note 6 of Notes to the Company's
Financial Statements.
In connection with the grant of stock options since the Company's
organization on July 15, 1996, the Company has recorded aggregate deferred
compensation of approximately $2.3 million through March 31, 1998, representing
the difference between the deemed fair value of the Common Stock for accounting
purposes and the option exercise price at the date of grant. These amounts are
presented as a reduction of stockholders' equity and are amortized ratably over
the vesting period of the applicable options, generally four years. These
valuations resulted in charges to operations of $528,000 and $149,000 in 1997
and the three months ended March 31, 1998, respectively.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1998
Revenue under collaborative agreements from related parties consists of
revenue derived principally from performing research for Xenotech. See "Years
Ended December 31, 1995, 1996 and 1997." Revenues from Xenotech decreased from
$335,000 in the three months ended March 31, 1997 to $291,000 in the three
months ended March 31, 1998.
Contract revenue of $600,000 in the three months ended March 31, 1998
consisted of a nonrefundable signing fee paid in connection with the execution
in January 1998 of a collaboration agreement and the achievement of a research
milestone under an existing collaboration agreement.
Research and development expenses consist primarily of compensation and
other expenses related to research and development personnel, costs associated
with preclinical testing and planned clinical trials of the Company's product
candidates and facilities expenses. Research and development
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<PAGE> 27
expenses increased from $2.1 million in the three months ended March 31, 1997 to
$5.4 million in the three months ended March 31, 1998. The increase in research
and development expenses reflected increased expenses primarily for the
manufacture of antibody products in connection with the preparation for and the
initiation of clinical trials of ABX-CBL and ABX-IL8.
General and administrative expenses include compensation and other expenses
related to finance and administrative personnel, professional services expenses
and facilities expenses. General and administrative expenses decreased slightly
from $1.0 million in the three months ended March 31, 1997 to $918,000 in the
three months ended March 31, 1998. The slight decrease in general and
administrative expenses reflected the nonrecurrence in the three months ended
March 31, 1998 of expenses incurred in connection with the Company's relocation
to its new facilities in the three months ended March 31, 1997.
The nonrecurring charge for cross-license and settlement of $15.0 million
in the three months ended March 31, 1997 relates to the initial payment under
the comprehensive patent cross-license and settlement agreement. The Company
recorded the initial settlement amount of $15.0 million in March 1997. The
remaining $7.5 million was recorded in December 1997. See "Overview" and Note 6
of Notes to the Company's Financial Statements.
Other income and expenses consist of interest income from cash, cash
equivalents and short term investments and interest expense incurred in
connection with equipment lease line financing and loan facilities maintained by
the Company.
Years Ended December 31, 1995, 1996 and 1997
During 1995, 1996 and 1997, the Company derived revenues principally from
performing research for Xenotech. Revenues from the joint venture are recognized
when earned, net of the Company's cash contributions to Xenotech, under the
terms of the related agreements. Research and development funding received in
advance under these agreements is recorded as deferred revenue. Revenues from
the achievement of milestone events are recognized when the milestones have been
achieved. Revenues from Xenotech decreased from $6.2 million in 1995 to $4.7
million in 1996 and to $1.3 million in 1997. Revenues from Xenotech decreased
because Xenotech's research related to developing the genetically modified mice
was essentially completed during 1996. In addition, until July 1995, the Company
did not make capital contributions to the joint venture and, therefore, recorded
all proceeds received from Xenotech as revenue. Revenues in 1997 from Xenotech
research represent a reduced on-going research effort.
Contract revenues of $611,000 in 1997 consisted principally of a
nonrefundable signing fee paid in connection with the execution in December 1997
of a collaboration agreement.
Research and development expenses decreased from $11.9 million in 1995 to
$9.4 million in 1996 and increased to $11.4 million in 1997. The decrease from
1995 to 1996 reflected the decrease in research activities related to developing
the genetically modified mice for Xenotech, partially offset by increases in
costs associated with preclinical development and testing of the Company's
product candidates. The increase in research and development expenses from 1996
to 1997 reflected increased expenses in connection with preparation for the
initiation of clinical trials of ABX-CBL and ABX-IL8. Most of the 1997 increase
resulted from increased payroll and other personnel expenses, related laboratory
supplies, equipment and facilities expansion. The Company anticipates that
research and development expenses will increase in future periods as it expands
research and development efforts and clinical trials.
General and administrative expenses remained relatively unchanged at $2.6
million from 1995 to 1996 and increased to $3.5 million in 1997. The increase in
1997 was primarily attributable to increased personnel levels associated with
the expansion of the Company's operations, increased professional services
expenses associated with negotiation of the Company's collaborative arrangements
and increased costs associated with moving to the Company's current facilities.
The Company anticipates
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that general and administrative expenses will increase in the future as
additional personnel are added to support its operations.
The non-recurring charge for cross-license and settlement of $22.5 million
in 1997 resulted from the execution of the comprehensive patent cross-license
and settlement agreement with GenPharm. See "Overview" and Note 6 of Notes to
the Company's Financial Statements.
Other income and expenses consist of interest income from cash, cash
equivalents and short-term investments and interest expense incurred in
connection with equipment leaseline financing and loan facilities maintained by
the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since formation, the Company has financed its operations primarily through
capital contributions by, and borrowings from Cell Genesys, revenue from
collaborative arrangements, private placements of Preferred Stock and equipment
leaseline financings and loan facilities. Through March 31, 1998, the Company
has received net cash of $55.7 million from financing activities, consisting
principally of approximately $14.3 million from contributions by Cell Genesys,
$31.1 million from private placements of Preferred Stock, $4.3 million from
construction financing, $2.0 million in lease financing and $4.0 million
borrowed from Cell Genesys and converted to Preferred Stock. Cell Genesys is not
obligated to provide any future funding to the Company.
The Company's net cash used in operating activities was $2.2 million, $10.2
million and $5.4 million in 1996 and 1997 and for the three months ended March
31, 1998, respectively. The cash used for operations was primarily to fund
research and development expenses and manufacturing costs related to the
development of new products.
As of March 31, 1998, the Company had cash, cash equivalents and short-term
investments of $13.3 million. The Company has an agreement with a financing
company under which the Company may finance purchases of up to $3.0 million of
its laboratory and office equipment. The lease term is 48 months and bears
interest at rates ranging from 12.5% to 13.0%, which are based on the change in
the five year U.S. Treasury rate. As of March 31, 1998, the Company had $1.0
million available under the equipment lease. The Company also has a construction
financing line with a bank in the amount of $4.3 million that was used to
finance construction of leasehold improvements at its current facility. The line
matures in January 2001, bears interest at a rate of prime plus one percent
(9.5% at December 31, 1997) and, until the closing of a public offering by the
Company raising net proceeds of at least $20.0 million, is, with certain
exceptions, guaranteed by Cell Genesys. As of March 31, 1998, no further
borrowings were available under the construction financing line.
The Company plans to continue to expend substantial resources for the
expansion of research and development, including costs associated with
conducting preclinical testing and clinical trials. The Company may be required
to expend greater-than-anticipated funds if unforeseen difficulties arise in the
course of completing required additional development of product candidates,
performing preclinical testing and clinical trials of such product candidates,
obtaining necessary regulatory approvals or other aspects of the Company's
business. The Company's future liquidity and capital requirements will depend on
many factors, including continued scientific progress in its research and
development programs, the size and complexity of these programs, the scope and
results of preclinical testing and clinical trials, the time and expense
involved in obtaining regulatory approvals, if any, competing technological and
market developments, the establishment of further collaborative arrangements, if
any, the time and expense of filing and prosecuting patent applications and
enforcing patent claims, the cost of establishing manufacturing capabilities,
conducting commercialization activities and arrangements, product in-licensing
and other factors not within the Company's control. Although the Company
believes that the proceeds from this offering, together with the Company's
current cash balances, cash equivalents, short-term investments and cash
generated from collaborative arrangements will be sufficient to meet the
Company's operating and capital requirements for at least the next two years,
there can be no assurance that the Company will not require additional financing
within this
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<PAGE> 29
timeframe. The Company may be required to raise additional funds through public
or private financing, collaborative relationships or other arrangements. There
can be no assurance that such additional funding, if needed, will be available
on terms attractive to the Company, if at all. Furthermore, any additional
equity financing may be dilutive to stockholders, and debt financing, if
available, may involve restrictive covenants. Collaborative arrangements, if
necessary to raise additional funds, may require the Company to relinquish its
rights to certain of its technologies, products or marketing territories. The
failure of the Company to raise capital when needed could have a material
adverse effect on the Company's business, financial condition and results of
operations.
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $15.4 million. The Company's net operating loss
carryforwards exclude losses incurred prior to the organization of Abgenix in
July 1996. Further, the amounts associated with the cross-license and settlement
have been expensed for financial statement accounting purposes and have been
capitalized and amortized over a period of approximately fifteen years for tax
purposes. The net operating loss and credit carryforwards will expire in the
years 2011 through 2012, if not utilized. Utilization of the net operating
losses and credits may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" ("SFAS 131"), which
require additional disclosures to be adopted beginning in the first quarter of
1998 and on December 31, 1998, respectively. Under SFAS 130, the Company is
required to display comprehensive income and its components as part of the
Company's financial statements. SFAS 131 requires that the Company report
financial and descriptive information about its reportable operating segments.
The adoption of SFAS 130 and SFAS 131 will not have a material effect on the
Company's results of operations or financial condition. The Company is
evaluating the impact, if any, of SFAS 130 and SFAS 131 on its future financial
statement disclosures.
YEAR 2000
The Company relies on computers and computer software in the operation of
its business as do its vendors, suppliers and customers. These computers and
computer software may not be able to properly recognize the dates commencing in
the year 2000. To date, the Company has not found any material impact which may
result from the failure of its computers and computer software or that of its
vendors, suppliers and customers. The Company believes that its business,
financial condition and results of operations will not be materially impacted by
the year 2000 date recognition issue. However, the Company plans to further
assess this issue during 1998 and, if appropriate, develop an action plan to
correct it.
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BUSINESS
The following Business section contains certain forward-looking statements
which involve risks and uncertainties. Actual results and the timing of certain
events could differ materially from those projected in these forward-looking
statements due to a number of factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
Abgenix, a biopharmaceutical company, develops and intends to commercialize
antibody therapeutic products for the prevention and treatment of a variety of
disease conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, and cancer. The Company has developed XenoMouse technology
which it believes enables it to quickly generate high affinity, fully human
antibody product candidates to essentially any disease target appropriate for
antibody therapy. Abgenix intends to use its XenoMouse technology to build a
large and diversified product portfolio through the establishment of a number of
corporate collaborations and internal product development. The Company has
recently established collaborative arrangements with Pfizer, Schering-Plough and
Genentech in order to generate antibody product candidates in the fields of
cancer, inflammation and growth factor modulation, respectively. The Company has
four antibody product candidates that are under development internally. Its lead
product candidate, ABX-CBL, is an in-licensed antibody in a multi-center
confirmatory Phase II clinical trial for GVHD. In addition, the Company has
initiated a Phase I clinical trial for ABX-IL8 in psoriasis. Abgenix is in
preclinical development with two other fully human antibody product candidates,
ABX-EGF and ABX-RB2, for use in the treatment and prevention of cancer and
chronic immunological disorders, respectively.
BACKGROUND
The Normal Antibody Response
The human immune system protects the body against a variety of infections
and other illnesses. Specialized cells, which include B cells and T cells, work
in concert with the other components of the immune system to recognize,
neutralize and eliminate from the body numerous foreign substances, infectious
organisms and malignant cells. In particular, B cells generally produce protein
molecules, known as antibodies, which are capable of recognizing substances
potentially harmful to the human body. Such substances are called antigens. Upon
being bound by an antibody, antigens can be neutralized and blocked from
interacting with and causing damage to normal cells. In order to effectively
neutralize or eliminate an antigen without harming normal cells, the immune
system must be able to generate antibodies that bind tightly (i.e., with high
affinity) to one specific antigen (i.e., with specificity).
All antibodies have a common core structure composed of four subunits, two
identical light (L) chains and two identical heavy (H) chains, named according
to their relative size. The heavy and light chains are assembled within the B
cell to form an antibody molecule which consists of a constant region and a
variable region. As shown in figure one, an antibody molecule may be represented
schematically in the form of a "Y" structure.
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[FIGURE ONE]
The base of the "Y", together with the part of each arm immediately next to
the base, is called the constant region because its structure tends to be very
similar across all antibodies. In contrast, the variable regions are at the end
of the two arms and are unique to each antibody with respect to their three
dimensional structures and protein sequences. Because variable regions define
the specific binding sites for a variety of antigens, there is a need for
significant structural diversity in this portion of the antibody molecule. Such
diversity is achieved in the body primarily through a unique mode of assembly
involving a complex series of recombination steps for various gene segments of
the variable region, including the V, D and J segments (see figure two shown
below).
[FIGURE TWO]
The human body is repeatedly exposed to a variety of different antigens.
Accordingly, the immune system must be able to generate a diverse repertoire of
antibodies that are capable of recognizing these multiple antigen structures
with a high degree of specificity. The immune system has evolved a two-step
mechanism in order to accomplish this objective. The first step, immune
surveillance, is achieved through the generation of diverse circulating B cells,
each of which assembles different antibody gene segments in a semi-random
fashion to produce and display on its surface a specific antibody. As a result,
a large number of distinct, albeit lower affinity, antibodies are generated in
the circulation so as to recognize essentially any foreign antigen that enters
the body. While capable of recognizing the antigens as foreign, these lower
affinity antibodies are generally incapable of effectively neutralizing them.
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<PAGE> 32
This limitation of the immune surveillance process is generally overcome by
the normal immune system in a second step called affinity maturation. Triggered
by the initial binding to a specific antigen, the small fraction of B cells that
recognize this antigen is then primed by the immune system to progressively
generate antibodies with higher and higher affinity through a process of
repeated mutation and selection. As a result, the reactive antibodies develop
increasingly higher specificity and affinity with the latter being potentially a
hundred to a thousand times higher than those generated in the previous immune
surveillance process. These more specific, higher affinity antibodies have a
greater likelihood of effectively neutralizing or eliminating the antigen while
minimizing the potential of damaging healthy cells.
Antibodies as Products
Recent advances in the technologies for creating and producing antibody
products coupled with a better understanding of how antibodies and the immune
system function in key disease states have led to renewed interest in the
commercial development of antibodies as therapeutic products. According to a
recent survey by the Pharmaceutical Research and Manufacturers of America,
antibodies account for over 25% of all biopharmaceutical products in clinical
development. The Company estimates that there are up to nine antibody
therapeutic product candidates that are in or have completed Phase III clinical
trials in the United States. In addition, four products, namely, Orthoclone,
ReoPro, Rituxan and Zenapax, are currently being marketed for the treatment of
transplant rejection, cardiovascular disease and cancer.
The Company believes that as products, antibodies have several potential
clinical and commercial advantages over traditional therapies. These include:
- accelerating product development timelines;
- reducing unwanted side effects as a result of high specificity for
the disease target;
- achieving greater patient compliance and higher efficacy as a result
of favorable pharmacokinetics;
- delivering various payloads, including drugs, radiation and toxins,
to specific disease sites; and
- eliciting a desired immune response.
Limitations of Current Approaches to Development of Antibody Products
Despite the early recognition of antibodies as promising therapeutic
agents, most approaches thus far to develop them as products have been met with
a number of commercial and technical limitations. Initial efforts were aimed at
the development of hybridoma cells, which are immortalized mouse
antibody-secreting B cells. Such hybridoma cells are derived from normal mouse B
cells which have been genetically manipulated so that they are capable of
reproducing over an indefinite period of time. They are then cloned to produce a
homogeneous population of identical cells which produce one single type of mouse
antibody capable of recognizing one specific antigen ("monoclonal antibody").
While mouse monoclonal antibodies can be generated to bind to a number of
antigens, they contain mouse protein sequences and tend to be recognized as
foreign by the human immune system. As a result, they are quickly eliminated by
the human body and have to be administered frequently. When patients are
repeatedly treated with mouse antibodies, they will begin to produce antibodies
that effectively neutralize the mouse antibody, a reaction referred to as a
Human Anti-Mouse Antibody ("HAMA") response. In many cases, the HAMA response
prevents the mouse antibodies from having the desired therapeutic effect and may
cause the patient to have an allergic reaction. The potential use of mouse
antibodies is thus best suited to situations where the patient's immune system
is compromised or where only short-term therapy is required. In such settings,
the patient is often incapable of producing antibodies that neutralize the mouse
antibodies or has insufficient time to do so.
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Recognizing the limitations of mouse monoclonal antibodies, researchers
have developed a number of approaches to make them appear more human-like to a
patient's immune system. For example, improved forms of mouse antibodies,
referred to as "chimeric" and "humanized" antibodies, are genetically engineered
and assembled from portions of mouse and human antibody gene fragments. While
such chimeric and humanized antibodies are more human-like, they still retain a
varying amount of the mouse antibody protein sequence, and accordingly may
continue to trigger the HAMA response. Additionally, the humanization process
can be expensive and time consuming, requiring at least two months and sometimes
over a year of secondary manipulation after the initial generation of the mouse
antibody. Once the humanization process is complete, the remodeled antibody gene
must then be expressed in a recombinant cell line appropriate for antibody
manufacturing, adding additional time before the production of preclinical and
clinical material can be initiated. Altogether it may take up to two years from
the start of the humanization process to manufacture a sufficient amount of an
appropriate antibody to initiate clinical trials. In addition, the combination
of mouse and human antibody gene fragments can result in a final antibody
product which is sufficiently different in structure from the original mouse
antibody leading to a decrease in specificity or a loss of affinity.
[FIGURE THREE]
Human Antibodies
The HAMA response can potentially be avoided through the generation of
antibody products with fully human protein sequences. Such fully human
antibodies may increase the market acceptance and expand the use of antibody
therapeutics. Several antibody technologies have been developed to produce
antibodies with 100% human protein sequences (see the figure three shown above).
One approach to generating human antibodies, called phage display technology,
involves the cloning of human antibody genes into bacteriophage, viruses that
infect bacteria, in order to display antibody fragments on the surfaces of
bacteriophage particles. This approach attempts to mimic in vitro the immune
surveillance and affinity maturation processes that occur in the body. Because
phage display technology cannot take advantage of the naturally occurring in
vivo affinity maturation process, the antibody fragments initially isolated by
this approach are typically of moderate affinity. In addition, further genetic
engineering is required to convert the antibody fragments into fully assembled
antibodies and significant manipulation, taking from several months to a year,
may be required to increase their affinities to a level appropriate for human
therapy. Before preclinical or clinical material can be produced, the gene
encoding the antibody derived from phage display technology must, as with a
humanized antibody, be introduced into a recombinant cell line.
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Two additional approaches involving the isolation of human immune cells
have been developed to generate human antibodies. One such approach is the
utilization of immunodeficient mice which lack both B and T cells. Human B cells
and other immune tissue are transplanted into these mice which are then
subsequently immunized with target antigens to stimulate the production of human
antibodies. However, this process is generally limited to generating antibodies
only to nonhuman antigens or antigens to which the human B cell donor had
previously responded. Accordingly, this approach may not be suitable for
targeting many key diseases such as cancer, and inflammatory and autoimmune
disorders where antibodies to human antigens may be required for appropriate
therapy. The other approach involves collecting human B cells which have been
producing desired antibodies from patients exposed to a specific virus or
pathogen. As with the previous approach, this process may not be suitable for
targeting diseases where antibodies to human antigens are required, and
therefore is generally limited to infectious disease targets which will be
recognized as foreign by the human immune system.
THE ABGENIX SOLUTION -- XENOMOUSE TECHNOLOGY
The Company's approach to generating human antibodies with fully human
protein sequences is to use genetically engineered strains of mice in which
mouse antibody gene expression is suppressed and functionally replaced with
human antibody gene expression, while leaving intact the rest of the mouse
immune system. Rather than engineering each antibody product candidate, these
transgenic mice capitalize on the natural power of the mouse immune system in
surveillance and affinity maturation to produce a broad repertoire of high
affinity antibodies. By introducing human antibody genes into the mouse genome,
transgenic mice with such traits can be bred indefinitely. Importantly, these
transgenic mice are capable of generating human antibodies to human antigens
because the only human products expressed in the mice (and therefore recognized
as "self") are the antibodies themselves. Any other human tissue or protein is
thus recognized as a foreign antigen by the mouse and an immune response will be
mounted. Abnormal production of certain human proteins, such as cytokines and
growth factors or their receptors have been implicated in various human
diseases. Neutralization or elimination of these abnormally produced or
regulated human proteins with the use of human antibodies could ameliorate or
suppress the target disease. Therefore, the ability of these transgenic mice to
generate human antibodies against human antigens could offer an advantage to
drug developers compared with some of the other approaches described previously.
A challenge with this approach, however, has been to introduce enough of the
human antibody genes in appropriate configuration into the mouse genome to
ensure that these mice are capable of recognizing the broad diversity of
antigens relevant for human therapies.
To make its transgenic mice a robust tool capable of consistently
generating high affinity antibodies which can recognize a broad range of
antigens, the Company equipped its XenoMouse with approximately 80% of the human
heavy chain antibody genes and a significant amount of the human light chain
genes. The Company believes that the complex assembly of these genes together
with their semi-random pairing allows XenoMouse to recognize a diverse
repertoire of antigen structures. XenoMouse technology further capitalizes on
the natural in vivo affinity maturation process to generate high affinity, fully
human antibodies. In addition, the Company has developed multiple strains of
XenoMouse, each of which is capable of producing a different class of antibody
to perform different therapeutic functions. The Company believes that its
various XenoMouse strains will provide maximum flexibility for drug developers
in generating antibodies of the specific type best suited for a given disease
indication.
XENOMOUSE TECHNOLOGY ADVANTAGES
The Company believes that its XenoMouse technology offers the following
advantages:
Producing Antibodies With Fully Human Protein Sequences. The Company's
XenoMouse technology, unlike chimeric and humanization technologies, allows the
generation of antibodies with 100% human protein sequences. Antibodies created
using XenoMouse technology are not expected to cause a HAMA response even when
administered repeatedly to immunocompetent patients. For this reason,
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antibodies produced using XenoMouse technology are expected to offer a better
safety profile and to be eliminated less quickly from the human body, reducing
the frequency of dosing.
Generating a Diverse Antibody Response to Essentially Any Disease Target
Appropriate for Antibody Therapy. Because a substantial majority of human
antibody genes has been introduced into XenoMouse, the technology has the
potential to generate high affinity antibodies that recognize more antigen
structures than other transgenic technologies. In addition, through immune
surveillance, XenoMouse technology is expected to be capable of generating
antibodies to almost any medically relevant antigen, human or otherwise. For a
given antigen target, having multiple antibodies to choose from could be
important in selecting the optimal antibody product.
Generating High Affinity Antibodies Which Do Not Require Further
Engineering. XenoMouse technology uses the natural in vivo affinity maturation
process to generate antibody product candidates usually in two to four months.
These antibody product candidates may have affinities as much as a hundred to a
thousand times higher than those seen in phage display. In contrast to
antibodies generated using humanization and phage display technology, XenoMouse
antibodies are produced in one step without the need for any subsequent
engineering, a process which at times has proven to be challenging and time
consuming. By avoiding the need to further engineer antibodies, the Company
reduces the risk that an antibody's structure and therefore functionality will
be altered between the initial antibody selected and the final antibody placed
into production.
Enabling More Efficient Product Development. In contrast to humanization or
phage display, which require the cloning of an antibody gene and the generation
of a recombinant cell line, the B cells generated in XenoMouse can be turned
directly into hybridoma cell lines for human antibody production. Therefore, a
supply of monoclonal antibodies can be produced quickly to allow the timely
initiation of preclinical and clinical studies. Furthermore, since XenoMouse
technology can potentially produce multiple product candidates more quickly than
humanization and phage display technology, preclinical testing can be conducted
on several antibodies in parallel to identify the one optimal product candidate
which will be tested in clinical trials.
Providing Flexibility in Choosing Manufacturing Processes. Once an antibody
with the desired characteristics has been identified, preclinical material can
be produced either directly from hybridomas or from recombinant cell lines.
Humanized and phage display antibodies, having been engineered, cannot be
produced in hybridomas. In addition to potential time savings, production in
hybridomas avoids the need to license certain third party intellectual property
rights covering the production of antibodies in recombinant cell lines.
ABGENIX STRATEGY
The Company's objective is to be a leader in the generation, development
and commercialization of novel antibody-based biopharmaceutical products. Key
elements of the Company's strategy include:
Building a Large and Diversified Product Portfolio. Utilizing its XenoMouse
technology, the Company intends to build a large and diversified product
portfolio, including a mix of out-licensed and internally developed product
candidates. This portfolio is expected to target serious medical conditions
including: transplant-related disorders, inflammation, autoimmune and
cardiovascular disease and cancer. Abgenix intends to collaborate with leading
academic researchers and companies involved in the identification and
development of novel antigens. The Company believes the speed and cost
advantages of its technology will enable it to make cost-effective use of
available human and capital resources. Abgenix can thus pursue multiple product
candidates in parallel through the preclinical and early clinical stages before
entering into a corporate collaboration. As a result, the Company believes it
can create, for itself or for marketing to potential corporate partners, a
package that includes antigen rights, human antibodies, and preclinical and
clinical data.
Establishing Multiple Corporate Collaborations. Abgenix intends to generate
short and long term revenues by entering into multiple collaborations with
pharmaceutical and biotechnology companies.
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For any given product candidate, the terms of the collaboration arrangement are
expected to reflect the value the Company adds to the drug development process.
The Company intends to form two types of collaborations with corporate partners:
technology collaborations and proprietary product collaborations. In the former,
including the Company's existing collaborations with Pfizer, Schering-Plough,
and Cell Genesys, Abgenix plans to use its XenoMouse technology to make human
antibodies to certain antigen targets for each corporate partner. The terms of
the Company's technology collaborations could include license fees and milestone
payments plus royalties on future product sales. On the other hand, proprietary
product collaborations would involve antibodies made to antigen targets sourced
by the Company. Antibody candidates for proprietary product collaborations
currently include: ABX-IL8, ABX-EGF and ABX-RB2. The terms of the Company's
proprietary product collaborations could include license fees upon signing,
milestone payments, potential reimbursement for research and development
activities performed by the Company plus royalties on future product sales. The
Company's mix of technology collaborations and proprietary product
collaborations could result in a growing portfolio of product candidates for
Abgenix with development and marketing costs borne by the partner, while
allowing Abgenix to share in the revenues of successful products.
Commercializing Products in Niche Markets. The Company intends to complete
all stages of clinical development and commercialization for select products in
niche markets. For example, the Company intends to develop and commercialize
ABX-CBL on its own, at least in North America. ABX-CBL is an in-licensed
monoclonal antibody in Phase II clinical trials for GVHD. Because of the
seriousness of GVHD and the lack of alternative treatments, the clinical trials
for ABX-CBL are expected to involve a small number of patients to be followed
over a short time period. In addition, the GVHD market is largely concentrated
in leading bone marrow transplant centers and should, therefore, be adequately
addressed by a small direct sales force. Future antibody products with similar
market characteristics will also be considered candidates for development and
commercialization by the Company on its own.
PRODUCT DEVELOPMENT PROGRAMS
Abgenix is currently developing antibody therapeutics for a variety of
indications. The table below sets forth the development status of the Company's
product candidates.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT
CANDIDATE INDICATION STATUS(1)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ABX-CBL GVHD Phase II
-----------------------------------------------------------------------------------------------------------------------
Organ Transplant Rejection Preclinical
ABX-RB2 ------------------------------------------------------------------------------------
Autoimmune Disease Preclinical
-----------------------------------------------------------------------------------------------------------------------
Psoriasis Phase I
ABX-IL8 ------------------------------------------------------------------------------------
Other Inflammatory Diseases Preclinical
-----------------------------------------------------------------------------------------------------------------------
ABX-EGF EGF Dependent Cancers Preclinical
</TABLE>
- --------------------------------------------------------------------------------
- ---------------
(1) "Phase II" indicates efficacy testing in a limited patient population.
"Phase I" indicates safety and efficacy testing in a limited patient
population and toxicology testing in animal models. "Preclinical" indicates
that the product candidate selected for development has met predetermined
criteria for potency, specificity, manufacturability and pharmacologic
activity in animal and in vitro models.
ABX-CBL and ABX-RB2
The CBL antigen is selectively expressed on activated immune cells
including T cells, B cells and natural killer cells. To accelerate its
commercialization plans, the Company obtained in February 1997 an exclusive
license to ABX-CBL, a proprietary mouse monoclonal antibody. The Company is
currently conducting a multi-center confirmatory Phase II clinical trial for
ABX-CBL in GVHD. A mouse antibody can be utilized to treat GVHD patients because
their immune system is either non-
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functioning or severely suppressed and, therefore, no HAMA responses should be
generated. In addition, the Company has developed a fully human monoclonal
antibody, ABX-RB2, using its XenoMouse technology to target the same antigen for
use in chronic inflammatory disorders. The Company believes both products have
the ability to destroy activated immune cells without affecting the entire
immune system.
Graft Versus Host Disease. The Company is developing ABX-CBL to reverse
unwanted immune responses such as occurs in GVHD. GVHD is a life threatening
complication that frequently occurs following an allogeneic bone marrow
transplant ("BMT"). BMTs are used in the treatment of patients with end stage
leukemia and certain other serious cancers and immune system disorders. An
allogeneic BMT procedure involves transferring marrow, the graft, from a healthy
person into an immunosuppressed patient, the host. The transplant is intended to
restore normal circulating immune cells to a patient whose own immune system is
either functionally deficient or has been damaged by the treatment of an
underlying disease such as cancer and therefore does not have the ability to
mount a sufficient immune response. Often a portion of the graft recognizes the
host's own cells as foreign, becomes activated and attacks them, resulting in
GVHD. GVHD is graded based on clinical symptoms from I, which is the mildest
form, to IV, which is the most severe form. It typically involves damage to
multiple organ systems, including the skin, liver and intestines. GVHD causes
extreme suffering and is the primary cause of death in allogeneic bone marrow
transplant patients. It is estimated that approximately 12,000 allogeneic BMTs
will be performed worldwide in 1998, and this number has been growing at about
15% per year. GVHD occurs in approximately 50% of allogeneic BMTs and the
treatment costs for GVHD in the United States are estimated to be about $80,000
per patient. Based on a published clinical study, it is estimated that roughly
50% of patients with GVHD fail to respond to current treatments, which consist
of steroid and other drug treatments to suppress the grafted immune cells. Less
than 15% of steroid resistant GVHD sufferers survive for more than one year. The
Company believes that a safer and more effective treatment for GVHD could result
in increased use of BMTs.
In four separate clinical studies conducted prior to the Company obtaining
an exclusive license to ABX-CBL, a total of 25 patients with GVHD were treated
with the antibody. No safety concerns with ABX-CBL were identified in these
studies. One such trial, which has been published, was conducted at St. Jude
Hospital in Memphis, Tennessee. In this trial, ten patients with steroid
resistant, Grade III to IV GVHD were treated with daily doses of ABX-CBL for up
to six weeks. The publication reported that five of ten patients had a complete
remission of GVHD, while four of ten had at least a two grade improvement in
their GVHD score. Only one patient did not respond to the therapy. Another
patient who was treated at St. Jude Hospital after publication of the study
experienced a two grade improvement in the patient's GVHD score without adverse
side effects. Six additional patients with GVHD were treated at the University
of Wisconsin and Cook-Ft. Worth Hospital. The reports from these sites indicated
that these patients showed similar results to those described in the published
trial conducted at St. Jude Hospital, with four of the six patients showing at
least a two grade improvement in their GVHD score. In addition, eight other GVHD
patients received treatment at Stanford University and four of the patients were
noted to have some improvement in their GVHD score, despite using a dose of less
than one-tenth of that employed at the other sites.
Immune reaction to the mouse antibody was assessed in several patients and
no HAMA response was detected clinically. Furthermore, no adverse clinical
responses consistent with an antibody-induced allergic reaction were observed.
In addition, a number of patients were followed after the conclusion of the
study for as long as one year and no adverse ABX-CBL events were observed.
Based in part on the clinical data described above, the Company commenced a
multi-center confirmatory Phase II clinical trial in January 1998 with ABX-CBL
in GVHD. This dose escalation trial is expected to enroll a total of 48 patients
suffering from Grade III or IV GVHD and who have failed to respond to steroid
treatment. The Company believes that this trial will be concluded in 1998.
In certain immunological diseases where chronic administration of a drug
targeting the CBL antigen is desirable, it may be important to use a fully human
antibody to avoid the risk of a HAMA
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response. Such diseases include organ transplant rejection, primarily kidney and
corneal transplant rejection, as well as autoimmune disorders.
Using its XenoMouse technology, the Company has generated ABX-RB2, a fully
human antibody which targets the CBL antigen, and is conducting preclinical
studies on this product candidate. While no human data is available on ABX-RB2,
several clinical trials have been performed using ABX-CBL, the first generation
mouse antibody to the CBL antigen, for the treatment of kidney and corneal
transplant rejection.
Organ Transplant Rejection. Three clinical trials had been conducted for
the treatment of kidney transplant rejection using ABX-CBL prior to the Company
obtaining an exclusive license to this antibody. In two trials conducted at
Sendai Shakai Hoken Hospital in Japan, ABX-CBL was administered intravenously
daily for nine days to 41 patients whose kidney transplant rejections were
resistant to steroid therapy. In the first trial, organ rejection was reversed
in 17 of 19 patients. In the second trial, organ rejection was reversed in a
dose dependent fashion in 18 of the 22 patients treated. A third clinical trial
was conducted at the University of California at Los Angeles. In this study, 13
of the 18 patients had cadaveric donor transplants. This more refractory
population responded to nine days of ABX-CBL treatment with an overall response
rate of 50%. Subset analysis indicated that of the patients treated prior to
severe renal failure, as many as 75% experienced reversal of the kidney
rejections. No serious treatment-related side effects were observed in any of
the patients in these three trials.
Each year there are approximately 11,000 kidney transplants in the United
States. Depending upon a variety of patient risk factors, many of these
procedures result in the patient's immune system rejecting the organ. Current
therapy for kidney transplant rejection involves administering steroids or other
immune system modulators, which may suffer from suboptimal efficacy profiles or
dose limiting toxicities.
In addition to the use of ABX-RB2 in kidney transplant rejection, the
Company is also exploring its potential use in corneal transplantation. In a
clinical trial conducted at the University of California at San Diego prior to
the Company obtaining an exclusive license to ABX-CBL, six patients were treated
with ABX-CBL after the onset of rejection and four showed graft preservation. No
serious adverse side effects related to the infusion of ABX-CBL or to an immune
response were observed in any of the six patients.
Although there can be no assurance that the data observed with ABX-RB2 in
these indications will demonstrate the same degree of efficacy as the data
observed with ABX-CBL, the Company believes these studies may assist in the
design of preclinical and clinical protocols for future development.
Autoimmune Disease. In autoimmune disease, a subset of the patient's immune
cells, often including both B and T cells, react abnormally to a natural
component of the patient's own tissue. Because these immune cells are constantly
exposed to the tissue component, they are in a perpetual state of activation.
Based on the presumed mechanism of action of ABX-RB2, the Company anticipates
that it may be effective in treating autoimmune disease. Before initiating
clinical trials, this concept will be tested in preclinical studies in a series
of animal models of autoimmune disease, including rheumatoid arthritis, lupus,
multiple sclerosis, and diabetes.
ABX-IL8
IL-8, an important inflammatory cytokine produced at sites of inflammation,
attracts and activates white blood cells that mediate the inflammation process.
A number of preclinical studies suggest that excess IL-8 may contribute to the
pathology and clinical symptoms associated with certain inflammatory disorders.
Clinical studies have demonstrated significantly increased levels of IL-8 in
plasma or other bodily fluids of patients with certain inflammatory diseases,
including psoriasis, rheumatoid arthritis and inflammatory bowel disease.
Antibodies to IL-8 have been shown to block immune cell infiltration and the
associated pathology in animal models of several of these diseases as well as in
reperfusion injury. Using its XenoMouse technology, the Company has generated
ABX-IL8, a proprie-
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tary human monoclonal antibody, that binds to IL-8 with high affinity. Abgenix
in-licensed ABX-IL8 from Xenotech in March 1996. In exchange for a license fee
and royalty payments on future product sales, the Company received an exclusive
license to ABX-IL8 within the United States, its territories and possessions,
Canada and Mexico and a co-exclusive license with Japan Tobacco in the rest of
the world, excluding Japan, Taiwan and South Korea.
Psoriasis. Psoriasis is a chronic disease that results in plaques, a
thickening and scaling of the skin accompanied by local inflammation. The
disease affects approximately four to five million patients in the United States
and can be debilitating in its most severe form. Approximately 500,000 psoriasis
patients suffer from a severe enough form of the disease to require systemic
therapy with immune suppressants and ultraviolet phototherapy. The risk of
serious adverse side effects associated with these therapies often requires the
patients to alternate these various therapeutic modalities as a precautionary
measure.
Scientific studies have shown that IL-8 concentrations can be elevated by a
factor of 150 in psoriatic plaques when compared to normal tissue. The Company
believes that IL-8 may promote psoriasis by contributing to three distinct
disease-associated processes. First, IL-8 is produced by a type of skin cell
called keratinocytes, and is a potent growth factor for these skin cells. It may
therefore contribute to the abnormal keratinocyte proliferation in psoriatic
plaques. Second, IL-8 attracts and activates immune cells which contribute to
the inflammation of the psoriatic plaque. Finally, IL-8 promotes angiogenesis
which augments the blood supply necessary for growth of the psoriatic plaque.
The Company has conducted several studies with ABX-IL8 in animal models
relevant to psoriasis. The ability of the antibody to inhibit two processes
relevant to psoriasis in vivo were tested individually. In a rabbit model, it
was determined that systemic administration of ABX-IL8 inhibits the migration of
immune cells from the bloodstream to a site of skin inflammation. Furthermore,
the ability of ABX-IL8 to inhibit angiogenesis has been demonstrated both in a
rat corneal model as well as in a mouse tumor model. In addition,
pharmacokinetic studies in monkeys indicate that ABX-IL8 has a long serum
half-life, which should allow relatively infrequent dosing, potentially making
it a more attractive option for patients receiving chronic therapy. Finally, in
preliminary studies in a mouse model of psoriasis, ABX-IL8 was shown to block
the formation of psoriatic plaques.
Rheumatoid Arthritis. Elevated levels of IL-8 in the synovial fluid of
rheumatoid arthritis patients have been reported to correlate with the number of
infiltrating immune cells. Third party published studies have reported that the
injection of non-human antibodies to IL-8 into a rabbit model of rheumatoid
arthritis blocked immune cell infiltration and synovial membrane damage.
Inflammatory Bowel Disease. Elevated levels of IL-8 have been found in the
colon of patients with inflammatory bowel disease and the extent of elevation
has been shown to correlate with the degree of inflammation. Third party
published studies have reported that injection of non-human antibodies to IL-8
in a rabbit model of colitis reduced colon inflammation.
The Company has initiated a Phase I clinical trial in psoriasis for ABX-IL8
and intends to follow this with an expansion to a number of other inflammatory
indications in Phase II trials. Because of the many common features in the
pathogenesis of psoriasis, rheumatoid arthritis and inflammatory bowel disease,
data collected in a Phase I trial in psoriasis could support initiation of Phase
II trials in the other indications.
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ABX-EGF
Tumor cells that overexpress epidermal growth factor receptors ("EGFr") on
their surface often depend on EGFr's activation for growth. EGFr is
overexpressed in a variety of cancers including lung, breast, ovarian, bladder,
prostate, colorectal, kidney and head and neck. This activation is triggered by
the binding to EGFr by EGF or Transforming Growth Factor alpha ("TGF(LOGO)"),
both of which are expressed by the tumor or by neighboring cells. The Company
believes that blocking the ability of EGF and TGF(LOGO) to bind with EGFr may
offer a treatment for certain cancers. ABX-EGF, a fully human monoclonal
antibody generated using XenoMouse technology, binds to EGFr with high affinity
and has been shown to inhibit tumor cell proliferation in vivo and cause
eradication of EGF dependent human tumors established in mouse models. Abgenix
in-licensed ABX-EGF from Xenotech in November 1997. In exchange for a license
fee and royalty payments on future product sales, the Company received an
exclusive worldwide license to ABX-EGF. The Company is conducting preclinical
studies and assessing which tumor types to pursue as possible targets for
treatment with ABX-EGF. Studies have shown that ABX-EGF can inhibit growth of
EGF-dependent human tumors cells in mouse models. ABX-EGF has also demonstrated
the ability to reverse cancer cell growth and cause eradication of established
tumors in mice even when administered after significant tumor growth has
occurred. Furthermore, in these models where tumors were eradicated, no relapse
of the tumor was observed after discontinuation of the antibody treatment.
COLLABORATIVE ARRANGEMENTS
Research Collaboration and License Option Agreement with Pfizer
In December 1997, Abgenix, established a research collaboration with Pfizer
to develop antibody products for up to three undisclosed antigens, the first of
which is in the field of cancer. Under the research collaboration agreement,
Abgenix is using its XenoMouse technology to generate fully human antibodies to
the first antigen target designated by Pfizer. In connection with the execution
of the agreement, Pfizer paid the Company a fee upon signing and may make
additional payments to Abgenix upon completion of certain research milestones.
Additionally, Pfizer has an option to expand the research collaboration to
include up to two more undisclosed antigen targets. The research collaboration
agreement expires in December 1999.
