<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</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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<S> <C>
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
</TABLE>
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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<CAPTION>
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common stock, $0.0001 par value... 3,450,000 $15.625 $53,906,250 $14,986
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended, based
on the average of the high and low sales price as reported by Nasdaq on
January 22, 1999.
------------------------
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 27, 1999
LOGO
3,000,000 SHARES
COMMON STOCK
Abgenix, Inc. is offering 3,000,000 shares of its common stock. Abgenix's
common stock is traded on the Nasdaq National Market under the symbol "ABGX."
The last reported sale price for the common stock on the Nasdaq National Market
on January 26, 1999 was $17.00 per share.
-------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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<TABLE>
<CAPTION>
PER
SHARE TOTAL
------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to the Company..................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Abgenix has granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
-------------------------
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
PACIFIC GROWTH EQUITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1999
<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. Our XenoMouse technology has been developed to
produce antibodies with 100% human protein sequences.
[ARTWORK]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS
AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS
PROSPECTUS, REFERENCES TO "ABGENIX," "WE," "US" AND "OUR" REFER TO ABGENIX, INC.
AND ITS SUBSIDIARIES.
-------------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary..................................................... 3
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements........... 20
Certain Information......................................... 21
Use of Proceeds............................................. 21
Price Range of Common Stock................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 32
Management.................................................. 53
Certain Transactions........................................ 62
Principal Stockholders...................................... 66
Description of Capital Stock................................ 68
Underwriting................................................ 71
Shares Eligible for Future Sale............................. 72
Legal Matters............................................... 74
Experts..................................................... 74
Where You Can Find Additional Information................... 74
Index to Financial Statements............................... F-1
</TABLE>
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We own Abgenix and the Abgenix logo trademarks. We have rights to use
XenoMouse, a registered trademark of Xenotech, L.P., one of our subsidiaries.
This prospectus also includes trademarks owned by other companies.
2
<PAGE> 5
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the Financial Statements and Notes, before deciding to invest
in our common stock.
ABGENIX
We are a biopharmaceutical company that develops and intends to
commercialize antibody therapeutic products for the treatment of a variety of
disease conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, and cancer. We have developed XenoMouse technology, a
proprietary technology which we believe enables quick generation of high
affinity, fully human antibody product candidates to essentially any disease
target appropriate for antibody therapy. We intend to use XenoMouse technology
to build a large and diversified product portfolio that we plan to commercialize
either through corporate collaborations or internal product development
programs.
OUR XENOMOUSE TECHNOLOGY COLLABORATIONS
We have established collaborative arrangements to use our XenoMouse
technology to produce fully human antibodies with eight companies covering at
least 11 antigen targets. Pursuant to these collaborations, we and our partners
intend to generate antibody product candidates for the treatment of cancer,
inflammation, transplant rejection, cardiovascular disease and growth factor
modulation. Our collaborative partners include Cell Genesys, Inc., Pfizer Inc.,
Schering-Plough Research Institute, Genentech, Inc., Millennium BioTherapeutics,
Inc., Research Corporation Technologies, Centocor, Inc. and AVI BioPharma, Inc.
Among our eight collaborative partners, Pfizer, Genentech and Millennium
BioTherapeutics have each entered into additional collaborations with us
specifying additional antigens for XenoMouse antibody development. The financial
terms of our existing collaborations typically include upfront payments,
potential license fees and milestone payments payable to us by the collaborative
partner. Additionally, if a product receives marketing approval from the FDA or
an equivalent foreign agency, we are entitled to receive royalties on any future
product sales by the collaborative partner.
OUR PROPRIETARY PRODUCTS
We also have four antibody product candidates that are under development
internally. Our lead product candidate, ABX-CBL, is an in-licensed mouse
antibody. We are currently conducting a multi-center confirmatory Phase II
clinical trial for ABX-CBL for the treatment of a transplant-related disease
known as graft versus host disease. Once the final report on our Phase II
clinical trial has been completed, we plan to submit the data to the FDA for
approval to commence a Phase III clinical trial for ABX-CBL during 1999. Our
other three product candidates were generated using XenoMouse technology. We
completed a Phase I clinical trial for our fully human antibody product
candidate in psoriasis, ABX-IL8, and began a Phase I/II clinical trial in
November 1998. In addition, we entered a Phase I clinical trial for ABX-IL8 in
rheumatoid arthritis in January 1999. We are in preclinical development with two
other fully human antibody product candidates: ABX-EGF for use in the treatment
of cancer; and ABX-RB2 for use in the treatment of chronic immunological
disorders. We expect to initiate Phase I clinical trials with ABX-EGF in
mid-1999.