Concurrent with the execution of the research collaboration agreement,
Pfizer and Abgenix entered into a license and royalty agreement that grants
Pfizer the option to acquire an exclusive, worldwide license to develop, make,
use and sell antibody products derived from the research collaboration. If
Pfizer chooses to exercise its option for additional antigen targets, Abgenix
could receive potential license fees and milestone payments of up to
approximately $8.0 million per antigen target upon the completion of certain
milestones, including preclinical and clinical trials and receipt of regulatory
approval. Additionally, if a product receives marketing approval from the FDA or
an equivalent foreign agency, the Company is entitled to receive royalties on
future product sales by Pfizer. Pfizer will be responsible for manufacturing,
product development and marketing of any product developed through this
collaboration. In connection with the execution of the research collaboration
agreement and the license and royalty agreement, Pfizer purchased 160,000 shares
of the Company's Series C Preferred Stock for approximately $1.3 million. Such
shares convert into 160,000 shares of Common Stock upon this offering.
Research Collaboration with Schering-Plough
In January 1998, Abgenix established a research collaboration with
Schering-Plough to develop antibody products for an undisclosed antigen in the
field of inflammation. Under the agreement, Abgenix is using its XenoMouse
technology to generate fully human antibodies to an antigen target designated by
Schering-Plough. In connection with the execution of the agreement,
Schering-Plough paid the Company a fee upon signing and will be obligated to
make additional payments to Abgenix upon completion of the research.
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In addition, the agreement provides Schering-Plough with an option, for a
limited time, to enter into a research, option and license agreement that
provides Schering-Plough with an option to obtain an exclusive worldwide license
to develop, make, use and sell antibody products derived from the research
collaboration. If the option is exercised, the research, option and license
agreement may provide Abgenix with up to approximately $8.0 million in
additional research fees and milestone payments upon the completion of certain
milestones, including preclinical and clinical trials and receipt of regulatory
approval. Additionally, if a product receives marketing approval from the FDA or
an equivalent foreign agency, the Company is entitled to receive royalties on
future product sales by Schering-Plough.
Research License and Option Agreement with Genentech
In April 1998, Abgenix established a research collaboration with Genentech
to develop antibody products for an undisclosed antigen designated by Genentech
in the field of growth factor modulation. Under the research license and option
agreement, Abgenix will allow Genentech to use XenoMouse technology to generate
fully human antibodies to the antigen target. Genentech is obligated to make
payments to Abgenix for performance of research activities.
In addition, the agreement provides Genentech with an option, for a limited
time, to enter into a product license agreement that provides Genentech with an
exclusive worldwide license to develop, make, use and sell antibody products
derived from the research collaboration. If the option is exercised, the product
license agreement specifies license fee and milestone payments to be made upon
completion of certain milestones, including clinical trials and receipt of
regulatory approvals. Additionally, if a product receives marketing approval
from the FDA or an equivalent foreign agency, the Company is entitled to receive
royalties on future product sales by Genentech. Genentech will be responsible
for manufacturing, product development and marketing of any product developed
through this collaboration.
Gene Therapy Rights Agreement with Cell Genesys
In November 1997, the Company and Cell Genesys entered into the Gene
Therapy Rights Agreement (the "GTRA"). The GTRA provides Cell Genesys, a gene
therapy company, with certain rights to commercialize products based on
antibodies generated with XenoMouse technology in the field of gene therapy.
Under the GTRA, Cell Genesys has certain rights to direct the Company to make
antibodies to two antigens per year. In addition, Cell Genesys has an option to
enter into a license to commercialize antibodies binding to such antigens in the
field of gene therapy. Cell Genesys is obligated to make certain payments to the
Company for these rights including royalties on future product sales. The GTRA
also prohibits the Company from granting any third party licenses for antibody
products based on antigens nominated by the Company for its own purposes where
the primary field of use is gene therapy. In the case of third party licenses
granted by the Company where gene therapy is a secondary field, the Company is
obligated to share with Cell Genesys a portion of the cash milestone payments
and royalties resulting from any products in the field of gene therapy.
JOINT VENTURE WITH JAPAN TOBACCO
Xenotech
In June 1991, Cell Genesys entered into several agreements with JT America
for the purpose of forming an equally owned limited partnership, named Xenotech.
In connection with the formation of Xenotech, both Cell Genesys and JT America
contributed cash and Cell Genesys contributed the exclusive right to certain of
its technology for the research and development of genetically modified strains
of mice that can produce fully human antibodies. Cell Genesys assigned its
rights in Xenotech to the Company in connection with the formation of the
Company. As part of the Xenotech relationship, the Company provides research and
development on behalf of Xenotech in exchange for cash payments. As of March 31,
1998, approximately $41.6 million in funding for research related to the
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development of XenoMouse technology has been provided to the Company, with
research and development funding for identified projects committed through 1998.
Product Rights
Under the Master Research, License and Option Agreement among the Company,
Japan Tobacco and Xenotech (the "MRLOA"), the Company and Japan Tobacco have
been provided with colonies of transgenic mice that have been developed for
Xenotech pursuant to the Company's research and development efforts on behalf of
Xenotech. Under the MRLOA, the Company and Japan Tobacco have the right to use
the transgenic mice for research purposes. The right to commercialize medical
products that incorporate antibodies derived through the use of the transgenic
mice can be licensed from Xenotech by the Company and/or Japan Tobacco pursuant
to a nomination process by which the Company and Japan Tobacco have the right to
select a certain number of antigens per year and receive an option to the
commercial rights in antibodies that bind to the selected antigens. Both the
Company and Japan Tobacco are obligated to make royalty payments to Xenotech on
revenues derived from the sale of such antibody products. All of such payments
to Xenotech are then equally shared by the Company and JT America.
Under the nomination process, if either the Company or Japan Tobacco (but
not both) selects an antigen, the selecting party receives an option to an
exclusive worldwide license. If both the Company and Japan Tobacco select the
same antigen at the same time, each party has an option to an exclusive license
in its home territory and a co-exclusive license in the rest of the world. The
MRLOA defines the home territory of Japan Tobacco as Japan, Korea and Taiwan and
the home territory of the Company as North America. In the former case where one
party selects an antigen, the nonselecting party has the opportunity to obtain
an option to an exclusive license to the selected antigen in the nonselecting
party's home territory by exercising its buy-in right within the allotted time.
Each party has a limited number of buy-in rights, and they cannot be exercised
by the nonselecting party if the antigen selected is subject to proprietary
rights of a third party and the third party is unwilling to license its rights
to the antigen to the nonselecting party.
INTELLECTUAL PROPERTY
The Company's patent position, like that of other biotechnology and
pharmaceutical companies, is highly uncertain and involves complex legal and
factual questions. Claims made under patent applications may be denied or
significantly narrowed. There can be no assurance that any patents which may be
issued as a result of the Company's United States and international patent
applications will provide any competitive advantage to the Company or that they
will not be successfully challenged, invalidated or circumvented in the future.
In addition, there can be no assurance that competitors, many of which have
substantial resources and have made significant investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use and sell its
potential products either in the United States or in international markets.
The Company's success depends in part on its ability to obtain patents,
protect trade secrets, operate without infringing the proprietary rights of
others and prevent others from infringing on the proprietary rights of the
Company. The Company's policy is to seek to protect its proprietary position by,
among other methods, filing United States and foreign patent applications
related to its proprietary technology, inventions and improvements that are
important to the development of its business. Proprietary rights relating to the
Company's technologies will be protected from unauthorized use by third parties
only to the extent that they are covered by valid and enforceable patents or are
effectively maintained as trade secrets. There can be no assurance that any
patents owned by, or licensed to, the Company will afford protection against
competitors or that any pending patent applications now or hereafter filed by,
or licensed to, the Company will result in patents being issued. In addition,
the laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United States. The
patent position of biopharmaceutical companies
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involves complex legal and factual questions and, therefore, their
enforceability cannot be predicted with certainty. There can be no assurance
that any of the Company's patents or patent applications, if issued, will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or competitive advantages to the Company
against competitors with similar technology. Furthermore, there can be no
assurance that others will not independently develop similar technologies or
duplicate any technology developed by the Company.
While the Company has multiple patent applications pending in the United
States, to date, the Company has no United States patents relating to XenoMouse
technology. One issued European Patent owned by the Company relating to
XenoMouse technology is currently undergoing opposition proceedings within the
European Patent Office, and no assurance can be given regarding the outcome of
this opposition. The Company intends to continue to file patent applications as
appropriate for patents covering both its product candidates and processes.
There can be no assurance that patents will issue from any of these
applications, that any patent will issue on technology arising from additional
research or that patents that may issue from such applications will be
sufficient to protect the Company's technologies.
Research has been conducted for many years in the antibody field. This has
resulted in a substantial number of issued patents and an even larger number of
patent applications. Patent applications in the United States are, in most
cases, maintained in secrecy until patents issue, and publication of discoveries
in the scientific or patent literature frequently occurs substantially later
than the date on which the underlying discoveries were made. The commercial
success of the Company depends significantly on its ability to operate without
infringing the patents and other proprietary rights of third parties. There can
be no assurance that the Company's technologies do not and will not infringe the
patents or violate other proprietary rights of third parties. In the event of
such infringement or violation, the Company and its corporate partners may be
enjoined from pursuing research, development or commercialization of their
products. Such action would have a material adverse effect on the Company's
business, financial condition and results of operations.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and the Company recently settled ongoing litigation regarding certain patents
and other intellectual property rights. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings in the United States and internationally involve
complex legal and factual questions. As a result, such proceedings are costly
and time-consuming to pursue and their outcome is uncertain. Litigation may be
necessary to enforce patents issued or licensed to the Company, to protect trade
secrets or know-how owned or licensed by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation, interference or other administrative proceedings will result in
substantial expense to the Company and significant diversion of effort and
resources by the Company's technical and management personnel. An adverse
determination such proceedings to which the Company may become a party could
subject the Company to significant liabilities to third parties or require the
Company to seek licenses which may not be available from third parties or
prevent the Company from selling its products in certain markets, if at all.
Although patent and intellectual property disputes are often settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, there can be no
assurance that the necessary licenses would be available to the Company on
satisfactory terms, if at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could restrict
or prevent the Company from manufacturing and selling its products, if any,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through confidentiality and
proprietary information agreements. There can be no assurance that such
confidentiality or proprietary information agreements will provide meaningful
protection or adequate remedies for the Company's technology in the event of
unauthorized use or
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disclosure of such information, that the parties to such agreements will not
breach such agreements or that the Company's trade secrets will not otherwise
become known to or be independently developed by competitors.
Patent Cross-License and Settlement Agreement with GenPharm
On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and
Japan Tobacco, that it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm that resolved all related litigation and
claims between the parties. As initial consideration for the cross-license and
settlement agreement, Cell Genesys issued a note to GenPharm due September 30,
1998 for $15.0 million payable by Cell Genesys and convertible into shares of
Cell Genesys common stock, currently at $8.62 per share. Of this note, $3.8
million satisfied certain of Xenotech's obligations under the agreement. Japan
Tobacco also made an initial payment. During 1997, two patent milestones were
achieved and Xenotech was obligated to pay $7.5 million for each milestone.
Xenotech paid $7.5 million to satisfy the first milestone and has recorded a
payable to GenPharm for the remaining $7.5 million. The Company has recorded a
liability of $3.8 million in its balance sheet representing its share of the
Xenotech obligation. The payable is due on or before November 1998. No
additional payments will accrue under this agreement. The Company has recognized
as a non-recurring charge for cross-license and settlement, a total of $22.5
million. See Note 6 of Notes to the Company's Financial Statements.
GOVERNMENT REGULATION
All new biopharmaceutical products, including the Company's product
candidates under development and anticipated future products, are subject to
extensive and rigorous regulation by the federal government, principally the FDA
under the FD&C Act and other laws including the Public Health Services Act, and
by state and local governments. Such regulations govern or influence, among
other things, the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, approval, advertising and promotion of such products.
Non-compliance with applicable requirements can result in fines, warning
letters, recall or seizure of products, clinical study holds, total or partial
suspension of production, refusal of the government to grant approvals,
withdrawal of approval and civil and criminal penalties.
The Company believes its antibody products will be classified by the FDA as
"biologic products" as opposed to "drug products." The steps ordinarily required
before a biological product may be marketed in the United States include: (a)
preclinical testing; (b) the submission to the FDA of an IND application, which
must become effective before clinical trials may commence; (c) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
biologic; (d) the submission to the FDA of a Biologics License Application
("BLA"); and (e) FDA approval of the application, including approval of all
product labeling.
Preclinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practices ("GLPs"). The results of the preclinical tests together with
manufacturing information and analytical data are submitted to the FDA as part
of the IND and are reviewed by the FDA before the commencement of clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. There can be no assurance that submission of
an IND will result in FDA authorization to commence clinical trials, that the
lack of an objection means that the FDA will ultimately approve an application
for marketing approval, or that the Company will not encounter problems in
clinical trials that cause it or the FDA to delay, suspend or terminate such
trials.
Clinical trials involve the administration of the investigational product
to humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical Practices ("GCP")
under protocols submitted to the FDA as part of the IND. In
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addition, each clinical trial must be approved and conducted under the auspices
of an Institutional Review Board ("IRB") and with patient informed consent. The
IRB will consider, among other things, ethical factors, the safety of human
subjects and the possibility of liability of the institution conducting the
trial.
Clinical trials are conducted in three sequential phases but the phases may
overlap. Phase I clinical trials may be performed in healthy human subjects or,
depending on the disease, in patients. The goal of a Phase I clinical trial is
to establish initial data about safety and tolerance of the biologic agent in
humans. In Phase II clinical trials, evidence is sought about the desired
therapeutic efficacy of a biologic agent in limited studies of patients with the
target disease. Efforts are made to evaluate the effects of various dosages and
to establish an optimal dosage level and dosage schedule. Additional safety data
are also gathered from these studies. The Phase III clinical trial program
consists of expanded, large-scale, multi-center studies of persons who are
susceptible to or have developed the disease. The goal of these studies is to
obtain definitive statistical evidence of the efficacy and safety of the
proposed product and dosage regimen.
As of March 1, 1998, ABX-CBL had only been administered to a total of 90
patients in GVHD and organ transplant rejection indications, and Phase I
clinical trials for ABX-IL8 in psoriasis commenced in April 1998. As a result,
patient follow up has been limited and clinical data obtained thus far are very
preliminary. In addition, the results of early clinical trials may not be
predictive of results obtained in later clinical trials, and there can be no
assurance that clinical trials conducted by the Company will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products. If the Company's product candidates are not
shown to be safe and effective in clinical trials, the resulting delays in
developing other products and conducting related preclinical testing and
clinical trials, as well as the potential need for additional financing, would
have a material adverse effect on the Company's business, financial condition
and results of operations.
All data obtained from this comprehensive development program are submitted
in a BLA to the FDA for review and approval of the manufacture, marketing and
commercial shipment of the product. FDA approval of the BLA is required before
marketing may begin in the United States. All product candidates of the Company
will be subject to demanding and time consuming regulatory procedures in the
countries where the Company intends to market its products.
The process of obtaining approvals from the FDA can be costly, time
consuming and subject to unanticipated delays. The FDA may refuse to approve an
application if it believes that applicable regulatory criteria are not
satisfied. The FDA may also require additional testing for safety and efficiency
of the biopharmaceutical product. Moreover, if regulatory approval of a
biopharmaceutical product is granted, the approval will be limited to specific
indications. There can be no assurance that approvals of the Company's product
candidates, processes or facilities will be granted on a timely basis, if at
all. Any failure to obtain or delay in obtaining such approvals would have a
material adverse effect on the Company's business, financial condition and
results of operation.
Even if regulatory approvals for the Company's product candidates are
obtained, the Company, its products and the facilities manufacturing the
products are subject to continual review and periodic inspection. Domestic
manufacturing establishments are subject to preapproval and biennial inspections
by the FDA and must comply with the FDA's cGMP regulations. To supply
biopharmaceutical products for use in the United States, foreign manufacturing
establishments must comply with the FDA's cGMP regulations and are subject to
periodic inspection by the FDA or by regulatory authorities in those countries.
In complying with cGMP regulations, manufacturers must spend funds, time and
effort in the area of production and quality control to ensure full technical
compliance. The FDA stringently applies regulatory standards for manufacturing.
For clinical investigation and marketing outside the United States, the
Company may be subject to the regulatory requirements of other countries, which
vary from country to country. The regulatory approval process in other countries
includes requirements similar to those associated with FDA approval set forth
above.
44
<PAGE> 46
COMPETITION
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. The Company is aware of
several pharmaceutical and biotechnology companies, which are actively engaged
in research and development in areas related to antibody therapy, that have
commenced clinical trials of antibody therapeutics products or have successfully
commercialized antibody products. Many of these companies are addressing
diseases and disease indications which are being targeted by the Company or its
collaborative partners. Certain of these competitors have specific expertise or
technology related to antibody development, such as Centocor, Inc., Protein
Design Labs, Inc., IDEC Pharmaceuticals Corporation, Cambridge Antibody
Technology Group, Inc. and GenPharm. Certain of the Company's competitors are
developing or testing product candidates that may be directly competitive with
the Company's product candidates. For example, the Company is aware that several
companies, including Genentech, Inc., have potential product candidates that may
inhibit the activity of IL-8. Furthermore, the Company is aware that ImClone
Systems, Inc. has a potential product candidate in clinical development that may
inhibit the activity of EGF. Many of these companies and institutions, either
alone or together with their corporate partners, have substantially greater
financial resources and larger research and development staffs than the Company.
In addition, many of these competitors, either alone or together with their
corporate partners, have significantly greater experience than the Company in
developing products, undertaking preclinical testing and human clinical trials,
obtaining FDA and other regulatory approvals of products and manufacturing and
marketing products. Accordingly, the Company's competitors may succeed in
obtaining patent protection, receiving FDA approval or commercializing products
more rapidly than the Company. If the Company commences commercial sales of
products, it will be competing against companies with greater marketing and
manufacturing capabilities, areas in which it has limited or no experience.
In addition to biotechnology and pharmaceutical companies, the Company
faces, and will continue to face, competition from academic institutions,
government agencies and research institutions. There are numerous competitors
working on products to treat each of the diseases for which the Company is
seeking to develop therapeutic products. In addition, any product candidate
successfully developed by the Company may compete with existing therapies that
have long histories of safe and effective use. Competition may also arise from
other drug development technologies and methods of preventing or reducing the
incidence of disease and new small molecule or other classes of therapeutic
agents. There can be no assurance that developments by others will not render
the Company's product candidates or technologies obsolete or noncompetitive. The
Company faces and will continue to face intense competition from other
companies, including Japan Tobacco, for collaborative arrangements with
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions, and for licenses to proprietary technology.
These competitors, either alone or with their corporate partners, may succeed in
developing technologies or products that are more effective than those of the
Company. The Company's collaborative partners may elect to develop other
antibody products which compete with the Company's products.
PHARMACEUTICAL PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's potential
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the cost
effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. There can be no assurance that the Company's product candidates will
be considered cost effective or that adequate third-party reimbursement will be
available to enable the Company to maintain price levels sufficient to realize
an appropriate return on its investment in product development. Both federal and
state governments in the United States and foreign governments continue to
propose and pass legislation designed to reduce the cost of
45
<PAGE> 47
healthcare. Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before the Company's proposed products are approved
for marketing. Adoption of such legislation could further limit reimbursement
for pharmaceuticals. If adequate coverage and reimbursement rates are not
provided by the government and third-party payors for the Company's potential
products, the market acceptance of these products could be adversely affected,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
MANUFACTURING
The Company currently has limited experience in manufacturing its product
candidates and lacks the resources or capability to manufacture any of its
products on a commercial scale. While the Company currently manufactures limited
quantities of antibody products for preclinical testing, the Company relies on
contract manufacturers to produce ABX-CBL and ABX-IL8. With respect to products
other than ABX-CBL and ABX-IL8, the Company will either be responsible for
manufacturing or contract out manufacturing to third parties.
The Company's contract manufacturers have limited experience in
manufacturing ABX-CBL and ABX-IL8 in quantities sufficient for conducting
clinical trials. Contract manufacturers often encounter difficulties in scaling
up production, including problems involving production yields, quality control
and quality assurance and shortage of qualified personnel. Furthermore, there
are only a limited number of other third-party contract manufacturers who have
the ability and capacity to produce the Company's product candidates. Failure by
any contract manufacturer to deliver the required quantities of the Company's
product candidates for either clinical or commercial use on a timely basis and
at commercially reasonable prices and failure by the Company to find a
replacement manufacturer would have a material adverse affect on the Company's
business, financial condition and results of operations.
In addition, the Company and its third party manufacturers are required to
register their manufacturing facilities with the FDA and foreign regulatory
authorities. The facilities will then be subject to inspections confirming
compliance with cGMP established by the FDA or corresponding foreign
regulations. Failure to maintain compliance with the cGMP requirements would
materially adversely effect the Company's business, financial condition and
results of operations.
EMPLOYEES
As of March 31, 1998, Abgenix employed 57 persons, of whom 17 hold Ph.D. or
M.D. degrees and 8 hold other advanced degrees. Approximately 42 employees are
engaged in research and development, and 15 support business development,
intellectual property, finance and other administrative functions.
The Company's success will depend in large part upon its ability to attract
and retain employees. Abgenix faces competition in this regard from other
companies, research and academic institutions, government entities and other
organizations. The Company believes that it maintains good relations with its
employees.
FACILITIES
Abgenix is currently leasing 52,400 square feet of office and laboratory
facilities in Fremont, California. During 1997, the Company built out
approximately 42,000 square feet of laboratory and office space at the Fremont
site. The Company believes this facility, with potential additional build-outs,
will meet its space requirements for research and development and administration
for the next several years. The Company's lease expires in the year 2007 with
options to extend.
46
<PAGE> 48
SCIENTIFIC AND MEDICAL ADVISORY BOARDS
Abgenix has established Scientific and Medical Advisory Boards to provide
specific expertise in areas of research and development relevant to the
Company's business. The Scientific and Medical Advisory Boards meet periodically
with the Company's scientific and development personnel and management to
discuss the Company's present and long-term research and development activities.
Scientific and Medical Advisory Board members include:
<TABLE>
<S> <C>
James Patrick Allison, Ph.D.............. Professor, Immunology, University of
California, Berkeley
Frederick Applebaum, M.D................. Director, Clinical Research Division,
Fred Hutchinson Cancer Research Center
Benedict Cosimi, M.D..................... Professor of Surgery, Harvard Medical
School and Chief of Transplant Unit,
Massachusetts General Hospital
Anthony DeFranco, M.D., Ph.D............. Professor, Biochemistry and Biophysics,
University of California, San Francisco
John Gallin, M.D......................... Director, Warren Grant Magnusen Clinical
Center, NIH
Raju S. Kucherlapati, Ph.D............... Professor and Chair, Molecular Genetics,
Albert Einstein College of Medicine
Michele Nussenswieg, M.D., Ph.D.......... Professor, Molecular Immunology
The Rockefeller University
Matthew Scharff, M.D..................... Professor of Medicine, Albert Einstein
College of Medicine
Lee Simon, M.D........................... Professor of Medicine, Harvard Medical
School
David Yocum, M.D......................... Professor of Medicine, University of
Arizona
</TABLE>
47
<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES
The following table sets forth, as of March 31, 1998, certain information
concerning the Company's executive officers, directors and key employees as of
the date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and Directors
R. Scott Greer......................... 39 President, Chief Executive Officer and Director
C. Geoffrey Davis, Ph.D................ 46 Vice President, Research
Kurt W. Leutzinger..................... 47 Vice President, Finance and Chief Financial Officer
John A. Lipani, M.D.................... 57 Vice President, Clinical Development
Raymond M. Withy, Ph.D................. 42 Vice President, Corporate Development
Stephen A. Sherwin, M.D.(1)(2)......... 49 Chairman of the Board
M. Kathleen Behrens, Ph.D.(1)(2)....... 45 Director
Raju S. Kucherlapati, Ph.D............. 55 Director
Mark B. Logan(1)(2).................... 59 Director
Joseph E. Maroun....................... 68 Director
Key Employees
Aya Jakobovits, Ph.D................... 45 Principal Scientist, Director of Discovery Research
Catherine Maynard...................... 33 Director of Operations
Rivka Sherman-Gold, Ph.D............... 49 Director of Business Development
John Ward.............................. 38 Director of MIS
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
R. Scott Greer has served as President and Chief Executive Officer of
Abgenix since June 1996. He also serves as a director of Xenotech. From July
1994 to July 1996, Mr. Greer was Senior Vice President of Corporate Development
at Cell Genesys. From April 1991 to July 1994, Mr. Greer was Vice President of
Corporate Development and from April 1991 to September 1993 was also Chief
Financial Officer of Cell Genesys. From 1986 to 1991, Mr. Greer held various
positions at Genetics Institute, Inc., a biotechnology company, including
Director, Corporate Development. Mr. Greer received a B.A. in economics from
Whitman College and an M.B.A. from Harvard University and is a certified public
accountant.
C. Geoffrey Davis, Ph.D., has served as Vice President, Research of Abgenix
since June 1996. From January 1995 to June 1996, Dr. Davis was Director of
Immunology at the Xenotech Division of Cell Genesys. From November 1991 to
December 1994, he served at Repligen Corporation, a biotechnology company, first
as Principal Investigator and then as Director of Immunology. Dr. Davis received
a B.A. from Swarthmore College and a Ph.D. in immunology from the University of
California, San Francisco.
Kurt W. Leutzinger has served as Vice President, Finance and Chief
Financial Officer of Abgenix since July 1997. From June 1987 to July 1997, Mr.
Leutzinger was a Vice President of General Electric Investments and a portfolio
manager of the $27 billion General Electric Pension Fund responsible for private
equity investments with a focus on medical technology. He also serves as a
director of C3, Inc. Mr. Leutzinger received a B.A. in economics from Fairleigh
Dickenson University and an M.B.A. in finance from New York University and is a
certified public accountant.
John A. Lipani, M.D., has served as Vice President, Clinical Development of
Abgenix since April 1997. From 1992 to April 1997, Dr. Lipani was Group Director
of Inflammation and Tissue Repair
48
<PAGE> 50
at SmithKline Beecham Corporation, a pharmaceutical company. From 1989 to 1992,
Dr. Lipani held clinical development positions at various biopharmaceutical
companies, including Immunex Corporation, Norwich Eaton Pharmaceuticals, Inc.
and Centocor, Inc. He received a B.A. from Villanova University and an M.D. from
Tulane Medical School.
Raymond M. Withy, Ph.D., has served as Vice President, Corporate
Development of Abgenix since June 1996. He also serves as a director of
Xenotech. From May 1993 to June 1996, Dr. Withy served in various positions at
Cell Genesys, most recently as Director of Business Development. From 1991 to
May 1993, Dr. Withy was a private consultant to the biotechnology industry in
areas of strategic planning, business development and licensing. From 1984 to
1991, Dr. Withy was an Associate Director and Senior Scientist at Genzyme
Corporation, a biotechnology company. Dr. Withy received a B.Sc. in chemistry
and biochemistry and a Ph.D. in biochemistry, both from the University of
Nottingham.
Stephen A. Sherwin, M.D., has served as Chairman of the Board of Abgenix
since June 1996. Since March 1990, Dr. Sherwin has served as President, Chief
Executive Officer and as a director of Cell Genesys. Since March 1994, he has
served as Chairman of the Board of Cell Genesys. From 1983 to 1990, Dr. Sherwin
held various positions at Genentech, Inc., a biotechnology company, most
recently as Vice President, Clinical Research. Dr. Sherwin currently serves as a
Director of the California Healthcare Institute. Dr. Sherwin received a B.A. in
biology from Yale University and an M.D. from Harvard Medical School.
M. Kathleen Behrens, Ph.D., has served as a director of Abgenix since
December 1997. Dr. Behrens joined Robertson Stephens Investment Management Co.
in 1983 and became a general partner in 1986 and a managing director in 1993. In
1988, Dr. Behrens joined the venture capital group of Robertson Stephens
Investment Management Co. and has helped in the founding of three biotechnology
companies: Mercator Genetics, Inc., Protein Design Laboratories, Inc. and COR
Therapeutics, Inc. Dr. Behrens is currently president-elect and a director of
the National Venture Capital Association. Dr. Behrens received a Ph.D. in
microbiology from the University of California, Davis, where she performed
genetic research for six years.
Raju S. Kucherlapati, Ph.D., has served as a director of Abgenix since June
1996. Dr. Kucherlapati was a founder of Cell Genesys and has served as a
director of Cell Genesys since 1988. Since July 1989, he has been the Saul and
Lola Kramer Professor and the Chairman of the Department of Molecular Genetics
at the Albert Einstein College of Medicine. Dr. Kucherlapati also serves as a
director of Megabios Corp. and Millennium Pharmaceuticals, Inc. Dr. Kucherlapati
received a B.S. in biology from Andhra University in India and a Ph.D. in
genetics from the University of Illinois, Urbana.
Mark B. Logan has served as a director of Abgenix since August 1997. Mr.
Logan has served as Chairman of the Board, President and Chief Executive Officer
of VISX, Incorporated, a medical device company, since November 1994. From
January 1992 to October 1994, he was Chairman of the Board and Chief Executive
Officer of INSMED Pharmaceuticals, Inc., a pharmaceutical company. Previously,
Mr. Logan held several senior management positions at Bausch & Lomb, Inc., a
medical products company, including Senior Vice President, Healthcare and
Consumer Group and also served as a member of its Board of Directors. Mr. Logan
received a B.A. from Hiram College and a PMD from Harvard Business School.
Joseph E. Maroun has served as a director of Abgenix since July 1996 and
has served as a director of Cell Genesys since June 1995. Mr. Maroun spent 30
years with Bristol-Myers Squibb, a pharmaceuticals company, serving until his
retirement in 1990, at which time he was President of the International Group,
Senior Vice President of the corporation, and a member of its Policy Committee.
He also headed the U.S.-Japan Pharmaceutical Advisory Group. Mr. Maroun received
a B.A. from the University of Witwaterrand, Johannesburg.
Aya Jakobovits, Ph.D., has served as Principal Scientist and Director of
Discovery Research of Abgenix since June 1996. From January 1994 to June 1996,
Dr. Jakobovits was Director of Molecular Immunology at Cell Genesys. From
October 1989 to January 1994, Dr. Jakobovits served as Scientist
49
<PAGE> 51
and then as Senior Scientist at Cell Genesys. Dr. Jakobovits received a B.Sc.
from the Hebrew University of Jerusalem, Israel, a M.Sc. in chemistry and a
Ph.D. in life sciences, both from the Weizmann Institute of Science, Israel.
Catherine Maynard has served as Director of Operations of Abgenix since
January 1998. From June 1996 to January 1998, Ms. Maynard was Associate
Director, Animal Research Services and Microembryology at the Company. From 1992
to June 1996, Ms. Maynard worked at Cell Genesys in various positions, most
recently as Associate Director, Animal Research Services and Microembryology.
From 1988 to 1992, Ms. Maynard was Manager of the Core Transgenic Services at
Imperial Cancer Research Fund. Ms. Maynard received a B.Sc. from the University
of Manchester, U.K.
Rivka Sherman-Gold, Ph.D., has served as Director of Business Development
of Abgenix since October 1996. From September 1993 to October 1996, Dr.
Sherman-Gold was Associate Director of Business Development at Athena
Neurosciences, Inc., a biotechnology company. Dr. Sherman-Gold received a B.Sc.
in chemistry and an M.Sc. in biophysics and physiology, both from the Technion,
Israel Institute of Technology, a Ph.D. in life sciences from the Weizmann
Institute of Science, Israel and an M.B.A. from California State University in
San Jose.
John Ward has served as Director of MIS of Abgenix since November 1996.
From January 1996 to November 1996, Mr. Ward was Department Manager, Distributed
Computing Department at Bechtel Nevada, a construction and engineering firm.
From July 1988 to December 1995, he held various MIS positions at EG&G Energy
Measurements, an engineering and management company. Mr. Ward received a B.S. in
computer information systems from Arizona State University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Dr. Sherwin, Mr. Logan and Dr.
Behrens. The Compensation Committee makes recommendations regarding the
Company's various incentive compensation and benefit plans and determines
salaries for the executive officers and incentive compensation for employees and
consultants of the Company.
The Audit Committee consists of Dr. Sherwin, Mr. Logan and Dr. Behrens. The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's control functions.
BOARD COMPOSITION
The Company's Bylaws provide that the number of members of the Company's
Board of Directors shall be determined by the Board of Directors. The number of
directors is currently set at seven. All members of the Company's Board of
Directors hold office until the next annual meeting of stockholders or until
their successors are duly elected and qualified. There are no family
relationships among any of the directors, officers or key employees of the
Company.
Cell Genesys and the Company have entered into the Governance Agreement
which provides that so long as Cell Genesys or a group to which it belongs owns
(i) a majority of the outstanding voting stock of the Company, Cell Genesys or
the group shall have the right to nominate four out of the seven directors of
the Company, (ii) less than a majority but greater than 25% of the outstanding
voting stock of the Company, then Cell Genesys or such group shall have the
right to nominate three out of the seven directors of the Company, or (iii) less
than 25% but greater than 15% of the outstanding voting stock of the Company,
then Cell Genesys or such group shall have the right to nominate one out of the
seven directors of the Company. The Governance Agreement also provides that Cell
Genesys and each officer and director of the Company who owns voting stock shall
agree to vote for the persons nominated by Cell Genesys or the group to which it
belongs as set forth above. See "Risk Factors -- Significant Influence by Cell
Genesys, Inc."
50
<PAGE> 52
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was, at any time since
the formation of the Company, an officer or employee of the Company. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee. See "Certain Transactions" for a description of transactions between
the Company and entities affiliated with members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. The Company does not provide additional compensation for
Committee participation or special assignments of the Board of Directors. From
time to time, certain directors of the Company have received grants of options
to purchase shares of the Company's Common Stock pursuant to the 1996 Incentive
Stock Plan. On June 4, 1997, R. Scott Greer, Stephen A. Sherwin, Raju S.
Kucherlapati and Joseph E. Maroun received options to purchase 67,500, 10,000,
7,500, and 7,500 shares of the Company's Common Stock, respectively, at a per
share exercise price of $2.50. On August 8, 1997, Mark B. Logan received an
option to purchase 30,000 shares of the Company's Common Stock at a per share
exercise price of $4.00. On December 11, 1997, Raju S. Kucherlapati received an
option to purchase 20,000 shares of the Company's Common Stock at a per share
exercise price of $5.00. There were no other director option grants in 1997. On
February 18, 1998, R. Scott Greer, Stephen A. Sherwin, M. Kathleen Behrens, Raju
S. Kucherlapati, Mark B. Logan and Joseph E. Maroun received options to purchase
40,000, 5,900, 30,000, 4,400, 3,200 and 4,400 shares of the Company's Common
Stock, respectively, at a per share exercise price of $6.00. Beginning after the
date of this offering, nonemployee directors of the Company will be eligible to
receive nondiscretionary, automatic grants of options to purchase shares of the
Company's Common Stock pursuant to the 1998 Director Option Plan. See "-- Stock
Plans -- 1998 Director Option Plan" and "Certain Transactions."
51
<PAGE> 53
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
the year ended December 31, 1997 to the President and Chief Executive Officer
and to the Company's four other most highly compensated executive officers, each
of whose aggregate compensation during the Company's last fiscal year exceeded
$100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
R. Scott Greer............................ $252,000 $ 55,200 67,500 $ 4,112(1)
President and Chief Executive Officer
C. Geoffrey Davis, Ph.D................... 152,250 21,750 25,500 1,974(2)
Vice President, Research
Kurt W. Leutzinger(3)..................... 81,555 -- 100,000 127,059(4)
Vice President, Finance and Chief
Financial Officer
John A. Lipani, M.D.(5)................... 131,250 -- 100,000 64,585(6)
Vice President, Clinical Development
Raymond M. Withy, Ph.D.................... 152,250 21,750 25,500 --
Vice President, Corporate Development
</TABLE>
- ---------------
(1) Consists of imputed interest income on a loan from the Company to Mr. Greer.
(2) Consists of imputed interest income on a loan from the Company to Dr. Davis.
(3) Mr. Leutzinger has been the Company's Vice President, Finance and Chief
Financial Officer since July 1997. His 1997 annualized salary is $175,000.
(4) Consists of $126,568 for reimbursement of relocation expenses and $491 for
imputed interest income on a loan from the Company to Mr. Leutzinger.
(5) Dr. Lipani has been the Company's Vice President, Clinical Development since
April 1997. His 1997 annualized salary is $175,000.
(6) Consists of $63,232 for reimbursement of relocation expenses and $1,353 for
imputed interest income on a loan from the Company to Dr. Lipani.
STOCK OPTION GRANTS
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31, 1997.
All such options were awarded under the Company's 1996 Incentive Stock Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED FOR OPTIONS TERM(4)
OPTIONS IN FISCAL EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) 1997(2) PRICE(3) DATE 5% 10%
- ---- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Greer................ 67,500 10.0% $2.50 6/1/07 $1,040,704 $1,757,104
C. Geoffrey Davis, Ph.D....... 25,500 3.8 2.50 6/1/07 393,155 663,795
Kurt W. Leutzinger............ 100,000 14.8 2.50 6/26/07 1,541,784 2,603,117
John A. Lipani, M.D........... 100,000 14.8 0.60 2/12/07 1,731,784 2,793,117
Raymond M. Withy, Ph.D........ 25,500 3.8 2.50 6/1/07 393,155 663,795
</TABLE>
- ---------------
(1) The options granted to Mr. Greer and Drs. Davis and Withy became exercisable
as to 1/48th of the option shares on the date of grant and an additional
1/48th of the option shares become exercisable on the first day of each
calendar month thereafter, with full vesting occurring four years after the
date of grant. The options granted to Mr. Leutzinger and Dr. Lipani become
exercisable as to 25% of the option shares one year from the date of grant
and 1/48th of the option shares become exercisable
52
<PAGE> 54
on the first day of each calendar month thereafter, with full vesting
occurring four years after the date of grant. In each case, vesting is
subject to the optionee's continued relationship with the Company. Such
options expire ten years from the date of grant, or earlier upon termination
of employment. See "Stock Plans."
(2) Based on an aggregate of 676,644 options granted by the Company in the year
ended December 31, 1997 to employees, non-employee directors of and
consultants to the Company, including the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by the Board of Directors on the
date of grant.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
option term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers. The potential realizable value is calculated by assuming
that the assumed initial public offering price of $11.00 per share
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price. The potential realizable value
computation is net of the applicable exercise price, but does not take into
account applicable federal or state income tax consequences and other
expenses of option exercises or sales of appreciated stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
number of shares of Common Stock acquired and the dollar value realized upon
exercise of options during the year ended December 31, 1997 and the number and
value of securities underlying unexercised options held at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Greer............ 107,240 $1,096,592 -- 235,260 -- $2,337,158
C. Geoffrey Davis,
Ph.D. .................. -- -- 39,136 86,364 $399,948 856,802
Kurt W. Leutzinger........ -- -- -- 100,000 -- 850,000
John A. Lipani, M.D. ..... -- -- -- 100,000 -- 1,040,000
Raymond M. Withy, Ph.D. .. 10,000 104,000 29,136 86,364 295,948 856,802
</TABLE>
- ---------------
(1) Value realized and value of unexercised in-the-money options are based on a
value of $11.00 per share, the assumed initial public offering price.
Amounts reflected are based on the value per share, minus the per share
exercise price, multiplied by the number of shares acquired on exercise or
underlying the option.
STOCK PLANS
1996 Incentive Stock Plan. As of March 31, 1998, a total of 2,891,250
shares of Common Stock have been authorized for issuance under the Company's
1996 Incentive Stock Plan (the "1996 Plan"). Under the 1996 Plan, as of March
31, 1998, options to purchase an aggregate of 1,703,633 shares were outstanding,
293,160 shares of Common Stock had been purchased pursuant to exercises of stock
options and stock purchase rights and 894,457 shares were available for future
grant.
The 1996 Plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options and stock purchase rights to employees,
consultants and nonemployee directors of the Company. Incentive stock options
may be granted only to employees. The 1996 Plan is administered by the Board of
Directors or a committee appointed by the Board of Directors, which determines
the terms of awards granted, including the exercise price and the number of
shares subject to the award and the exercisability thereof. The exercise price
of incentive stock options granted under the 1996 Plan must be at least equal to
the fair market value of the Company's Common Stock on the date of grant.
However, for any employee holding more than 10% of the voting power of all
classes of the Company's stock, the exercise price will be no less than 110% of
the fair market value. The exercise price of nonqualified stock options is set
by the administrator of the 1996 Plan. However, for any person holding more than
10% of the voting power of all classes of the Company's stock, the exercise
price will be no less than 110% of the fair market value. The maximum term of
options granted under the 1996 Plan is ten years.
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<PAGE> 55
An optionee whose relationship with the Company or any related corporation
ceases for any reason (other than by death or total and permanent disability)
may exercise options in the three-month period following such cessation, or such
other period of time as determined by the administrator, unless such options
terminate or expire sooner (or for nonstatutory stock options, later), by their
terms. The three-month period is extended to twelve months for terminations due
to death or total and permanent disability. In the event of a merger of the
Company with or into another corporation, any outstanding options may either by
assumed or an equivalent option may be substituted by the surviving entity or,
if such options are not assumed or substituted, such options shall become
exercisable as to all of the shares subject to the options, including shares as
to which they would not otherwise be exercisable. In the event that options
become exercisable in lieu of assumption or substitution, the Board of Directors
shall notify optionees that all options shall be fully exercisable for a period
of 30 days, after which such options shall terminate.
No employee may be granted, in any fiscal year of the Company, options to
purchase more than 750,000 shares (or 1,500,000 shares in the case of a new
employee's initial employment with the Company). The 1996 Plan will terminate in
June 2006, unless sooner terminated by the Board of Directors.
The Board of Directors may also grant stock purchase rights to employees
and consultants under the 1996 Plan. Such grants are made pursuant to a
restricted stock purchase agreement with the price to be paid for the shares
granted thereunder being determined by the administrator. The Company is
generally granted a repurchase option exercisable on the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The repurchase price shall be the
original purchase price paid by the purchaser. The repurchase option shall lapse
at a rate determined by the administrator. Once the stock purchase right has
been exercised, the purchaser shall have the rights equivalent to those of a
stockholder.
1998 Employee Stock Purchase Plan. The Company has adopted a 1998 Employee
Stock Purchase Plan (the "Purchase Plan"), and has reserved a total of 250,000
shares of Common Stock for issuance thereunder. The Purchase Plan also provides
for an annual increase, commencing in 1999, in the number of shares reserved for
issuance under the Purchase Plan equal to the lesser of 250,000, 1% of the
Company's outstanding capitalization or a lesser amount determined by the Board
(such that the maximum number of shares which could be reserved under the
Purchase Plan over its term would be 2,500,000 shares). No shares have been
issued under the Purchase Plan to date. The Purchase Plan, which is intended to
qualify under Section 423 of the Code will be administered by the Board of
Directors of the Company or by a committee appointed by the Board of Directors.
Under the Purchase Plan, the Company will withhold a specified percentage (not
to exceed 15%) of each salary payment to participating employees over certain
offering periods. Any employee who is currently employed for at least 20 hours
per week and for at least five consecutive months in a calendar year, either by
the Company or by a majority-owned subsidiary of the Company, will be eligible
to participate in the Purchase Plan. Unless the Board of Directors or the
committee determines otherwise, each offering period will run for 24 months and
will be divided into consecutive purchase periods of approximately six months.
The first offering period and the first purchase period will commence on the
date of this Prospectus. Thereafter, new 24 month offering periods will commence
every six months on each November 1 and May 1. In the event of a change in
control of the Company, including a merger of the Company with or into another
corporation, or the sale of all or substantially all of the assets of the
Company, the offering and purchase periods then in progress will be shortened.
The price of Common Stock purchased under the Purchase Plan will be equal to 85%
of the fair market value of the Common Stock on the first day of the applicable
offering period or the last day of the applicable purchase period, whichever is
lower. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment with the Company. The maximum number of shares that a participant may
purchase on the last day of any offering period is determined by dividing the
payroll deductions accumulated during the purchase period by the purchase price.
However, no person may purchase shares under the Purchase Plan to the
54
<PAGE> 56
extent such person would own 5% or more of the total combined value or voting
power of all classes of the capital stock of the Company or of any of its
subsidiaries, or to the extent that such person's rights to purchase stock under
all employee stock purchase plans would exceed $25,000 for any calendar year.
The Board of Directors may amend the Purchase Plan at any time. The Purchase
Plan will terminate in March 2008, unless terminated earlier in accordance with
the provisions of the Purchase Plan.
1998 Director Option Plan. The Company has adopted a 1998 Director Option
Plan (the "Director Plan"), and has reserved a total of 250,000 shares of Common
Stock for issuance thereunder. Each nonemployee director who becomes a director
of the Company after the date of this offering will be automatically granted a
nonstatutory option to purchase 30,000 shares of Common Stock on the date on
which such person first becomes a director (the "Initial Grant"). At each annual
stockholders meeting beginning with the 1999 Annual Stockholders Meeting, each
nonemployee director will automatically be granted a nonstatutory option to
purchase 7,500 shares of Common Stock (10,000 shares for the Chairman of the
Board if a nonemployee director) (the "Subsequent Grant"). The exercise price of
options under the Director 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 Director Plan is ten years. Each Initial Grant under the Director Plan will
vest as to 25% of the shares subject to the option one year after the date of
grant and at a rate of 1/48th of the shares each month thereafter. Each
Subsequent Grant will vest as to 1/48th of the shares subject to the option one
month after the date of grant and at a rate of 1/48th of the shares on the last
day of each month thereafter. In the event of a merger of the Company with or
into another corporation, all outstanding options may either by assumed or an
equivalent option may be substituted by the surviving entity or, if such options
are not assumed or substituted, such options shall become exercisable as to all
of the shares subject to the options, including shares as to which they would
not otherwise be exercisable. In the event that options become exercisable in
lieu of assumption or substitution, the Board of Directors shall notify
optionees that all options shall be fully exercisable for a period of 30 days,
after which such options shall terminate. In the event that a
nonemployee-director is involuntarily terminated following option assumption,
such option becomes fully vested and exercisable. The Director Plan will
terminate in March 2008, unless terminated earlier in accordance with the
provisions of the Director Plan.
401(k) PLAN
The Company's employees who are located in the United States and have been
employed by the Company for three months or more are covered by Cell Genesys'
Retirement Savings and Investment Plan (the "401(k) Plan"). The 401(k) Plan will
cover the Company's eligible employees so long as Cell Genesys owns 50% or more
of the Company's outstanding Common Stock. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lesser of
15% of their annual compensation or the statutorily prescribed annual limit
allowable under Internal Revenue Service Regulations and to have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional matching contributions by the Company on behalf of all
participants in the 401(k) Plan. The Company has not made any contributions to
the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401(k) of
the Code so that contributions to the 401(k) Plan by employees or by the
Company, and the investment earnings thereon, are not taxable to employees until
withdrawn from the 401(k) Plan, and that contributions by the Company, if any,
will be deductible by the Company when made. At such time as Cell Genesys'
equity ownership in the Company drops below 50%, the Company's employees will
not be eligible to participate in Cell Genesys' 401(k) Plan and the Company
intends to implement its own retirement savings and investment plan.
CHANGE IN CONTROL ARRANGEMENTS
The Company's Board of Directors has approved a plan which provides that in
the event of a change in control of the Company, the options of each employee of
the Company whose employment
55
<PAGE> 57
is terminated without cause within 24 months of the change in control shall be
exercisable in full. For this purpose, a change in control includes: (i) a
person becoming the beneficial owner of 50% or more of the Company's outstanding
voting securities, (ii) certain changes in the composition of the Board of
Directors occurring within a two year period or (iii) a merger or consolidation
of the Company in which the stockholders of the Company immediately before the
transaction own immediately after the transaction less than a majority of the
outstanding voting securities of the surviving entity (or its parent).
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability does
not apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and executive officers 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 the Company
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
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<PAGE> 58
CERTAIN TRANSACTIONS
Incorporation and Organization of Abgenix. Pursuant to the terms of the
Stock Purchase and Transfer Agreement (the "Agreement") between Abgenix and Cell
Genesys, Abgenix issued 1,691,667 shares of Series A Senior Convertible
Preferred Stock to Cell Genesys in exchange for $10 million, and 2,058,333
shares of Series 1 Subordinated Convertible Preferred Stock to Cell Genesys, and
in exchange, Cell Genesys contributed research, development and manufacturing
technology, patents and other intellectual property specific to the antibody
therapy programs to be pursued by Abgenix, including Cell Genesys' interest in
Xenotech, and certain equipment, furniture and fixtures leased by Cell Genesys.
Abgenix is responsible for the remaining lease obligations for such capital
equipment which total approximately $38,000 per month. Cell Genesys also
assigned to the Company two notes receivable totaling $150,000.
On July 15, 1996, the Registrant, in exchange for a loan in the principal
amount of up to $4,000,000, issued a Convertible Promissory Note to Cell Genesys
that subsequently was converted into 666,667 shares of Series A Preferred Stock
at a conversion price of $6.00 upon the closing of the Series B Preferred Stock
Financing in December 1997 (see "Preferred Stock Financings").
Simultaneously with the execution of the Agreement, Abgenix and Cell
Genesys entered into a Governance Agreement, Tax Sharing Agreement, Services
Agreement and Patent Assignment Agreement. In addition, Abgenix and Cell Genesys
entered into an Immunization Services Agreement, Gene Therapy Agreement and
Voting Agreement. The Immunization Services Agreement, Gene Therapy Agreement
and Voting Agreement were superseded by the Gene Therapy Rights Agreement. See
"Business -- Corporate Arrangements."
The Governance Agreement provides that so long as Cell Genesys or a group
to which it belongs owns (i) a majority of the outstanding voting stock of
Abgenix, Cell Genesys or the group shall have the right to nominate four out of
the seven directors of the Company, (ii) less than a majority but greater than
25% of the outstanding voting stock of Abgenix, then Cell Genesys or such group
shall have the right to nominate three out of the seven directors of the
Company, or (iii) less than 25% but greater than 15% of the outstanding voting
stock of Abgenix, then Cell Genesys or such group shall have the right to
nominate one out of the seven directors of the Company. The Governance Agreement
also provides that Cell Genesys and each officer and director of Abgenix who
owns voting stock shall agree to vote for the persons nominated as set forth
above.
The Tax Sharing Agreement (the "Tax Agreement") provides for the allocation
of federal and state tax liabilities between Abgenix and Cell Genesys. Pursuant
to the terms of the Tax Agreement, Abgenix will pay to Cell Genesys the federal
and state income and franchise tax liability that Abgenix would have owed if it
had filed separate returns. If Abgenix realizes a loss or credit that reduces
the consolidated tax liability of Cell Genesys, then Cell Genesys shall pay
Abgenix the amount of the reduction. The Tax Agreement shall remain in effect
with respect to any taxable year for which consolidated or combined returns are
filed by Cell Genesys as a common parent corporation and such party is an
includable party in such consolidated return.
Pursuant to the terms of the Services Agreement, Cell Genesys provided
certain administrative services for a quarterly fee. In fiscal 1997, these fees
totaled $60,000.
Pursuant to the terms of the Patent Assignment Agreement, Cell Genesys
assigned to Abgenix all of its rights in and to certain patents and patent
applications related to antibody development.
Other Transactions with Cell Genesys. On January 23, 1997 and March 27,
1997, the Company issued two warrants to purchase an aggregate of 121,667 shares
of Series A Preferred Stock (convertible into 121,667 shares of Common Stock) to
Cell Genesys at the exercise price per share of $6.00 in return for providing
guarantees for the Loan and Security Agreement with Silicon Valley Bank and the
Master Lease Agreement with Transamerica Business Credit Corporation.
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<PAGE> 59
In October 1997, Cell Genesys extended a short-term, convertible line of
credit facility (the "LOC") to Abgenix. The LOC terminated in accordance with
its terms, without Abgenix drawing upon the LOC, upon the closing of the Series
B Preferred Stock financing in December 1997.
BancAmerica Robertson Stephens Relationship. M. Kathleen Behrens, Ph.D. a
director of the Company, is also a managing director of Robertson Stephens
Investment Management Co. BancAmerica Robertson Stephens acted as one of the
Company's placement agents in the Series B Preferred Stock financing in December
1997. BancAmerica Robertson Stephens received approximately $759,000 in fees for
services provided in the private placement. Also, persons and entities
affiliated with BancAmerica Robertson Stephens purchased, in the aggregate,
784,616 shares of the Series B Preferred Stock for an aggregate purchase price
of approximately $5.1 million. BancAmerica Robertson Stephens is also serving as
one of the underwriters in this offering.
Preferred Stock Financings. The holders of Preferred Stock include, among
others, the following directors and holders of more than 5% of the Company's
outstanding stock:
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------
PREFERRED STOCKHOLDER SERIES A SERIES B
--------------------- --------- --------
<S> <C> <C>
Cell Genesys, Inc.(1)....................................... 4,538,334 --
Robertson Stephens Investment Management Co. Entities(2).... -- 769,231
S-E Banken Entities(3)...................................... -- 461,532
Stephen A. Sherwin, M.D.(4)................................. 4,538,334 --
M. Kathleen Behrens, Ph.D.(5)............................... -- 784,616
Raju Kucherlapati, Ph.D.(6)................................. 4,538,334 10,000
Joseph E. Maroun(7)......................................... 4,538,334 153,846
</TABLE>
- ---------------
(1) Includes 121,667 shares issuable pursuant to outstanding warrants to
purchase Series A Preferred Stock.
(2) Includes 56,280 shares held by Bayview Investors, LTD, 224,145 shares held
by Crossover Fund II, L.P., 67,663 shares held by Crossover Fund IIA, L.P.,
334,079 shares held by Omega Ventures II, L.P., 87,064 shares held by Omega
Ventures II Cayman, L.P. (collectively, the "Robertson Stephens Investment
Management Co. Shares"). Each of the above entities is affiliated with
Robertson Stephens Investment Management Co.
(3) Includes 392,305 shares held by S-E Banken -- Lakemedelsfond and 69,227
shares held by S-E Banken -- Luxembourg S.A.
(4) Includes 4,416,667 shares held by Cell Genesys and 121,667 shares issuable
pursuant to outstanding warrants to purchase Series A Preferred Stock
(collectively, the "Cell Genesys Owned Shares"). Dr. Sherwin is an officer,
director and beneficial stockholder of Cell Genesys, Inc. As such, he may be
deemed to have voting and dispositive power over the Cell Genesys Owned
Shares. However, Dr. Sherwin disclaims beneficial ownership of the Cell
Genesys Owned Shares except to the extent of his pro rata pecuniary interest
therein.
(5) Includes the Robertson Stephens Investment Management Co. Shares. Dr.
Behrens, a managing director of Robertson Stephens Investment Management
Co., disclaims beneficial ownership of the shares of the Company held by the
Robertson Stephens Investment Management Co. Entities except to the extent
of her pro rata pecuniary interest therein.
(6) Includes the Cell Genesys Owned Shares. Dr. Kucherlapati is a director and
beneficial stockholder of Cell Genesys. As such, he may be deemed to have
voting power over the Cell Genesys Owned Shares. However, Dr. Kucherlapati
disclaims beneficial ownership of the Cell Genesys Owned Shares except to
the extent of his pecuniary interest therein.
(7) Includes the Cell Genesys Owned Shares. Mr. Maroun is a director and
beneficial stockholder of Cell Genesys. As such, he may be deemed to have
voting and dispositive power over the Cell Genesys Owned Shares. However,
Mr. Maroun disclaims beneficial ownership of the Cell Genesys Owned Shares
except to the extent of his pro rata pecuniary interest therein.
In connection with, and contemporaneous to, the Series B Preferred Stock
financing the shares of Series A Senior Convertible Preferred Stock, the shares
of Series 1 Subordinated Convertible Preferred Stock and the Convertible
Promissory Note issued to Cell Genesys in July 1996 (see above) were all
converted into an aggregate 4,416,667 shares of Series A Preferred Stock.
Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock -- Registration Rights."
After the completion of this offering, Cell Genesys will beneficially own
approximately 40.3% of the outstanding capital stock. As a result, Cell Genesys
will have significant influence over all matters
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<PAGE> 60
requiring the approval of the Company's stockholders, including the election of
the Company's Board of Directors. See "Risk Factors -- Significant Influence by
Cell Genesys, Inc."
Three of the Company's directors, Stephen A. Sherwin, M.D., Raju S.
Kucherlapati, Ph.D. and Joseph E. Maroun are also directors of Cell Genesys. Dr.
Sherwin is also the Chairman of the Board and Chief Executive Officer of Cell
Genesys. See above for a description of transactions with Cell Genesys.
Transactions with Employees. On May 27, 1997, John A. Lipani, M.D. the
Company's Vice President, Clinical Development, and Abgenix entered into a
Relocation Loan Agreement pursuant to which Abgenix loaned $100,000 to Dr.
Lipani in exchange for a promissory note secured by a deed of trust. No interest
accrues on the loan until May 27, 2002. The outstanding principal balance as of
December 31, 1997 was $100,000. In addition, Dr. Lipani received a $35,000 loan
from Abgenix to assist with relocation expenses. The $35,000 loan, which is
evidenced by a promissory note, will be forgiven in full once Dr. Lipani
completes 12 months of employment.
On December 2, 1992, R. Scott Greer, the Company's President and Chief
Executive Officer, and Cell Genesys entered into a Relocation Loan Agreement
pursuant to which Cell Genesys loaned $100,000 to Mr. Greer in exchange for an
interest free promissory note secured by shares of Cell Genesys' Common Stock
owned by Mr. Greer. In June 1996, Cell Genesys assigned its rights under the
promissory note to the Company. Mr. Greer repaid the entire loan to the Company
in September 1997.
On April 21, 1995, C. Geoffrey Davis, Ph.D. the Company's Vice President,
Research, and Cell Genesys entered into a Relocation Loan Agreement pursuant to
which Cell Genesys loaned $30,000 to Dr. Davis in exchange for a promissory note
secured by a deed of trust. No interest accrues on the loan until January 1,
2000. In June 1996, Cell Genesys assigned its rights under the promissory note
to the Company. As of December 31, 1997, the outstanding principal balance was
$30,000.
On August 26, 1997, Mr. Leutzinger received a $25,000 loan from Abgenix to
assist with relocation expenses. The $25,000 loan, which is evidenced by a full
recourse promissory note, will be forgiven in full once Mr. Leutzinger completes
12 months of employment. On February 27, 1998, Mr. Leutzinger and Abgenix
entered into a Relocation Loan Agreement pursuant to which Abgenix loaned
$100,000 to Mr. Leutzinger in exchange for a promissory note secured by a deed
of trust. No interest accrues on the loan until June 30, 2003.
The Company has entered into indemnification agreements with each of its
directors and executive officers. See "Management -- Limitation of Liability and
Indemnification Matters."
All future transactions, including any loans from Abgenix to its officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to Abgenix than could be obtained from unaffiliated third parties.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 1998, and as adjusted
to reflect the sale of the Common Stock offered hereby for: (i) each person or
entity who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each of the Company's directors, (iii) each Named Executive
Officer and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
Cell Genesys, Inc.(2)....................................... 4,538,334 55.0% 40.3%
342 Lakeside Drive
Foster City, CA 94404
Robertson Stephens Investment Management Co. Entities(3).... 769,231 9.5 6.9
555 California Street, Suite 2600
San Francisco, CA 94104
S-E Banken Entities(4)...................................... 461,532 5.7 4.1
ST-R2, S-106 40
Stockholm, Sweden
Joseph E. Maroun(5)......................................... 4,708,107 56.9 41.8
Stephen A. Sherwin, M.D.(6)................................. 4,587,074 55.2 40.6
Raju S. Kucherlapati, Ph.D.(7).............................. 4,566,344 55.2 40.5
M. Kathleen Behrens, Ph.D.(3)............................... 784,616 9.6 7.0
R. Scott Greer(8)........................................... 147,084 1.8 1.3
C. Geoffrey Davis, Ph.D.(9)................................. 53,250 * *
Raymond M. Withy, Ph.D.(10)................................. 53,250 * *
Kurt W. Leutzinger.......................................... 0 * *
John A. Lipani, M.D.(11).................................... 28,411 * *
Mark B. Logan............................................... 0 * *
All directors and executive officers as a group (10
persons)(12).............................................. 5,851,468 69.1% 51.0%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
stockholders named in the table above has sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them. Percentage of beneficial ownership is based on 8,137,512 shares of
Common Stock outstanding as of March 31, 1998 and 11,137,512 shares of
Common Stock outstanding after completion of this offering.
(2) Includes 121,667 shares issuable pursuant to warrants exercisable within 60
days of March 31, 1998.
(3) Includes 56,280 shares held by Bayview Investors, LTD, 224,145 shares held
by Crossover Fund II, L.P., 67,663 shares held by Crossover Fund IIA, L.P.,
334,079 shares held by Omega Ventures II, L.P. and 87,064 shares held by
Omega Ventures II Cayman, L.P. Each of the above entities is affiliated
with Robertson Stephens Investment Management Co. Dr. Behrens, a managing
director of Robertson Stephens Investment Management Co., disclaims
beneficial ownership of the shares of the Company held by the Robertson
Stephens Investment Management Co. Entities except to the extent of her pro
rata pecuniary interests therein.
(4) Includes 392,305 shares held by S-E Banken -- Lakemedelsfond and 69,227
shares held by S-E Banken -- Luxembourg S.A.
(5) Includes the Cell Genesys Owned Shares. Also includes 15,927 shares
issuable upon exercise of options exercisable within 60 days of March 31,
1998. Mr. Maroun is a director and beneficial stockholder of Cell Genesys.
As such, he may be deemed to have voting and dispositive power over the
Cell Genesys Owned Shares. However, Mr. Maroun disclaims beneficial
ownership of the Cell Genesys Owned Shares except to the extent of his pro
rata pecuniary interest therein based upon his beneficial ownership of the
capital stock of Cell Genesys.
(6) Includes the Cell Genesys Owned Shares. Also includes, 48,740 shares
issuable upon exercise of options exercisable within 60 days of March 31,
1998. Dr. Sherwin is an officer, director and beneficial stockholder of
Cell Genesys. As such, he may be deemed to have voting and dispositive
power over the Cell Genesys Owned Shares. However, Dr. Sherwin disclaims
beneficial ownership of the Cell Genesys Owned Shares except to the extent
of his pro rata pecuniary interest therein based upon his beneficial
ownership of the capital stock of Cell Genesys.
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<PAGE> 62
(7) Includes the Cell Genesys Owned Shares. Also includes, 18,010 shares
issuable upon exercise of options exercisable within 60 days of March 31,
1998. Dr. Kucherlapati is a director and beneficial stockholder of Cell
Genesys. As such, he may be deemed to have voting and dispositive power
over the Cell Genesys Owned Shares. However, Dr. Kucherlapati disclaims
beneficial ownership of the shares of the Cell Genesys Owned Shares except
to the extent of his pro rata pecuniary interest therein based upon his
beneficial ownership of the capital stock of Cell Genesys.
(8) Includes 25,574 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.
(9) Includes 53,250 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.
(10) Includes 17,834 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.
(11) Includes 28,411 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.
(12) Includes 207,746 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1998 and 121,667 shares subject to warrants.
61
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
50,000,000 shares of Common Stock, $0.0001 par value per share and authorizes
the issuance of 5,000,000 shares of Preferred Stock, $0.0001 par value per
share, the rights and preferences of which may be established from time to time
by the Company's Board of Directors. As of March 31, 1998, 293,160 shares of
Common Stock were issued and outstanding and held by 59 stockholders and
7,844,352 shares of Preferred Stock were issued and outstanding and held by 31
stockholders. Upon the closing of this offering, all outstanding shares of
Preferred Stock will convert into an aggregate of 7,844,352 shares of Common
Stock.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share in the Company's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any 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, and the shares of Common Stock offered
by the Company in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
Common Stock are subject to, and may be adversely affected by the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate in the future.
PREFERRED STOCK
Upon the closing of this offering, the Board of Directors will be
authorized, without any further action by the stockholders, subject to any
limitations prescribed by law, without stockholder approval, from time to time
to issue up to an aggregate of 5,000,000 shares of Preferred Stock, $0.0001 par
value per share, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. Issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of March 31, 1998, the Company has two outstanding warrants to purchase
an aggregate of 121,667 shares of Series A Preferred Stock at an exercise price
of $6.00 per share. These warrants are currently exercisable. One warrant will
expire on January 23, 2000 and the other warrant will expire on March 27, 2000.
Also, as of March 31, 1998, the Company is obligated to issue 25,000 shares of
the Common Stock upon the occurrence of certain milestones pursuant to the terms
of a license agreement.
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<PAGE> 64
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After the offering, the holders of 7,844,352 shares of Common Stock and
121,667 shares of Common Stock issuable upon exercise of outstanding warrants
(the "Registrable Securities") or their transferees are entitled to certain
rights with respect to the registration of such shares under the Securities Act.
These rights are provided under the terms of an agreement (the "Amended and
Restated Stockholder Rights Agreement") between the Company and the holders of
the Registrable Securities. The holders of at least 50% of the Registrable
Securities may require, subject to the lock-up agreements described under
"Underwriting" and certain limitations in the Amended and Restated Stockholder
Rights Agreement, on two occasions, that the Company use its best efforts to
register the Registrable Securities for public resale. If the Company registers
any of its Common Stock either for its own account or for the account of other
security holders, other than in connection with the registration of the shares
offered hereby and certain other exceptions, the holders of Registrable
Securities are entitled to include their shares of Common Stock in the
registration. A holder's right to include shares in an underwritten registration
statement is subject to the right of the underwriters to limit the number of
shares included in the offering, subject to certain limitations. The holders of
Registrable Securities may also require the Company on no more than two
occasions during any 12-month period to register all or a portion of their
Registrable Securities on Form S-3 when use of such form becomes available to
the Company, provided, among other limitations, that the proposed aggregate
selling price, net of underwriting discounts and commissions, is at least
$500,000. All registration expenses will be borne by the Company (subject to
certain limitations) and all selling expenses relating to Registrable Securities
must be borne by the holders of the securities being requested. If such holders,
by exercising their demand registration rights, cause a large number of
securities to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's Common Stock. If the
Company were to initiate a registration and include Registrable Securities
pursuant to the exercise of piggyback registration rights, the sale of such
Registrable Securities may have an adverse effect on the Company's ability to
raise capital.
CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for stockholders to take certain corporate actions an could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which 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 for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also officers
and by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; of (iii) on or subsequent to such date,
the business combination is approved by the 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 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
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<PAGE> 65
The Company's Amended and Restated Certificate of Incorporation eliminates
the right of stockholders to call special meetings of stockholders to act by
written consent without a meeting. The Amended and Restated Certificate of
Incorporation and Bylaws do not provide for cumulative voting in the election of
directors. The authorization of undesignated Preferred Stock makes it possible
for the board of directors to issue Preferred Stock with voting or other rights
or preferences that could impede the success of any attempt to change control of
the Company. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of the Company. The
amendment of any of these provisions would require approval by holders of at
least 66 2/3% of the outstanding Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
64
<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the ability of the Company to raise equity capital in the future.
Upon the completion of this offering, based on the number of shares
outstanding as of March 31, 1998, the Company will have 11,137,512 shares of
Common Stock outstanding, assuming (i) the issuance by the Company of shares of
Common Stock offered hereby, (ii) no exercise of options, warrants or other
obligations to issue shares after March 31, 1998 and (iii) no exercise of the
Underwriters' over-allotment option to purchase 450,000 shares of Common Stock,
except as otherwise noted. Of these shares, the 3,000,000 shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. The remaining 8,137,512 shares of Common Stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration such as Rule 144, 144(k) or 701 under the Securities
Act. Ninety days after the date of this Prospectus, 29,668 shares of Common
Stock will be freely tradable without restriction under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. The Company's directors, executive officers, certain
stockholders and all option holders, who in the aggregate hold all of the shares
of Common Stock or securities convertible into Common Stock of the Company
outstanding immediately prior to the completion of this offering, have entered
into lock-up agreements under which they have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of, or agree
to dispose of, directly or indirectly, any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into Common Stock owned by them for a period of 180 days after the
date of this Prospectus, without the prior written consent of BancAmerica
Robertson Stephens. The Company has entered into a similar agreement, except
that the Company may grant options and issue stock under its current stock
option and stock purchase plans and pursuant to other currently outstanding
options, warrants or other obligations to issues shares.
Upon expiration of the 180-day lock-up agreement, 4,680,159 shares of
Common Stock will become eligible for immediate public resale, subject to volume
limitations pursuant to Rule 144. The remaining 3,427,685 shares held by
existing stockholders will become eligible for public resale at various times
over a period of less than one year following the completion of this offering,
subject to volume limitations. After the offering, the holders of 7,844,352
shares of Common Stock will be entitled to certain demand and piggyback rights
with respect to registration of such shares under the Securities Act. If such
holders, exercising the demand registration rights, causes a large number of
securities to be registered and sold in the public market, such shares could
have an adverse effect on the market price for the Company's Common Stock. If
the Company were to initiate a registration and include shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise capital.
Additionally, 121,667 shares issuable pursuant to warrants and subject to the
180-day lock-up agreement, will also be entitled to such registration rights.
The number of shares sold in the public market could increase if such
registration rights are exercised.
As of March 31, 1998, 1,703,633 shares were subject to outstanding options.
Approximately 1,592,752 of these shares are subject to the 180-day lock-up
agreement described above. Of the remaining 110,881 shares subject to
outstanding options, approximately 44,101 were vested as of March 31, 1998.
After this offering, the Company intends to file a Registration Statement on
Form S-8 covering shares issuable under the Company's 1996 Plan (including
shares subject to then outstanding options under such plans), Director Plan and
Purchase Plan, thus permitting the resale of such shares in the public market
without restriction under the Securities Act after expiration of the applicable
65
<PAGE> 67
lock-up agreements and any vesting restrictions. Also as of March 31, 1998, the
Company is obligated to issue 25,000 shares of Common Stock upon the occurrence
of certain milestones pursuant to the terms of a license agreement.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 180 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 111,375 shares
immediately after this offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701 under the Securities
Act, persons who purchase shares upon exercise of options granted prior to the
effective date of this offering are entitled to sell such shares 180 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.
66
<PAGE> 68
UNDERWRITING
The underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens and Lehman Brothers Inc. (the "Representatives"),
have severally agreed with the Company, subject to the terms and conditions of
the Underwriting Agreement, to purchase the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BancAmerica Robertson Stephens..............................
Lehman Brothers Inc.........................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-Day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 3,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,000,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer, director and certain other stockholders of the Company
together holding or having dispositive power over substantially all of the
shares of the Company's Common Stock and Redeemable Preferred Stock have agreed
with the Representatives for a period of 180 days after the effective date of
this Prospectus (the "180-Day Lock-Up Period") subject to certain exceptions,
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock owned as of the date
of this Prospectus or thereafter acquired directly by such holders or with
respect to which they have or hereafter acquire the power of disposition,
without the prior written consent of BancAmerica Robertson Stephens. However,
BancAmerica Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. Approximately 4,680,159 of such shares will be eligible for
immediate public sale following expiration of the 180-Day Lock-Up Period,
subject to the provisions of Rule 144. In addition, the Company has
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<PAGE> 69
agreed that during the 180-Day Lock-Up Period, the Company will not, without the
prior written consent of BancAmerica Robertson Stephens, subject to certain
exceptions, issue, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock, any options or warrants to purchase any shares of Common Stock
or any securities convertible into, exercisable for or exchangeable for shares
of Common Stock other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options and the
Company's issuance of options and shares under existing employee stock option
and stock purchase plans. See "Shares Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
In December 1997, certain entities and persons affiliated with BancAmerica
Robertson Stephens purchased an aggregate of 784,616 shares of the Company's
Preferred Stock at a purchase price of $6.50 per share for an aggregate amount
of approximately $5.1 million. Such shares convert into 784,616 shares of Common
Stock on the closing of this offering. In addition, M. Kathleen Behrens, Ph.D.,
a director of the Company, is a managing director of Robertson Stephens
Investment Management Co.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby was determined through negotiations among the
Company and the Representatives. Among the factors considered in such
negotiations were prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Cooley Godward LLP, Palo Alto, California.
As of March 31, 1998, a certain investment partnership and members of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, beneficially owned an
aggregate of 16,250 shares of Common Stock of the Company.
EXPERTS
The financial statements of Abgenix, Inc. at December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997 appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon
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<PAGE> 70
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Xenotech, L.P. at December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 and for
the period from inception (June 12, 1991) to December 31, 1997, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act,
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete. In each instance, reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. Copies of the Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's principal
office in Washington, D.C., or obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov.
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<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Abgenix, Inc., Audited Financial Statements
Report of Ernst & Young LLP, Independent Auditors......... F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statement of Changes in Redeemable Convertible Preferred
Stock and
Stockholders' Equity (Net Capital Deficiency).......... F-5
Statements of Cash Flows.................................. F-7
Notes to Financial Statements............................. F-8
Xenotech, L.P., Audited Financial Statements
Report of Ernst & Young LLP, Independent Auditors......... F-23
Balance Sheets............................................ F-24
Statements of Operations.................................. F-25
Statement of Partners' Capital............................ F-26
Statements of Cash Flows.................................. F-27
Notes to Financial Statements............................. F-28
</TABLE>
F-1
<PAGE> 72
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Abgenix, Inc.
We have audited the accompanying balance sheets of Abgenix, Inc. as of
December 31, 1996 and 1997, and the related statements of operations, changes in
redeemable convertible preferred stock and stockholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1997. 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 generally accepted auditing
standards. 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 Abgenix, Inc. at December
31, 1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 23, 1998
F-2
<PAGE> 73
ABGENIX, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 (NOTE 9)
-------- -------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 7,190 $ 4,617 $ 971
Short-term investments............................... 2,982 10,704 12,369
Prepaid expenses and other current assets............ 158 550 786
-------- -------- ---------
Total current assets................................... 10,330 15,871 14,126
Property and equipment, net............................ 3,648 5,776 5,536
Deposits and other assets.............................. 379 437 535
-------- -------- ---------
$ 14,357 $ 22,084 $ 20,197
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Short-term payable to parent......................... $ 2,429 $ 212 $ 68
Short-term payable to related party.................. -- 3,750 3,750
Accounts payable..................................... -- 426 168
Deferred revenue from related party.................. 376 -- --
Accrued stock issuance costs......................... -- 1,200 --
Other accrued liabilities............................ 1,961 2,000 3,337
Current portion of long-term debt.................... -- 1,646 1,658
-------- -------- ---------
Total current liabilities.............................. 4,766 9,234 8,981
Long-term note payable to parent....................... 1,757 -- --
Long-term debt......................................... -- 3,979 3,559
Commitments
Redeemable convertible preferred stock, $0.0001 par
value; 20,000,000 shares authorized, 3,750,000 and
7,263,209 shares issued and outstanding at December
31, 1996 and 1997, and 7,844,352 shares issued and
outstanding at March 31, 1998; (no shares pro forma),
at amount paid in; aggregate redemption and
liquidation value of approximately $45,003 and
$49,020 at December 31, 1997 and March 31, 1998,
respectively......................................... 10,150 31,189 35,125 $ --
Redeemable convertible preferred stock subscription
receivable........................................... -- (2,737) -- --
Redeemable convertible preferred stock issuable........ -- 2,737 -- --
Stockholders' equity (net capital deficiency):
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 1,192, 233,542 and 293,160 shares
issued and outstanding at December 31, 1996 and
1997 and March 31, 1998, respectively; (8,137,512
shares pro forma), at amount paid in............... 1 351 397 35,522
Contributions from parent............................ 14,277 29,277 29,277 29,277
Additional paid-in capital........................... -- 1,776 2,296 2,296
Deferred compensation................................ -- (1,248) (1,619) (1,619)
Accumulated deficit.................................. (16,594) (52,474) (57,819) (57,819)
-------- -------- --------- --------
Total stockholders' equity (net capital deficiency).... (2,316) (22,318) (27,468) $ 7,657
-------- -------- --------- ========
$ 14,357 $ 22,084 $ 20,197
======== ======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 74
ABGENIX, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Revenue under collaborative agreements
from related parties (net of equity
in losses of Xenotech of $1,702,
$3,866 and $897 for the years ended
December 31, 1995, 1996 and 1997, and
$110 and $115 for the three months
ended March 31, 1997 and 1998,
respectively)........................ $ 6,200 $ 4,719 $ 1,343 $ 335 $ 291
Contract revenue........................ -- -- 611 -- 600
------- ------- -------- -------- -------
Total revenues............................ 6,200 4,719 1,954 335 891
Operating expenses:
Research and development................ 11,879 9,433 11,405 2,078 5,366
General and administrative.............. 2,603 2,565 3,525 1,004 918
Charge for cross-license and settlement
(includes $11,250 allocated from
parent for the year ended December
31, 1997 and $11,250 and $3,750
recorded as the Company's share of
equity in losses of Xenotech for the
year ended December 31, 1997 and for
the three months ended March 31,
1997, respectively).................. -- -- 22,500 15,000 --
------- ------- -------- -------- -------
Total operating expenses.................. 14,482 11,998 37,430 18,082 6,284
------- ------- -------- -------- -------
Operating loss............................ (8,282) (7,279) (35,476) (17,747) (5,393)
Other income and expenses:
Interest income......................... -- 203 307 124 197
Interest expense........................ -- (24) (711) (77) (149)
------- ------- -------- -------- -------
Net loss.................................. $(8,282) $(7,100) $(35,880) $(17,700) $(5,345)
======= ======= ======== ======== =======
Pro forma net loss per share.............. $ (9.22) $ (0.67)
======== =======
Shares used in computing pro forma net
loss per share.......................... 3,894 7,953
======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 75
ABGENIX, INC.
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED REDEEMABLE
REDEEMABLE STOCK CONVERTIBLE
CONVERTIBLE SUBSCRIPTION PREFERRED STOCK
PREFERRED STOCK RECEIVABLE ISSUABLE
--------------- ------------ ---------------
<S> <C> <C> <C>
Balance at December 31, 1994....... $ -- $ -- $ --
Contributions from parent........ -- -- --
Net loss......................... -- -- --
------- ------- -------
Balance at December 31, 1995....... -- -- --
Contributions from parent........ -- -- --
Issuance of 3,750,000 shares of
Series A redeemable convertible
preferred stock to parent for
$10,000 cash and assignment of
employee notes totalling $150
in July 1996................... 10,150 -- --
Issuance of 1,192 shares of
common stock upon exercise of
stock options.................. -- -- --
Net loss......................... -- -- --
------- ------- -------
Balance at December 31, 1996....... 10,150 -- --
Contributions from parent........ -- -- --
Issuance of 2,846,542 shares of
Series B redeemable convertible
preferred stock in December
1997 for cash at $6.50 per
share, net of issuance costs of
$1,463......................... 17,039 -- --
Conversion of note payable to
parent into 666,667 shares of
Series A redeemable convertible
preferred stock in December
1997........................... 4,000 -- --
Stock subscription to purchase
421,143 shares of Series B
redeemable convertible
preferred stock at $6.50 per
share in December 1997......... -- (2,737) 2,737
Issuance of 176,756 shares of
common stock upon exercise of
stock options.................. -- -- --
Issuance of 55,594 shares of
common stock upon the exercise
of stock purchase rights....... -- -- --
Deferred compensation for stock
options issued below deemed
fair value..................... -- -- --
Amortization of deferred
compensation................... -- -- --
Net loss......................... -- -- --
------- ------- -------
Balance at December 31, 1997....... 31,189 (2,737) 2,737
Issuance of 160,000 shares of
Series C redeemable convertible
preferred stock at $8.00 per
share (unaudited).............. 1,280 -- --
Issuance of 421,143 shares of
Series B redeemable convertible
preferred stock, net of
issuance costs of $81
(unaudited).................... 2,656 2,737 (2,737)
Issuance of 59,618 shares of
common stock upon exercise of
stock options (unaudited)...... -- -- --
Deferred compensation for stock
options issued below deemed
fair value (unaudited)......... -- -- --
Amortization of deferred
compensation (unaudited)....... -- -- --
Net loss (unaudited)............. -- -- --
------- ------- -------
Balance at March 31, 1998
(unaudited)...................... $35,125 $ -- $ --
======= ======= =======
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
--------------------------------------------------------------------------------
TOTAL
STOCKHOLDERS'
CONTRIBUTIONS ADDITIONAL EQUITY (NET
COMMON FROM PAID-IN DEFERRED ACCUMULATED CAPITAL
STOCK PARENT CAPITAL COMPENSATION DEFICIT DEFICIENCY)
------ ------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... $ -- $ 1,212 $ -- $ -- $ (1,212) $ --
Contributions from parent........ -- 8,282 -- -- -- 8,282
Net loss......................... -- -- -- -- (8,282) (8,282)
---- ------- ------ ------- -------- --------
Balance at December 31, 1995....... -- 9,494 -- -- (9,494) --
Contributions from parent........ -- 4,783 -- -- -- 4,783
Issuance of 3,750,000 shares of
Series A redeemable convertible
preferred stock to parent for
$10,000 cash and assignment of
employee notes totalling $150
in July 1996................... -- -- -- -- -- --
Issuance of 1,192 shares of
common stock upon exercise of
stock options.................. 1 -- -- -- -- 1
Net loss......................... -- -- -- -- (7,100) (7,100)
---- ------- ------ ------- -------- --------
Balance at December 31, 1996....... 1 14,277 -- -- (16,594) (2,316)
Contributions from parent........ -- 15,000 -- -- -- 15,000
Issuance of 2,846,542 shares of
Series B redeemable convertible
preferred stock in December
1997 for cash at $6.50 per
share, net of issuance costs of
$1,463......................... -- -- -- -- -- --
Conversion of note payable to
parent into 666,667 shares of
Series A redeemable convertible
preferred stock in December
1997........................... -- -- -- -- -- --
Stock subscription to purchase
421,143 shares of Series B
redeemable convertible
preferred stock at $6.50 per
share in December 1997......... -- -- -- -- -- --
Issuance of 176,756 shares of
common stock upon exercise of
stock options.................. 128 -- -- -- -- 128
Issuance of 55,594 shares of
common stock upon the exercise
of stock purchase rights....... 222 -- -- -- -- 222
Deferred compensation for stock
options issued below deemed
fair value..................... -- -- 1,776 (1,776) -- --
Amortization of deferred
compensation................... -- -- -- 528 -- 528
Net loss......................... -- -- -- -- (35,880) (35,880)
---- ------- ------ ------- -------- --------
Balance at December 31, 1997....... 351 29,277 1,776 (1,248) (52,474) (22,318)
Issuance of 160,000 shares of
Series C redeemable convertible
preferred stock at $8.00 per
share (unaudited).............. -- -- -- -- -- --
Issuance of 421,143 shares of
Series B redeemable convertible
preferred stock, net of
issuance costs of $81
(unaudited).................... -- -- -- -- -- --
Issuance of 59,618 shares of
common stock upon exercise of
stock options (unaudited)...... 46 -- -- -- -- 46
Deferred compensation for stock
options issued below deemed
fair value (unaudited)......... -- -- 520 (520) -- --
Amortization of deferred
compensation (unaudited)....... -- -- -- 149 -- 149
Net loss (unaudited)............. -- -- -- -- (5,345) (5,345)
---- ------- ------ ------- -------- --------
Balance at March 31, 1998
(unaudited)...................... $397 $29,277 $2,296 $(1,619) $(57,819) $(27,468)
==== ======= ====== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 76
ABGENIX, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $(8,282) $ (7,100) $(35,880) $(17,700) $ (5,345)
Adjustments to reconcile net loss to net cash
used by operating activities:
Equity in losses of Xenotech................. -- 3,866 897 110 115
Depreciation and amortization................ -- 8 1,489 85 445
Charge for cross-license and settlement...... -- -- 22,500 15,000 --
Changes in certain assets and liabilities:
Prepaid expenses and other current
assets................................... -- (58) (392) (666) (236)
Deposits and other assets.................. -- (337) (78) -- (98)
Short-term payable to parent............... -- 730 -- (939) (144)
Accounts payable........................... -- -- 426 -- (258)
Deferred revenue from related parties...... -- 376 (376) (376) --
Accrued stock issuance costs............... -- -- 1,200 -- (1,200)
Other accrued liabilities.................. -- 345 39 (674) 1,337
------- -------- -------- -------- --------
Net cash used in operating activities.......... (8,282) (2,170) (10,175) (5,160) (5,384)
------- -------- -------- -------- --------
INVESTING ACTIVITIES
Purchases of short-term investments............ -- (2,982) (15,505) (4,824) (3,643)
Sales of short-term investments at maturity.... -- -- 7,783 2,919 1,978
Capital expenditures........................... -- (334) (1,075) (1,195) (54)
Contributions to Xenotech...................... -- (3,864) (4,647) (98) (117)
------- -------- -------- -------- --------
Net cash used in investing activities.......... -- (7,180) (13,444) (3,198) (1,836)
------- -------- -------- -------- --------
FINANCING ACTIVITIES
Net proceeds from issuances of redeemable
convertible preferred stock.................. -- 10,000 17,039 -- 3,936
Proceeds from issuance of note payable to
parent....................................... -- 1,757 -- 819 --
Proceeds from long-term debt................... -- -- 4,300 4,757 --
Contributions from parent...................... 8,282 4,783 -- -- --
Payments under long-term debt.................. -- -- (643) -- (408)
Proceeds from issuance of common stock......... -- -- 350 -- 46
------- -------- -------- -------- --------
Net cash provided by financing activities...... 8,282 16,540 21,046 5,576 3,574
------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. -- 7,190 (2,573) (2,782) (3,646)
Cash and cash equivalents at the beginning of
the period................................... -- -- 7,190 7,190 4,617
------- -------- -------- -------- --------
Cash and cash equivalents at the end of the
period....................................... $ -- $ 7,190 $ 4,617 $ 4,408 $ 971
======= ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest......... $ -- $ 10 $ 632 $ -- $ 150
======= ======== ======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Allocation of charges related to the
cross-license and settlement from parent and
Xenotech..................................... $ -- $ -- $ 15,000 $ 15,000 $ --
======= ======== ======== ======== ========
Conversion of note payable to parent........... -- -- 4,000 -- --
======= ======== ======== ======== ========
Financed property and equipment acquisitions... -- 3,314 -- -- --
======= ======== ======== ======== ========
Assignment of note receivable from Xenotech.... -- 30 -- -- --
======= ======== ======== ======== ========
Assignment of note receivable from parent...... -- 150 -- -- --
======= ======== ======== ======== ========
Furniture and equipment acquired under capital
lease financing.............................. -- -- 1,968 447 --
======= ======== ======== ======== ========
Deferred compensation related to grant of
certain stock options........................ -- -- 1,776 -- 520
======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 77
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Abgenix, Inc., a Delaware corporation ("Abgenix" or the "Company"), a
subsidiary of Cell Genesys, Inc., ("Cell Genesys" or the "Parent") develops and
intends to commercialize antibody therapeutic products for the prevention and
treatment of a variety of disease conditions, including transplant-related
diseases, inflammatory and autoimmune disorders and cancer. The Company has
developed a proprietary technology which it believes enables it to quickly
generate high affinity, fully human antibody product candidates to essentially
any disease target appropriate for antibody therapy. The business and operations
of Abgenix commenced in 1989 and were initially conducted within Cell Genesys.