RECENT DEVELOPMENTS
In January 1999, we entered into a multi-antigen research license and
option agreement with Genentech. Under the agreement, we granted Genentech a
license to utilize XenoMouse technology in its antibody product research efforts
and an option to obtain product licenses for up to ten antigen targets. Included
in the ten are two previously identified antigen targets under previous
collaboration arrangements with Genentech. We believe that this license will
allow Genentech to integrate the use of XenoMouse technology much earlier in its
research and development efforts, allowing a more complete realization of the
advantages of XenoMouse technology. We plan to pursue similar multi-antigen
research licenses with new or existing collaborative partners.
3
<PAGE> 6
THE OFFERING
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<S> <C>
Common stock to be offered by Abgenix.................... 3,000,000 shares
Common stock outstanding after the offering.............. 14,615,649 shares
Use of proceeds.......................................... For research and development
activities, including preclinical
testing and clinical trials, and for
working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............................ ABGX
</TABLE>
Except as set forth in the Financial Statements, all share information
contained in this prospectus includes the sale on January 27, 1999 of 495,356
shares of common stock to Genentech at a per share price of $16.15.
Unless otherwise stated, all share information contained in this prospectus
excludes:
(1) 1,642,187 shares of common stock issuable upon exercise of stock
options at a weighted average exercise price of $2.44 per share
outstanding as of December 31, 1998;
(2) 121,667 shares of common stock issuable upon exercise of warrants with
an exercise price of $6.00 per share outstanding as of December 31,
1998; and
(3) 25,000 shares of common stock issuable pursuant to a license agreement
outstanding as of December 31, 1998.
4
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Total revenues(1)....................................... $ 6,200 $ 6,200 $ 4,719 $ 1,954 $ 3,842
Operating expenses:
Research and development.............................. 7,921 11,879 9,433 11,405 17,588
General and administrative............................ 1,955 2,603 2,565 3,525 3,405
Charge for cross-license and settlement amount
allocated from Cell Genesys(2)...................... -- -- -- 11,250 --
Equity in losses from the Xenotech joint venture
(charge for cross-license and settlement in
1997)(2)............................................ -- -- -- 11,250 107
----------- ----------- ----------- ----------- ---------
Total operating expenses........................ 9,876 14,482 11,998 37,430 21,100
----------- ----------- ----------- ----------- ---------
Operating loss.......................................... (3,676) (8,282) (7,279) (35,476) (17,258)
Interest income (expense), net.......................... -- -- 179 (404) 431
----------- ----------- ----------- ----------- ---------
Net loss................................................ $ (3,676) $ (8,282) $ (7,100) $ (35,880) $ (16,827)
=========== =========== =========== =========== =========
Net loss per share(3)................................... $(46,710.53) $ (1,032.70) $ (3.00)
=========== =========== =========
Shares used in computing net loss per share(3).......... 152 34,744 5,602,963
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 16,744 $24,744 $72,184
Working capital............................................. 13,101 21,101 68,541
Total assets................................................ 24,220 32,220 79,660
Long-term debt, less current portion........................ 2,180 2,180 2,180
Accumulated deficit......................................... (69,301) (69,301) (69,301)
Total stockholders' equity.................................. 16,959 24,959 72,399
</TABLE>
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(1) The statement of operations includes our revenues and expenses as a business
unit within Cell Genesys prior to July 15, 1996. During the years ended
December 31, 1994, 1995 and 1996, our revenues were derived principally from
Xenotech, L.P. for the development of XenoMouse technology, which was
essentially completed in 1996.