On June 24, 1996, Abgenix was incorporated and subsequently on July 15, 1996 it
was organized pursuant to a Stock Purchase and Transfer Agreement between the
Company and Cell Genesys. The agreement sets forth the terms and conditions for
the transfer of the antibody business and operations within Cell Genesys to
Abgenix.
The accompanying financial statements include the operations of Abgenix
since July 15, 1996, and the revenues and expenses of Abgenix as a business unit
within Cell Genesys prior to July 15, 1996. Neither the balance sheets nor the
statements of cash flows reflect the carve out balances before July 15, 1996, as
it would not be meaningful.
Prior to July 15, 1996, specifically identified revenues and costs such as
research and development were allocated to Abgenix from Cell Genesys. General
and administrative expenses were allocated based on Abgenix research and
development expense as a percentage of Cell Genesys' total research and
development expenses. From July 16, 1996 to July 31, 1997, Cell Genesys
performed certain general and administrative functions on behalf of Abgenix. The
Company estimates that the general and administrative costs would have been
$500,000 to $1,000,000 higher (unaudited) for each year of operation on a
stand-alone basis. The Company believes the allocation methodology used was
reasonable.
In 1997, the Company incurred a non-recurring charge for cross-license and
settlement of $22,500,000 which represents an allocation of $11,250,000 from
Cell Genesys and an entry to record the equity in the losses of an equally owned
joint venture with JT America, Inc., a medical subsidiary of Japan Tobacco Inc.
and the Company ("Xenotech") of $11,250,000 (see Note 6).
Unaudited Pro Forma Stockholders' Equity (Net Capital Deficiency)
If the offering contemplated by this Prospectus is consummated, all of the
redeemable convertible preferred shares outstanding as of the closing date will
automatically be converted into 7,844,352 shares of common stock based on the
shares of redeemable preferred stock outstanding as of March 31, 1998. Unaudited
pro forma stockholders' equity at March 31, 1998, as adjusted for the conversion
of preferred stock, is disclosed on the balance sheet.
Interim Financial Information
The financial information at March 31, 1998 and for the three months ended
March 31, 1997 and 1998 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Results for the three months ended
March 31, 1998 are not necessarily indicative of results for any other interim
period or for the entire year.
F-7
<PAGE> 78
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition
Revenues, principally payments under collaborative arrangements, including
research funding from Xenotech, are recorded when earned as defined under the
terms of the related agreements. Research and development funding received in
advance is recorded as deferred revenue. Revenues from the achievement of
milestone events are recognized when the milestones have been achieved. Revenues
from Xenotech are recognized net of the Company's related contributions to the
joint venture. Contract revenues, which include non-refundable license fees, are
recorded when earned and when no further obligation under the arrangement
exists.
Research and Development
Research and development expenses, including direct and allocated expenses,
consist of independent research and development costs and costs associated with
sponsored research and development.
Net Loss Per Share
In 1997, the Company adopted Financial Accounting Standards Board Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share is computed using the weighted average number of
common shares outstanding and excludes any dilutive effects of options, warrants
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Potentially dilutive
securities have been excluded from the computation as their effect is
antidilutive.
Pro forma net loss per share has been computed to give effect to the
automatic conversion of redeemable convertible preferred stock into common stock
upon completion of the Company's initial public offering (using the
as-if-converted method) from the original date of issuance.
F-8
<PAGE> 79
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
A reconciliation of shares used in calculation of basic and diluted and pro
forma net loss per share follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------- ----------------------------
1996 1997 1997 1998
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss............................... $(7,100,000) $(35,880,000) $(17,700,000) $(5,345,000)
=========== =========== ============ ===========
Basic and diluted:
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share.................... 152 34,744 1,242 268,692
=========== =========== ============ ===========
Basic and diluted net loss per share... $(46,710.53) $ (1,032.69) $ (14,251.21) $ (19.89)
=========== =========== ============ ===========
Pro forma:
Shares used in computing basic and
diluted net loss per share (from
above)............................ 152 34,744 1,242 268,692
Adjusted to reflect the effect of the
assumed conversion of preferred
stock from the date of issuance... 3,750,000 3,858,843 3,750,000 7,684,352
----------- ----------- ------------ -----------
Weighted-average shares used in
computing pro forma net loss per
share............................. 3,750,152 3,893,587 3,751,242 7,953,044
=========== =========== ============ ===========
Pro forma net loss per share........... $ (1.89) $ (9.22) $ (4.72) $ (0.67)
=========== =========== ============ ===========
</TABLE>
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of pro forma net loss per
share as well as an additional 1,168,883, 1,623,630, and 1,825,300 shares
related to outstanding options and warrants not included above (determined using
the treasury stock method at the estimated average fair value) for the years
ended December 31, 1996 and 1997, and for the three months ended March 31, 1998,
respectively.
Net loss per share has not been presented prior to the Company's
organization on July 15, 1996, as there were no outstanding equity securities
prior to that period.
Cash Equivalents and Short-Term Investments
The Company considers all highly-liquid investments purchased with a
maturity from the date of purchase of three months or less to be cash
equivalents; investments with maturities in excess of three months are
considered to be short-term investments.
The Company's investment securities are classified as available-for-sale
and carried at fair value. The Company determines the appropriate classification
of securities at the time of purchase and reevaluates such designation as of
each balance sheet date.
Depreciation and Amortization
The Company records property and equipment at cost and provides
depreciation using the straight-line method over the estimated useful lives of
the assets, generally five years. Furniture and equipment leased under capital
leases is amortized over the shorter of the useful lives or the lease
F-9
<PAGE> 80
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
term. Amortization of leased assets is included in depreciation and amortization
expense and is combined with accumulated depreciation and amortization of the
Company's owned assets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Other Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), which
require additional disclosures to be adopted beginning in the first quarter of
1998 and on December 31, 1998, respectively. Under SFAS 130, the Company will be
required to display comprehensive income and its components as part of the
Company's full set of financial statements. SFAS 131 requires that the Company
report financial and descriptive information about its reportable operating
segments. The Company has determined that the impact of adopting SFAS 130 and
SFAS 131 on its future financial statement disclosures is not material.
2. COLLABORATION AGREEMENT WITH XENOTECH
Xenotech
In 1991, Cell Genesys and JT America, Inc. formed Xenotech to develop
genetically modified strains of mice which can produce human monoclonal
antibodies and to commercialize products generated from these mice. Upon the
creation of Abgenix, Cell Genesys' rights in the joint venture were assigned to
the Company. Xenotech funds its research, which is generally conducted by
Abgenix, through capital contributions from the partners. The Company paid and
expensed as research and development $350,000, $172,500 and $195,000 related to
licensing the rights to this technology from Xenotech for the years ended
December 31, 1996 and 1997 and the three months ended March 31, 1998,
respectively.
F-10
<PAGE> 81
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. COLLABORATION AGREEMENT WITH XENOTECH -- (CONTINUED)
The Company is obligated to pay 50% of all Xenotech's funding requirements.
The Company accounts for its investment in Xenotech under the equity method; 50%
of Xenotech's research and development expenses up to the Company's investment
amount. Details are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1995 1996 1997 1997 1998
------ ------ -------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Abgenix's share of
Xenotech losses...... $2,315 $3,306 $ 12,347 $3,836 $ 117
Losses associated with
cross-license and
settlement........... -- -- (11,250) (3,750) --
Unabsorbed losses...... -- -- -- -- (2)
Difference due to
timing and change in
deferred revenue..... (613) 560 (200) 24 --
------ ------ -------- ------ ---------
Equity in losses of
Xenotech............. $1,702 $3,866 $ 897 $ 110 $ 115
====== ====== ======== ====== =========
</TABLE>
The Company recognized revenue of $6,200,000, $4,719,000, $1,343,000,
$335,000 and $291,000 for the years ended 1995, 1996 and 1997, and for the three
months ended March 31, 1997 and 1998, respectively, net of its own payments to
the joint venture related to this revenue.
Summary financial information for Xenotech is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets......... $ 1,357 $ 492 $ 7,569 $ 7,985 $ 7,643
Total liabilities.... 601 59 7,556 7,494 7,566
Total revenues....... 4,747 1,912 272 25 210
Total operating
expenses........... (11,926) (8,547) (24,964) (7,700) (445)
Net loss............. (7,129) (6,614) (24,680) (7,672) (235)
</TABLE>
3. COLLABORATION AND LICENSE AGREEMENTS
CBL License Agreement
On February 1, 1997, the Company entered into a license agreement for
exclusive worldwide rights to commercialize ABX-CBL. The Company paid an initial
license fee and is further obligated to pay annual fees and royalties on
potential product sales. The Company is also obligated to issue 25,000 shares of
its common stock upon the submission of a Product License Application for the
first indication of the product.
Research Collaboration and License Option Agreement with Pfizer
In December 1997, Abgenix established a research collaboration with Pfizer
Inc. ("Pfizer"). In connection with the execution of the agreement, Pfizer paid
the Company a fee upon signing and may
F-11
<PAGE> 82
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COLLABORATION AND LICENSE AGREEMENTS -- (CONTINUED)
make additional payments to Abgenix upon completion of certain research
milestones. Additionally, Pfizer has an option to expand the research
collaboration. The agreement expires in December 1999.
Concurrent with the execution of the research collaboration agreement,
Pfizer and Abgenix entered into a license and royalty agreement that grants
Pfizer the option to acquire an exclusive, worldwide license to develop, make,
use and sell antibody products derived from the research collaboration. If
Pfizer chooses to exercise its option to expand the research collaboration,
Abgenix could receive potential license fees and milestone payments of up to
approximately $8,000,000 per antigen upon the completion of certain milestones,
including preclinical and clinical trials and receipt of regulatory approval.
Additionally, if a product receives marketing approval from the FDA or an
equivalent foreign agency, the Company is entitled to receive royalties on
future product sales by Pfizer. Pfizer will be responsible for manufacturing,
product development and marketing of any products developed through this
collaboration.
In January 1998, the Company also entered into a stock purchase agreement
with Pfizer to purchase 160,000 shares of the Company's Series C redeemable
convertible preferred stock at $8.00 per share. The holder of each share of
Series C redeemable convertible preferred stock is entitled to voting rights
equivalent to the number of shares of common stock for which each share can be
converted into and is convertible, at the option of the holder, into one share
of common stock, subject to certain antidilution adjustments. Conversion is
automatic upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of 1933
at a per share price of $11.00 and an aggregate offering price of not less than
$15,000,000. The holders of Series A and Series B preferred stock have priority
over the holders of Series C preferred stock in any dividends declared and in
liquidation preferences in the event of a winding up of the Company. The
liquidation preference for Series C preferred stock is $8.00 per share.
Noncumulative dividends on Series C preferred stock are payable at a rate of
$0.64 per share per annum out of available earnings if and when declared by the
board of directors.
Research Collaboration with Schering-Plough
In January 1998, Abgenix established a research collaboration with
Schering-Plough Research Institute ("Schering-Plough"). In connection with the
execution of the agreement, Schering-Plough paid the Company a fee upon signing
and will be obligated to make additional payments to Abgenix upon completion of
the research.
In addition, the agreement provides Schering-Plough with an option, for a
limited time, to enter into a research, option and license agreement that
provides Schering-Plough an option to obtain with an exclusive worldwide license
to develop, make, use and sell antibody products derived from the research
collaboration. If the option is exercised, the research, option and license
agreement may provide Abgenix with up to approximately $8,000,000 in additional
research fees and milestone payments upon the completion of certain milestones,
including preclinical and clinical trials and receipt of regulatory approval.
Additionally, if a product receives marketing approval from the FDA or an
equivalent foreign agency, the Company is entitled to receive royalties on
future product sales by Schering-Plough.
4. AVAILABLE-FOR-SALE SECURITIES
All of the Company's available-for-sale securities consist of commercial
paper and U.S. government obligations and are classified as short-term
investments. All investments mature within one year.
F-12
<PAGE> 83
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. AVAILABLE-FOR-SALE SECURITIES -- (CONTINUED)
These investments are carried at market, which approximates cost. There were no
significant unrealized gains or losses related to these investments.
The following is a summary of available-for-sale securities at fair value,
which approximates amortized cost:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Commercial paper....................................... $10,093 $12,038
U.S. government obligations............................ -- 2,881
------- -------
Total.................................................. $10,093 $14,919
======= =======
</TABLE>
Included in cash and cash equivalents at December 31, 1996 and 1997 are
available-for-sale securities of $7,111,000 and $4,215,000, respectively.
Included in short-term investments at December 31, 1996 and 1997 are
available-for-sale securities of $2,982,000 and $10,704,000, respectively. At
December 31, 1997, the average remaining maturity of the portfolio is less than
12 months.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture, machinery and equipment..................... $ 611 $ 2,188
Leasehold improvements................................. 3,037 4,503
------- -------
3,648 6,691
Less accumulated depreciation and amortization......... -- (915)
------- -------
$ 3,648 $ 5,776
======= =======
</TABLE>
The Company did not record any depreciation on assets in 1996 as such
assets were all purchased in the last month of the year. Property and equipment
financed under capital leases was $1,968,000 at December 31, 1997. Accumulated
amortization related to this equipment totaled $383,000 at December 31, 1997.
6. COMMITMENTS
Long-Term Note Payable to Cell Genesys
In July 1996, the Company issued a $4,000,000 Convertible Promissory Note
(the "Note") to Cell Genesys which the Company could draw against in order to
pay for services provided by Cell Genesys. As of December 31, 1996, the Company
had drawn $1,757,000 against the Note. Interest accrued at the rate of 6.82% per
annum on the outstanding principal until July 15, 1997, whereupon the accrued
interest was added to the outstanding principal of the Note. The entire
principal and accrued interest amount was due on or before July 14, 2000. In
December 1997, the Company had drawn $4,000,000 against the Note and Cell
Genesys exercised its option to convert the Note into 666,667 shares of Series A
convertible preferred stock at a conversion price of $6.00 per share.
F-13
<PAGE> 84
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS -- (CONTINUED)
Short-Term Payable to Cell Genesys
Until June 30, 1997, the Company reimbursed Cell Genesys for payments made
to third parties on behalf of the Company. At December 31, 1997 and March 31,
1998, the Company owed $212,000 and $68,000 to Cell Genesys for this
reimbursement.
Loan
On January 24, 1997, the Company secured a loan with a bank in the amount
of $4,300,000 in order to finance tenant improvements on its facility in
Fremont, California. The loan matures in January 2001 and bears an annual
interest rate of prime plus 1.0% (9.5% for the year ended December 31, 1997).
The loan is guaranteed by Cell Genesys until the Company completes an initial
public offering of its common stock which raises net proceeds of at least
$20,000,000, and the loan is secured by substantially all tangible and
intangible assets of the Company.
Capital Lease
On March 28, 1997, the Company entered into a lease agreement with a
financing company under which the Company may finance up to $3,000,000 of its
laboratory and office equipment. The lease term is 48 months and is guaranteed
by Cell Genesys until the Company completes its initial public offering of its
common stock which raises net proceeds of at least $20,000,000.
Future principal payments under the loan and minimum payments under the
capital lease are as follows:
<TABLE>
<CAPTION>
CAPITAL TOTAL
LOAN LEASE PAYMENTS
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ending December 31,
1998.................................... $ 1,259 $ 594 $ 1,853
1999.................................... 1,259 594 1,853
2000.................................... 1,258 594 1,852
2001.................................... 105 432 537
------- ------- --------
Total..................................... 3,881 2,214 6,095
Less amount representing interest......... -- (470) (470)
------- ------- --------
Present value of future payments.......... 3,881 1,744 5,625
Less current portion...................... (1,259) (387) (1,646)
------- ------- --------
Noncurrent portion........................ $ 2,622 $ 1,357 $ 3,979
======= ======= ========
</TABLE>
The carrying value of the loan approximates fair value at December 31,
1997. The fair value of the loan was estimated using discounted cash flow
analysis, based on the incremental borrowing rates currently available to the
Company for borrowings with similar terms and maturity.
F-14
<PAGE> 85
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS -- (CONTINUED)
Facility Lease
In October 1996, the Company signed an operating lease commencing February
1, 1997, for its facilities in Fremont, California. The lease expires in January
2007, however, the Company has the option to extend the term through 2016.
Future minimum payments under the noncancelable operating lease at December 31,
1997 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending December 31,
1998.............................. $ 862
1999.............................. 891
2000.............................. 923
2001.............................. 955
2002.............................. 987
Thereafter........................ 4,360
------
Total lease payments................ $8,978
======
</TABLE>
Rent expense was approximately $567,000 for the year ended December 31,
1997.
Charge for Cross-License and Settlement
On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and
Japan Tobacco Inc., that it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm that resolved all related litigation and
claims between the parties. As initial consideration for the cross-license and
settlement agreement, Cell Genesys issued a note to GenPharm due September 30,
1998 for $15,000,000 payable by Cell Genesys and convertible into shares of Cell
Genesys common stock, currently at $8.62 per share. Of this note, $3,750,000
satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco
also made an initial payment. During 1997, two patent milestones were achieved
and Xenotech was obligated to pay $7,500,000 for each milestone. Xenotech paid
$7,500,000 to satisfy the first milestone and has recorded a payable to GenPharm
for the remaining $7,500,000. The Company has recorded a liability of $3,750,000
in its balance sheet representing its share of the Xenotech obligation. The
payable is due on or before November 1998. No additional payments will accrue
under this agreement. The Company has recognized as a non-recurring charge for
cross-license and settlement, a total of $22,500,000 ($15,000,000 through March
31, 1997).
Pursuant to Staff Accounting Bulletin 55, Cell Genesys allocated its
portion of the settlement obligation, $11,250,000, to Abgenix since the related
technology was contributed upon formation of Abgenix. The $15,000,000 note
issued by Cell Genesys was recorded as a capital contribution by Abgenix. In
accordance with the joint venture agreement, Abgenix has also recorded an
expense of $11,250,000 representing 50% of the Xenotech expense.
7. STOCKHOLDERS' EQUITY
Redeemable Convertible Preferred Stock
In December 1997, the Company created a new series of preferred stock,
designated as Series A redeemable convertible preferred stock and converted each
outstanding share of Series A senior and Series 1 subordinated convertible
preferred stock, par value of $0.0001 per share, into one share of Series A
redeemable convertible preferred stock, par value of $0.0001 per share. The
financial
F-15
<PAGE> 86
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
statements as presented reflect only the Series A redeemable convertible
preferred stock as if converted at the date of original issuance.
The following table describes information with respect to the various
series of redeemable convertible preferred stock as of March 31, 1998:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES ISSUANCE PREFERENCES AND DIVIDEND
SHARES ISSUED AND PRICE REDEMPTION PRICE RATE
DESIGNATED OUTSTANDING PER SHARE PER SHARE PER SHARE
---------- ----------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Series A...................... 5,396,667 4,416,667 $2.71-$6.00 $6.00 $0.48
Series B...................... 3,385,000 3,267,685 $6.50 $6.50 $0.52
Series C...................... 160,000 160,000 $8.00 $8.00 $0.64
--------- ---------
8,941,667 7,844,352
========= =========
</TABLE>
Each share of preferred stock is entitled to voting rights equivalent to
the number of shares of common stock for which each share can be converted into
and is convertible, at the option of the holder, into one share of common stock,
subject to certain antidilution adjustments. Conversion is automatic upon the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933 at a per share
price of not less than $11.00 and an aggregate offering price of not less than
$15,000,000.
Preferred stockholders have certain rights of first refusal which allow
them to participate ratably in any future issuances of stock to maintain their
original ownership percentages. This right terminates upon a public offering.
Noncumulative dividends on the preferred stock are payable at the above stated
rates per share out of available earnings if and when declared by the board of
directors.
The holders of Series B preferred stock shall have priority over the
holders of Series A preferred stock and Series A preferred stock over Series C
preferred stock in liquidation preferences in the event of a winding up of the
Company.
After the fourth anniversary of the first sale of Series B preferred stock,
the preferred stockholders have the right to redeem all or part of their
preferred shares if, and only if, at least a majority of the preferred
stockholders agree in writing. The redemption price is initially set at the
liquidation preference per share and is adjusted upon the occurrence of certain
events.
Warrants
In connection with the loan guaranteed by Cell Genesys in January 1997, the
Company issued a warrant to purchase 71,667 shares of Series A redeemable
convertible preferred stock at an exercise price of $6.00 per share to Cell
Genesys. The warrants are exercisable immediately and expire three years from
issuance. Should all of the Company's preferred stock be redeemed or converted
into common stock, then the warrant becomes exercisable for the number of shares
of common stock as if the warrant had been exercised in full for preferred
stock.
In connection with the loan guaranteed by Cell Genesys in March 1997, the
Company issued a second warrant to purchase 50,000 shares of convertible
preferred stock at an exercise price of $6.00 per share to Cell Genesys. The
terms for exercise and expiration are the same as the January 1997 warrants.
The fair value of the above warrants was insignificant for accounting
purposes.
F-16
<PAGE> 87
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
1996 Incentive Stock Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock option equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
The 1996 Incentive Stock Plan (the "Plan") provides for the granting of
options to purchase common stock to employees, outside directors and consultants
of the Company. Stock purchase rights are granted only to employees or
consultants. The Company grants shares of common stock for issuance under the
Plan at no less than the fair value of the stock (85% of fair value for
nonqualified options and stock purchase rights). Options granted under the Plan
generally have a term of ten years and vest over four years at the rate of 25%
one year from the grant date and 1/48 monthly thereafter.
Information with respect to the Plan activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- --------- --------------
<S> <C> <C> <C>
Authorized at inception............. 1,600,000 -- --
Options granted below fair
value.......................... (1,185,100) 1,185,100 $0.60
Options exercised................. -- (1,192) $0.60
Options canceled.................. 15,025 (15,025) $0.60
---------- --------- -----
Balances at December 31, 1996....... 429,925 1,168,883 $0.60
Authorized........................ 791,250 -- --
Options granted below fair
value.......................... (676,644) 676,644 $2.36
Options exercised................. -- (232,350) $1.51
Options canceled.................. 104,751 (104,751) $1.14
---------- --------- -----
Balances at December 31, 1997....... 649,282 1,508,426 $1.24
Authorized (unaudited)............ -- -- --
Options granted below fair value
(unaudited).................... (260,175) 260,175 $6.00
Options exercised (unaudited)..... -- (59,618) $0.69
Options canceled (unaudited)...... 5,350 (5,350) $3.84
---------- --------- -----
Balances at March 31, 1998.......... 394,457 1,703,633 $1.98
========== ========= =====
</TABLE>
F-17
<PAGE> 88
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
Exercise prices for options outstanding as of December 31, 1997 ranged from
$0.60 to $5.00. The following table summarizes information about options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------------
NUMBER
REMAINING OF
EXERCISE NUMBER OF CONTRACTUAL OPTIONS
PRICES OPTIONS LIFE, IN YEARS EXERCISABLE
-------- --------- --------------- -----------
<S> <C> <C> <C>
$0.60...................... 1,089,619 8.64 257,697
$1.00...................... 3,800 9.32 --
$2.50...................... 315,416 9.34 19,921
$4.00...................... 74,800 9.65 5,817
$5.00...................... 24,800 9.95 --
--------- -------
1,508,426 283,435
========= =======
</TABLE>
From inception to December 31, 1997, options to purchase a total of
1,861,744 shares of common stock were granted at prices ranging from $0.60 to
$5.00 per share. Deferred compensation of $1,776,000 was recorded for these
option grants based on the deemed fair value of common stock (ranging from $1.20
to $6.50 per share). The Company amortized $528,000 of this balance during the
year ended December 31, 1997. In the first quarter of 1998, the Company granted
options to purchase 260,175 shares of common stock at $6.00 per share for which
deferred compensation of approximately $520,000 was recorded based on the deemed
fair value of common stock at $8.00 per share.
Pro Forma Information
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 of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1996 and 1997,
respectively: risk-free interest rate of 6.65% and 6.46%; no dividend yield in
1996 or 1997; volatility factor of 0.68 and 0.67; and an expected life of the
option of five years in 1996 and 1997.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-18
<PAGE> 89
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
The weighted-average fair value of options granted during the years ended
December 31, 1996 and 1997 were $0.87 and $3.00 per share (all options were
granted at exercise prices below the deemed fair value of the underlying common
stock). The following table illustrates what net loss would have been had the
Company accounted for its stock-based awards under the provisions of SFAS 123.
Pro forma amounts may not be representative of future years.
<TABLE>
<CAPTION>
1996 1997
------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net loss:
As reported......................................... $(7,100) $(35,880)
------- --------
Pro forma........................................... $(7,190) $(36,103)
------- --------
Net loss per share:
As reported......................................... $ (1.89) $ (9.22)
------- --------
Pro forma........................................... $ (1.92) $ (9.27)
------- --------
</TABLE>
Stock Plans
In March 1998, the board of directors adopted the 1998 Employee Stock
Purchase Plan, the 1998 Director Option Plan and approved the amended and
restated 1996 Incentive Stock Plan, subject to stockholder approval. An
additional 500,000 shares of common stock have been reserved for issuance under
the amended and restated 1996 Incentive Stock Plan and 250,000 shares of common
stock have been reserved under both the 1998 Employee Stock Purchase Plan and
the 1998 Director Option Plan.
8. OTHER RELATED PARTY TRANSACTIONS
Through July 31, 1997, pursuant to the terms of the Service Agreement with
Cell Genesys, Cell Genesys provided Abgenix certain administrative services. In
addition, beginning July 15, 1996, the Company leased equipment from Cell
Genesys on a month-to-month basis pursuant to the Stock Purchase and Transfer
Agreement. Total fees incurred under the Services Agreement and the Stock
Purchase and Transfer Agreement were approximately $1,816,000, $825,000 and
$107,000 in 1996, 1997, and the three months ended March 31, 1998, respectively.
The Company chose to draw down on its Promissory Note with Cell Genesys in order
to pay for the fees incurred through December 1997. In December 1997, the entire
principal amount of the Promissory Note was converted into preferred stock.
In addition, the Company had an agreement with Cell Genesys under which the
Company provided immunization services as requested by Cell Genesys. Under this
agreement, the Company recognized revenue of $100,375 and $111,000 in 1996 and
1997, respectively.
On December 31, 1996, the Company purchased Xenotech's remaining laboratory
equipment. The Company paid $154,360, which approximated net book value at the
time of purchase.
In July 1996, the Company assumed from Cell Genesys a $100,000 loan issued
to a Director and officer. The loan did not bear interest and was evidenced by a
promissory note secured by the common stock of Cell Genesys owned by the
Director and officer. The note was repaid in September 1997.
F-19
<PAGE> 90
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER RELATED PARTY TRANSACTIONS (CONTINUED)
In May 1997, the Company granted a 10-year loan for $100,000 to an officer
of the Company. Interest is accrued per annum at 6.6% beginning May 2002. The
loan is payable in five equal installments beginning June 2003.
On February 27, 1998, the Chief Financial Officer and the Company entered
into a Relocation Loan Agreement pursuant to which Abgenix loaned $100,000 to
the Chief Financial Officer in exchange for a promissory note secured by a deed
of trust. No interest accrues on the loan until June 30, 2003.
9. INITIAL PUBLIC OFFERING
In March 1998, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
Abgenix to sell shares of its common stock to the public. If the offering is
consummated under the terms presently anticipated, all of the currently
outstanding preferred stock will automatically convert into 7,844,352 shares of
common stock. Unaudited pro forma stockholders' equity, as adjusted for the
conversion of the preferred stock is set forth in the accompanying balance
sheets.
10. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $15,400,000. The Company also had federal
research and development tax credit carryforwards of approximately $220,000 as
of December 31, 1997. The Company's net operating loss carryforwards exclude
losses incurred prior to the organization of Abgenix in July 1996. Further, the
amounts associated with the cross-license and settlement have been expensed for
financial statement accounting purposes and have been capitalized and will be
amortized over a period of approximately fifteen years for tax purposes. The net
operating loss and credit carryforwards will expire in the years 2011 through
2012, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets for federal and
state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
----- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 700 $ 5,400
Research credit carryforwards........................ 100 400
Capitalized research and development................. 100 200
Capitalized cross-license and settlement............. -- 8,000
Other, net........................................... -- 400
----- --------
Net deferred tax assets................................ 900 14,400
Valuation allowance.................................... (900) (14,400)
----- --------
Total........................................ $ -- $ --
===== ========
</TABLE>
F-20
<PAGE> 91
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net valuation allowance increased by $900,000 during the year ended
December 31, 1996. Deferred tax assets relate primarily to net operating loss
carryforwards and to the capitalization of the cross-license and settlement
agreement.
11. SUBSEQUENT EVENT (UNAUDITED)
Research License and Option Agreement with Genentech
In April 1998, Abgenix established a research collaboration with Genentech
to develop antibody products for an undisclosed antigen designated by Genentech
in the field of growth factor modulation. Under the research license and option
agreement, Abgenix will allow Genentech to use XenoMouse technology to generate
fully human antibodies to the antigen target. Genentech is obligated to make
payments to Abgenix for performance of research activities.
In addition, the agreement provides Genentech with an option, for a limited
time, to enter into a product license agreement that provides Genentech with an
exclusive worldwide license to develop, make, use and sell antibody products
derived from the research collaboration. If the option is exercised, the product
license agreement specifies license fee and milestone payments to be made upon
completion of certain milestones, including clinical trials and receipt of
regulatory approvals. Additionally, if a product receives marketing approval
from the FDA or an equivalent foreign agency, the Company is entitled to receive
royalties on future product sales by Genentech. Genentech will be responsible
for manufacturing, product development and marketing of any product developed
through the collaboration.
F-21
<PAGE> 92
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Xenotech, L.P.
We have audited the accompanying balance sheets of Xenotech, L.P. (a
development stage enterprise) as of December 31, 1996 and 1997, and the related
statements of operations, partners' capital and cash flows for each of the three
years in the period ended December 31, 1997 and for the period from inception
(June 12, 1991) to December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Xenotech, L.P. (a
development stage enterprise) at December 31, 1996 and 1997 and the results of
its operations and its cash flows for each of the three years ended December 31,
1997 and for the period from inception (June 12, 1991) to December 31, 1997, in
conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Palo Alto, California
January 23, 1998
F-22
<PAGE> 93
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................................... $ 292 $ 58 $ 52
Short-term investments.................................. -- 3,750 3,798
Prepaid expenses and other current assets............... 200 11 10
Receivable from partner................................. -- 3,750 3,783
-------- -------- --------
Total current assets.................................... $ 492 $ 7,569 $ 7,643
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities..................................... $ 59 $ 56 $ 66
Payable related to cross-license and settlement
agreement............................................. -- 7,500 7,500
-------- -------- --------
Total current liabilities............................... 59 7,556 7,566
Partners' capital:
Paid-in capital....................................... 36,486 60,746 61,045
Deficit accumulated during the development stage...... (36,053) (60,733) (60,968)
-------- -------- --------
Total partners' capital................................. 433 13 77
-------- -------- --------
Total liabilities and partners' capital................. $ 492 $ 7,569 $ 7,643
======== ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 94
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED INCEPTION
YEAR ENDED DECEMBER 31, MARCH 31, (JUNE 12, 1991)
---------------------------- ------------------- TO MARCH 31,
1995 1996 1997 1997 1998 1998
------- ------- -------- -------- -------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Research and license revenues from
partners................................. $ 4,747 $ 1,912 $ 272 $ 25 $ 210 $ 10,514
Expenses:
Research and development................. 11,270 8,240 2,396 215 438 47,547
General and administrative............... 656 307 98 15 7 1,646
Cross-license and settlement expense..... -- -- 22,470 7,470 -- 22,470
------- ------- -------- -------- -------- --------
Total expenses............................. 11,926 8,547 24,964 7,700 445 71,663
Interest income............................ 50 21 12 3 -- 181
------- ------- -------- -------- -------- --------
Net loss................................... $(7,129) $(6,614) $(24,680) $ (7,672) $ (235) $(60,968)
======= ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 95
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
GENERAL ---------------------------------- PARTNERS'
PARTNER JAPAN TOBACCO INC. ABGENIX CAPITAL
------- ------------------ ------------ ---------
<S> <C> <C> <C> <C>
Capital contributed at inception....... $ 60 $ 4,750 $ -- $ 4,810
Capital distribution of interest
income.............................. -- -- (34) (34)
Net loss............................... (47) (4,705) 32 (4,720)
----- -------- -------- --------
Balance at December 31, 1991............. 13 45 (2) 56
Capital contribution................... 130 5,500 -- 5,630
Capital distribution of interest
income.............................. -- -- (1) (1)
Net loss............................... (55) (5,481) 4 (5,532)
----- -------- -------- --------
Balance at December 31, 1992............. 88 64 1 153
Capital contribution................... 12 6,800 700 7,512
Net loss............................... (75) (6,770) (607) (7,452)
----- -------- -------- --------
Balance at December 31, 1993............. 25 94 94 213
Capital contribution................... 40 5,000 -- 5,040
Net loss............................... (47) (4,780) 220 (4,607)
----- -------- -------- --------
Balance at December 31, 1994............. 18 314 314 646
Capital contribution................... 72 4,833 2,333 7,238
Net loss............................... (71) (4,779) (2,279) (7,129)
----- -------- -------- --------
Balance at December 31, 1995............. 19 368 368 755
Capital contribution................... 63 3,114 3,115 6,292
Net loss............................... (66) (3,274) (3,274) (6,614)
----- -------- -------- --------
Balance at December 31, 1996............. 16 208 209 433
Capital contribution................... 230 12,015 12,015 24,260
Net loss............................... (246) (12,217) (12,217) (24,680)
----- -------- -------- --------
Balance at December 31, 1997............. -- 6 7 13
Capital contribution (unaudited)....... 2 149 148 299
Net loss (unaudited)................... (2) (117) (116) (235)
----- -------- -------- --------
Balance at March 31, 1998 (unaudited).... $ -- $ 38 $ 39 $ 77
===== ======== ======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 96
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
THREE MONTHS ENDED (JUNE 12,
YEAR ENDED DECEMBER 31, MARCH 31, 1991) TO
-------------------------------------- -------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------- ------- --------------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss.................... $ (7,129) $(6,614) $(24,680) $ (7,672) $ (235) $(60,968)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Charge for cross-license
and settlement.......... -- -- 3,735 -- -- 3,735
Depreciation and
amortization expense.... 71 74 8 8 -- 170
Changes in certain assets
and liabilities:
Decrease (increase) in
prepaid and other
current assets.......... (109) 108 181 156 1 145
Decrease (increase) in
receivable from
partner................. (30) 30 -- -- (33) (33)
Increase (decrease) in
accrued liabilities..... 292 (298) (3) (35) 10 65
Decrease in deferred
revenue................. (1,650) (250) -- -- -- --
Increase in payable for
cross-license and
settlement.............. -- -- 7,500 7,470 -- 7,500
-------- ------- -------- -------- -------- --------
Net cash used in operating
activities................ (8,555) (6,950) (13,259) (73) (256) (49,386)
-------- ------- -------- -------- -------- --------
CASH USED BY INVESTING
ACTIVITIES
Capital expenditures........ (62) -- -- -- -- (325)
Purchases of short-term
investments............... -- -- (3,750) -- (48) (3,798)
-------- ------- -------- -------- -------- --------
Net cash used by investing
activities................ (62) -- (3,750) -- (48) (4,123)
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital contributions....... 7,237 6,292 16,775 198 299 53,561
-------- ------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH...................... (1,380) (658) (234) 125 (6) 52
CASH AT BEGINNING OF
PERIOD.................... 2,330 950 292 292 58 --
-------- ------- -------- -------- -------- --------
CASH AT END OF PERIOD....... $ 950 $ 292 $ 58 $ 417 $ 52 $ 52
======== ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 97
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Xenotech, L.P., a California limited partnership and a development stage
enterprise (the "Partnership"), was organized on June 12, 1991 pursuant to a
Limited Partnership Agreement between Xenotech, Inc. (the "General Partner"),
Cell Genesys, Inc. ("Cell Genesys") and JT Immunotech USA, Inc., the predecessor
company of JT America, Inc. and a medical subsidiary of Japan Tobacco, Inc. ("JT
America"), (the "Limited Partners"), to develop genetically modified strains of
mice which can produce human monoclonal antibodies, and to commercialize
products generated therefrom. On July 15, 1996, Cell Genesys transferred its
partnership interest to its subsidiary, Abgenix Inc. ("Abgenix").
The General Partner must make cash contributions as necessary to maintain a
minimum capital balance of 1% of the total positive capital account balances for
the Partnership. Since July 1995, net losses are allocated 49.5% to Abgenix,
49.5% to JT America and 1% to the General Partner. Prior to July 1995, operating
expenses were allocated 99% to JT America and 1% to the General Partner until JT
America had been allocated, on a cumulative basis, partnership losses and
deductions in an amount equal to the sum of JT America's total research support
capital contributions and 50% of JT America's initial capital contribution.
Since 1992, interest income has been allocated 49.5% to Abgenix, 49.5% to JT
America and 1% to the General Partner. No allocation of expenses and losses
shall create a deficit in the Limited Partners' capital accounts. Such item, to
the extent it would increase or create such a deficit, shall be allocated 100%
to the General Partner. Cash distributions are generally to be made in
accordance with the percentage interests.
See related discussion in Note 3 -- Related Party Transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Research revenues from partners or their affiliates are recorded when
earned as defined under the terms of the respective collaboration agreements.
Payments received in advance under these agreements are recorded as deferred
revenue until earned (see Notes 3 and 4).
Depreciation
The Partnership depreciates equipment using the straight-line method over
the estimated useful lives of the assets, generally four years.
Income Taxes
The financial statements include no provision for income taxes as
Partnership income or loss is reported in the Partners' separate income tax
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The financial information at March 31, 1998 and for the three months ended
March 31, 1997 and 1998 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments)
F-27
<PAGE> 98
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
which the Partnership considers necessary for a fair presentation of the
financial position at such date and the operating results and cash flows for
those periods. Results for the three months ended March 31, 1998 are not
necessarily indicative of results for any other interim period or for the entire
year.
3. RELATED PARTY TRANSACTIONS
Abgenix provides contract research and development services to the
Partnership to develop genetically modified strains of mice which can produce
human monoclonal antibodies pursuant to a collaboration agreement under which
Abgenix receives certain minimum payments. During the years ended 1995, 1996 and
1997 and the quarters ended March 31, 1997 and 1998, the Partnership paid
Abgenix $5,300,000, $1,200,000, $2,300,000, $196,000 and $400,000, respectively
($41,600,000 for the period from inception to March 31, 1998) to perform
research.
In January 1994, the Partnership, Abgenix and JT America executed an
agreement creating the Xenotech Division within Abgenix to conduct ongoing
preclinical research of human monoclonal antibodies derived from the genetically
modified strains of mice. Abgenix and Japan Tobacco Inc. ("JT"), the indirect
parent company of JT America, are providing significant funding to the
Partnership for research funding and in consideration of the Partnership
granting marketing rights for specified products in certain territories to
Abgenix and JT (see Note 4). The Partnership reimbursed Abgenix for the costs of
the operation of the Xenotech Division. During 1995 and 1996, the Partnership
recognized expenses of $5,500,000 and $5,500,000, respectively ($13,300,000 for
the period from inception to December 31, 1997) which were paid to Abgenix for
the costs of operating the Xenotech Division.
Pursuant to an agreement dated June 28, 1996, the Xenotech Division was
terminated as of December 31, 1996. In conjunction with this agreement, Xenotech
paid Abgenix $1,200,000 to satisfy Xenotech's obligations under the Xenotech
Division Research Agreement. In addition, Abgenix purchased Xenotech's capital
equipment at net book value, and was assigned Xenotech's note receivable, which
was reflected as a reduction of capital contributions.
4. RESEARCH REVENUES
The Partnership recorded research and license revenues of $4,700,000,
$1,900,000 and $272,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. For the quarters ended March 31, 1997 and 1998 the amount recorded
was $25,000 and $210,000, respectively. The research revenues were derived from
research payments made by JT and Abgenix. Of research payments made by JT and
Abgenix, $250,000 was deferred revenue at December 31, 1995.
5. CROSS-LICENSE AND SETTLEMENT AGREEMENT
On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and
Japan Tobacco, that it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm, International, Inc., a subsidiary of
Medarex, Inc. ("GenPharm") that resolved all related litigation and claims
between the parties. As initial consideration for the cross-license and
settlement agreement, Cell Genesys issued a note to GenPharm due September 30,
1998 for $15,000,000 payable by Cell Genesys and convertible into shares of Cell
Genesys common stock, currently at $8.62 per share. Of this note, $3,750,000
satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco
also made an initial payment. During 1997, two patent milestones were achieved
and Xenotech was obligated to pay $7,500,000 for each milestone. Xenotech paid
$7,500,000 to satisfy the first milestone and has recorded a payable to GenPharm
for the remaining $7,500,000. The payable is due on or before
F-28
<PAGE> 99
XENOTECH, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
November 1998. No additional payments will accrue under this agreement. Xenotech
has recognized as a non-recurring charge for cross-license and settlement, a
total of $22,500,000.
F-29
<PAGE> 100
[ARTWORK]
ABX-CBL is an antibody in clinical trials for the treatment of Graft Versus Host
Disease (GVHD). ABX-CBL selectively destroys activated immune cells that are
involved in GVHD by binding to the CBL antigen. Abgenix believes that ABX-CBL
has the ability to destroy activated immune cells without adversely affecting
the entire immune system.
<PAGE> 101
APPENDIX
DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER:
HEADER "XenoMouse Technology"
SUBHEADER 1: "XenoMouse has reached the goal of eliminating mouse protein from
antibody therapeutics"
This diagram depicts four Y-shaped figures, extending horizontally
across the page, which represent antibodies produced by four alternate methods.
From left to right, the figures are labeled "Ordinary Mouse," "Chimeric,"
"Humanized" and "XenoMouse," with arrows connecting the labels. A legend
indicates that the color green represents mouse protein, while the color yellow
represents human protein. The left-most Y-shaped figure is entirely green and is
labeled "100% Mouse Protein." The next figure from the left is yellow with a
thick green stripe on each upper arm of the "Y" and is labeled "34% mouse
protein." The following figure from the left is yellow with three small green
stripes on each upper arm of the "Y" and is labeled "10% mouse protein." The
right-most figure is completely yellow and is labeled "Human."
SUBHEADER 2: "XenoMouse Enables Faster Product Development"
This diagram contains three horizontal, segmented arrows that present
comparative timelines of the stages preceeding clinical trials of three
approaches to antibody production. A legend below the timelines indicates that
the color red represents the "Antibody Generation" period, green represents the
"Antibody Engineering" period, blue represents the "Cell Line Development"
period, and purple represents the "Manufacturing Scale-up" period.
From top to bottom, the three timelines are:
1. The "XenoMouse" timeline has a 3-month red segment followed by a
12-month purple segment;
2. The "Humanization" timeline has a 3-month red segment, a 6-month
green segment, a 6-month blue segment and a 12-month purple
segment; and
3. The "Phage Display" timeline has a 1-month red period, a 12-month
green period, a 6-month blue period and a 12-month purple period.
A column on the right side of the timelines labeled "Approximate Time to
Clinical Trials" indicates that the total XenoMouse period is 15 months, the
total Humanization period is 27 months, and the total Phage Display period is 31
months.
PAGE 29:
HEADER: "Structure of an Antibody"
<PAGE> 102
This illustration shows a Y-shaped antibody structure composed of two
"Heavy Chains" and two "Light Chains." The heavy chains form the base and
branches of the "Y," while the shorter light chains only run parallel to the
arms of the "Y." A legend indicates that shaded areas represent "Constant
Domain," and unshaded areas represent "Variable Domain." The top halves of the
light chains are unshaded, while the remainder is shaded. The upper tips of the
heavy chains are unshaded, while the remainer is shaded.
PAGE 29:
HEADER: "Source of Antibody Diversity"
Four gene segments, represented by numerically labeled squares within
rectangles, are labeled "DNA before recombination (heavy chain)." One arrow from
a particular section of each of the four segments points toward a combined
segment and demonstrates how recombination produces an antibody gene. The
"Antibody gene produced by recombination" is represented by a rectangle
containing four numerically labeled squares. An arrow leads from this antibody
gene to a Y-shaped antibody, labeled "Antibody produced by gene."
PAGE 31:
This diagram depicts four Y-shaped figures, extending horizontally
across the page, which represent antibodies produced by four alternate methods.
From left to right, the figures are labeled "Ordinary Mouse," "Chimeric,"
"Humanized" and "XenoMouse," with arrows connecting the labels. A legend
indicates that shaded areas represent mouse protein while unshaded areas
represent human protein. The left-most Y-shaped figure is entirely shaded and
below is labeled "100% Mouse Protein." The next figure from the left is unshaded
with a thick shaded stripe on each upper arm of the "Y" and below is labeled
"34% mouse protein." The following figure from the left is unshaded with three
small shaded stripes on each upper arm of the "Y" and below is labeled "10%
mouse protein." The right-most figure is completely unshaded and below is
labeled "Human."
INSIDE BACK COVER:
SUBHEADER 1: "Grafted Immune Cells Attack the Patient (Host)"
A cell labeled "Activated Graft T-Cell" is shown attaching itself to a
cell labeled "Host Cell," resulting in a damaged Host Cell. Nearby, a cell
labeled "Non-Activated Graft T-Cell" is shown interacting with nothing.
SUBHEADER 2: "ABX-CBL Selectively Destroys Immune Cells Involved in GVHD"
Antibodies, represented by Y-shaped figures, are shown attacking a cell
in a process labeled "Activated Graft T-Cell Killed." In the diagram, the
antibodies do not attack another cell, which is next to the caption
"Nonactivated Graft T-Cell Not Killed." Nearby, a cell labeled "Host Cell" is
shown undamaged.
<PAGE> 103
LOGO
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and sales of the Common Stock being registered. All of the
amounts shown are estimates except for the SEC registration fee, the NASD filing
fee and the Nasdaq National Market Listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $ 12,213
NASD Filing Fee............................................. 4,640
The Nasdaq National Market Listing Fee...................... 82,000
Blue Sky Qualification Fees and Expenses.................... 10,000
Printing and Engraving Expenses............................. 130,000
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 150,000
Transfer Agent and Registrar Fees and Expenses.............. 10,000
Miscellaneous Expenses...................................... 1,147
--------
TOTAL.................................................. $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Amended and
Restated Certificate of Incorporation to be filed upon the closing of the
offering to which this Registration Statement relates (Exhibit 3.3 hereto) and
the Registrant's Bylaws (Exhibit 3.4 hereto) provides for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant also intends to enter into agreements with its directors and
executive officers that will require the Registrant among other things to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors and executive officers to the fullest extent not
prohibited by Delaware law. The Company has also purchased directors and
officers liability insurance, which provides coverage against certain
liabilities including liabilities under the Act.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, and its directors and officers for certain liabilities,
including liabilities arising under the Act, and affords certain rights of
contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since the Company's incorporation (June 24, 1996), the Registrant has
issued and sold the following unregistered securities:
(1) On July 15, 1996, the Registrant issued 1,691,667 shares of Series
A Senior Convertible Preferred Stock to Cell Genesys in exchange for $10
million.
(2) On July 15, 1996, the Registrant issued 2,058,333 shares of Series
1 Subordinated Convertible Preferred Stock to Cell Genesys, and in
exchange, Cell Genesys contributed research, development and manufacturing
technology, as well as patents and other intellectual property
II-1
<PAGE> 105
specific to the antibody therapy programs to be pursued by the Company,
including Cell Genesys's interest in its joint venture with Japan Tobacco
Inc.
(3) On July 15, 1996, the Registrant, in exchange for a loan in the
principal amount of up to $4,000,000, issued a Convertible Promissory Note
to Cell Genesys convertible at an exercise price per share of $6.00 into up
to 666,667 shares of Series A Convertible Preferred Stock.
(4) From July 15, 1996 to March 31, 1997, the Registrant has granted
options to purchase 2,121,919 shares of Common Stock to employees,
directors and consultants under the 1996 Plan at exercise prices ranging
from $0.60 to $6.00 per share. Of the 2,121,919 shares granted, 1,703,633
remain outstanding, 293,160 shares of Common Stock have been purchased
pursuant to exercises of stock options or stock purchase rights under the
1996 Plan and 125,126 shares have been canceled and returned to the 1996
Plan.
(5) On January 23, 1997 and March 27, 1997, the Registrant issued two
warrants to purchase an aggregate of 121,667 shares of Series A Senior
Convertible Preferred Stock (convertible into 121,667 shares of Common
Stock) to Cell Genesys with a weighted average exercise price per share of
$6.00.
(6) On December 23, 1997, the Registrant issued 3,267,685 shares of
Series B Preferred Stock to 29 accredited or institutional purchasers at a
purchase price per share of $6.50. In connection with and contemporaneous
to this transaction the 1,691,667 shares of Series A Senior Convertible
Preferred Stock, the 2,058,333 shares of Series 1 Subordinated Convertible
Preferred Stock and the $4,000,000 Convertible Promissory Note issued to
Cell Genesys, described above, were all converted into an aggregate
4,416,667 shares of Series A Convertible Preferred Stock.
(7) On January 12, 1998, the Registrant issued 160,000 shares of
Series C Preferred Stock to Pfizer at a per share purchase price of $8.00.
This issuance was in connection with a collaborative arrangement entered
into between the Registrant and Pfizer.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder, or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions 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 intentions 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 securities issued in such transactions.
All recipients had adequate access, through their relationship with the Company,
to information about the Registrant.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
++ 1.1 Form of Underwriting Agreement.
3.1 * Certificate of Incorporation of the Registrant, as currently
in effect.
3.2 * Certificate of Designations of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock.
3.3 * Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be filed immediately following the
closing of the offering made under this Registration
Statement.
3.4 * Bylaws of the Registrant, as currently in effect
</TABLE>
II-2
<PAGE> 106
<TABLE>
<C> <S>
3.5 * Form of Amended and Restated Bylaws of the Registrant, to be
adopted immediately following the closing of the offering
made under this Registration Statement.
++ 4.1 Specimen Common Stock Certificate.
++ 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 * Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 * 1996 Incentive Stock Plan and form of agreement thereunder.
10.3 * 1998 Employee Stock Purchase Plan and form of agreement
thereunder.
10.4 * 1998 Director Option Plan and form of agreement thereunder.
10.5 * Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.
10.6 * Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.
10.7(1) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.
10.7A(4) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.
10.7B(7) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.
10.8(1) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.8A(3) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.
10.8B(4) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.
10.8C(5) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.
10.8D(7) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.
+10.8E * Amendment No. 5 dated November 1997 to Collaboration
Agreement.
10.9(1) Limited Partnership Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.9A(4) Amendment No. 2 dated January 1, 1994 to Limited Partnership
Agreement.
10.9B(6) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.
10.9C(8) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.
10.10(2) Field License dated June 12, 1991 among Cell Genesys, JT
Immunotech USA Inc. and Xenotech, L.P.
10.10A(8) Amendment No. 1 dated March 22, 1996 to Field License.
10.10B(8) Amendment No. 2 dated June 28, 1996 to Field License.
10.11(1) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.
10.11A(8) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.
+10.12 * Amended and Restated Anti-IL-8 License Agreement dated March
19, 1996 among Xenotech, L.P., Cell Genesys and Japan
Tobacco Inc.
10.13(7) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech,
L.P.
+10.13A * Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.
+10.14 * Stock Purchase and Transfer Agreement dated July 15, 1996 by
and between Cell Genesys and the Registrant.
10.15 * Governance Agreement dated July 15, 1996 between Cell
Genesys and the Registrant.
10.15A * Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.
10.15B Amendment No. 2 dated December 22, 1997 to the Governance
Agreement.
10.16 * Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and the Registrant.
+10.17 * Gene Therapy Rights Agreement effective as of November 1,
1997 between the Registrant and Cell Genesys.
</TABLE>
II-3
<PAGE> 107
<TABLE>
<C> <S>
+10.18 * Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of the Registrant.
10.19(9) Lease Agreement dated July 31, 1996 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77
(Arrillaga Family Trust) as amended, and Richard T. Peery,
Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended, and
the Registrant.
10.20 * Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and the Registrant.
10.21 * Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and the Registrant.
+10.22 * License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and the Registrant.
10.23(10) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco
Inc. and GenPharm International, Inc.
10.24(10) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, the Registrant, Xenotech, L.P., Japan
Tobacco Inc. and GenPharm International, Inc.
10.25(10) Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, the Registrant,
Xenotech, L.P., Japan Tobacco Inc. and GenPharm
International, Inc.
+10.26 * Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, the Registrant, Japan Tobacco
Inc. and JT Immunotech USA Inc.
+10.27 * Collaborative Research Agreement dated December 22, 1997
between Pfizer, Inc. and the Registrant.
10.28 * Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among the Registrant and certain holders of
the Registrant's capital stock.
+10.29 * Collaborative Research Agreement effective as of January 28,
1998 between Schering-Plough Research Institute and the
Registrant.
10.30 * Excerpts from the Minutes of a Meeting of the Board of
Directors of the Registrant, dated October 23, 1996.
10.31 * Excerpts from the Minutes of a Meeting of the Board of
Directors of the Registrant, dated October 22, 1997.
+10.32 * Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and the Registrant.
+10.33 Research License and Option Agreement effective as of April
6, 1998 between the Registrant and Genentech, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
++23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 * Power of Attorney.
27.1 * Financial Data Schedule.
</TABLE>
- ---------------
++ To be supplied by amendment.
* Previously filed.
+ Confidential treatment requested for portions of these exhibits. Omitted
portions have been filed separately with the Commission.
(1) Incorporated by reference to the same exhibit filed with Cell Genesys's
Registration Statement on Form S-1 (File No. 33-46452), portions of which
have been granted confidential treatment.
(2) Incorporated by reference to the same exhibit filed with Cell Genesys's
Registration Statement on Form S-1 (File No. 33-46452).
(3) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, portions
of which have been granted confidential treatment.
II-4
<PAGE> 108
(4) Incorporated by reference to the same exhibit filed with Cell Genesys's
Annual Report on Form 10-K for the year ended December 31, 1993, portions
of which have been granted confidential treatment.
(5) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, portions
of which have been granted confidential treatment.
(6) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(7) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions
of which have been granted confidential treatment.
(8) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(9) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly report on Form 10-Q for the quarter ended September 30, 1996.
(10)Incorporated by reference to the same exhibit filed with Cell Genesys's
Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, portions of which have been granted confidential treatment.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 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, 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(a) It will provide to the Underwriters at the closing as 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.
(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of the registration statement as of the time it
was declared effective.
(c) For the purpose of determining any liability under the 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-5
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fremont, State of California, on the 22nd day of
April, 1998.
ABGENIX, INC.
By: /s/ R. SCOTT GREER
------------------------------------
R. Scott Greer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ R. SCOTT GREER President, Chief Executive Officer and April 22, 1998
- --------------------------------------------- Director (Principal Executive Officer)
R. Scott Greer
/s/ KURT W. LEUTZINGER Vice President, Finance and Chief April 22, 1998
- --------------------------------------------- Financial Officer (Principal Financial
Kurt W. Leutzinger and
Accounting Officer)
*STEPHEN A. SHERWIN, M.D. Chairman of the Board April 22, 1998
- ---------------------------------------------
Stephen A. Sherwin, M.D.
*M. KATHLEEN BEHRENS, PH.D. Director April 22, 1998
- ---------------------------------------------
M. Kathleen Behrens, Ph.D.
*RAJU S. KUCHERLAPATI, PH.D. Director April 22, 1998
- ---------------------------------------------
Raju S. Kucherlapati, Ph.D.
*MARK B. LOGAN Director April 22, 1998
- ---------------------------------------------
Mark B. Logan
*JOSEPH E. MAROUN Director April 22, 1998
- ---------------------------------------------
Joseph E. Maroun
*By: /s/ R. SCOTT GREER
---------------------------------------
R. Scott Greer
(Attorney-In-Fact)
</TABLE>
II-6
<PAGE> 110
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ -----------------------------------------------------------
<C> <S> <C>
++ 1.1 Form of Underwriting Agreement.
3.1 * Certificate of Incorporation of the Registrant, as
currently in effect.
3.2 * Certificate of Designations of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock.
3.3 * Form Restated Certificate of Incorporation of the
Registrant, to be filed immediately following the closing
of the offering made under this Registration Statement.
3.4 * Bylaws of the Registrant, as currently in effect
3.5 * Form of Amended and Restated Bylaws of the Registrant, to
be adopted immediately following the closing of the
offering made under this Registration Statement.
++ 4.1 Specimen Common Stock Certificate.
++ 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 * Form of Indemnification Agreement between the Registrant
and each of its directors and officers.
10.2 * 1996 Incentive Stock Plan and form of agreement thereunder.
10.3 * 1998 Employee Stock Purchase Plan and form of agreement
thereunder.
10.4 * 1998 Director Option Plan and form of agreement thereunder.
10.5 * Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.
10.6 * Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.
10.7(1) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.
10.7A(4) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.
10.7B(7) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.
10.8(1) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.8A(3) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.
10.8B(4) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.
10.8C(5) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.
10.8D(7) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.
+10.8E * Amendment No. 5 dated November 1997 to Collaboration
Agreement.
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ -----------------------------------------------------------
<C> <S> <C>
10.9(1) Limited Partnership Agreement dated June 12, 1991 among
Cell Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.9A(4) Amendment No. 2 dated January 1, 1994 to Limited
Partnership Agreement.
10.9B(6) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.
10.9C(8) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.
10.10(2) Field License dated June 12, 1991 among Cell Genesys, JT
Immunotech USA Inc. and Xenotech, L.P.
10.10A(8) Amendment No. 1 dated March 22, 1996 to Field License.
10.10B(8) Amendment No. 2 dated June 28, 1996 to Field License.
10.11(1) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.
10.11A(8) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.
+10.12 * Amended and Restated Anti-IL-8 License Agreement dated
March 19, 1996 among Xenotech, L.P., Cell Genesys and Japan
Tobacco Inc.
10.13(7) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech,
L.P.
+10.13A * Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.
+10.14 * Stock Purchase and Transfer Agreement dated July 15, 1996
by and between Cell Genesys and the Registrant.
10.15 * Governance Agreement dated July 15, 1996 between Cell
Genesys and the Registrant.
10.15A * Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.
10.15B * Amendment No. 2 dated December 19, 1997 to the Governance
Agreement.
10.16 * Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and the Registrant.
+10.17 * Gene Therapy Rights Agreement effective as of November 1,
1997 between the Registrant and Cell Genesys.
+10.18 * Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of the Registrant.
10.19(9) Lease Agreement dated July 31, 1996 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77
(Arrillaga Family Trust) as amended, and Richard T. Peery,
Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended, and
the Registrant.
10.20 * Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and the Registrant.
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
----------- -----------------------------------------------------------
<C> <S> <C>
10.21 * Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and the
Registrant.
+10.22 * License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and the Registrant.
10.23(10) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco
Inc. and GenPharm International, Inc.
10.24(10) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, the Registrant, Xenotech, L.P., Japan
Tobacco Inc. and GenPharm International, Inc.
10.25(10) Interference Settlement Procedure Agreement, effective as
of March 26, 1997, among Cell Genesys, the Registrant,
Xenotech, L.P., Japan Tobacco Inc. and GenPharm
International, Inc.
+10.26 * Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, the Registrant, Japan Tobacco
Inc. and JT Immunotech USA Inc.
+10.27 * Collaborative Research Agreement dated December 22, 1997
between Pfizer, Inc. and the Registrant.
10.28 * Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among the Registrant and certain holders
of the Registrant's capital stock.
+10.29 * Collaborative Research Agreement effective as of January
28, 1998 between Schering-Plough Research Institute and the
Registrant.
10.30 * Excerpts from the Minutes of a Meeting of the Board of
Directors of the Registrant, dated October 23, 1996.
10.31 * Excerpts from the Minutes of a Meeting of the Board of
Directors of the Registrant, dated October 22, 1997.
+10.32 * Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and the Registrant.
+10.33 Research License and Option Agreement effective as of April
6, 1998 between the Registrant and Genentech, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
++23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 * Power of Attorney (see page II-6).
27.1 * Financial Data Schedule.
</TABLE>
- ---------------
++ To be supplied by amendment.
* Previously filed.
+ Confidential treatment requested for portions of these exhibits. Omitted
portions have been filed separately with the Commission.
(1) Incorporated by reference to the same exhibit filed with Cell Genesys's
Registration Statement on Form S-1 (File No. 33-46452), portions of which
have been granted confidential treatment.
(2) Incorporated by reference to the same exhibit filed with Cell Genesys's
Registration Statement on Form S-1 (File No. 33-46452).
<PAGE> 113
(3) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, portions
of which have been granted confidential treatment.
(4) Incorporated by reference to the same exhibit filed with Cell Genesys's
Annual Report on Form 10-K for the year ended December 31, 1993, portions
of which have been granted confidential treatment.
(5) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, portions
of which have been granted confidential treatment.
(6) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(7) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions
of which have been granted confidential treatment.
(8) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(9) Incorporated by reference to the same exhibit filed with Cell Genesys's
Quarterly report on Form 10-Q for the quarter ended September 30, 1996.
(10) Incorporated by reference to the same exhibit filed with Cell Genesys's
Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, portions of which have been granted confidential treatment.
<PAGE> 1
EXHIBIT 10.33
Execution Copy
RESEARCH LICENSE AND OPTION AGREEMENT
This License Option Agreement (the "Agreement"), effective as of April
6, 1998 (the "Option Effective Date") is made by and between Abgenix, Inc., a
Delaware corporation ("ABX") and Genentech, Inc., a Delaware corporation ("GNE")
with reference to the following facts and circumstances.
RECITALS
A. ABX has rights in certain technology relating to certain strains of
XenoMouse (TM) Animals (as described below);
B. GNE desires to use such XenoMouse Animals to generate antibodies to
[*] (as defined below);
C. ABX is willing to grant to GNE, and GNE desires to obtain, a license
to use XenoMouse Animals solely for immunization with [*] for research purposes,
as described below and on the terms and conditions set forth herein;
D. ABX has immunized XenoMouse Animals using [*] material provided by
GNE pursuant to that certain Materials Transfer Agreement between GNE and ABX
effective as of [*] (as defined below, the "MTA"); and
E. ABX is willing to grant to GNE, and GNE desires to obtain, an option
to enter into the [*] Product License Agreement with respect to Products derived
from immunization of XenoMouse Animals with [*], all as described fully below
and on the terms and conditions set forth herein.
NOW THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
as follows:
1. DEFINITIONS
For purposes of this Agreement, the terms set forth in this Article
shall have the meanings set forth below:
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
-1-
<PAGE> 2
1.1. The terms "ABX In-License," "ABX Know-How," "ABX Patent Rights,"
"Affiliate," "Antibody," "Derived" or "derived," "Excluded Technology," "Field,"
"Genetic Material," "GenPharm Cross License," "IND," "Independent Discovery,"
"JTI," "Licensed Technology," "MTA," "Product," "Product Antigen," "[*],"
"Product License," "Sublicense," "Sublicensee," "Territory," "XenoMouse,"
"XenoMouse Animals," and "Xenotech Agreement" shall have the meaning ascribed
thereto in the [*] Product License.
1.2. "GNE Option Agreement" shall mean this Research License and Option
Agreement entered into by and between ABX and GNE effective as of the Option
Effective Date (as defined in the introductory paragraph above), as the same may
be amended from time to time.
1.3. "Option" and "Option Expiration Deadline" shall have the meanings
described in Section 3.1 below.
1.4. "Research Field" shall mean the immunization of XenoMouse Animals
with the Product Antigen and the use of XenoMouse Animals that are so immunized
and materials generated in whole or part from XenoMouse Animals that are so
immunized, in each case solely for the creation, identification, analysis,
manufacture, research, and development of Products in the Field. For purposes of
clarification, the Research Field shall not include, among other things: (i) the
creation, breeding or development of mice or any transgenic animals, (ii) use in
humans of materials derived in whole or part from the XenoMouse Animals, (iii)
use of XenoMouse Animals or materials derived in whole or part from XenoMouse
Animals (including without limitation Products) for any purpose other than the
creation, identification, analysis, manufacture, testing, research and
development of Products for human medical uses, or (iv) the transfer, sale,
lease, offer for sale or lease, or other transfer of title to XenoMouse Animals
or any materials derived in whole or part from the XenoMouse Animals. For
purposes of further clarification, it is understood that "immunization" of
XenoMouse Animals with the Product Antigen includes the immunization of
XenoMouse Animals with any formulation or construction of the Product Antigen,
regardless of the three dimensional configuration of the Product Antigen,
including, but not limited to, cell lines expressing the Product Antigen on
their cell surface and chimeric molecules containing the Product Antigen;
provided, however, that any research, development or use of Antibodies that do
not bind to the Product Antigen (other than to determine whether they bind to
the Product Antigen) shall be outside of the scope of the licenses granted
hereunder or under the [*] Product Licenses.
1.5. "Research Plan" shall mean the research plan agreed upon by the
parties for work by the parties in the Research Field, which is attached hereto
as Exhibit A and incorporated herein, as the same may be amended from time to
time.
1.6. "[*] Product License" shall mean that certain agreement between the
parties (if entered into at all) in the form attached hereto as Exhibit B and
incorporated herein, as the same may be amended from time to time.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
-2-
<PAGE> 3
2. SUPPLY OF MICE AND MATERIALS; RESEARCH LICENSE
2.1 Supply of XenoMouse Animals and Hybridomas. Subject to the terms and
conditions of this Agreement, including those set forth in Section 2.2 below:
2.1.1 Hybridomas. As soon as practicable, but in any event, not
less than ten (10) days after the Option Effective Date, ABX shall provide GNE
with reasonable quantities of cells from hybridoma cell lines generated by ABX
from immunization of XenoMouse Animals prior to the Option Effective Date with
the Product Antigen provided by GNE pursuant to the MTA.
2.1.2 XenoMouse Animals. ABX agrees to provide to GNE, solely for
use in creating Antibodies to [*] for the creation, identification, analysis,
manufacture, research, development and commercialization of Products in
accordance with this Agreement and the [*] Product License (if entered into at
all by the parties), numbers and types of sterilized male XenoMouse Animals as
follows: (a) as soon as practicable after the Option Effective Date, but in any
event not later than twenty (20) days after the Option Effective Date, ABX will
ship to GNE sterilized male XenoMouse Animals of the sterilized male XenoMouse
Animals of the types, strains and quantities specified in item number 19 of the
Research Plan. If, before ABX has provided to GNE all the XenoMouse Animals that
ABX is required to provide under this Agreement and/or the [*] Product License
(if entered into at all by the parties), ABX develops and has available for
shipment to GNE a strain of transgenic animals that produce human antibodies
that was not available on the Option Effective Date (such a strain referred to
herein as a "New Strain"), ABX agrees to inform GNE and discuss whether GNE
would prefer to receive animals from the New Strain. Upon request of GNE, ABX
will agree to substitute a reasonable number of animals from the New Strain in
place of an equal number of XenoMouse Animals, of the types and strains
specified in the Research Plan, to be shipped to GNE under this Agreement;
provided that any such animals shall be deemed to be XenoMouse Animals for
purposes of this Agreement (including, without limitation, Section 2.2) and the
[*] Product License. GNE shall use XenoMouse Animals or animals from the New
Strain provided hereunder only for conducting the research set forth in the
Research Plan and/or for work in the Research Field, all in accordance with this
Agreement.
2.1.3 Research. GNE and ABX shall each conduct those research
activities specified for such party as outlined in the Research Plan attached
hereto as Exhibit A. The parties may amend the Research Plan (including, without
limitation, the number and type of XenoMouse Animals to be provided to GNE) only
by mutual written agreement. During the term of this Agreement, GNE and ABX
shall each update the other, as requested by the other, as to the status of any
research activities of the party under the Research Plan. It is understood that,
except as expressly provided in the Research Plan or as the parties may
otherwise agree in writing, GNE shall be responsible for conducting all other
research activities involved in the creation, research and development of
Products, including without limitation immunizations of XenoMouse Animals with
the Product Antigen, screening of Antibodies generated from such immunizations,
creation of hybridoma cells
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
-3-
<PAGE> 4
that produce Antibodies to the Product Antigen, production of
Antibodies to the Product Antigen, and preclinical evaluation of Antibodies to
the Product Antigen.
2.1.4 Payments. In consideration for ABX's research activities
under the Research Plan, GNE shall pay ABX in accordance with the agreed-upon
budget included in the Research Plan within thirty (30) days of receipt of
invoice from ABX.
2.1.5 Ownership of Materials and Data. It is understood and
agreed that:
(a) ABX shall solely own all XenoMouse Animals, Genetic Material
encoding such XenoMouse Animals, Antibodies, Genetic Material encoding such
Antibodies, hybridomas and B cells.
(b) GNE shall own all reagents, samples, data, results, technical
information, know-how, preclinical and/or clinical testing data and any other
non-patentable information resulting from the parties' use of the Licensed
Technology related to the Product Antigen under the MTA or under this Agreement.
(c) With respect to any materials (including, without limitation,
all Antibodies, hybridomas or Genetic Material) generated in whole or in part
from immunization of XenoMouse Animals with the Product Antigen and/or data made
or generated under the MTA, this Section 2.1.5 hereby supersedes and cancels any
terms or provisions in the MTA inconsistent with this Section 2.1.5 or any other
term of this Agreement. The transfer of physical possession of any materials
owned by, and the physical possession and use of such materials and/or data by,
GNE or ABX, as the case may be, shall not be (nor be construed as) a sale,
lease, offer to sell or lease, or other transfer of title of such materials
and/or data to GNE or ABX, as the case may be.
2.2 Supply of XenoMouse Animals and Materials; Material Transfer Terms.
It is understood and agreed that all XenoMouse Animals, and all materials
derived in whole or part from XenoMouse Animals, provided by ABX to GNE are
provided solely for use in accordance with, and subject to, the following terms
and conditions:
(a) all XenoMouse Animals transferred to GNE shall be the
property of ABX, and the transfer of physical possession to GNE, and/or
possession or use by GNE, of XenoMouse Animals shall not be, nor be construed
as, a sale, lease, offer to sell or lease, or other transfer of title to any
XenoMouse Animals;
(b) all XenoMouse Animals and all materials derived in whole or
part from the XenoMouse Animals shall remain in the control of GNE and shall not
be transferred to GNE's Affiliates or Sublicensees or any other party (other
than ABX), except as expressly permitted under the [*] Product License (if
entered into by the parties hereto);
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
-4-
<PAGE> 5
(c) GNE shall not attempt to use the XenoMouse Animals, or any
materials derived in whole or part from the XenoMouse Animals (including Genetic
Materials) to reproduce the XenoMouse Animals or to generate or produce other
transgenic mice or other transgenic animals;
(d) The XenoMouse Animals shall be delivered to GNE solely for
the purpose of performing the research activities set forth in the Research Plan
and work in the Research Field, and GNE shall not use the XenoMouse Animals for
any purpose other than immunizing the XenoMouse Animals with [*] and subsequent
use of such immunized XenoMouse Animals and materials derived therefrom as
reasonably necessary for creation, manufacture, testing, use, identification,
analysis, research, and for development and commercialization of Products
pursuant to the [*] Product License;
(e) GNE shall not transfer, sell, have sold, lease, offer to sell
or lease, or otherwise transfer title to (i) any XenoMouse Animals, (ii) cells
derived in whole or part from the XenoMouse Animals (including without
limitation hybridomas), or (iii) except as provided in Section 2.2(f) below, any
other materials (including without limitation Antibodies and Genetic Materials)
derived in whole or part from the XenoMouse Animals;
(f) GNE shall not transfer, sell, have sold, lease, offer to sell
or lease, otherwise transfer title to, or otherwise distribute or commercialize
any Antibody or Product without first entering into the [*] Product License with
ABX;
(g) GNE shall not use the XenoMouse Animals to make or use
antibodies to any antigen other than the Product Antigen or immunize the
XenoMouse Animals with any antigen other than the Product Antigen;
(h) Upon expiration or termination of this Agreement for any
reason, GNE shall destroy (or return to ABX) each XenoMouse Animal and certify
such destruction, except as otherwise provided in the [*] Product License (if
entered into by the parties);
(i) ABX shall own all right, title and interest in and to all
inventions and intellectual property (whether patentable or nonpatentable) made
or created by GNE (and by any of its agents or employees on behalf of, or under
authority of, GNE) through any use of the XenoMouse Animals (and/or materials
derived in whole or part from the XenoMouse Animals) which is not in accordance
with the terms and conditions set forth in this Section 2.2;
(j) Unless otherwise agreed by ABX in advance in writing, all
XenoMouse Animals delivered to GNE shall be delivered to GNE's facilities in
South San Francisco, California, and such XenoMouse Animals shall not leave such
facility (except for return to ABX); and
(k) XT shall be a third-party beneficiary of the commitments by
GNE set forth in items (a) through (g) above.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
-5-
<PAGE> 6
2.3 Research License. Subject to the terms and conditions of this
Agreement (including without limitation compliance with the provisions of
Section 2.2), ABX agrees to grant, and hereby grants, to GNE an exclusive
license and sublicense of its rights, as the case may be, under the Licensed
Technology, without right to grant further sublicenses, (i) to use the XenoMouse
Animals provided by ABX in the Research Field solely for immunization with the
Product Antigen and for conducting the creation, identification, analysis,
manufacturing, research and development work set forth in the Research Plan or
work in the Research Field, (ii) to use the Licensed Technology other than
XenoMouse Animals (but including materials derived from XenoMouse Animals) for
research and development work within the scope of the Research Field, including
for work with ABX under the Research Plan in the Research Field and for other
GNE work in the Research Field. The parties acknowledge that while ABX is
granting GNE an exclusive license of its rights within the Research Field, ABX's
rights may not be exclusive from ABX's licensors. The license and sublicense
rights granted under this Section 2.3 shall terminate on the Effective Date (if
any) of the [*] Product License between ABX and GNE or, in the event that GNE
has not exercised the Option by the Option Expiration Deadline, on such Option
Expiration Deadline.
2.4 Limitation. Notwithstanding any other provision of this Agreement,
in no event shall GNE (a) file, or authorize any third party to file, an IND (or
a similar filing with an equivalent agency or regulatory body in any country)
with respect to a Product or (b) initiate, or authorize any third party to
initiate, clinical trials in humans with respect to a Product or (c) sell, or
authorize any third party to sell, a Product, unless and until GNE has entered
into the [*] Product License.
2.5 Compliance with Laws. Each party shall only use the XenoMouse
Animals and materials derived in whole or part from the XenoMouse Animals
(including without limitation any hybridomas, Antibodies, and Genetic Material)
in compliance with all applicable laws and regulations, including all applicable
National Institutes of Health guidelines, and each party agrees that such
materials will not be used in humans, except in accordance with all applicable
regulations and laws. The parties acknowledge that ABX's obligations under the
preceding sentence applies only to ABX's use of the XenoMouse Animals and
materials derived in whole or in part from the XenoMouse Animals pursuant to
this Agreement. Each party acknowledges that the XenoMouse Animals, and all
materials generated in whole or part from the XenoMouse Animals, are
experimental in nature and may have unknown characteristics and therefore agrees
to use prudence and reasonable care in the use, handling, storage,
transportation, disposition and containment thereof.
2.6 Use Only For Products; No Implied Rights. GNE agrees that it shall
not use the Licensed Technology (including, without limitation, XenoMouse
Animals, Antibodies, Antibody-secreting cells, Genetic Material encoding the
foregoing, or any other material derived from the XenoMouse Animals) except in
the course of conducting research activities within the Research Field (and as
may be permitted under the terms of the [*] Product License, if entered into by
the parties). It is understood and agreed that no implied licenses or rights are
conveyed to GNE under this Agreement, and that no license or other right shall
be created hereunder by implication, estoppel
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
-6-
<PAGE> 7
or otherwise, and that GNE shall not sell, lease, offer to sell or
lease, otherwise transfer title to or commercialize materials derived in whole
or part from the XenoMouse Animals, except as expressly provided under the [*]
Product License (if entered into at all by the parties).
3. OPTION TO OBTAIN [*] PRODUCT LICENSE
3.1 Option. Subject to the terms and conditions set forth in this
Agreement, ABX hereby grants to GNE an exclusive option (the "Option") to obtain
the right to enter into the [*] Product License between GNE and ABX, which
Option may be exercised by GNE pursuant to the procedures set forth in this
Article 3 on or before 5 o'clock p.m. (Pacific Time) on [*] (the "Option
Expiration Deadline").
3.2 Exercise of Option.
3.2.1 Exercise. To exercise the Option, GNE must give ABX written
notice (the "Exercise Notice") stating that GNE desires that ABX (a) obtain the
Product License for the Product Antigen between ABX and XT and (b) enter into
the [*] Product License with GNE. GNE's exercise of the Option shall be
effective upon timely receipt by ABX of the Exercise Notice. In the event that
ABX has not received the Exercise Notice on or before the Option Expiration
Deadline, the Option shall immediately terminate.
3.2.2 Obtaining Product License from XT to ABX for [*]. As soon
as practicable after GNE's exercise of the Option (if any) in accordance with
Section 3.2.1 above, ABX shall exercise its option under the Xenotech Agreement
to obtain a Product License from XT. In the event that GNE timely exercises the
Option, ABX shall enter into such Product License with XT as soon as reasonably
practicable and in any event prior to when GNE and ABX enter into the [*]
Product License, and ABX shall send written notice to GNE at such time ABX has
entered into such Product License with XT, together with a complete copy
(excepting only financial terms) of the fully signed Product License. At such
time as ABX enters into such Product License and notifies GNE thereof as
required hereunder, GNE and ABX shall promptly execute the [*] Product License
as set forth in the form attached hereto as Exhibit B. If GNE timely exercises
its Option hereunder, ABX shall use its best efforts to enter into the specified
Product License with XT and the [*] Product License with GNE by not later than 5
o'clock p.m. (Pacific Time) on [*]. If GNE timely exercises its Option hereunder
and ABX fails or is unable to enter into the specified Product License with XT
and the [*] Product License with GNE by not later than 5 o'clock p.m. (Pacific
Time) on [*], GNE shall (subject to the notice and cure provisions of Section
8.3) be entitled to all available remedies conferred on it under this Agreement
and by law or in equity. Subject to the foregoing and to the proviso at the end
of this sentence, it is understood that once GNE has exercised its Option, GNE
shall be obligated to enter into the [*] Product License and promptly thereafter
pay ABX the License Fee as set forth in Section 3.1 thereof, it being understood
and agreed that if GNE fails or is unwilling to enter into the [*] Product
License after having exercised the Option and unless such failure is due to
inaction of ABX or breach of ABX of
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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its obligations, then GNE shall pay to ABX an amount equal to
such License Fee within fifteen (15) days of the date that ABX offers to execute
and enter into the [*] Product License with GNE; provided, however, that in the
event that anything is contemplated to be set forth on Schedule A of the [*]
Product License, GNE shall not be obligated to enter into such [*] Product
License or pay the amount set forth in this sentence. It is understood and
agreed that, notwithstanding any other provision of this Agreement, in the event
that the Product License entered into by ABX with XT is a "Qualified Exclusive
Worldwide Product License" rather than an "Exclusive Worldwide Product License"
(as each term is defined in the Xenotech Agreement), then (a) GNE shall not be
obligated to enter into the [*] Product License with ABX or pay the amount set
forth in the previous sentence, (b) ABX shall not, if ABX used commercially
reasonable best efforts to obtain an "Exclusive Worldwide Product License," be
in breach of this Agreement and (c) in the event that GNE enters the [*] Product
License notwithstanding the fact that the Product License is a "Qualified
Worldwide Exclusive Product License", then the definitions of "Product License"
and "Territory" in the [*] Product License shall be amended accordingly, and the
parties shall make such other changes as are necessary to reflect the nature of
the Product License.