(2) In the year ended December 31, 1997, we incurred an aggregate non-recurring
charge for cross-license and settlement of $22.5 million. This amount
represents an allocation from Cell Genesys of $11.25 million and an entry of
$11.25 million to record the equity in the losses of Xenotech L.P., our
equally owned joint venture with JT America, Inc. See Note 6 of Notes to the
Financial Statements.
(3) Net loss per share data has not been presented prior to 1996 as there were
no equity securities outstanding prior to that date.
(4) Pro forma information gives effect to the sale of 495,356 shares of our
common stock to Genentech in January 1999 at a price per share of $16.15
(5) Adjusted to reflect the proceeds from the sale of 3.0 million shares of
common stock by Abgenix at an assumed public offering price of $17.00 per
share after deducting the underwriting discount and estimated offering
expenses. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 8
RISK FACTORS
An investment in this common stock offering is very risky. You should
carefully consider the following risk factors in addition to the remainder of
this prospectus before purchasing the common stock. This prospectus contains
forward-looking statements that involve risks and uncertainties. Many factors,
including those described below, may cause actual results to differ materially
from anticipated results.
OUR XENOMOUSE TECHNOLOGY MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS
Our XenoMouse technology is a new approach to the generation of antibody
therapeutic products. We have not commercialized any antibody products based on
XenoMouse technology. We are not aware of any commercialized, fully human
antibody therapeutic products that have been generated from any technologies
similar to ours. Our antibody product candidates are still at a very early stage
of development. We have begun clinical trials with respect to only one fully
human antibody product candidate, ABX-IL8. We cannot be certain that XenoMouse
technology will generate antibodies against all the antigens to which it is
exposed in an efficient and timely manner, if at all. Furthermore, XenoMouse
technology may not result in any meaningful benefits to our current or potential
collaborative partners or be safe and efficacious for patients. If XenoMouse
technology fails to generate antibody product candidates that lead to the
successful development and commercialization of products, our business,
financial condition and results of operations will be materially adversely
affected. See "Business -- The Abgenix Solution -- XenoMouse Technology."
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES WILL BE EXPENSIVE AND THEIR OUTCOME
IS UNCERTAIN
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. We will
incur substantial expense for, and devote a significant amount of time to,
preclinical testing and clinical trials.
Historically, the results from preclinical testing and early clinical
trials have often not been predictive of results obtained in later clinical
trials. A number of new drugs and biologics have shown promising results in
clinical trials, but subsequently failed to establish sufficient safety and
efficacy data to obtain necessary regulatory approvals. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. In addition, regulatory
delays or rejections may be encountered as a result of many factors, including
changes in regulatory policy during the period of product development.
Only two of our product candidates, ABX-CBL and ABX-IL8, are currently in
clinical trials. Patient follow-up for these clinical trials has been limited.
To date, data obtained from these clinical trials has been insufficient to
demonstrate safety and efficacy under applicable FDA guidelines. As a result,
such data will not support an application for regulatory approval without
further clinical trials. Clinical trials conducted by Abgenix or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals for ABX-CBL, ABX-IL8 or any other
potential product candidates. Regulatory authorities may not permit us to
undertake any additional clinical trials for our product candidates.
In addition, our other product candidates are in preclinical development,
and we have not submitted investigational new drug applications nor begun
clinical trials for such product candidates. Our preclinical or clinical
development efforts may not be successfully completed. We may not file further
investigational new drug applications. Our clinical trials may not commence as
planned.
6
<PAGE> 9
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials 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;
- lack of efficacy during the clinical trials; or
- government or regulatory delays.
We have limited experience in conducting and managing clinical trials. We rely
on third parties, including our collaborative partners, to assist us in managing
and monitoring clinical trials. Our reliance on such third parties may result in
delays in completing, or failing to complete, such trials if they fail to
perform under our agreements with them.
Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. Such failure may delay development of other product candidates,
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of such failures, we may also be unable to obtain additional
financing. Our business, financial condition and results of operations will be
materially adversely affected by any delays in, or termination of, our clinical
trials.