3.2.3 Third Party Rights. It is understood and agreed that the
grant of rights under Articles 2 and 3 hereof shall be subject to and limited in
all respects by the terms of the applicable ABX In-License(s) pursuant to which
ABX acquired or does acquire any Licensed Technology, including, without
limitation, any rights granted to or retained by GenPharm International, Inc.
under the GenPharm Cross License, and that all rights or sublicenses granted
under this Agreement shall be to the extent that ABX may grant such rights and
sublicenses under such ABX In-Licenses.
3.2.4 Definition of [*] Antigen. ABX shall use commercially
reasonable efforts to establish as the definition of [*] under the Xenotech
Agreement the same definition of [*] as is established under this Agreement, it
being understood and agreed, however, that the precise definition of the [*]
Antigen defining the rights licensed to ABX under the Product License (and the
definition in the corresponding [*] Product License) shall be as established in
accordance with the Xenotech Agreement.
3.2.5 Use by ABX. It is understood that if GNE does not exercise
its Option on or before the Option Exercise Deadline and enter into the [*]
Product License with ABX, ABX shall be entitled, in its sole discretion, to
exercise ABX's rights under the Xenotech Agreement and enter into the Product
License related to the Product Antigen with XT on ABX's own behalf or on behalf
of a third party without further obligation to GNE, and ABX shall not be
obligated to enter into the [*] Product License with GNE. Notwithstanding the
foregoing, nothing in this Section 3.2.5 shall entitle ABX (a) to license or
make any other use of any technology, know-how, intellectual property, materials
(including, without limitation, any Antibodies, Antibody secreting cells,
hybridomas or Genetic Material) or data owned by GNE, ABX, owned jointly by GNE
and ABX, and, in each case generated in whole or in part from GNE's or ABX's
activities under this Agreement or the MTA in any case without first obtaining
GNE's prior written consent, except as expressly provided in this Agreement.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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3.2.6 Non-Use of Materials. ABX shall not license or make any
other use of any material (including, without limitation, any Antibodies,
B-cells, hybridomas or Genetic Material) owned by GNE or ABX, or owned jointly
by GNE and ABX, in each case generated in whole or part from GNE's or ABX's
activities under this Agreement or the MTA, except as expressly provided in this
Agreement, in any case without first obtaining GNE's prior written consent. ABX
shall not, license or use any technology, know-how, intellectual property or
data owned by GNE or ABX, or owned jointly by GNE and ABX (in each case
generated in whole or part from GNE's or ABX's activities under this Agreement
or the MTA) in order to make or sell Products, except as expressly provided in
this Agreement, in any case without first obtaining GNE's prior written consent.
4. INTELLECTUAL PROPERTY
4.1 Ownership of Intellectual Property.
4.1.1 Intellectual Property Concerning Antibodies, Cells, and
Genetic Material. GNE and ABX shall jointly own all right, title and interest in
patent or patent applications directed to inventions solely or jointly made,
conceived, reduced to practice, or otherwise developed by GNE and/or ABX in the
course of performing research or development work under the MTA, this Agreement,
or the [*] Product License that are directed to (i) Antibodies, (ii) hybridoma
cells that secrete or express Antibodies, and/or (iii) Genetic Material encoding
Antibodies. This Section 4.1.1 hereby supercedes and cancels any term or
provision of the MTA that are inconsistent with this Section 4.1.1 to the extent
that such term or provision of the MTA relate to the Product Antigen. It is
understood and agreed that nothing in the Section 4.1.1 shall convey, or be
construed to convey, title in or to the biological materials themselves
embodying any such jointly-owned inventions to GNE or ABX, as the case may be.
4.1.2 Intellectual Property Concerning Other Inventions. Except
as otherwise provided in Section 4.1.1 and 2.1.5 above, on and after the
effective date of the MTA, title to any inventions (and to any patent
applications and patents thereon) by a party or parties under the MTA or this
Agreement, shall follow inventorship, which shall in turn be determined in
accordance with United States laws of inventorship and probative evidence of the
parties. Designation of inventors on any patent application hereunder is a
matter of law and shall be solely within the discretion of qualified patent
counsel of the party(ies) hereto making such invention.
4.1.3 Joint Ownership. For purposes of clarification, to the
extent that something is jointly owned under this Agreement, and except as
otherwise provided in this Agreement (including the exclusive nature of the
licenses granted by ABX hereunder), both parties shall have the right to use,
commercialize, grant and authorize sublicenses, and otherwise exploit all such
jointly-owned patents and inventions without obligation to account to, or obtain
the consent of, the other joint owner. Both parties hereto agree to promptly
disclose to the other all jointly-owned inventions under this Agreement and, on
request of the other party, will provide such information and assistance as may
be reasonably necessary to assist in the filing and prosecution of patent
applications claiming
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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such inventions. The parties hereto agree to ensure that each
employee, agent, or independent contractor that conducts research using the
XenoMouse Animals, or materials derived in whole or part from the XenoMouse
Animals, will promptly disclose and assign to the parties hereto any and all
rights to jointly-owned inventions. The parties hereto agree to maintain records
in sufficient detail and in good scientific manner appropriate for patent
purposes and so as to properly reflect all work done and results achieved in
performing research under the MTA or this Agreement.
4.2 Patent Prosecution.
(a) Solely Owned. The party solely owning any invention under
Section 4.1 above shall have the sole right and responsibility (but not the
obligation), at its expense, to file, prosecute and maintain all patent
applications and patents thereon, and to conduct any interferences, oppositions,
or reexaminations thereon, and to request any reissues or patent term extensions
thereof.
(b) Jointly Owned. In the event of any invention jointly owned by
the parties under Section 4.1 above, ABX shall have the sole right and
responsibility (but not the obligation), at its expense, to file, prosecute and
maintain all patent applications (and to conduct any interferences, oppositions,
or reexaminations thereon, and to request any reissues or patent term extensions
thereof) claiming any XenoMouse Animals or any uses thereof, and GNE shall have
the sole right and responsibility (but not the obligation), at its expense, to
file, prosecute and maintain all patent applications and patents (and to conduct
any interferences, oppositions, or reexaminations thereon, and to request any
reissues or patent term extensions thereof) claiming the Product Antigen, any
Antibody or Product and/or its development, manufacture, use or sale. The party
having such rights and responsibilities hereunder is referred to as the
"Controlling Party". The Controlling Party shall: (i) provide the
non-Controlling Party with any patent application filed hereunder by the
Controlling Party promptly after such filing; (ii) provide the non-Controlling
Party promptly with copies of all substantive communications received from or
filed in patent office(s) with respect to such filings; (iii) notify the
non-Controlling Party of any interference, opposition, reexamination request,
nullity proceeding, appeal or other interparty action and review it with the
non-Controlling Party as reasonably requested; and (iv) provide the
non-Controlling Party, a reasonable time prior to taking or failing to take any
action that would substantially affect the scope of validity of rights under
such patent applications or patents thereon (including substantially narrowing
or canceling any claim without reserving the right to file a continuing or
divisional application, abandoning any patent or not filing or perfecting the
filing of any patent application) with notice of such proposed action so that
the non-Controlling Party has a reasonable opportunity to review and make
comments. If the Controlling Party fails to undertake the filing of a patent
application (or continuing or divisional application) within ninety (90) days
after a written request from the non-Controlling Party to do so, or if the
Controlling Party discontinues the prosecution or maintenance of a patent
application or patent, the non-Controlling Party at its expense may, in its
discretion, undertake such filing, prosecution or maintenance thereof, in which
case such patent application and patent thereon shall be solely owned by the
non-Controlling Party. The parties hereto shall assist each other to the extent
commercially reasonable in securing intellectual property rights resulting from
jointly owned
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inventions hereunder. As to enforcement of jointly-owned patents,
including actions against an alleged infringer, the parties hereto shall consult
with each other in good faith as to the best manner in which to proceed. The
parties agree as a basic principle that in the case of such actions against
alleged infringers, the expenses incurred and damages awarded shall be first
used to reimburse the costs and expenses (including reasonable attorneys' fees)
of the party or parties in the action, second used to reimburse ABX for any
amounts ABX is obligated to pay to third parties (if any) in respect of such
amount pursuant to applicable ABX In-Licenses, with the remainder for the
account of the party or parties that undertake such actions to the extent of
their financial participation therein. To the extent that damages are awarded
for lost sales or lost profits from the sale of Products, such damages shall be
allocated among the parties taking into account royalties that would have been
payable to ABX on the sale of such Products. Either party may withdraw from or
abandon any jointly-owned patent application or patent hereunder, on reasonable
prior written notice to the other party providing a free-of-charge option to
assume the prosecution and/or maintenance thereof.
4.3 Grant Back. It is the intent of the parties that this Agreement
shall not restrict ABX's freedom to operate regarding the practice and
commercialization of the Licensed Technology (including without limitation
XenoMouse Animals and cells, genetic material, and antibodies generated or
derived from XenoMouse Animals), except in relation to Product. Accordingly, in
the event that any patent owned or controlled by GNE that directly arises from
use of the XenoMouse Animals that has application other than for the
manufacture, use, sale, offer for sale or import of Products, GNE agrees to
grant, and hereby grants, to ABX a [*] license in the Territory, with the right
to grant and authorize sublicenses, under all patents claiming such inventions,
for all fields of use other than the manufacture, use, sale, offer for sale or
import of Products, in each case on terms and conditions [*]. In the event that
any patent owned or controlled by GNE claims use of the XenoMouse Animals that
has application other than for the manufacture, use, sale, offer for sale or
import of Products, GNE agrees, upon written notice from ABX, to grant to ABX a
[*] license in the Territory, with the right to grant and authorize sublicenses,
under all patents claiming such inventions, for all fields of use other than the
manufacture, use, sale, offer for sale or import of Products, [*].
5. CONFIDENTIALITY
5.1 Confidentiality. Except as expressly provided herein, the parties
agree that during the term of this Agreement and for five (5) years thereafter
the receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose other than performance of
this Agreement any information furnished to it by the other party hereto
pursuant to this Agreement ("Confidential Information"), except to the extent
that it can be established by the receiving party by competent proof that such
information:
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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(a) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving party by
a person other than a party or developed by the receiving party without
reference to any information or materials disclosed by the disclosing party.
5.2 Permitted Disclosures. Notwithstanding Section 5.1 above and Section
5.4 below, each party hereto may nevertheless disclose the other party's
Confidential Information and the terms of this Agreement to the extent such
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, complying with applicable laws or
regulations or otherwise submitting information to tax or other governmental
authorities, making a permitted Sublicense or publication or other exercise of
its rights hereunder or conducting clinical trials, provided that if a party is
required by law to make any such disclosure of the other party's Confidential
Information, other than pursuant to a confidentiality agreement, it will give
reasonable advance notice to the other party of such disclosure requirement and,
save to the extent inappropriate in the case of patent applications, will use
efforts consistent with prudent business judgment to secure confidential
treatment of such information prior to its disclosure (whether through
protective orders or confidentiality agreements or otherwise). It is understood
that the obligations set forth in this Article 5 are separate from GNE's
obligations under Section 2.2 above, and the expiration or nonapplicability of
GNE's obligations under Section 5.1 shall not be deemed to limit GNE's
obligations under Section 2.2.
5.3 Scientific Publications. The parties agree, as a general principle,
that it is desirable to publish the results of the research conducted by the
parties hereto under this Agreement, and agree that both parties will have the
right to publish such results. The following restrictions shall apply with
respect to the disclosure in scientific journals or publications by the parties
hereto regarding any scientific work under this Agreement (but not any
Independent Discovery or other research performed by the parties): (a) the party
publishing, or proposing to publish, such results (the "Publishing Party") shall
provide the other party (the "Non-Publishing Party") with an advance copy of any
proposed submission of a publication arising from such scientific work, not less
than thirty (30) days prior to submission or disclosure of such publication, and
the Non-Publishing Party shall have a reasonable opportunity to recommend any
changes it reasonably believes are necessary to preserve its Patent Rights or
Know-How or to protect its Confidential Information hereunder, and the
incorporation of such recommended changes shall not be unreasonably refused; and
(b) if the Non-
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Publishing Party informs the Publishing Party, within thirty (30) days
of receipt of an advance copy of a proposed publication hereunder, that such
publication includes Confidential Information of the Non-Publishing Party the
publication of which, in the Non-Publishing Party's sole judgment, could be
expected to have a material adverse effect on any of its Patent Rights or
Know-How, or on the Non-Publishing Party's business affairs, the Publishing
Party shall delete such Confidential Information of the Non-Publishing Party
from such publication and, in the case of inventions made solely by the
Publishing Party or jointly by the Publishing Party and the Non-Publishing
Party, delay publication thereof for an a time period (not to exceed ninety (90)
days) sufficient for the preparation and filing of a patent application or
application for a certificate of invention thereon, in accordance with Article 6
of this Agreement. The parties agree to confer regarding authorship of such
publications, which shall be determined in accordance with the standards for
authorship customary for peer-reviewed journals. For purposes of this Section,
the parties agree that publication of Confidential Information covered by a
filed patent shall not be required to be deleted solely due to a patent
application not having reached its 18 month publication date.
5.4 Terms of Agreement. Except as expressly provided in this Article 5,
each party hereto agrees not to make any public disclosure of the terms of this
Agreement or the identity of the Product Antigen (including, without limitation,
any press release and/or Q&A to be issued on the Option Effective Date), without
first obtaining the written approval of the other party and agreement upon the
nature and text of such public announcement or disclosure. After execution of
this Agreement, either party hereto may issue a press release, the content of
which will be agreed upon by the parties. The party desiring to make any such
public announcement shall provide the other party with a copy of the proposed
announcement for review and comment in reasonably sufficient time prior to
public release. Each party agrees that it shall cooperate fully with the other
with respect to all disclosures regarding this Agreement required under
applicable laws and regulations to the United States Securities Exchange
Commission and any other governmental or regulatory agencies, including requests
for confidential treatment of proprietary information of either party included
in any such governmental disclosure. The parties may publicly disclose
information contained in any prior public disclosure that was in compliance with
this Section without further approvals hereunder. In addition, each party agrees
not to disclose the identity of the Product Antigen to any third party under any
circumstances except if required by law, nor the terms of this Agreement or the
[*] Product License to any third party, other than to professional advisors and
financing sources, and in that case, only under confidentiality terms at least
as stringent in material respects as this Article. The parties acknowledge that,
in the event of an initial public offering by ABX, ABX may be required to file
this Agreement or information related thereto with the Securities and Exchange
Commission (the "SEC"). In that event, and thereafter, ABX shall be entitled to
comply with the disclosure requirements of the SEC, provided, however, that in
connection with any required SEC filing of this Agreement by ABX, ABX shall use
reasonable efforts to obtain confidential treatment of portions of the Agreement
from the SEC (including, without limitation, financial terms and the identity of
the Product Antigen). GNE shall have the right to review and comment on such an
application for confidential treatment insofar as it pertains to this Agreement
prior to its being filed with the SEC and ABX shall not unreasonably refuse such
comments. GNE shall provide its
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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comments, if any, on such application as soon as practicable, and in no
event later than four (4) days after such application is provided to GNE.
6. INDEMNIFICATION
6.1 GNE. GNE agrees to save, defend and hold ABX and its directors,
officers, employees, agents and Affiliates harmless from and against any suits,
claims, actions, demands, damages, liabilities, expenses or losses (including
court costs and reasonable attorneys' and experts' fees) (collectively, the
"Liabilities") resulting directly from (a) third party claims arising from any
negligence or willful misconduct of GNE (or its directors, officers, employees,
agents, or Sublicensees) or the breach of any representations or warranties of
GNE under this Agreement, or (b) any third party claims arising from GNE's or
its Sublicensee's development, making, having made, use, offer for sale, or sale
of any Product developed, manufactured, used, sold or otherwise distributed by
GNE and its Sublicensees under this Agreement; provided, however, that nothing
in this Section 6.1 shall obligate GNE to save, defend or hold harmless ABX for
any Liabilities to the extent arising from the negligence or willful misconduct
of ABX or its directors, officers, employees, or agents.
6.2 ABX. ABX agrees to save, defend and hold GNE and its directors,
officers, employees, agents and Affiliates harmless from and against any
Liabilities resulting directly from (a) third party claims arising from any
negligence or willful misconduct of ABX (or its directors, officers, employees,
or agents) or the breach of any representations or warranties of ABX under this
Agreement, or (b) any third party claims arising from any negligence or willful
misconduct of ABX or its directors, officers, employees, or agents in the course
of conducting ABX work under the Research Plan; provided, however, that nothing
in this Section 6.2 shall obligate ABX to save, defend or hold harmless GNE for
any such Liabilities to the extent arising from the negligence or willful
misconduct of GNE or its directors, officers, employees, agents or Sublicensee.
6.3 Indemnification Procedures. If any person or party entitled to
indemnification under this Article 6 (an "Indemnitee") intends to claim
indemnification under this Article 6, it shall promptly notify the indemnifying
party hereunder (the "Indemnitor") in writing of any Liability in respect of
which the Indemnitee intends to claim such indemnification, as soon as
reasonably practicable after the Indemnitee receives notice of such Liability.
Indemnitor's obligations under this Article 6 are conditioned upon the
Indemnitee permitting the Indemnitor to assume direction and control of the
defense of the Liability (including the right to settle it); provided, however,
that an Indemnitee shall have the right to retain its own legal counsel, with
the reasonable fees and expenses thereof to be paid by the Indemnitor, if
representation of such Indemnitee by the legal counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnitee and such Indemnitor. Indemnitor's obligations
under this Article 6 shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld or delayed
unreasonably. The failure to deliver written notice to the Indemnitor within a
reasonable
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time after the commencement of any third party suit, claim, action or
demand, if prejudicial to Indemnitor's ability to defend such suit, claim,
action or demand, shall relieve the Indemnitor of its obligations under this
Section 6 with respect to Liabilities that could have been defended in such
action. The Indemnitee (and its directors, officers, employees and agents) shall
cooperate fully with the Indemnitor and its legal counsel in the investigation
of any such Liability for which indemnification is sought by such Indemnitee
hereunder.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 ABX. ABX represents, warrants and covenants to GNE that:
(a) it has the full right and authority to enter into this
Agreement and grant the rights and licenses granted herein;
(b) it has not previously granted, and during the term of this
Agreement will not grant, any rights inconsistent or in conflict with the rights
and licenses granted to GNE herein, including without limitation, any right,
license in and to the Licensed Technology granted under this Agreement, or any
portion thereof, with respect to the Products or their development, manufacture,
use or sale;
(c) to its knowledge as of the Option Effective Date, there are
no existing or threatened actions, suits or claims pending against ABX with
respect to the Licensed Technology or the right of ABX to enter into and perform
its obligations under this Agreement or the [*] Product License;
(d) it will not take any action or fail to take any action under
this Agreement that will cause a breach of the GenPharm Cross-License, the
Xenotech Agreement, the Product License, or any ABX In-License; provided,
however, that it shall not be a breach of this covenant if ABX cures any breach
of such third party agreement pursuant to the cure provisions contained therein;
(e) as of the Option Effective Date, ABX has no knowledge
(without the obligation to perform due diligence) of any rights of third parties
that would interfere with the use of the ABX Know-How or practice of the ABX
Patent Rights as contemplated under this Agreement (including, without
limitation, work under the Research Plan or otherwise in the Research Field
pursuant to this Agreement or the [*] Product License), and, as of the Option
Effective Date, ABX has no knowledge (without the obligation to perform due
diligence) that any patents or patent applications within the ABX Patent Rights
are invalid or unenforceable or that their practice as licensed hereunder would
infringe patent rights of third parties, provided, however, that this
representation does not apply to possible infringements relating to the Product
Antigen;
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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(f) as of the Option Effective Date, Cell Genesys, Inc. ("CGI")
has assigned to ABX all of CGI's rights and obligations under the Xenotech
Agreement, and ABX is a party to the Xenotech Agreement in lieu of CGI;
(g) on the first date on which the Product License for the
Product Antigen between ABX and XT and the [*] Product License between ABX and
GNE are both in full force and effect, and thereafter so long as both are in
effect, ABX shall be and remain XT's exclusive licensee and sublicensee (except
with respect to the research license set forth in Article 3 of the Xenotech
Agreement and the licenses granted in the GenPharm Cross License) for all the
uses of the Licensed Technology relating to Products in the Field throughout the
Territory, and GNE shall be ABX's exclusive sublicensee thereunder for all uses
of the Licensed Technology relating to the Products in the Field throughout the
Territory, as more fully set forth in the [*] Product License and on the terms
and conditions set forth therein;
(h) it has provided to GNE on or before the Option Effective Date
complete copies of all applicable ABX In-Licenses setting forth all applicable
limitations or restrictions described in Section 3.2.3 (it being understood that
the financial terms have been redacted from some or all such copies);
(i) Based upon information provided to ABX by GNE concerning
GNE's intellectual property rights in [*] and to the best of ABX's knowledge
(without the obligation to perform due diligence), ABX has the right to obtain
from XT a Product License that is an "Exclusive Worldwide Product License" (as
defined in the Xenotech Agreement and in the form attached thereto as an
exhibit). ABX will provide GNE with a complete (excepting only for financial
terms) copy of such Product License as signed by all parties thereto, as
required under Section 3.2.2 or 3.2.3 above;
(j) Based upon information provided to ABX by GNE concerning
GNE's intellectual property rights in [*] and to the best of ABX's knowledge
(without the obligation to perform due diligence), JTI does not have the right
under the Xenotech Agreement to obtain an "Exclusive Home Territory Product
License" or a "Co-Exclusive Worldwide Product License" (as these are defined in
the Xenotech Agreement and attached thereto as exhibits) for the Product
Antigen, or any other right or license under the Licensed Technology to develop,
make and have made, use, sell, lease, offer to sell or lease, import, export,
otherwise transfer physical possession of or otherwise transfer title to
Products in the Field in the Territory, except, in each case, with respect to
the research license set forth in Article 3 of the Xenotech Agreement. ABX shall
notify GNE promptly in writing of assertion by JTI (if any) that it may have any
such rights anywhere in the Territory;
(k) ABX has nominated the Product Antigen under Section 7.1 of
the Xenotech Agreement and taken every other step necessary under the Xenotech
Agreement to obtain the right to acquire an "Exclusive World Wide Product
License" under the Xenotech Agreement;
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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(l) ABX shall, at the request of GNE, discuss with GNE ABX's
interpretation of material terms and conditions of ABX In-Licenses, including,
without limitation, any limitations on ABX's right to further transfer or grant
licenses or sublicenses to GNE to any and all rights to technology within the
scope of the ABX Patent Rights and/or ABX Know-How under any ABX In-License;
(m) ABX shall not agree to any termination, modifications or
amendments to any ABX In-Licenses that would negatively affect GNE's rights
under this Agreement without first obtaining Genentech's prior written consent,
and ABX shall notify GNE as soon as practicable of any material modification or
amendment of any ABX In-License that affects (positively or negatively) GNE's
rights or obligation under this Agreement or the [*] Product License;
(n) ABX shall provide GNE promptly with a copy of any notice of
default by ABX and/or its sublicensee under any ABX In License, and of any
notice of termination by any other party to any ABX In License; and
(o) ABX shall not use or permit others to use cells created by
GNE or ABX from immunization of XenoMouse Animals with the Product Antigen under
this Agreement, the [*] Product License, or the MTA in any way without GNE's
prior written consent nor shall ABX directly or indirectly create, incur, assume
or suffer to exist, any lien, security interest or other similar encumbrance of
any kind, or any other type of preference, as such term is used in bankruptcy
law, upon or with respect to such cells.
7.2 GNE. GNE represents, warrants and covenants to ABX that:
(a) it has the full right and authority to enter into this
Agreement and grant the rights and licenses granted herein;
(b) to its knowledge, there are no existing or threatened
actions, suits or claims pending with respect to the subject matter hereof
(including, without limitation, rights in and to the Product Antigen and/or
antibodies to the Product Antigen) or the right of GNE to enter into and perform
its obligations under this Agreement;
(c) it has not previously granted, and during the term of this
Agreement will not grant, any rights inconsistent or in conflict with the rights
and licenses granted under this Agreement; and
(d) it will not, to its knowledge, take any action or fail to
take any action that will cause a breach of the GenPharm Cross License, the
Xenotech Agreement, the Product License, or any ABX In-License.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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(e) as of the Option Effective Date, GNE has no knowledge
(without the obligation to perform due diligence) of any rights of third parties
that would interfere with the use of the ABX Know-How or practice of the ABX
Patent Rights as contemplated under this Agreement (including, without
limitation, work under the Research Plan or otherwise in the Research Field
pursuant to this Agreement or the [*] Product License).
7.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER MAKES ANY REPRESENTATIONS AND OR EXTENDS ANY WARRANTIES TO
THE OTHER PARTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, REGARDING PRODUCTS OR
THE LICENSED TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY
OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. ALL XENOMOUSE ANIMALS AND
MATERIALS DERIVED IN WHOLE OR PART FROM THE XENOMOUSE ANIMALS PROVIDED TO GNE BY
ABX ARE PROVIDED "AS IS," AND ABX SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO XENOMOUSE
ANIMALS AND MATERIALS DERIVED IN WHOLE OR PART FROM XENOMOUSE ANIMALS.
7.4 Effect of Representations and Warranties. It is understood that if
the representations and warranties of a party under this Article 7 are not true
and accurate and the other party incurs any suits, claims, actions, demands,
damages, liabilities, expenses or losses (including court costs and reasonable
attorneys' and experts' fees, but excluding costs and fees incurred in asserting
a claim or bringing a lawsuit between the parties hereto) as a direct result of
such falsity or inaccuracy, the party at fault shall save, defend and hold the
other party harmless from and against any such suits, claims, actions, demands,
damages, liabilities, expenses or losses.
8. TERM; TERMINATION
8.1 Term. This Agreement shall commence on the Option Effective Date
and, unless earlier terminated as provided in this Article 8, shall continue in
effect until the Effective Date (if any) of the [*] Product License between ABX
and GNE or, in the event that GNE has not exercised the Option by the Option
Expiration Deadline, on such Option Expiration Deadline.
8.2 Termination by GNE. GNE may terminate this Agreement at any time
upon sixty (60) days written notice to ABX.
8.3 Termination for Breach. Either party to this Agreement may terminate
this Agreement in the event that the other party shall have materially breached
or defaulted in the performance of any of its material obligations hereunder,
and such breach or default shall have continued for sixty (60) days after
written notice of such breach and intent to terminate this Agreement therefor
was provided to the breaching party by the nonbreaching party. Any such
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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termination shall become effective at the end of such sixty (60) day
period unless the breaching party has cured any such breach or default prior to
the expiration of the sixty (60) day period. Any such termination shall be
without prejudice to any other remedies available to, the nonbreaching party by
law or at equity (including, without limitation under Section 8.4 below). The
right of a nonbreaching party to terminate this Agreement shall not be affected
in any way by its waiver or failure to take action with respect to any previous
default. Without limiting the generality of the foregoing, if GNE timely
exercises its Option hereunder and ABX fails or is unable to enter into the
Product License and/or the [*] Product License by the deadline specified in
Section 3.2.2 above (subject to the notice and cure provisions of this Section
8.3) other than as a result of any action or inaction of GNE or its Affiliates,
ABX shall be deemed to have materially breached or defaulted in the Performance
of its material obligations under this Agreement, and GNE shall be entitled to
all available remedies conferred on it under this Agreement and by law or in
equity.
8.4 Effect of Expiration or Termination.
8.4.1 Accrued Obligations and Rights. Expiration or any
termination of this Agreement shall not release either party hereto from any
liability which at the time of such expiration or termination has already
accrued to such party or which is attributable to a period prior to such
expiration or termination, subject to the terms of this Agreement, nor preclude
either party from pursuing any rights and remedies it may have hereunder or at
law or in equity which accrued to it prior to such expiration or termination,
subject to the terms of this Agreement.
8.4.2 ABX Failure or Inability to Enter into One or More
Licenses. In the event of any breach by ABX of the type described in the last
sentence of Section 8.3 hereunder, it is understood and agreed that money
damages would not be a sufficient remedy for GNE, and GNE may be entitled to
specific performance and injunctive relief as remedies. Such remedies shall not
be deemed to be the exclusive remedies for such breach, but shall be in addition
to all other remedies available at law or in equity to GNE. Further, in the
event that ABX breaches this Agreement by not exercising its option under the
Xenotech Agreement or using its best efforts to enter into a Product License, in
each case as set forth in Section 3.2.2, ABX shall refund the amount paid to ABX
by GNE under Section 2.1.4. The parties agree that such refund will not apply if
ABX uses the required efforts but is for some other reason unable to enter into
such Product License.
8.4.3 XT. GNE and ABX agree that this Agreement, including,
without limitation, any licenses and sublicenses granted to GNE pursuant to this
Agreement, and the [*] Product License (including any licenses and sublicenses
to be granted to GNE therein) shall survive any dissolution, liquidation or
acquisition of XT, and that such licenses shall remain in full force and effect
even after any distribution, following dissolution, of the intellectual property
owned or licensed to XT, to any entity. GNE and ABX agree that any transfer of
such intellectual property to or following such dissolution shall be subject to
the licenses and sublicenses granted herein (and to be granted pursuant to the
[*] Product License, if entered into at all by the parties).
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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8.4.4 Xenotech Agreement. This Agreement, including without
limitation, any license and sublicense granted to GNE hereunder, and the [*]
Product License (if entered into by the parties) (including without limitation,
any licenses and sublicenses granted to GNE thereunder) are, except as otherwise
provided in this Agreement, independent of, and, as between GNE and ABX, shall
not be affected by, any breach or termination of the Xenotech Agreement.
8.4.5 Survival. Articles 4, 5, 6 and 9 and Sections 2.1.5, 2.2,
2.4, 2.6, 3.2.3. 3.2.4, 3.2.5, 3.2.6, 4.3, 7.3 and 8.4 shall survive the
expiration and any termination of this Agreement.
8.4.6 Destruction of XenoMouse Animals. Except as otherwise
provided in the [*] Product License (if entered into by the parties), upon
expiration or termination of this Agreement for any reason, as required under
Section 2.2(h) above GNE shall destroy each XenoMouse Animal and certify such
destruction, and shall do so within ten (10) business days after such expiration
or termination.
9. MISCELLANEOUS PROVISIONS
9.1 Governing Laws. This Agreement shall be interpreted and construed in
accordance with the laws of the State of California, without regard to conflicts
of law principles.
9.2 Waiver. It is agreed that no waiver by a party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
9.3 Assignments. Neither this Agreement nor any right or obligation
hereunder may be assigned or delegated, in whole or part, by either party
without the prior written consent of the other; provided, however, that either
party may, without the written consent of the other, assign this Agreement to
(a) any entity to which it has acquired all or substantially all of the business
or assets of the assigning party, or (b) any successor corporation resulting
from any merger or consolidation with another corporation (including, in the
case of GNE, F. Hoffmann-La Roche Ltd or any Affiliate thereof). Notwithstanding
the foregoing, ABX shall not be obligated without its written consent to send
XenoMouse Animals to any party other than GNE. The terms and conditions of this
Agreement shall be binding on and inure to the benefit of the permitted
successors and assigns of the parties.
9.4 Independent Contractors. The relationship of the parties hereto is
that of independent contractors. The parties hereto are not deemed to be agents,
partners or joint venturers of the others for any purpose as a result of this
Agreement or the transactions contemplated thereby.
9.5 Compliance with Laws. In exercising their rights under this
Agreement, the parties shall fully comply with the requirements of any and all
applicable laws, regulations, rules and orders of any governmental body having
jurisdiction over the exercise of rights under this Agreement.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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9.6 Further Actions. Each party agrees to execute, acknowledge and
deliver such further instruments and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
9.7 No Implied Obligations. Except as expressly provided in Article 5
above, nothing in this Agreement shall be deemed to require GNE to exploit the
Licensed Technology or to prevent GNE from commercializing products similar to
or in competition with any Product, in addition to or in lieu of such Products.
9.8 Notices. Any notice, request, approval or consent required or
permitted to be given between the parties hereto shall be given in writing, and
shall be deemed to have been properly given if delivered in person, transmitted
by telecopy with machine confirmation of transmission, or mailed by first class
certified mail to the other party at the appropriate address set forth below, or
to such other address as may be designated in writing by a party from time to
time in accordance with this Agreement. Such notice, request, approval or
consent shall be deemed given (i) on the date delivered or transmitted if
delivered in person or transmitted by telecopy prior to 5 p.m. on any business
day, (ii) on the next business day following delivery or transmission if
delivered in person or transmitted by telecopy after 5 p.m. on any business day
or on any non-business day, or (iii) on the fourth business day following the
date deposited in the United States mail if sent mailed by first class certified
mail.
Genentech, Inc.: Genentech, Inc.
One DNA Way
South San Francisco, CA 94080
Attn: Corporate Secretary
Telecopy: (650) 952-9881
Abgenix, Inc.: Abgenix, Inc.
7601 Dumbarton Circle
Fremont, California 94555
Attn: President
Telecopy: (510) 608-6511
with a copy to: Kenneth A. Clark, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Telecopy: (650) 493-6811
9.9 Export Laws. Notwithstanding anything to the contrary contained
herein, all obligations of ABX and GNE are subject to prior compliance with
United States export regulations
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and such other United States laws and regulations as may be applicable,
and to obtaining all necessary approvals required by the applicable agencies of
the government of the United States. GNE shall be responsible for obtaining such
approvals, and shall use efforts consistent with prudent business judgment to
obtain such approvals. ABX agrees to cooperate reasonably and provide reasonable
assistance to GNE as may be reasonably necessary to obtain any required
approvals.
9.10 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision and the parties shall discuss in good faith appropriate
revised arrangements.
9.11 Force Majeure. Nonperformance of any party (except for payment
obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure to perform
is beyond the reasonable control and not caused by the negligence, intentional
conduct or misconduct of the nonperforming party.
9.12 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION
LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT,
REGARDLESS OF ANY NOTICE OF SUCH DAMAGES.
9.13 Disputes. The parties recognize that disputes as to certain matters
may from time to time arise during the term of this Agreement which relate to
either party's rights and/or obligations hereunder. It is the objective of the
parties to establish procedures to facilitate the resolution of disputes arising
under this Agreement in an expedient manner by mutual cooperation and without
resort to litigation. To accomplish this objective, it is agreed that each party
will inform the other as soon as possible when it becomes aware of an area or
issue of dispute. Prior to filing or initiating any legal proceeding, the
parties agree to discuss the dispute at the organizational level at which such
dispute arises. If either party believes there has been sufficient discussion of
the matter at such level, then such party, by written notice to the other party,
may have such dispute referred to their respective chief executive officers (or,
if unavailable, a designee who is an officer of the party empowered to resolve
such disputes) for attempted resolution by good faith negotiations between such
chief executive officers within fourteen (14) days of such referral. In the
event that the chief executive officers are not able to resolve such dispute
within such fourteen (14) day period, either party may pursue whatever remedies
are available to them under this Agreement or by law.
9.14 Complete Agreement. It is understood and agreed between ABX and GNE
that this Agreement and the [*] Product License constitute the entire agreement,
both written and oral, between the parties with respect to the subject matter
hereof, and supersede and cancel all prior agreements respecting the subject
matter hereof, either written or oral, expressed or implied,
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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including, without limitation, that certain Non-Disclosure Agreement
between ABX and GNE dated as of [*], and the MTA (to the extent provided in
Sections 2.1.5, 3.2.4 and 4.1 above). No amendment or change hereof or addition
hereto shall be effective or binding on either of the parties hereto unless
reduced to writing and executed by the respective duly authorized
representatives of ABX and GNE.
9.15 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and both together shall be deemed to
be one and the same agreement.
9.16 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
an original.
ABGENIX, INC. GENENTECH, INC.
By: /s/ Raymond M. Withy By: [SIG]
--------------------------- ----------------------------------
Printed Name: Raymond M. Withy Printed Name: [UNREADABLE]
---------------- ------------------------
Title: Vice President,
Corporate Development Title: Vice President
---------------------- -------------------------------
Date: April 16, 1998 Date: April 16, 1998
---------------------- -------------------------------
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EXHIBIT A
RESEARCH PLAN
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 26
EXHIBIT A
RESEARCH PLAN
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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EXHIBIT B
FORM OF [*] PRODUCT LICENSE AGREEMENT
THIS [*] PRODUCT LICENSE AGREEMENT (the "Agreement") effective as of the
____ day of ____________, 1998, (the "Effective Date") is made by and between
ABGENIX, INC., a Delaware corporation ("ABX"), and GENENTECH, INC., a Delaware
corporation (hereinafter "GNE") with reference to the following facts and
circumstances.
RECITALS
GNE and ABX have entered into that certain License Option Agreement
effective as of April 6, 1998 (as defined below, the "GNE Option Agreement"),
pursuant to which GNE has certain rights to acquire a license under the Licensed
Technology; and
GNE has exercised its rights under the GNE Option Agreement to acquire
from ABX a license or sublicense, as the case may be, under the Licensed
Technology to commercialize Products in the Field, all as set forth below on the
terms and conditions herein.
NOW, THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
hereto as follows:
1.0 DEFINITIONS.
For purposes of this Agreement, the terms set forth in this Article
shall have the meanings set forth below.
1.1 "ABX In-Licenses", "ABX Know-How" and "ABX Patent Rights" are
defined in Section 1.19.
1.2 "Affiliate" shall mean any entity which controls, is controlled by
or is under common control with a party hereto. An entity shall be regarded as
in control of another entity if it owns or controls at least fifty percent (50%)
of the shares of the subject entity entitled to vote in the election of
directors (or, in the case of an entity that is not a corporation, for the
election of the corresponding managing authority).
1.3 "Antibody" shall mean (i) a composition comprising a whole antibody
or fragment thereof, said antibody or fragment having been generated in whole or
part from the XenoMouse
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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Animals, and (ii) any composition comprising a whole antibody or
fragment thereof made by or on behalf of GNE or its Affiliates or Sublicensees
which is derived (directly or indirectly through single or multiple steps) from
an antibody contemplated by (i) above. ABX acknowledges that as of the Effective
Date, Genentech has already undertaken and thereafter may continue its own
research efforts (on its own or with partners) separate from this Agreement, and
such efforts may result in one or more antibodies to the Product Antigen. ABX
agrees that no protein (or any fragment, variant or derivative thereof or any or
nucleotide sequences encoding, or amino acid sequences of, any of the foregoing)
that is an "Independent Discovery" as defined in Section 1.16 shall be
considered an "Antibody" or "Product" for purposes of this Agreement, even if a
homologous sequence might also be generated in whole or in part from XenoMouse
Animals.
1.4 "BLA" shall mean a Biologics License Application, Product License
Application, New Drug Application, or other equivalent application filed with
the FDA seeking regulatory approval to market and sell a Product in the United
States for a particular indication, including, without limitation, any pricing
and/or reimbursement approvals (if any).
1.5 "Core Third Party Patent" means an issued, unexpired patent not
within the ABX Patent Rights that is infringed, or except for a license would be
infringed, by the manufacture and sale of Products or Antibodies, in each case
specifically because Antibodies were generated from XenoMouse Animals rather
than some other source (e.g., a patent that is, or except for a license would
be, infringed by manufacture and sale of Antibodies or Products but would not be
infringed by manufacture and sale of antibodies or products derived from
immunization of a wild-type mouse, or a strain of mouse other than XenoMouse,
using the same method of immunization with the Product Antigen, method of
creation of hybridomas or other antibody-secreting cells, modification (if any)
of antibodies derived from immunization, and methods and processes of
production, development, and manufacture); provided, however, that "Core Third
Party Patents" shall not include (a) any patent owned or controlled by GNE or
its Sublicensee, or any Affiliate of GNE or GNE's Sublicensee, (b) any patent
that has been held invalid, unpatentable, unenforceable or revoked in a decision
of a court or other governmental body of competent jurisdiction that is
unappealable or unappealed within the time frame allowed for appeal, or (c) any
patent that has been rendered unenforceable or invalid through disclaimer,
reissue or otherwise.
1.6 "Derived" or "derived," for purposes of determining when an antibody
or fragment thereof has been "derived" from an Antibody, shall mean: (a)
resulting from a program of synthesis or modification or selection based on an
Antibody; (b) resulting from a program of synthesis or modification or selection
based on nucleotide or amino acid sequence information obtained from an Antibody
(or Genetic Material encoding an Antibody); [*].
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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1.7 "Europe" shall mean [*].
1.8 "Excluded Technology" is defined in Section 1.19.4.
1.9 "Field" shall mean the use of Products for [*].
1.10 "FDA" shall mean the United States Food and Drug Administration,
and any successor agencies thereto.
1.11 "Foreign Marketing Application" shall mean all applications for
regulatory approval filed with any Foreign Regulatory Authority necessary for
the marketing and sale of any Product for a particular indication in the
applicable country or regulatory jurisdiction (other than the FDA in the United
States), including, without limitation, any pricing and/or reimbursement
approvals (if any).
1.12 "Foreign Regulatory Authority" shall mean any applicable agency,
department, bureau or other governmental entity or authority (and any successors
thereto) of any country or regulatory jurisdiction in the Territory (other than
the FDA in the United States) having responsibility in such country or
regulatory jurisdiction over any Foreign Marketing Application in such country
or regulatory jurisdiction.
1.13 "Genetic Material" shall mean a nucleotide sequence, including DNA,
RNA, and complementary and reverse complementary nucleotide sequences thereto,
whether coding or noncoding and whether intact or a fragment.
1.14 "GenPharm Cross License" shall mean that certain Cross License
Agreement entered into by and between ABX, JTI, XT, Cell Genesys, Inc., and
GenPharm International, Inc. effective as of March 26, 1997, as the same may be
amended from time to time.
1.15 "GNE Option Agreement" shall mean that certain Research License and
Option Agreement entered into by and between ABX and GNE effective as of the
Option Effective Date (as defined therein), as the same may be amended from time
to time.
1.16 "IND" shall mean an Investigational New Drug Application filed with
FDA, or any similar filing with any Foreign Regulatory Authority, to commence
human clinical testing of any Product in any country in the Territory.
1.17 "Independent Discovery" shall mean any protein (or any fragment,
variant or derivative thereof or any nucleotide sequences encoding, or amino
acid sequences of, any of the foregoing) or other material, information and/or
development that both (a) is discovered or obtained by GNE (on its own or with
partners) without the use of any ABX Know-How, and (b) does not
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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incorporate or include any Antibody, in any case as demonstrated by
competent written records of GNE (and/or its partners) which may be supported or
explained by additional testimonial evidence.
1.18 "JTI" shall mean Japan Tobacco Inc., a Japanese corporation.
1.19 "Licensed Technology" shall mean ABX Patent Rights and ABX
Know-How; provided, however, that Licensed Technology shall not include Excluded
Technology.
1.19.1 "ABX Patent Rights" shall mean any and all patent
applications and patents (including inventor's certificates and utility models)
throughout the Territory, including any substitutions, extensions, reissues,
reexaminations, renewals, divisions, continuations, and continuations-in-part of
any of the foregoing, that are owned or controlled by ABX (solely or jointly,
including under any ABX In-License) as of the Effective Date or hereafter during
the term of this Agreement, and as to which ABX has the right to transfer or
grant licenses or sublicenses (including as permitted under any ABX In-License),
to the extent that any of the foregoing relates to (a) any XenoMouse Animals
and/or any uses thereof, (b) the Product Antigen, or (c) any Antibody or
Product. "ABX Patent Rights" shall include, without limitation, the patents and
patent applications listed on Attachment A attached hereto and incorporated
herein. ABX shall notify Genentech promptly in writing of any changes to
Attachment A during the term of this Agreement (e.g., issuance of new patents,
filing of new patent applications, abandonment of existing filings, etc.), so
that the parties may update Attachment A by amendment of this Agreement.
1.19.2 "ABX Know-How" shall mean any and all XenoMouse Animals
and any and all processes, techniques, ideas, technical information and any
other information or materials, whether or not any of the foregoing is
patentable, that are owned or controlled by ABX (solely or jointly, including
under any ABX In-License) as of the Effective Date or hereafter during the term
of this Agreement, and as to which ABX has the right to transfer or grant
licenses or sublicenses (including as permitted under any ABX In-License), to
the extent that any of the foregoing relates to the immunization of XenoMouse
Animals with the Product Antigen to generate any Antibody hereunder. "ABX
Know-How" shall not include any of the foregoing which is generally
ascertainable from publicly available information, or that was known to GNE
prior to disclosure to GNE by ABX, or which GNE obtained independently (on its
own or with partners) and not in violation of any obligation of confidentiality
owed to ABX or any third party, in any case as demonstrated by competent written
records of GNE (and/or its partners) which may be supported or explained by
additional testimonial evidence. All "ABX Know-How" shall be treated as
"Confidential Information" of ABX as provided in Article 8 of this Agreement. As
of the Effective Date, the parties have agreed that ABX shall transfer to or
provide GNE with the ABX Know-How identified in Attachment B attached hereto and
incorporated herein.
1.19.3 "ABX In-Licenses" shall mean any and all licenses,
sublicenses or other agreements, as in effect as of the Effective Date or
hereafter during the term of this Agreement (as the same may be amended from
time to time), under which ABX has rights to technology (whether or not
patentable) that is within the scope of the ABX Patent Rights and/or the ABX
Know-How.
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The parties agree that any and all such rights pursuant to any
ABX In-License are included in the ABX Patent Rights or the ABX Know-How, as the
case may be, but not to the extent that ABX is not permitted under the terms of
the applicable ABX In-License to further transfer or grant licenses or
sublicenses of such rights. "ABX In-Licenses" shall include, without limitation,
the Xenotech Agreement, the Product License for the Product Antigen between XT
and ABX, the GenPharm Cross License, and the other agreements listed on
Attachment C attached hereto and incorporated herein. ABX shall notify Genentech
promptly in writing of any changes to Attachment C during the term of this
Agreement (e.g., any new agreements, any amendments to any agreements, etc.), so
that the parties may update Attachment C by amendment of this Agreement.
1.19.4 "Excluded Technology" shall mean any intellectual property
or technology or other proprietary rights of ABX in or to: (a) all antigens
other than the Product Antigen, including without limitation, (i) compositions
of such antigens or of Genetic Materials encoding such antigens, (ii) uses of
such antigens, (iii) antibodies or other compositions that bind to such antigens
(except Antibodies which bind to the Product Antigen), Genetic Materials
encoding such antibodies or compositions, and cells that express or secrete such
antibodies or compositions, and (iv) uses of such antibodies or compositions;
and (b) methods to discover novel antigens and methods of using antigens other
than to create antibodies.
1.20 "Major Country" shall mean the [*].
1.21 "MTA" shall mean that certain Material Transfer Agreement entered
into by ABX and GNE and effective as of [*], as the same may be amended from
time to time.
1.22 "Net Sales" shall mean [*] by GNE or its Affiliates and
Sublicensees for sales of Product to non-Affiliate customers, [*], with respect
to such sales [*], as reflected in [*] of GNE and its Affiliates or
Sublicensees, [*].
1.22.1 Sales Among GNE and Sublicensees. Net Sales shall not
include [*], provided that Net Sales shall include the [*] of such Products.
1.22.2 Combination Products. In the event that a Product is sold
in combination as a single product with another product or component, Net Sales
from such combination sales for purposes of calculating the amounts due under
this Agreement shall be [*]. In the event that no such separate sales are made
in the same quarter by GNE or its Sublicensee, Net Sales
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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for royalty determination shall be [*].
1.23 "Option Effective Date" shall have the meaning set forth in the GNE
Option Agreement.
1.24 "Phase II Trial" shall mean a human clinical trial prospectively
designed to generate data evidencing the safety, dose ranging and preliminary
efficacy of a Product for a particular indication sufficient (if successful) to
commence a Phase III trial for the Product for the indication, and that would
otherwise satisfy the requirements of 21 CFR 312.21(b). "Initiation" of a Phase
II Trial shall be deemed to occur upon the administration of such drug or
placebo to the first patient in such trial.
1.25 "Phase III Trial" shall mean a human clinical trial prospectively
designed to demonstrate with statistical significance whether a Product is safe
and effective for use in a particular indication in a manner sufficient (if
successful) to file a BLA with the United States Food and Drug Administration
(including any successor agency, the "USFDA") for the marketing and sale of the
Product for the indication, and would otherwise satisfy the requirements of 21
CFR 312.21(c). "Initiation" of a Phase III Trial shall be deemed to occur upon
the administration of study drug or placebo to the first patient in such trial.
1.26 "Product" shall mean any product which incorporates (a) an Antibody
that binds to the Product Antigen or (b) Genetic Material encoding such an
Antibody wherein said Genetic Material does not encode multiple Antibodies.
1.27 "Product Antigen" and "[*]" shall mean [*].
1.28 "Product License" shall mean an "Exclusive Worldwide Product
License" as defined in the Xenotech Agreement (and in the form attached thereto
as an exhibit) granted from XT to ABX pursuant to the terms of the Xenotech
Agreement and permitting ABX, among other things, to commercialize Products
throughout the world for [*].
1.29 "Research Field" shall have the meaning set forth in the GNE Option
Agreement.
1.30 "Research Plan" shall mean the research plan attached to the GNE
Option Agreement as Exhibit A thereto and incorporated therein , which is hereby
incorporated into this Agreement also. The parties may amend the Research Plan,
from time to time, by mutual agreement in writing.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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1.31 "Sublicensee" shall mean a third party that GNE grants rights under
the Licensed Technology to develop, make, use and/or sell Products, including,
without limitation, a third party to whom GNE grants the right to distribute
Product, provided that such third party also has responsibility for marketing
and promotion of Product within the applicable territory. As used herein, a
"Sublicense" shall mean an agreement or arrangement between GNE and any
Sublicensee pursuant to which such rights of such Sublicensee have been granted.
1.32 "Territory" shall mean [*].
1.33 "Therapeutically Active" shall mean that a compound or agent has
activity as a therapeutic agent, or directly or indirectly acts to increase,
enhance, catalyze, enable, protect, target or deliver a Product or the activity
of a Product, but shall not include any diluent, vehicle, adjuvant or other
ingredient (other than a Product) that does not have any, or only incidental,
therapeutic properties.
1.34 "[*] Product License" shall mean this [*] Product License Agreement
entered into by and between ABX and GNE effective as of the Effective Date, as
the same may be amended from time to time.
1.35 "United States" shall mean the United States of America and its
territories and possessions.
1.36 "Valid Patent Claim" shall mean a claim in an [*] within the ABX
Patent Rights that (a) has not been held invalid, unpatentable, unenforceable or
revoked in a decision of a court or other governmental body of competent
jurisdiction that is unappealable or unappealed within the time frame allowed
for appeal, (b) has not been rendered unenforceable or invalid through
disclaimer, reissue or otherwise and (c) is [*].
1.37 "XenoMouse" and "XenoMouse Animals" shall mean both (a) all
transgenic mice provided by ABX to GNE for immunization with the Product Antigen
under the GNE Option Agreement or this Agreement and (b) all transgenic mice
immunized with the Product Antigen by ABX under the MTA or the GNE Option
Agreement on or before the Effective Date of this Agreement.
1.38 "Xenotech Agreement" shall mean that certain Master Research
License and Option Agreement entered into by JTI, XT and Cell Genesys, Inc.
effective as of June 28, 1996, as the same may be amended from time to time.
1.39 "XT" shall mean Xenotech, L.P., a California limited partnership.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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2.0 LICENSE GRANT
2.1 Grant of Rights. Subject to the terms and conditions of this
Agreement, ABX hereby grants to GNE an exclusive (even as to ABX) license or
sublicense, as the case may be, under the Licensed Technology, to research and
develop, make and have made Products in the Field in the Territory and to use,
sell, lease, offer to sell or lease, import, export, otherwise transfer physical
possession of or otherwise transfer title to Products in the Field in the
Territory. For purposes of clarification, it is understood and agreed that the
licenses and sublicenses granted herein shall not include any right to make or
sell (or lease, or offer to sell or lease, or otherwise transfer title to) any
transgenic animal or the right to sell (or lease, or offer to sell or lease, or
otherwise transfer title to) Antibody-secreting cells.
2.2 Sublicenses. GNE may grant a Sublicense of any or all of its rights
under Section 2.1 to (a) Affiliates of GNE or (b) to any other third party on
written notice to ABX. It is understood that any such Sublicense shall be
subject and subordinate to the terms and conditions of this Agreement, and that
GNE shall remain responsible for all payments due to ABX hereunder with respect
to Net Sales of Products by any such Sublicensee. It is understood that GNE
shall not have the right to grant any Sublicense except as provided above, and
notwithstanding the foregoing, shall in no event have the right to Sublicense
any right under this Agreement in or to (i) a XenoMouse Animal, or (ii) other
transgenic animal covered by the Licensed Technology.
2.3 Third Party Rights. It is understood and agreed that the grant of
rights under this Article 2 shall be subject to and limited in all respects by
the terms of the applicable ABX In-License(s) pursuant to which ABX acquired or
does acquire any Licensed Technology, including, without limitation, any rights
granted to or retained by GenPharm International, Inc. under the GenPharm Cross
License, and that all rights or sublicenses granted under this Agreement shall
be limited to the extent that ABX may grant such rights and sublicenses under
such ABX In-Licenses. Further, the parties acknowledge that while ABX is
granting GNE an exclusive license to certain of its rights, ABX's rights may not
be exclusive from ABX's licensors.
2.4 Continuation of Research. It is understood and agreed that during
the term of this Agreement, GNE and ABX may continue the research activities set
forth in the Research Plan as set forth in this Section 2.4.
2.4.1 Supply and Use of XenoMouse Animals. In the event that the
parties enter into this Agreement before ABX has provided to GNE the XenoMouse
Animals ABX is required to provide to GNE pursuant to Section 2.1.2 of the GNE
Option Agreement, or in the event that ABX and GNE mutually agree in writing
that ABX will provide additional sterilized male XenoMouse Animals to GNE under
this Agreement, ABX agrees to continue to provide XenoMouse Animals to GNE in
accordance with Section 2.1.2 of the GNE Option Agreement or as agreed by
writing by the parties, subject to all terms and conditions set forth in
Sections 2.1 and 2.2 of the GNE Option Agreement. It is further agreed that GNE
may continue to use any XenoMouse Animals provided by ABX under the GNE Option
Agreement, in accordance with all terms and conditions set forth in
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Sections 2.1 and 2.2 of the GNE Option Agreement, to continue
GNE's research activities within the Research Field as set forth in this Section
2.4. GNE shall not transfer any XenoMouse Animal to any third party, including
any Sublicensee, without the express written consent of ABX. It is understood
that during the term of this Agreement, GNE may require additional XenoMouse
Animals for performance under this Agreement. The parties agree to engage in
good faith discussion to determine reasonable quantities, if any, of such
XenoMouse Animals to be provided by ABX to GNE for such performance.
2.4.2 Research Activities. During the term of this Agreement, the
parties will conduct such collaborative research and development of Products as
they may mutually agree upon in writing in the Research Plan (as the same may be
amended from time to time). During the term of this Agreement, GNE and ABX shall
each update the other, as requested by the other, as to the status of any
research activities of the party under the Research Plan.
2.4.3 Ownership of Materials and Data. It is understood and
agreed that:
(a) ABX shall solely own all XenoMouse Animals, Genetic Material
encoding such XenoMouse Animals, hybridomas and B cells.
(b) GNE shall own all Antibodies, Genetic Material encoding
Antibodies, and all reagents, samples, data, results, technical information,
know-how, preclinical and/or clinical testing data and any other non-patentable
information resulting from the parties' use of the Licensed Technology related
to the Product Antigen under the MTA or under this Agreement. To the extent that
ABX owned any of the foregoing prior to the Effective Date of this Agreement
under the terms of the GNE Option Agreement, ownership shall transfer from ABX
to GNE as of the Effective Date of this Agreement.
(c) With respect to any materials (including, without limitation,
all Antibodies, hybridomas or Genetic Material) generated in whole or in part
from immunization of XenoMouse Animals with the Product Antigen and/or data made
or generated under the MTA, this Section 2.4.3 hereby supersedes and cancels any
terms or provisions in the MTA inconsistent with this Section 2.4.3 or any other
term of this Agreement. The transfer of physical possession of any materials
owned by, and the physical possession and use of such materials and/or data by,
GNE or ABX, as the case may be, shall not be (nor be construed as) a sale,
lease, offer to sell or lease, or other transfer of title of such materials
and/or data to GNE or ABX, as the case may be.
2.5 No Other Rights; No License to Other Therapeutically Active
Components. No rights other than those expressly set forth in this Agreement are
granted to either party hereunder, and no additional rights shall be deemed
granted to either party by implication, estoppel or otherwise. It is understood
and agreed that, although a Product licensed hereunder may contain other
components (including without limitation, other Therapeutically Active
components) in conjunction with or in addition to an Antibody that binds to [*]
or Genetic Material encoding such an Antibody, the licenses and rights granted
under this Agreement shall not be construed to convey, and shall not
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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convey, any licenses or rights under the ABX Patent Rights with respect
to the manufacture, use, or sale of any such component other than an Antibody
that binds to [*] or Genetic Material encoding such an Antibody.
2.6 No Products Other Than Products. GNE shall not sell, lease, offer to
sell or lease, or otherwise transfer title to any materials derived in whole or
part from the XenoMouse Animals (including, without limitation, Antibodies,
Antibody-secreting cells and Genetic Materials encoding the foregoing) other
than as Products in accordance with this Agreement.
3.0 CONSIDERATION.
3.1 License Fee. In consideration of the license rights granted herein
to GNE, within fifteen (15) days after the Effective Date, GNE shall pay to ABX
a [*] license fee in the amount of [*], in accordance with the payment
provisions of Section 4.3 below.
3.2 Milestone Payments.
3.2.1 Amounts. In further consideration of the license rights
granted herein to GNE, within thirty (30) days following the first achievement
by GNE (or any of its Sublicensees) of each of the following milestones with
respect to any Product under this Agreement, GNE shall pay to ABX the
corresponding milestone payment set forth herein, in accordance with the payment
provisions of Section 4.3 below:
<TABLE>
<CAPTION>
Milestone Payment
--------- -------
<S> <C>
[*]
A [*]
B [*] [*]
C [*] [*]
D [*] [*]
E [*] [*]
</TABLE>
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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In the event that milestone C, D, or E is met, and at such time either milestone
A or milestone B has not been met, the payment for such unmet milestone(s) shall
be due. It is understood and agreed that (i) GNE shall not be obligated to pay
to ABX the milestone payments set forth in this Section 3.2.1 more than once for
each of milestones A, B, C, D, and E under this Agreement, irrespective of how
many Products hereunder achieve such milestone.
3.2.2 [*]. If, before or during the term of this Agreement, the
Product License between ABX and XT is modified for any reason such that the [*]
for purposes of the license granted to GNE under this Agreement [*] shall refund
any remaining amount at that point in cash.
3.2.3 Potential Readjustments. Upon request of either party, the
parties shall discuss in good faith and may agree to amend this Agreement to
provide an option for GNE to make milestone payments for the events set forth in
milestones C, D and/or E above in amounts greater than those set forth in
milestones C, D and/or E above, in exchange for royalties on Net Sales of
Products in the countries and territories covered by such milestones lower than
those set forth in Section 3.3 below.
3.2.4 [*]. The milestone payments set forth in Section 3.2.1
shall be [*] except as otherwise provided in Section 3.2.2 above, but may be [*]
as set forth in Section 3.3.5 below.
3.3 Royalties. GNE or its Sublicensee shall notify ABX of the date of
commercial introduction of the first Product into any country in the Territory,
which shall mean, on a country-by-country basis in the Territory, the date of
first commercial sale (other than for purposes of obtaining Regulatory Approval)
of the first Product by GNE or any Sublicensee in such country (hereinafter, the
"Royalty Commencement Date"). In consideration of the license rights granted
herein, GNE shall pay to ABX a royalty on Net Sales of Products as set forth
herein:
3.3.1 Countries With Issued Patents. (a) Commencing as to each
country in the Territory on the Royalty Commencement Date for the first Product
in such country, GNE shall pay ABX a running royalty equal to [*] of Net Sales
by GNE and its Sublicensees of Products in such country (i) if there is a Valid
Patent Claim within the ABX Patent Rights related to the XenoMouse Animals that
covers GNE's manufacture, use or sale of such Products within the country where
such Products are made, used or sold or (ii) if there [*]
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[*], such [*] running royalty to be in effect for the life of
such Valid Patent Claim. A country in which the above [*] royalty applies is
referred to herein as a "Patent Country."
(b) It is understood that if, during the term of this
Agreement, one or more Valid Patent Claims is or are revoked in a decision of a
court or other governmental body of competent jurisdiction that is unappealable
or unappealed within the time from allowed for appeal (hereinafter, "Revoked
Claim(s)"), such Revoked Claim(s) shall not be considered Valid Patent Claim(s)
for purposes of determining royalties owed under this Agreement on Net Sales of
Products thereafter.
(c) Notwithstanding anything to the contrary in this
Agreement or the GNE Option Agreement, including, without limitation, anything
contained in Sections 1.19, 3.3.1(a), 3.3.3 or 6.1 of this Agreement, [*].
3.3.2 Non-Patent Countries. Commencing as to each country in the
Territory on the Royalty Commencement Date for the first Product in such
country, GNE shall pay ABX a running royalty equal to [*] of Net Sales of any
Product by GNE and its Sublicensees not covered by Section 3.3.1(a) above.
3.3.3 Countries With [*]. In the event that the dollar amount of
net royalties owed by ABX [*] under the ABX In-Licenses for Net Sales of
Products by GNE and its Sublicensees in any [*] (as defined below) [*] (after
all offsets and/or credits) by GNE to ABX under the provisions of this Section
3.3 (other than this Section 3.3.3) for such Net Sales, then GNE agrees to pay
to ABX [*] under the ABX In-Licenses to the extent the net royalties owed by ABX
[*] are attributable to [*], as set forth in this Section 3.3.3, in lieu of the
amounts that GNE would otherwise owe (after all offsets and/or credits). ABX
shall invoice GNE for any such amounts [*] on such Net Sales within [*] after
receiving the report from GNE under Section 4.1 setting forth the quarterly Net
Sales of Products in each country and/or any annual reconciliation regarding
such royalties, and GNE shall pay such amounts to ABX within [*] after delivery
of such invoice. It is understood that such invoice will not specify the [*] for
which the invoice is sent, or the [*]. As used in this Section 3.3.3, "[*]"
means any country or territory in the Territory in which there is a [*] within
the ABX Patent Rights but the conditions set forth in [*] are not met (and
therefore such country is not a [*]). It is understood and agreed that nothing
in this Section 3.3.3 shall obligate GNE to pay a total royalty to ABX on Net
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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Sales of a Product in excess of the royalty amount that would be
due if such Net Sales were subject to the [*] royalty provided in Section 3.3.1
and any applicable offsets under Sections 3.3.4 and 3.3.5, subject to the
"Patent Country" floor royalty amounts set forth in Sections 3.3.4 and 3.3.5 for
such Net Sales.
3.3.4 Third Party Royalty Offset.
(a) In the event that GNE or any of its Sublicensees is
required to pay to a third party (other than an Affiliate of GNE or its
Sublicensees) during the term of this Agreement royalties with respect to a
Product under agreements for patent rights or other technologies that GNE or its
Sublicensee reasonably determines are necessary to license with respect to such
Product, then GNE may deduct such royalty amounts actually paid by GNE or its
Sublicensee from the royalties owed to ABX for Net Sales of such Product
pursuant to this Section 3.3; provided, however, that the third party royalty
offset under this Section 3.3.4 if any, shall be applied first to determine the
applicable royalty amount on Net Sales of a Product for each quarter in
accordance with the table set forth below and down to the royalty floors set
forth therein, which floor royalties will be established on a Region-by-Region
basis (as such Regions are defined in Section 3.3.4(b) below), and thereafter
the applicable milestone credits described in Section 3.3.5 shall then be
applied for such quarter.
[*] [*] [*]
(b) For purposes of this Section 3.3.4, a "Region" shall
mean [*].
(c) For purposes of determining the applicable floor
royalty under this Section 3.3.4, the Annual Net Sales for a Region shall
include all Net Sales of all Products in all countries and territories in such
Region. For such purposes, annual Net Sales of all Products within a Region
shall be [*], and the floor shall be applied to the Net Sales of [*] in the
corresponding Net Sales level for such Region. Notwithstanding the foregoing,
the royalty payable hereunder shall be reconciled on a calendar yearly basis
using actual aggregate totals
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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of annual Net Sales for all countries and territories in
each Region for each full calendar year during the term of this Agreement, and
for a given calendar year such reconciliation shall be completed in time to be
included in the next royalty report to ABX under Section 4.1 below. If as a
result of such reconciliation it is determined that GNE has underpaid ABX
royalties for a calendar year, GNE shall pay the shortfall for such calendar
year promptly to ABX. If as a result of such reconciliation it is determined
that GNE has overpaid ABX royalties for a calendar year, GNE shall be entitled
to credit [*] of such overpaid amount against future royalties due to ABX
hereunder; provided, however, that if GNE has no further obligation to pay
royalties under this Agreement anywhere in the Territory, ABX shall refund any
such overpayment within [*] following such reconciliation.
3.3.5 Milestone Credit Offset. Certain milestone payments set
forth in Section 3.2 that have been paid to ABX shall be creditable against
royalty payments due to ABX as described in this Section 3.3.5.
(a) [*]. [*] of milestone payments paid to ABX for
achievement of milestone B set forth in Section 3.2.1 above shall be credited
against royalties due to ABX under Section 3.3 in respect of Net Sales of
Products in the Territory.
(b) [*]. [*] of each of milestone payments paid to ABX for
achievement of milestones C, D, and E set forth in Section 3.2.1 shall be
credited against royalties due to ABX under Section 3.3 in respect of Net Sales
of such Product in the countries and territories for which such milestones apply
(i.e., [*] shall be credited against royalties on Net Sales of Products [*] (as
defined in Section [*]); [*] shall be credited against royalties on Net Sales of
Products [*] (as defined in Section [*]); and [*] shall be credited against
royalties on Net Sales of Products in [*]).
(c) Limitation on Milestone Credit. Notwithstanding the
foregoing Sections 3.3.5(a) and (b), the milestone credits described in this
Section 3.3.5 shall not reduce the royalty amounts paid to ABX under this
Section 3.3 in respect of Net Sales of Products in any given quarter during the
term of this Agreement, to an amount below the following "floor" royalties, on a
country-by-country basis:
A Floor Royalty on Net Sales of Products in Country
with Valid Patent Claim Covering Product (Section 3.3.1): [*]
B Floor Royalty on Net Sales of Products in All Other
Countries (Section 3.3.2): [*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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However, the foregoing limitation on milestone credits per quarter hereunder
shall not preclude carrying forward unused milestones credits into future
quarter(s) until the entire available credit hereunder has been used.
3.3.6 Length of Term of Royalty Obligations. GNE's obligation to
pay royalties on Net Sales of Products under this Agreement shall commence on a
country-by-country basis on the Royalty Commencement Date for such country as
defined in Section 3.3 above, and continue thereafter on a country-by-country
basis until the [*] of (a) [*] years after the Royalty Commencement Date in such
country or (b) expiration, in Patent Countries (as defined in Section 3.3.1), of
the last-to-expire of the Valid Patent Claims in the ABX Patent Rights that
causes GNE to owe the [*] royalty described in Section 3.3.1 (before any offsets
or credits) in such country.
3.3.7 Single Royalty. Only one royalty shall be payable with
respect to any Product hereunder, regardless of how many Valid Patent Claims or
Pending Patent Applications within the ABX Patent Rights cover such Product.
3.3.8 [*]. ABX agrees to promptly inform GNE, on a
country-by-country basis, in the event ABX [*], arising from the use,
manufacture or sale of any Product in such country hereunder, and shall inform
GNE of the [*]. GNE may, thereafter, [*]. In the event that GNE has already paid
to ABX royalties on Net Sales in such countries for the period after ABX is [*].
It is understood and agreed that nothing in this Section 3.3.8 shall reduce the
payment obligations set forth in Sections 3.3.3, 3.6.1 or 3.6.2 of this
Agreement.
3.4 Discounting. If GNE or its Sublicensee sells any Product to a third
party who also purchases other products or services from GNE or its Sublicensee,
GNE agrees not to, and to require its Sublicensee not to, discount the sales
price of the Products to a greater degree than GNE or its Sublicensee,
respectively, generally discounts the price of its other products to such
customer.
3.5 Royalties To Be Paid By ABX. Subject to the terms and conditions of
this Agreement, including without limitation GNE's payment of royalties as set
forth herein, ABX shall be responsible for paying all amounts owed to third
parties in respect of Net Sales of Products by GNE and its Sublicensees in
accordance with this Agreement under the Agreements set forth in
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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Attachment C attached hereto and incorporated herein. GNE may not offset
such payments under Section 3.3.4.
3.6 Core Third Party Patents. If either party becomes aware of any Core
Third Party Patent during the term of this Agreement, or any pending patent
application that would be a Core Third Party Patent if issued, such party shall
promptly notify the other party and, except to the extent that such party is
prohibited under a duty of confidentiality from disclosing such information,
provide a reasonably detailed summary of its knowledge regarding such patent or
patent application (including, by way of example and without limitation, the
identity of the person that owns or controls such patent, the subject matter of
the patent or application, and any available information about terms offered or
asked with respect to licenses under such patents).
3.6.1 ABX. GNE agrees to [*] under any Core Third Party Patent;
provided, however, that neither ABX nor GNE (nor its Sublicensees) shall be
obligated [*], and provided, further, that if ABX elects not [*] it shall
promptly notify GNE of such election, and GNE shall thereafter be [*] on its own
behalf. In the absence of such an election, on and after the date falling [*]
after either party first notifies the other of the Core Third Party Patent, GNE
[*] directly [*]. If ABX [*] such patent, ABX will be responsible to [*] owed
thereunder for the Net Sales of Products in the Territory by GNE and its
Sublicensees; provided, however, in the event that the [*], as set forth in this
Section 3.6.1, [*]; and provided, further, that if both ABX and GNE [*], GNE
shall not thereafter [*] Core Third Party Patent by ABX under this Agreement,
and GNE shall [*], to be offset as provided in Section 3.6.2 below. ABX shall
invoice GNE for any such amounts [*] on such Net Sales within [*] after
receiving the report from GNE under Section 4.1 setting forth the quarterly Net
Sales of Products in each country and/or any annual reconciliation regarding
such royalties, and GNE shall pay such amounts to ABX within [*] after delivery
of such invoice. It is understood that such invoice will not [*] for which the
invoice is sent, or the [*]. The parties hereto agree to discuss and negotiate
in good
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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faith regarding the manner in which the [*].
3.6.2 GNE. If GNE or its Sublicensee [*] under a Core Third Party
Patent, GNE may [*]; provided, however, that (a) the [*]. It is understood that
the [*]; provided, however, that in the event that the [*]. ABX shall invoice
GNE for any such amounts [*] on such Net Sales within [*] after receiving the
report from GNE under Section 4.1 setting forth the quarterly Net Sales of
Products in each country and/or any annual reconciliation regarding such
royalties, and GNE shall pay such amounts to ABX within [*] after delivery of
such invoice. It is understood that such invoice will not specify the [*] for
which the invoice is sent, or the [*].
4.0 ACCOUNTING AND RECORDS.
4.1 Royalty Reports; Payments, Invoices. After the Royalty Commencement
Date in any country in the Territory, GNE agrees to make quarterly written
reports to ABX within sixty (60) days after the end of each calendar quarter,
stating in each such report the number, description, and aggregate Net Sales of
Product sold during the calendar quarter upon which a royalty is payable under
Article 3 above and, if applicable, the annual royalty reconciliation under
Section 3.3.3(c) above. Concurrently with the making of such reports, GNE shall
pay to ABX all amounts payable pursuant to Article 3 above, in accordance with
the payment provisions of Section 4.3. For purposes of determining when a sale
of any Product occurs under this Agreement, the sale shall be deemed to occur on
the earlier of the date the Product is shipped, or the date of the invoice to
the purchaser of the Product.
4.2 Records; Inspection.
4.2.1 GNE. GNE shall keep (and require its Sublicensees to keep)
complete, true and accurate books of account and records for the purpose of
determining the royalty amounts payable to ABX under this Agreement. Such books
and records shall be kept at the principal place
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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of business of GNE or its Sublicensees, as the case may be, for
at least three (3) years following the end of the calendar quarter to which they
pertain. Such records of GNE or its Sublicensees will be open for inspection
during such three-year period by an independent certified public accountant
representing ABX (which representative may also represent XT) and reasonably
acceptable to GNE for the purpose of verifying the royalty statements. GNE shall
require each of its Sublicensees to maintain similar books and records and to
open such records for inspection during the same three (3)-year period by such
representative of ABX for the purpose of verifying the royalty statements. All
such inspections may be made no more than once each calendar year at reasonable
times mutually agreed by GNE and ABX. The representative of ABX will be obliged
to execute a reasonable confidentiality agreement prior to commencing any such
inspection. The results of any inspection hereunder shall be provided to both
parties, and GNE shall pay any underpayment to ABX within thirty (30) days. Any
overpayment may be credited against future royalty amounts due to ABX hereunder;
provided, however, that if there is no further obligation to pay royalties
hereunder anywhere in the Territory, ABX shall refund any such overpayment
within thirty (30) days. Inspections conducted under this Section 4.2.1 shall be
at the expense of ABX, unless a variation or error producing an increase
exceeding [*] of the amount stated for any period (after taking into account any
applicable annual reconciliation) is established in the course of any such
inspection, whereupon all costs of such audit of such period will be paid by
GNE. Upon the expiration of three (3) years following the end of any calendar
year, the calculation of royalties payable with respect to such year shall be
binding and conclusive, and GNE shall be released from any liability or
accountability with respect to royalties for such year; provided, however, that
if ABX has demanded payment of additional royalties it claims have not been
properly paid under this Agreement, or if there is a dispute between the parties
regarding the amount of royalties due, prior to the expiration of the third
calendar year following the calendar year in question, then the calculation of
royalties shall not become binding and conclusive (and GNE shall not be released
from liability or accountability with respect to such royalties) before three
years following the date, if any, that such dispute is finally resolved between
the parties by mutual written agreement. It is understood that nothing in the
preceding sentence shall limit or prohibit the carrying forward of an applicable
credit against royalties permitted under Sections 3.3.1(b) or 3.3.3(c).
4.2.2 ABX. ABX shall keep complete, true and accurate books of
account and records for the purpose of determining the royalty amounts payable
to ABX under Sections 3.3.3, 3.3.8, 3.6.1 or 3.6.2. Such books and records shall
be kept at the principal place of business of ABX for at least three (3) years
following the end of the calendar quarter to which they pertain. For any period
for which GNE has paid royalties under Sections 3.3.3, 3.6.1 or 3.6.2 of this
Agreement, such records will be open for inspection during such three-year
period by an independent certified public accountant representing GNE and
reasonably acceptable to ABX for the purpose of verifying the invoiced amounts
paid by GNE. All such inspections may be made no more than once each calendar
year at reasonable times mutually agreed by GNE and ABX. The representative of
GNE will be obliged to execute a reasonable confidentiality agreement prior to
commencing any such inspection. The results of any inspection hereunder shall be
provided to both parties as follows: it is understood and agreed that GNE shall
not be informed of the financial terms of any [*], and shall only be informed
whether or not the amounts invoiced by ABX and paid by GNE accurately
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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represent the amounts to be paid by [*]. ABX shall refund any
overpayment found by the accountant in such an inspection within thirty (30)
days after receiving the results, and GNE shall pay to ABX any underpayment
found by the accountant in such an inspection within thirty (30) days after
receiving notice of such underpayment. Inspections conducted for payments under
Section 3.3.3, 3.6.1, or 3.6.2 shall be at the expense of ABX; provided,
however, that if the invoices referred to in Sections 3.3.3, 3.6.1, or 3.6.2 do
specify the [*], such inspection shall be at the expense of GNE unless a
variation or error producing a decrease exceeding [*] of the amount paid by GNE
for any period (after taking into account any applicable annual reconciliation)
is established in the course of any such inspection, whereupon all costs of such
audit of such period will be paid by ABX and provided, further, that audits
under Section 3.3.8 will be at the expense of GNE. Upon the expiration of three
(3) years following the end of any calendar year, the calculation of royalties
payable with respect to such year shall be binding and conclusive, and GNE shall
be released from any liability or accountability with respect to royalties for
such year; provided, however, that if ABX has demanded payment of additional
royalties it claims have not been properly paid under this Agreement, or if
there is a dispute between the parties regarding the amount of royalties due,
prior to the expiration of the third calendar year following the calendar year
in question, then the calculation of royalties shall not become binding and
conclusive (and GNE shall not be released from liability or accountability with
respect to such royalties) before three years following the date, if any, that
such dispute is finally resolved between the parties by mutual written
agreement. It is understood that nothing in the preceding sentence shall limit
or prohibit the carrying forward of an applicable credit against royalties
permitted under Section 3.3.5.
4.3 Payment Method. All payments due hereunder shall be made in U.S.
dollars, and shall be made by bank wire transfer in immediately available funds
to an account designated by ABX in a written notice to GNE. Any payments from
ABX to GNE (if any) shall also be made in U.S. dollars, by bank wire transfer in
immediately available funds to an account designated by GNE in a written notice
to ABX.
4.4 Currency Conversion. If any currency conversion shall be required in
connection with the calculation of royalties hereunder, such conversion shall be
made using the selling exchange rate for conversion of the foreign currency into
U.S. Dollars, quoted for current transactions reported in The Wall Street
Journal for the last business day of the calendar quarter to which such payment
pertains.
4.5 Late Payments. Any payments due from GNE (or from ABX, if any) that
are not paid on the date such payments are due under this Agreement shall bear
interest at the lesser of (i) the [*], or (ii) the maximum rate permitted by
applicable law, in each case calculated on the number of days such payment is
delinquent. This Section 4.5 shall in no way limit any other remedies available
to either party.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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4.6 Withholding Taxes. All payments required to be made pursuant to
Article 3 hereof shall be without deduction or withholding for or on account of
any taxes or similar governmental charge imposed by a jurisdiction except for
withholding taxes to the extent applicable ("Withholding Taxes"). GNE shall pay
any applicable Withholding Taxes due on behalf of ABX and shall promptly provide
ABX with written documentation of any such payment sufficient to satisfy the
requirements of the United States Internal Revenue Service related to an
application by ABX for a foreign tax credit for such payment.
4.7 Restrictions on Payment. If by law, regulation or fiscal policy of a
particular country or jurisdiction in the Territory, remittance of funds in U.S.
Dollars is restricted or forbidden such that GNE cannot expatriate funds and
that both ABX and GNE are affected, written notice thereof will promptly be
given to ABX, and payment of such funds that constitute amounts that would be
owing to ABX under this Agreement that cannot be expatriated shall be made by
the deposit thereof in local currency to the credit of ABX in a recognized
banking institution designated by ABX in writing. When in any country or
jurisdiction in the Territory the law, regulation or fiscal policy prohibit both
the transmittal and the deposit of royalties on sales of Products in such
country or jurisdiction, royalty payments shall be suspended for as long as such
prohibition is in effect, and as soon as such prohibition ceases to be in
effect, all royalties that GNE would have been under an obligation to transmit
or deposit but for such prohibition shall forthwith be deposited or transmitted.
5.0 DUE DILIGENCE.
5.1 Reasonable Commercial Efforts; IND Milestone.
5.1.1 GNE agrees to use commercially reasonable efforts
consistent with prudent business judgment to commercialize Products, by the
filing of an IND by GNE or its Sublicensee in the United States or Japan, within
such time period as may be mutually agreed upon by the parties after taking into
account factors relating to the Product Antigen and ABX's obligations under the
Product License with XT or, if no such period is agreed upon, [*] years from the
Effective Date. ABX agrees that it will, on request of GNE, use reasonable
efforts to try to establish a longer period of time for filing of an IND in the
United States or Japan under the terms of the Product License.
5.1.2 Notwithstanding the foregoing, GNE shall be required
actively and continuously to pursue the filing of an IND by GNE or its
Sublicensee, as soon as practicable after the Effective Date using reasonable
commercial efforts consistent with prudent business judgment. After filing of an
IND, GNE or its Sublicensee shall be required to have an active IND and to use
commercially reasonable efforts, consistent with prudent business judgment, to
conduct clinical trials in pursuit of regulatory approval for a Product in the
United States or Japan.
5.2 Failure to Meet Due Diligence Obligation. If the diligence
requirements set forth in Section 5.1 are not met by GNE (or its Sublicensees),
ABX shall have the right, at ABX's election (subject to the notice and cure
provisions under Section 10.2, except to the extent that the Product
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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License between ABX and XT is terminated by XT because the diligence
requirements set forth in the Product License have not been met), either (a) to
convert GNE's exclusive license to a non-exclusive royalty-bearing license to
use the ABX Know-How and practice the ABX Patent Rights for the purposes set
forth in this Agreement, or (b) to terminate the license rights granted to GNE
hereunder.
5.3 GNE Reports. GNE agrees, upon request by ABX, to keep ABX informed
as to the research, development and commercialization of Products hereunder.
Without limiting the foregoing, if ABX makes a written request, then within
ninety (90) days of such written request during the term of this Agreement, GNE
shall provide to ABX a report detailing the status and potential timing of any
anticipated IND filings under Section 5.1 above, the status of clinical and
preclinical testing of any Products, and anticipated filings of any BLA and/or
Foreign Marketing Application for any Products in the Territory, provided,
however, that ABX may make only one such written request per twelve (12) month
period. All GNE reports hereunder shall be treated as "Confidential Information"
of GNE as provided in Article 7 of this Agreement.