THE CLINICAL SUCCESS OF ABX-CBL IS UNCERTAIN
We are currently conducting a multi-center confirmatory Phase II trial in
graft versus host disease, or GVHD. As of December 31, 1998, ABX-CBL has been
administered to a total of only 133 patients for GVHD and organ transplant
rejection indications. ABX-CBL was administered to a total of 85 of these 133
patients by third parties prior to Abgenix obtaining an exclusive license to
ABX-CBL. In our clinical trials, we administered ABX-CBL to only 48 of these
patients, and we cannot rely on data obtained from other patients to support the
efficacy of ABX-CBL in an application for regulatory approval. In addition, our
clinical trials are being conducted with patients who have failed conventional
treatments and who are in the most advanced stages of GVHD. During the course of
treatment, these patients can die or suffer adverse medical effects for reasons
that may not be related to ABX-CBL. Such adverse effects may affect the
interpretation of clinical trial results.
We continue to treat patients and collect data from our Phase II clinical
trials. Once the final report on our Phase II clinical trials has been
completed, we plan to submit the data to the FDA for approval to commence a
Phase III clinical trial. We cannot assure you that the results of our Phase II
clinical trials will be favorable. The FDA may require additional clinical
trials before allowing us to commence a Phase III clinical trial. Additional
clinical trials will be extensive, expensive and time-consuming. If ABX-CBL
fails to receive regulatory approval, our business, financial condition and
results of operations may be materially adversely affected.
SUCCESSFUL DEVELOPMENT OF OUR PRODUCTS IS UNCERTAIN
Our development of current and future product candidates is subject to the
risks of failure inherent in the development of new pharmaceutical products and
products based on new technologies. These risks include:
- delays in product development, clinical testing or manufacturing;
- unplanned expenditures in product development, clinical testing or
manufacturing;
- failure in clinical trials or failure to receive regulatory approvals;
7
<PAGE> 10
- emergence of superior or equivalent products;
- inability to manufacture product candidates on a commercial scale;
- inability to market products due to third-party proprietary rights;
- election by our collaborative partners not to pursue product development;
- failure by our collaborative partners to successfully develop products;
and
- failure to achieve market acceptance.
Because of these risks, our research and development efforts or those of our
collaborative partners may not result in any commercially viable products. To
date, none of our collaborative partners has exercised its right to obtain a
product license. If a significant portion of these development efforts is not
successfully completed, required regulatory approvals are not obtained, or any
approved products are not commercially successful, our business, financial
condition and results of operations will be materially adversely affected. See
"Business -- Proprietary Product Development Programs."
WE ARE AN EARLY STAGE COMPANY
You must evaluate us in light of the uncertainties and complexities present
in an early stage biopharmaceutical company. Our product candidates are in early
stages of development. We will require significant additional investment in
research and development, preclinical testing and clinical trials, regulatory
and sales and marketing activities to commercialize current and future product
candidates. We cannot assure you that such product candidates, if successfully
developed, will generate sufficient or sustainable revenues to enable us to be
profitable.
WE HAVE A HISTORY OF LOSSES
We have incurred net losses in each of the last four years of operation,
including net losses of approximately $8.3 million in 1995, $7.1 million in
1996, $35.9 million in 1997 and $16.8 million in 1998. As of December 31, 1998,
our accumulated deficit was approximately $69.3 million. Our losses have
resulted principally from:
- research and development costs relating to the development of our
XenoMouse technology and antibody product candidates;
- cross-license and settlement costs relating to our patent portfolio; and
- general and administrative costs relating to our operations.
We expect to incur additional operating losses until at least the year 2000
as a result of increases in our research and development costs, including costs
associated with conducting preclinical testing and clinical trials. We expect
that the amount of operating losses will fluctuate significantly from quarter to
quarter as a result of increases or decreases in our research and development
efforts, the execution or termination of collaborative arrangements, or the
initiation, success or failure of clinical trials. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OUR FUTURE PROFITABILITY IS UNCERTAIN
Prior to June 1996, our business was owned by Cell Genesys and operated as
a business unit. Since that time, we have funded our research and development
activities primarily from contributions from Cell Genesys, private placements of
preferred stock, the initial public offering of our common stock, revenues
generated from our collaborative arrangements, equipment leaseline financings
and loan facilities. We expect that substantially all of our revenues for the
foreseeable future will result from payments under collaborative arrangements.