5.4 Gene Therapy Applications. GNE's intention as of the Effective Date
is to commercialize a Product hereunder for an application other than Gene
Therapy (as defined below) before commercializing a Product hereunder for a Gene
Therapy application. It is understood, however, that GNE may or may not also
intend to develop and sell Products for use in Gene Therapy, and that such Gene
Therapy application may ultimately be commercialized before a Product is
commercialized hereunder for a non-Gene Therapy application. As used herein,
"Gene Therapy" shall mean the treatment or prevention of a disease by means of
[*].
6.0 INTELLECTUAL PROPERTY.
6.1 Ownership of Intellectual Property
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with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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6.1.1 Intellectual Property Concerning Antibodies, Cells, and
Genetic Material. [*] own all right, title and interest in patent or patent
applications directed to inventions solely or jointly made, conceived, reduced
to practice, or otherwise developed by GNE and/or ABX in the course of
performing research or development work under the MTA, the GNE Option Agreement,
or this Agreement that are directed to (i) Antibodies, (ii) hybridomas, and/or
(iii) Genetic Material encoding Antibodies. This Section 6.1.1 hereby supercedes
and cancels any term or provision of the MTA that are inconsistent with this
Section 6.1.1 to the extent that such term or provision of the MTA relates to
the Product Antigen. It is understood and agreed that nothing in the Section
6.1.1 shall convey, or be construed to convey, title in or to the biological
materials themselves embodying any such jointly-owned inventions to GNE or ABX,
as the case may be.
6.1.2 Intellectual Property Concerning Other Inventions. Except
as otherwise provided in Sections 6.1.1 and 2.4.3 above, on and after the
effective date of the MTA, title to any inventions (and to any patent
applications and patents thereon) by a party or parties under the MTA, this
Agreement, or the GNE Option Agreement shall follow inventorship, which shall in
turn be determined in accordance with United States laws of inventorship and
probative evidence of the parties. Designation of inventors on any patent
application hereunder is a matter of law and shall be solely within the
discretion of qualified patent counsel of the party(ies) hereto making such
invention.
6.1.3 Joint Ownership. For purposes of clarification, to the
extent that something is jointly owned under this Agreement, and except as
otherwise provided in this Agreement (including the exclusive nature of the
licenses granted by ABX hereunder), either party shall have the right to use,
commercialize, grant and authorize sublicenses, and otherwise exploit all such
jointly-owned patents and inventions without obligation to account to, or obtain
the consent of, the other joint owner. Both parties hereto agree to promptly
disclose to the other all jointly-owned inventions under this Agreement and, on
request of the other party, will provide such information and assistance as may
be reasonably necessary to assist in the filing and prosecution of patent
applications claiming such inventions. The parties hereto agree to ensure that
each employee, agent, or independent contractor that conducts research using the
XenoMouse Animals, or materials derived in whole or part from the XenoMouse
Animals, will promptly disclose and assign to the parties hereto any and all
rights to jointly-owned inventions. The parties hereto agree to maintain records
in sufficient detail and in good scientific manner appropriate for patent
purposes and so as to properly reflect all work done and results achieved in
performing research under the MTA, the GNE Option Agreement, or this Agreement.
6.1.4 Non-Use of Materials. ABX shall not license or make any
other use of any material (including, without limitation, any Antibodies, B
cells, hybridomas or Genetic Material) owned by GNE or ABX, or owned jointly by
GNE and ABX, in each case, generated in whole or in part from GNE or ABX's
activities under this Agreement, the GNE Option Agreement or the MTA, except as
expressly provided in this Agreement, in any case without first obtaining GNE's
prior written consent.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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6.2 Patent Prosecution.
(a) Solely Owned. The party solely owning any invention under
Section 6.1 above shall have the sole right and responsibility (but not the
obligation), at its expense, to file, prosecute and maintain all patent
applications and patents thereon, and to conduct any interferences, oppositions,
or reexaminations thereon, and to request any reissues or patent term extensions
thereof.
(b) Jointly Owned. In the event of any invention jointly owned by
the parties under [*] above, ABX shall have the sole right and responsibility
(but not the obligation), at its expense, to file, prosecute and maintain all
patent applications (and to conduct any interferences, oppositions, or
reexaminations thereon, and to request any reissues or patent term extensions
thereof) claiming any XenoMouse Animals or any uses thereof, and GNE shall have
the sole right and responsibility (but not the obligation), at its expense, to
file, prosecute and maintain all patent applications and patents (and to conduct
any interferences, oppositions, or reexaminations thereon, and to request any
reissues or patent term extensions thereof) claiming the Product Antigen, any
Antibody or Product and/or its development, manufacture, use or sale. The party
having such rights and responsibilities hereunder is referred to as the
"Controlling Party". The Controlling Party shall: (i) provide the
non-Controlling Party with any patent application filed hereunder by the
Controlling Party promptly after such filing; (ii) provide the non-Controlling
Party promptly with copies of all substantive communications received from or
filed in patent office(s) with respect to such filings; (iii) notify the
non-Controlling Party of any interference, opposition, reexamination request,
nullity proceeding, appeal or other interparty action and review it with the
non-Controlling Party as reasonably requested; and (iv) provide the
non-Controlling Party, a reasonable time prior to taking or failing to take any
action that would substantially affect the scope of validity of rights under
such patent applications or patents thereon (including substantially narrowing
or canceling any claim without reserving the right to file a continuing or
divisional application, abandoning any patent or not filing or perfecting the
filing of any patent application) with notice of such proposed action so that
the non-Controlling Party has a reasonable opportunity to review and make
comments. If the Controlling Party fails to undertake the filing of a patent
application (or continuing or divisional application) within ninety (90) days
after a written request from the non-Controlling Party to do so, or if the
Controlling Party discontinues the prosecution or maintenance of a patent
application or patent, the non-Controlling Party at its expense may, in its
discretion, undertake such filing, prosecution or maintenance thereof in which
case such patent application thereon shall be solely owned by the
non-Controlling Party. The parties hereto shall assist each other to the extent
commercially reasonable in securing intellectual property rights resulting from
jointly owned inventions hereunder. The parties hereto shall assist each other
to the extent commercially reasonable in securing intellectual property rights
resulting from jointly owned inventions hereunder. As to enforcement of
jointly-owned patents, including actions against an alleged infringer, the
parties hereto shall consult with each other in good faith as to the best manner
in which to proceed. The parties agree as a basic principle that in the case of
such actions against alleged infringers, the expenses incurred and damages
awarded shall be first used to reimburse the costs and expenses (including
reasonable attorneys' fees) of the party or parties in the action, second used
to reimburse ABX for any amounts ABX is obligated to pay to third parties (if
any) in respect of such amount
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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pursuant to applicable ABX In-Licenses, with the remainder for
the account of the party or parties that undertake such actions to the extent of
their financial participation therein. To the extent that damages are awarded
for lost sales or lost profits from the sale of Products, such damages shall be
allocated among the parties taking into account royalties that would have been
payable to ABX on the sale of such Products. Either party may withdraw from or
abandon any jointly-owned patent application or patent hereunder, on reasonable
prior written notice to the other party providing a free-of-charge option to
assume the prosecution and/or maintenance thereof.
6.3 Grant Back. It is the intent of the parties that this Agreement
shall not restrict ABX's freedom to operate regarding the practice and
commercialization of the Licensed Technology (including without limitation
XenoMouse Animals and cells, genetic material, and antibodies generated or
derived from XenoMouse Animals), except in relation to Products. Accordingly, in
the event that any patent owned or controlled by GNE that directly arises from
use of the XenoMouse Animals that has application other than for the
manufacture, use, sale, offer for sale or import of Products, GNE agrees to
grant, and hereby grants, to ABX a [*] license in the Territory, with the right
to grant and authorize sublicenses, under all patents claiming such inventions,
for all fields of use other than the manufacture, use, sale, offer for sale or
import of Products, in each case on terms and condition [*]. In the event that
any patent owned or controlled by GNE claims use of the XenoMouse Animals that
has application other than for the manufacture, use, sale, offer for sale or
import of Products, GNE agrees upon written notice from ABX to grant to ABX a
[*] license in the Territory, with the right to grant and authorize sublicenses,
under all patents claiming such inventions, for all fields of use other than the
manufacture, use, sale, offer for sale or import of Products, [*].
6.4 Enforcement of ABX Patent Rights.
(a) If either party learns that a third party is infringing or
allegedly infringing any ABX Patent Rights, it shall promptly notify the other
party thereof, including available evidence of infringement. As between GNE, its
Sublicensees and ABX, ABX shall have the exclusive right at its expense, and in
its discretion, to bring an enforcement proceeding, or defend any declaratory
judgment action, involving any ABX Patent Rights. ABX shall keep GNE reasonably
informed of the progress of such claim, suit or proceeding involving enforcement
or defense of any ABX Patent Rights. To the extent such action involves claims
directly concerning any Antibody or Product, GNE shall have the right to join
such proceeding at any time at its own expense, but GNE shall not admit the
invalidity or unenforceability of any ABX Patent Rights without ABX's prior
written consent.
(b) Notwithstanding the foregoing, if ABX notifies GNE that it
does not desire to pursue an enforcement action or defend a declaratory judgment
action hereunder with respect to any infringement of any patent rights described
in Section 6.1.1 or other patent rights [*] by
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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the parties as set forth in Section 6.1.2, then to the extent
such action involves or affects any Antibody or Product, GNE may at its expense
bring or defend such action with respect to such patent rights (and no other
patent rights in the ABX Patent Rights) in consultation with ABX, and in such
event ABX agrees to join as party plaintiff at GNE's expense if necessary to
prosecute the action and agrees to give GNE reasonable assistance and authority
to file and prosecute the suit (but neither party shall be required to transfer
title to any property to confer standing on a party hereunder). In connection
with any such action by GNE hereunder. GNE shall not admit the invalidity or
unenforceability of any ABX Patent Rights without ABX's prior written consent.
(c) Any recovery as a result of any such claim, suit or
proceeding hereunder shall be first used to reimburse the costs and expenses
(including reasonable attorneys' fees) of the party or parties in the action,
second used to reimburse ABX for any amounts ABX is obligated to pay to third
parties in respect of such amount pursuant to applicable ABX In-Licenses and
GNE's and its Sublicensees' lost sales of Products within the Field because of
the infringement, with the remainder for the account of the party or parties
that undertake such actions to the extent of their financial participation
therein. To the extent that damages are awarded for lost sales or lost profits
from the sale of Products, such damages shall be allocated among the parties
taking into account royalties that would have been payable to ABX on the sale of
such Products.
6.5 Infringement Claims Against GNE. If the production, sale or use of
Product pursuant to this Agreement results in any claim, suit or proceeding
alleging patent infringement against GNE (or its Affiliates or Sublicensees),
GNE shall promptly notify ABX thereof in writing setting forth the facts of such
claim in reasonable detail. GNE agrees to keep ABX reasonably informed of all
material developments in connection with any such claim, suit or proceeding as
it relates to the Licensed Technology. Notwithstanding the above, GNE shall not
admit the invalidity of any patent within the Licensed Technology without
written consent from ABX.
6.6 Limitation. Notwithstanding any other provision in this Article 6,
the parties acknowledge and understand that (i) ABX shall not be obligated to
prepare, file, prosecute, and maintain patents and patent applications, or to
bring or pursue enforcement proceedings or defend declaratory judgement actions
regarding the Licensed Technology if, and to the extent that, ABX is not
entitled to do so under one or more ABX In-Licenses, and (ii) any rights
conveyed under this Article 6 permitting GNE to prepare, file, prosecute and
maintain certain patents and patent applications, or to bring and pursue
enforcement proceedings, or defend declaratory judgment actions, regarding the
Licensed Technology, shall be subject to all applicable ABX In-Licenses, and are
conveyed only to the extent permitted under such agreements.
6.7 Patent Marking. GNE agrees to mark and have its Sublicensees mark
all Products sold pursuant to this Agreement in accordance with the applicable
statutes or regulations in the country or countries of manufacture and sale
thereof.
7.0 CONFIDENTIALITY.
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7.1 Confidentiality. Except as expressly provided herein, the parties
agree that during the term of this Agreement and for five (5) years thereafter
the receiving party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose other than performance of
this Agreement any information furnished to it by the other party hereto
pursuant to this Agreement ("Confidential Information"), except to the extent
that it can be established by the receiving party by competent proof that such
information:
(a) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving party by
a person other than a party or developed by the receiving party without
reference to any information or materials disclosed by the disclosing party.
7.2 Permitted Disclosures. Notwithstanding Section 7.1 above and Section
7.4 below, each party hereto may nevertheless disclose the other party's
Confidential Information and the terms of this Agreement to the extent such
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, complying with applicable laws or
regulations or otherwise submitting information to tax or other governmental
authorities, making a permitted Sublicense or publication or other exercise of
its rights hereunder or conducting clinical trials, provided that if a party is
required by law to make any such disclosure of the other party's Confidential
Information, other than pursuant to a confidentiality agreement, it will give
reasonable advance notice to the other party of such disclosure requirement and,
save to the extent inappropriate in the case of patent applications, will use
efforts consistent with prudent business judgment to secure confidential
treatment of such information prior to its disclosure (whether through
protective orders or confidentiality agreements or otherwise). It is understood
that the obligations set forth in this Article 7 are separate from GNE's
obligations under Section 2.2 of the GNE Option Agreement, and the expiration or
nonapplicability of GNE's obligations under Section 7.1 above shall not be
deemed to limit GNE's obligations under Section 2.2 of the GNE Option Agreement.
7.3 Scientific Publications. The parties agree, as a general principle,
that it is desirable to publish the results of the research conducted by the
parties hereto under this Agreement and agree that both parties will have the
right to publish such results. The following restrictions shall apply with
respect to the disclosure in scientific journals or publications by the parties
hereto regarding any scientific work under this Agreement (but not any
Independent Discovery or other research performed by the parties): (a) the party
publishing, or proposing to publish, such results (the
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"Publishing Party") shall provide the other party (the "Non-Publishing
Party") with an advance copy of any proposed submission of a publication arising
from such scientific work, not less than thirty (30) days prior to submission or
disclosure of such publication, and the Non-Publishing Party shall have a
reasonable opportunity to recommend any changes it reasonably believes are
necessary to preserve its Patent Rights or Know-How or to protect its
Confidential Information, and the incorporation of such recommended changes
shall not be unreasonably refused; and (b) if the Non-Publishing Party informs
the Publishing Party, within thirty (30) days of receipt of an advance copy of a
proposed publication hereunder, that such publication includes Confidential
Information of the Non-Publishing Party the publication of which, in the
Non-Publishing Party's sole judgment, could be expected to have a material
adverse effect on any of its Patent Rights or reasonable Know-How, or on the
Non-Publishing Party's business affairs, the Publishing Party shall delete such
Confidential Information of the Non-Publishing Party from such publication and,
in the case of inventions made solely by the Publishing Party or jointly by the
Publishing Party and the Non-Publishing Party, delay publication thereof for an
a time period (not to exceed ninety (90) days) sufficient for the preparation
and filing of a patent application or application for a certificate of invention
thereon, in accordance with Article 6 of this Agreement. The parties agree to
confer regarding authorship of such publications, which shall be determined in
accordance with the standards for authorship customary for peer-reviewed
journals. For purposes of this Section, the Parties agree that publication of
Confidential Information covered by a filed patent application shall not be
required to be deleted solely due to a patent application not having reached its
18 month publication date.
7.4 Terms of Agreement. Except as expressly provided in this Article 7,
each party hereto agrees not to make any public disclosure of the terms of this
Agreement or the identity of the Product Antigen (including, without limitation,
any press release and/or Q&A to be issued on the Option Effective Date), without
first obtaining the written approval of the other party and agreement upon the
nature and text of such public announcement or disclosure. The party desiring to
make any such public announcement shall provide the other party with a copy of
the proposed announcement for review and comment in reasonably sufficient time
prior to public release. Each party agrees that it shall cooperate fully with
the other with respect to all disclosures regarding this Agreement required
under applicable laws and regulations to the United States Securities Exchange
Commission and any other governmental or regulatory agencies, including requests
for confidential treatment of proprietary information of either party included
in any such governmental disclosure. The parties may publicly disclose
information contained in any prior public disclosure that was in compliance with
this Section without further approvals hereunder. In addition, each party agrees
not to disclose the identity of the Product Antigen to any third party under any
circumstances except if required by law, [nor the terms of this Agreement or the
GNE Option Agreement to any third party, other than professional advisors and
financing sources, and in that case, only under confidentiality terms that are
at least as stringent in material respects as those in this Article. The parties
acknowledge that, in the event of an initial public offering by ABX, ABX may be
required to file this Agreement or information related thereto with the
Securities and Exchange Commission (the "SEC"). In that event, and thereafter,
ABX shall be entitled to comply with the disclosure requirements of the SEC,
provided, however, that in connection with any required SEC filing of this
Agreement by ABX, ABX shall use its reasonable efforts to obtain confidential
treatment of portions of the Agreement
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from the SEC (including, without limitation, financial terms and the
identity of the Product Antigen). GNE shall have the right to review and comment
on such an application for confidential treatment insofar as it pertains to this
Agreement prior to its being filed with the SEC and ABX shall not unreasonably
refuse such comments. GNE shall provide its comments, if any, on such
application as soon as practicable, and in no event later than four (4) days
after such application is provided to GNE.
8.0 INDEMNIFICATION
8.1 GNE. GNE agrees to save, defend and hold ABX and its directors,
officers, employees, agents and Affiliates harmless from and against any suits,
claims, actions, demands, damages, liabilities, expenses or losses (including
court costs and reasonable attorneys' and experts' fees) (collectively, the
"Liabilities") resulting directly from (a) third party claims arising from any
negligence or willful misconduct of GNE (or its directors, officers, employees,
agents or Sublicensees) or the breach of any representations or warranties of
GNE under this Agreement, or (b) any third party claims arising from GNE's or
its Sublicensee's development, making, having made, use, offer for sale, or sale
of any Product developed, manufactured, used, sold or otherwise distributed by
GNE and its Sublicensees under this Agreement; provided, however, that nothing
in this Section 8.1 shall obligate GNE to save, defend or hold harmless ABX for
any Liabilities to the extent arising from the negligence or willful misconduct
of ABX or its directors, officers, employees, or agents.
8.2 ABX. ABX agrees to save, defend and hold GNE and its directors,
officers, employees, agents and Affiliates harmless from and against any
Liabilities resulting directly from (a) third party claims arising from any
negligence or willful misconduct of ABX (or its directors, officers, employees,
or agents) or the breach of any representations or warranties of ABX under this
Agreement, (b) any third party claims arising from any negligence or willful
misconduct of ABX or its directors, officers, employees, agents in the course of
conducting ABX work under the Research Plan or (c) any third party claims
arising from infringement of a Core Third Party Patent in the course of using
the Licensed Technology in accordance with this Agreement, the GNE Option
Agreement, or the MTA, (including, without limitation, the production of
Antibodies to the Product Antigen); provided, however, that indemnification
under Section 8.2(c) shall only be required by ABX in the event that neither ABX
nor GNE enters into a license with the party claiming infringement, under
Section 3.6 of this Agreement; provided, further, that indemnification under
Section 8.2(c) shall be limited to amounts paid by GNE to ABX under this
Agreement; and provided, further, that nothing in this Section 8.2 shall
obligate ABX to save, defend or hold harmless GNE for any such Liabilities to
the extent arising from the negligence or willful misconduct of GNE or its
directors, officers, employees, agents or Sublicensees.
8.3 Indemnification Procedures. If any person or party entitled to
indemnification under this Article 8 (an "Indemnitee") intends to claim
indemnification under this Article 8, it shall promptly notify the indemnifying
party hereunder (the "Indemnitor") in writing of any Liability in respect of
which the Indemnitee intends to claim such indemnification, as soon as
reasonably
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practicable after the Indemnitee receives notice of such Liability.
Indemnitor's obligations under this Article 8 are conditioned upon the
Indemnitee permitting the Indemnitor to assume direction and control of the
defense of the Liability (including the right to settle it); provided, however,
that an Indemnitee shall have the right to retain its own legal counsel, with
the reasonable fees and expenses thereof to be paid by the Indemnitor, if
representation of such Indemnitee by the legal counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnitee and such Indemnitor. Indemnitor's obligations
under this Article 8 shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld or delayed
unreasonably. The failure to deliver written notice to the Indemnitor within a
reasonable time after the commencement of any third party suit, claim, action or
demand, if prejudicial to Indemnitor's ability to defend such suit, claim,
action or demand, shall relieve the Indemnitor of its obligations under this
Section 8 with respect to Liabilities that could have been defended in such
action. The Indemnitee (and its directors, officers, employees and agents) shall
cooperate fully with the Indemnitor and its legal counsel in the investigation
of any such Liability for which indemnification is sought by such Indemnitee
hereunder.
9.0 REPRESENTATIONS, WARRANTIES AND COVENANTS.
9.1 ABX. ABX represents, warrants and covenants to GNE that:
(a) it has the full right and authority to enter into this
Agreement and grant the rights and licenses granted herein;
(b) it has not previously granted, and during the term of this
Agreement will not grant, any rights inconsistent or in conflict with the rights
and licenses granted to GNE herein, including without limitation, any right,
license in and to the Licensed Technology granted under this Agreement, or any
portion thereof, with respect to the Products or their development, manufacture,
use or sale;
(c) to its knowledge as of the Effective Date and except as set
forth on Schedule A hereto, there were no existing or threatened actions, suits
or claims pending against ABX with respect to the Licensed Technology or the
right of ABX to enter into and perform its obligations under this Agreement or
the Product Agreement with XT, and ABX has informed GNE of all such existing or
threatened actions, suits or claims of which ABX is aware as of the Effective
Date;
(d) it will not take any action or fail to take any action under
this Agreement that will cause a breach of the GenPharm Cross-License, the
Xenotech Agreement, the Product License, or any ABX In-License; provided,
however, that it shall not be a breach of this covenant if ABX cures any breach
of such third party agreement pursuant to the cure provisions contained therein;
(e) As of the Effective Date and except as set forth on Schedule
A hereto ABX (a) had no knowledge (without the obligation to perform due
diligence) of any rights of third parties that
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would interfere with the use of the ABX Know-How or practice of
the ABX Patent Rights as contemplated under this Agreement (including, without
limitation, work under the Research Plan or otherwise in the Research Field
pursuant to the GNE Option Agreement or this Agreement), and (b) had no
knowledge (without the obligation to perform due diligence) that any patents or
patent applications within the ABX Patent Rights are invalid or unenforceable or
that their practice would infringe patent rights of third parties, provided,
however, that this representation does not apply to possible infringements
relating to the Product Antigen;
(f) as of the Effective Date, Cell Genesys, Inc. ("CGI") had
assigned to ABX all of CGI's rights and obligations under the Xenotech
Agreement, and ABX is now a party to the Xenotech Agreement in lieu of CGI;
(g) it has provided to GNE, on or before the Effective Date,
complete copies of all applicable ABX In-Licenses setting forth all applicable
limitations or restrictions described in Section 2.3 (it being understood that
the financial terms have been redacted from some or all such copies) and shall,
at GNE's request, discuss with GNE ABX's interpretation of material terms
(excepting only financial terms) and conditions of such ABX In-License,
including, without limitation, any limitations on ABX's right to further
transfer or grant licenses or sublicenses to GNE to any and all rights to
technology within the scope of the ABX Patent Rights and/or ABX Know-How under
any ABX In-License;
(h) on or before the Effective Date, ABX entered into a Product
License for the Product Antigen with XT under the Xenotech Agreement and that
Product License is an [Exclusive Worldwide Product License] [Exclusive Qualified
Worldwide Product License] (as such term is defined in the Xenotech Agreement),
and GNE is ABX's exclusive sublicensee of ABX for all uses of the Licensed
Technology under the Produce License relating to Products in the Field
throughout the Territory, as provided in this Agreement;
(i) ABX has provided GNE with a complete copy (excepting only
financial terms) of such Product License as signed by all parties thereto.
During the term of this Agreement: (i) ABX will not agree to any modifications
or amendments to such Product License that restrict or limit or otherwise
negatively affect the rights and licenses granted to GNE hereunder, and shall
not terminate any licenses therein, in any case without GNE's prior written
consent in its sole discretion; and (ii) ABX shall provide GNE promptly with a
copy of any notice of default by ABX and/or its Sublicensee under such Product
License, and of any notice of termination by any other party thereto;
(j) If the Product License is an Exclusive Worldwide Product
License, JTI does not have the right under the Xenotech Agreement to obtain an
"Exclusive Home Territory Product License" or a "Co-Exclusive Worldwide Product
License" (as these are defined in the Xenotech Agreement and attached thereto as
exhibits) for the Product Antigen, or any other right or license under the
Licensed Technology to develop, make or have made, use, sell, lease, or offer to
sell or lease, import, export, otherwise transfer physical possession of or
otherwise transfer title to Products
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in the Field in the Territory. ABX shall notify GNE promptly in
writing of assertion by JTI (if any) that it may have any such rights anywhere
in the Territory;
(k) ABX shall not agree to any termination, modifications or
amendments to any ABX In-Licenses that would negatively affect GNE's rights or
obligations under this Agreement without first obtaining Genentech's prior
written consent, and ABX shall notify GNE as soon as practicable of any material
modification or amendment of any ABX In-License that affects (positively or
negatively) GNE's rights or obligations under the Agreement;
(l) ABX shall provide GNE promptly with a copy of any notice of
default by ABX and/or its Sublicensee under any ABX In-License, and of any
notice of termination by any other party to any ABX In-License; and
(m) ABX shall not use or permit others to use cells created by
GNE or ABX from immunization of XenoMouse Animals with the Product Antigen under
this Agreement, the [*] Product License, or the MTA in any way without GNE's
prior written consent nor shall ABX directly or indirectly create, incur, assume
or suffer to exist, any lien, security interest or other similar encumbrance
upon or with respect to such cells.
9.2 GNE. GNE represents, warrants and covenants to ABX that:
(a) it has the full right and authority to enter into this
Agreement and grant the rights and licenses granted herein;
(b) to its knowledge as of the Option Effective Date, there were
no existing or threatened actions, suits or claims pending against GNE or its
Affiliates with respect to the subject matter hereof (including, without
limitation, rights in and to the Product Antigen and/or antibodies to the
Product Antigen) or the right of GNE to enter into and perform its obligations
under this Agreement, and GNE has informed ABX of all such existing or
threatened actions, suits or claims of which GNE is aware as of the Effective
Date;
(c) it has not previously granted, and during the term of this
Agreement will not grant, any rights inconsistent or in conflict with the rights
and licenses granted under this Agreement; and
(d) it will not, to its knowledge, take any action or fail to
take any action that will cause a breach of the GenPharm Cross License, the
Xenotech Agreement, the Product License, or any ABX In-License.
(e) as of the Effective Date and except as set forth on Schedule
B hereto, GNE has no knowledge (without the obligation to perform due diligence)
of any rights of third parties that would interfere with the use of the ABX
Know-How or practice of the ABX Patent Rights as contemplated
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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under this Agreement (including, without limitation, work under
the Research Plan or otherwise in the Research Field pursuant to this Agreement
or the [*] Product License).
9.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES TO
THE OTHER PARTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, REGARDING PRODUCTS OR
THE LICENSED TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY
OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. ALL XENOMOUSE ANIMALS AND
MATERIALS DERIVED IN WHOLE OR PART FROM THE XENOMOUSE ANIMALS PROVIDED TO GNE BY
ABX ARE PROVIDED "AS IS," AND ABX SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO XENOMOUSE
ANIMALS AND MATERIALS DERIVED IN WHOLE OR PART FROM XENOMOUSE ANIMALS.
9.4 Effect of Representations and Warranties. It is understood that if
the representations and warranties of a party under this Article 9 are not true
and accurate and the other party incurs any damages, liabilities, expenses or
losses (including court costs and reasonable attorneys' and experts' fees, but
excluding costs and fees incurred in asserting a claim or bringing a lawsuit
between the parties hereto) as a direct result of such falsity or inaccuracy,
the party at fault shall save, defend and hold the other party harmless from and
against any such suits, claims, actions, demands, damages, liabilities, expenses
or losses.
10.0 TERM AND TERMINATION.
10.1 Term. The term of this Agreement shall commence on the Effective
Date and, unless earlier terminated as provided in this Article 10, shall
continue in full force and effect on a country-by-country basis until the
expiration of all royalty obligations pursuant to this Agreement for such
country, as provided in Section 3.3.6 above. Following the expiration, but not
earlier termination, of this Agreement on a country-by-country basis, GNE shall
have a fully-paid up, royalty-free, perpetual, sublicensable license as granted
in Article 2 which shall be an exclusive (as to ABX) license under the ABX
Know-How solely to commercialize Products in such country.
10.2 Termination for Breach. Either party to this Agreement may
terminate this Agreement in the event that the other party shall have materially
breached or defaulted in the performance of any of its material obligations
hereunder, and such breach or default shall have continued for sixty (60) days
after written notice of such breach and intent to terminate this Agreement
therefor was provided to the breaching party by the nonbreaching party. Any such
termination shall become effective at the end of such sixty (60) day period
unless the breaching party has cured any such breach or default prior to the
expiration of the sixty (60) day period. Any such termination shall be without
prejudice to any other rights, conferred, or remedies available to, the
nonbreaching party by law or at equity, including, without limitation, under
Section 8.3 above. The
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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right of a nonbreaching party to terminate this Agreement pursuant to
this Section 10.2 shall not be affected in any way by its waiver or failure to
take action with respect to any previous default.
10.3 Termination for Insolvency or Bankruptcy. Either party may, in
addition to any other remedies available to it by law or in equity, terminate
this Agreement effective on written notice to the other party in the event the
other party shall have become insolvent or bankrupt, or shall have made an
assignment for the benefit of its creditors, or there shall have been appointed
a trustee or receiver of the other party or for all or a substantial part of its
property, or any case or proceeding shall have been commenced or other action
taken by or against the other party in bankruptcy or seeking reorganization,
liquidation, dissolution, winding-up, arrangement, composition or readjustment
of its debts or any other relief under any bankruptcy, insolvency,
reorganization or other similar act or law of any jurisdiction now or hereafter
in effect, or there shall have been issued a warrant of attachment, execution,
distraint or similar process against any substantial part of the property of the
other party, and any such event shall have continued for ninety (90) days
undismissed, unbonded and undischarged. Furthermore, all rights and licenses
granted under this Agreement are, and shall be deemed to be, for purposes of
Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual
property" as defined under Section 101(56) of the United States Bankruptcy Code.
The parties agree that in the event of the commencement of a bankruptcy
proceeding by or against of party hereunder under the United States Bankruptcy
Code, the other party shall be entitled to complete access, in accordance with
this Agreement, to any such intellectual property, and all embodiments of such
intellectual property, pertaining to the rights licensed to it hereunder of the
party by or against whom a bankruptcy proceeding has been commenced.
10.4 Termination by GNE. GNE may terminate this Agreement and the
license granted herein at any time, by providing ABX ninety (90) days prior
written notice.
10.5 Effect of Termination.
10.5.1 Accrued Obligations. Expiration or any termination of this
Agreement shall not release either party hereto from any liability which at the
time of such expiration or termination has already accrued to such party or
which is attributable to a period prior to such expiration or termination,
subject to the terms of this Agreement, nor preclude either party from pursuing
any rights and remedies it may have hereunder or at law or in equity which
accrued to it prior to such expiration or termination, subject to the terms of
this Agreement.
10.5.2 Stock in Hand; Sublicenses. In the event this Agreement is
terminated for any reason, GNE and its Sublicensees shall have the right to sell
or otherwise dispose (consistent with all applicable regulations and law and
subject to Articles 3 and 4 of this Agreement) of the stock of any Product
subject to this Agreement then on hand. No termination of this Agreement (except
by ABX under Section 10.2 above) shall be construed as a termination of any
Sublicenses hereunder, and any Sublicense granted by GNE hereunder shall
survive, provided that upon request by ABX, such Sublicensee promptly agrees in
writing to be bound by the applicable terms of this Agreement.
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10.5.3 Return of Know-How; Termination of Licenses (a) In the
event that ABX terminates this Agreement under Section 10.2 above, GNE shall
promptly transfer to ABX, at GNE's expense, all ABX Know-How (including without
limitation any XenoMouse Animals) then in GNE's or any of its Sublicensee's
possession or control. After the effective date of such termination, GNE shall
have no further obligations to ABX with respect to the development and
commercialization of Products in the Field in the Territory, all underlying
rights to the ABX Patent Rights and ABX Know-How (including without limitation
as such rights pertain to the Products in the Field in the Territory) shall be
the sole property of ABX, and all of GNE's license rights to the ABX Patent
Rights and the ABX Know-How shall terminate. GNE, at GNE's expense, shall
execute all documents and make any filings necessary to perfect such license
rights in ABX. In the event that GNE terminates this Agreement under
Section10.2, above, after the effective date of such termination, GNE shall have
no further obligations to ABX with respect to the development and
commercialization of Products in the Field in the Territory except as set forth
herein, including Section 10.5.7. Such termination shall not terminate any
rights of GNE under this Agreement, and GNE shall have an exclusive license
under the ABX Patent Rights and to use the ABX Know-How to research, develop,
make, have made Products in the Field in the Territory and to use, sell, lease,
offer to sell or lease, import, export, otherwise transfer physical possession
of or otherwise transfer title to Products in the Field in the Territory. Such
license shall be subject to the same royalty obligations as set forth under
Article 3 above. ABX, at ABX's expense, shall execute all documents and make any
filings necessary to perfect such license rights to GNE.
10.5.4 GNE Option Agreement. This Agreement is independent of,
and shall not be affected by, the expiration or termination of the GNE Option
Agreement; provided that notwithstanding the foregoing, any breach by GNE of the
GNE Option Agreement shall be deemed a breach of this Agreement.
10.5.5 XT. GNE and ABX agree that this Agreement, including,
without limitation, any licenses and sublicenses granted to GNE pursuant to this
Agreement, and the [*] Product License (including any licenses and sublicenses
to be granted to GNE therein) shall survive any dissolution, liquidation or
acquisition of XT, and that such licenses shall remain in full force and effect
even after any distribution, following dissolution, of the intellectual property
owned or licensed to XT, to any entity. GNE and ABX agree that any transfer of
such intellectual property to or following such dissolution shall be subject to
the licenses and sublicenses granted herein (and to be granted pursuant to the
[*] Product License, if entered into at all by the parties).
10.5.6 ABX In-Licenses. In the event that any ABX In-License is
terminated due to breach by ABX and, as a result of such termination, ABX is
unable to convey to GNE the rights necessary to manufacture, use or sell
Products, ABX agrees that GNE's licenses hereunder shall survive and GNE shall
step into the shoes of ABX with regard to such ABX In-License as set forth in,
and on the terms and conditions provided in, such ABX In-License. ABX agrees to
use reasonable efforts and to take such actions as are reasonably necessary to
effectuate the foregoing.
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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10.5.7 Survival. Section 2.6, 5.3, 9.3 and 10.5 and Articles 3,
4, 6, 7, 8 and 11 shall survive the expiration and any termination of this
Agreement for any reason.
11.0 MISCELLANEOUS.
11.1 Governing Laws. This Agreement shall be interpreted and construed
in accordance with the laws of the State of California, without regard to
conflicts of law principles.
11.2 Waiver. It is agreed that no waiver by any party hereto of any
breach or default of any of the covenants or agreements herein set forth shall
be deemed a waiver as to any subsequent and/or similar breach or default.
11.3 Assignment. Neither this Agreement nor any right or obligation
hereunder may be assigned or delegated, in whole or part, by either party
without the prior written consent of the other; provided, however, that either
party may, without the written consent of the other, assign this Agreement to
(a) any entity to which it has acquired all or substantially all of the business
or assets of the assigning party, or (b) any successor corporation resulting
from any merger or consolidation with another corporation (including, in the
case of GNE, F. Hoffmann-La Roche Ltd or any Affiliate thereof). Notwithstanding
the foregoing, ABX shall not be obligated without its written consent to send
XenoMouse Animals to any party other than GNE. The terms and conditions of this
Agreement shall be binding on and inure to the benefit of the permitted
successors and assigns of each party hereto.
11.4 Independent Contractors. The relationship of the parties hereto is
that of independent contractors. The parties hereto are not deemed to be agents,
partners or joint venturers of the others for any purpose as a result of this
Agreement or the transactions contemplated thereby.
11.5 Compliance with Laws. In exercising their rights under this
license, the parties shall fully comply with the requirements of any and all
applicable laws, regulations, rules and orders of any governmental body having
jurisdiction over the exercise of rights under this license.
11.6 No Implied Obligations. Except as expressly provided in Article 5
above, noting in this Agreement shall be deemed to require GNE to exploit the
Licensed Technology nor to prevent GNE from commercializing products similar to
or competitive with any Product, in addition to or in lieu of such Products.
11.7 Notices. Any notice, request, approval or consent required or
permitted to be given between the parties hereto shall be given in writing, and
shall be deemed to have been properly given if delivered in person, transmitted
by telecopy with machine confirmation of transmission, or mailed by first class
certified mail to the other party at the appropriate address set forth below, or
to such other address as may be designated in writing by a party from time to
time in accordance with this Agreement. Such notice, request, approval or
consent shall be deemed given (i) on the date delivered or transmitted if
delivered in person or transmitted by telecopy prior to 5 p.m. on any
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business day, (ii) on the next business day following delivery or
transmission if delivered in person or transmitted by telecopy after 5 p.m. on
any business day or on any non-business day, or (iii) on the fourth business day
following the date deposited in the United States mail if sent mailed by first
class certified mail.
Genentech, Inc.: Genentech, Inc.
One DNA Way
South San Francisco, CA 94080
Attn: Corporate Secretary
Telecopy: (650) 952-9881
Abgenix, Inc.: Abgenix, Inc.
7601 Dumbarton Circle
Fremont, California 94555
Attn: President
Telecopy:
with a copy to: Kenneth A. Clark, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Telecopy: (650) 493-8311
11.8 Export Laws. Notwithstanding anything to the contrary contained
herein, all obligations of ABX and GNE are subject to prior compliance with
United States export regulations and such other United States laws and
regulations as may be applicable, and to obtaining all necessary approvals
required by the applicable agencies of the government of the United States. GNE
shall be responsible for obtaining such approvals, and shall use efforts
consistent with prudent business judgment to obtain such approvals. ABX agrees
to cooperate reasonably with GNE and provide reasonable assistance to GNE as may
be reasonably necessary to obtain any required approvals.
11.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision and the parties shall discuss in good faith appropriate
revised arrangements.
11.10 Force Majeure. Nonperformance of any party (except for payment
obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure to
perform, is beyond the reasonable control and not caused by the negligence,
intentional conduct or misconduct of the nonperforming party.
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11.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER.
11.12 Disputes. The parties recognize that disputes as to certain
matters may from time to time arise during the term of this Agreement which
relate to either party's rights and/or obligations hereunder. It is the
objective of the parties to establish procedures to facilitate the resolution of
disputes arising under this Agreement in an expedient manner by mutual
cooperation and without resort to litigation. To accomplish this objective, it
is agreed that each party will inform the other as soon as possible when it
becomes aware of an area or issue of dispute. Prior to filing or initiating any
legal proceeding, the parties agree to discuss the dispute at the organizational
level at which such dispute arises. If either party believes there has been
sufficient discussion of the matter at such level, then such party, by written
notice to the other party, may have such dispute referred to their respective
chief executive officers (or, if unavailable, a designee who is an officer of
the party empowered to resolve such disputes) for attempted resolution by good
faith negotiations between such chief executive officers within fourteen (14)
days of such referral. In the event that the chief executive officers are not
able to resolve such dispute within such fourteen (14) day period, either party
may pursue whatever remedies are available to them under this Agreement or by
law.
11.13 Complete Agreement; Amendment. It is understood and agreed between
ABX and GNE that this Agreement and the GNE Option Agreement constitute the
entire agreement, both written and oral, between the parties with respect to the
subject matter hereof, and supersede and cancel all prior agreements respecting
the subject matter hereof, either written or oral, expressed or implied,
including, without limitation, that certain Non-Disclosure Agreement between ABX
and GNE dated as of April 25, 1997, and the MTA (to the extent provided in
Section 2.1.5, 3.2.4 and 4.1 of the GNE Option Agreement and Sections 2.5(d) and
6.1 of this Agreement). No amendment or change hereof or addition hereto shall
be effective or binding on either of the parties hereto unless reduced to
writing and executed by the respective duly authorized representatives of ABX
and GNE.
11.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and both together shall be deemed to
be one and the same agreement.
11.15 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
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IN WITNESS WHEREOF, the parties have executed this Agreement, through
their respective officers hereunto duly authorized, as of the day and year first
above written.
ABGENIX, INC. GENENTECH, INC.
By:______________________________ By:________________________________
Name:____________________________ Name:______________________________
Title:___________________________ Title:_____________________________
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ATTACHMENT A
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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ATTACHMENT A
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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ATTACHMENT A
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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ATTACHMENT B
ABX MATERIALS
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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ATTACHMENT C
IN-LICENSES
[*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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SCHEDULE A
[TO BE COMPLETED BY ABX PRIOR
TO EXECUTION OF THIS AGREEMENT]
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SCHEDULE B
[TO BE COMPLETED BY GNE PRIOR
TO EXECUTION OF THIS AGREEMENT]
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated January 23,
1998 in Amendment No. 2 to the Registration Statement (Form S-1) and related
Prospectus of Abgenix, Inc. for the registration of 3,450,000 shares of its
common stock.
/s/ Ernst & Young LLP
Palo Alto, California
April 20, 1998