To date, such payments have been in the form of upfront payments, reimbursement
for research and development expenses and milestone payments, but may include
license fees in the future. Payments under our existing and any future
collaborative arrangements will be subject
8
<PAGE> 11
to significant fluctuation in both timing and amount. Our revenues may not be
indicative of our future performance or of our ability to continue to achieve
such milestones. Our revenues and results of operations for any period may also
not be comparable to the revenues or results of operations for any other period.
We cannot assure you that we will:
- enter into further collaborative arrangements;
- successfully complete preclinical or clinical trials;
- obtain required regulatory approvals;
- successfully develop, manufacture and market product candidates; or
- generate additional revenues or profitability.
If we fail to achieve any of the above goals, our business, financial condition
and results of operations will be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Proprietary Product Development Programs."
WE WILL NEED TO FIND COLLABORATIVE PARTNERS TO DEVELOP MANY OF OUR PRODUCT
CANDIDATES
Our strategy for the development and commercialization of antibody
therapeutic products depends, in large part, upon the formation of collaborative
arrangements with several collaborative partners. Potential collaborative
partners include pharmaceutical and biotechnology companies, academic
institutions and other entities. We must enter into these collaborations to
successfully develop and commercialize product candidates. Such collaborations
are necessary in order for us to:
- access proprietary antigens for which we can generate fully human
antibody products;
- fund our research and development activities;
- fund preclinical testing, clinical trials and manufacturing;
- seek and obtain regulatory approvals; and
- successfully commercialize existing and future product candidates.
Only a limited number of fully human antibody product candidates have been
generated pursuant to our collaborations. None of these collaborative product
candidates has entered clinical testing and may not result in commercially
successful products. Current or future collaborative arrangements may not be
successful. If we fail to maintain our existing collaborative arrangements or to
enter into additional collaborative arrangements, our business, financial
condition and results of operations will be materially adversely affected.
Our dependence on collaborative arrangements with third parties subjects us
to a number of risks. Such collaborative arrangements may not be on terms
favorable to Abgenix. Agreements with collaborative partners typically allow
partners significant discretion in electing whether to pursue any of the planned
activities. We cannot control the amount and timing of resources our
collaborative partners may devote to the product candidates. Our partners may
not perform their obligations as expected. Business combinations or significant
changes in a collaborative partner's business strategy may adversely affect a
partner's willingness or ability to complete its obligations under the
arrangement. Even if we fulfill our obligations under a collaborative agreement,
our partner can terminate the agreement at any time following proper written
notice. If any collaborative partner were to terminate or breach our agreement
with it, or otherwise fail to complete its obligations in a timely manner, our
business, financial condition and results of operations may be materially
adversely affected. If we are not able to establish further collaborative
arrangements or any or all of our existing collaborative arrangements are
terminated, we may be required
9
<PAGE> 12
to seek new collaborative arrangements or to undertake product development and
commercialization at our own expense. Such an undertaking may:
- limit the number of product candidates that we will be able to develop
and commercialize;
- reduce the likelihood of successful product introduction;
- significantly increase our capital requirements; and
- place additional strain on management's time.
Existing or future collaborative partners may pursue alternative
technologies, including those of our competitors. Disputes may arise with
respect to the ownership of rights to any technology or products developed with
any current or future collaborative partner. Lengthy negotiations with potential
new collaborative partners or disagreements between Abgenix and our
collaborative partners may lead to delays or termination in the research,
development or commercialization of product candidates or result in time
consuming and expensive litigation or arbitration. If our collaborative partners
pursue alternative technologies or fail to develop or commercialize successfully
any product candidate to which they have obtained rights from us, our business,
financial condition and results of operations may be materially adversely
affected.
OUR JOINT VENTURE WITH JT AMERICA, INC. MAY LIMIT OUR ABILITY TO DEVELOP PRODUCT
CANDIDATES
In 1991, Cell Genesys and JT America, Inc. formed Xenotech, L.P., an
equally-owned joint venture, to develop genetically modified strains of mice
which can produce fully human monoclonal antibodies, called XenoMouse
technology, and to commercialize products generated from XenoMouse technology.
Upon our organization, Cell Genesys assigned its rights in Xenotech to us.
We must obtain licenses from Xenotech to commercialize antibody products
generated by XenoMouse technology. We have the right to license the use of
XenoMouse technology from Xenotech to develop a certain number of antigen
targets each year. If we have used our yearly allotment of licenses to develop
antigen targets and desire to acquire a license to develop additional antigen
targets, we may have to negotiate with JT America or others to acquire such
rights. Disputes with JT America, or its parent company Japan Tobacco, Inc., may
result in the loss of the right to commercialize a product candidate by either
party. Limits on our ability to acquire additional licenses to develop antigen
targets, or disputes with JT America or Japan Tobacco, will limit our ability to
establish collaborations and fully realize the commercial potential of XenoMouse
technology. See "Business -- Joint Venture With Japan Tobacco."
WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. We are aware of several
pharmaceutical and biotechnology companies that are actively engaged in research
and development in areas related to antibody therapy. These companies have
commenced clinical trials of antibody products or have successfully
commercialized antibody products. Many of these companies are addressing the
same diseases and disease indications as Abgenix or our collaborative partners.
Also, we compete with companies that offer antibody generation services to
companies that have antigens. These competitors have specific expertise or
technology related to antibody development. These companies include GenPharm
International, Inc., a wholly-owned subsidiary of Medarex, Inc., Cambridge
Antibody Technology Group, Inc., Protein Design Labs, Inc. and Morphosys, Inc.
Some of our competitors have received regulatory approval or are developing
or testing product candidates that may compete directly with our product
candidates. Recently, Sangstat Medical Corp. received approval for an organ
transplant rejection product that may compete with ABX-CBL, which is in clinical
trials. We are also aware that several companies, including Genentech, Inc.,
have potential product candidates that may compete with ABX-IL8. Furthermore, we
are aware that ImClone Systems, Inc., Medarex and OSI Pharmaceuticals, Inc. have
potential antibody and small molecule product candidates
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already in clinical development that may compete with ABX-EGF, which is in
preclinical development. We may also compete with Japan Tobacco in supplying
XenoMouse technology or antibody product candidates to potential collaborative
partners.
Many of these companies and institutions, either alone or together with
their collaborative partners, have substantially greater financial resources and
larger research and development staffs than we do. In addition, many of these
competitors, either alone or together with their collaborative partners, have
significantly greater experience than we do in:
- developing products;
- undertaking preclinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before us. If we commence
commercial product sales, we will be competing against companies with greater
marketing and manufacturing capabilities, areas in which we have limited or no
experience.
We also face, 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 we are
seeking to develop therapeutic products. In addition, any product candidate that
we successfully develop 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;
- new small molecules; or
- other classes of therapeutic agents.
Developments by competitors may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies for establishing relationships with
academic and research institutions, and for licenses to proprietary technology.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. We may not achieve market
acceptance even if clinical trials demonstrate safety and efficacy, and the
necessary regulatory and reimbursement approvals are obtained. The degree of
market acceptance of any product candidates that we develop will depend on a
number of factors, including:
- establishment and demonstration of clinical efficacy and safety;
- cost-effectiveness of our product candidates;
- their potential advantage over alternative treatment methods;
- reimbursement policies of government and third-party payors; and
- marketing and distribution support for our product candidates.
Physicians will not recommend therapies using our products until such time as
clinical data or other factors demonstrate the safety and efficacy of such
procedures as compared to conventional drug and other
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<PAGE> 14
treatments. Even if the clinical safety and efficacy of therapies using our
antibody products is established, physicians may elect not to recommend the
therapies for any number of other reasons, including whether the mode of
administration of our antibody products is effective for certain indications.
For example, antibody products are typically administered by infusion or
injection, which requires substantial cost and inconvenience to patients. Our
product candidates, if successfully developed, will compete with a number of
drugs and therapies manufactured and marketed by major pharmaceutical and other
biotechnology companies. Our products may also compete with new products
currently under development by others. Physicians, patients, third-party payors
and the medical community may not accept and utilize any product candidates that
Abgenix or our collaborative partners develop. If our products do not achieve
significant market acceptance, our business, financial condition and results of
operations will be materially adversely affected. See "Business -- Proprietary
Product Development Programs," "-- Competition," and "-- Pharmaceutical Pricing
and Reimbursement."
OUR PATENT POSITION IS UNCERTAIN AND OUR SUCCESS DEPENDS ON OUR PROPRIETARY
RIGHTS
Our success depends in part on our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use by third
parties only to the extent that our proprietary rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets. While we
have pending patent applications in the United States relating to XenoMouse
technology, no patents have been issued. We try to protect our proprietary
position by filing United States and foreign patent applications related to our
proprietary technology, inventions and improvements that are important to the
development of our business. The patent position of biopharmaceutical companies
involves complex legal and factual questions and, therefore, enforceability
cannot be predicted with certainty. Patents, if issued, may be challenged,
invalidated or circumvented. Thus, any patents that we own or license from third
parties may not provide any protection against competitors. Our pending patent
applications, those we may file in the future, or those we may license from
third parties, may not result in patents being issued. Also, patent rights may
not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have developed.
The laws of certain foreign countries do not protect our intellectual property
rights to the same extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary know-how.
We seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or adequate
remedies for our technology in the event of unauthorized use or disclosure of
confidential and proprietary information. The parties may breach such
agreements. Furthermore, our trade secrets may otherwise become known to, or be
independently developed by, our competitors. See "Business -- Intellectual
Property."
WE MAY FACE CHALLENGES FROM THIRD PARTIES REGARDING THE VALIDITY OF OUR PATENTS
AND PROPRIETARY RIGHTS
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. The publication of discoveries
in the scientific or patent literature frequently occurs substantially later
than the date on which the underlying discoveries were made. Our commercial
success depends significantly on our ability to operate without infringing the
patents and other proprietary rights of third parties. Our technologies may
infringe
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<PAGE> 15
the patents or violate other proprietary rights of third parties. In the event
of infringement or violation, Abgenix and our collaborative partners may be
prevented from pursuing product development or commercialization. Such a result
will materially adversely affect our business, financial condition and results
of operations.
In March 1997, we entered into a cross-license and settlement agreement
with GenPharm to avoid protracted litigation. Under the cross-license, we
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 our products and business. Our business, financial
condition and results of operations will be materially adversely affected if any
of the parties breaches the cross-license agreement. We have one issued European
patent relating to XenoMouse technology that is currently undergoing opposition
proceedings within the European Patent Office and the outcome of this opposition
is uncertain. See "Business -- Intellectual Property -- Patent Cross-License and
Settlement Agreement with GenPharm."
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property suits, United States Patent
and Trademark Office 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 our issued and licensed patents;
- protect trade secrets or know-how that we own or license; or
- determine the enforceability, scope and validity of the proprietary
rights of others.
If we become involved in any litigation, interference or other administrative
proceedings, we will incur substantial expense and the efforts of our technical
and management personnel will be significantly diverted. An adverse
determination may subject us to significant liabilities or require us to seek
licenses that may not be available from third parties. We may be restricted or
prevented from manufacturing and selling our products, if any, in the event of
an adverse determination in a judicial or administrative proceeding or if we
fail to obtain necessary licenses. Costs associated with these arrangements may
be substantial and may include ongoing royalties. Furthermore, we may not be
able to obtain the necessary licenses on satisfactory terms, if at all. These
outcomes will materially adversely affect our business, financial condition and
results of operations.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS
Our product candidates under development are subject to extensive and
rigorous domestic government regulation. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record-keeping,
labeling, storage, approval, advertising, promotion, sale and distribution of
biopharmaceutical products. If our products are marketed abroad, they also are
subject to extensive regulation by foreign governments. None of our 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 approval 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. For example,
we have not received FDA approval to commence Phase III clinical trials for
ABX-CBL. 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 may:
- adversely affect the successful commercialization of any drugs that
Abgenix or our collaborative partners develop;
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<PAGE> 16
- impose costly procedures on Abgenix or our collaborative partners;
- diminish any competitive advantages that Abgenix or our collaborative
partners may attain; and
- adversely affect our receipt of revenues or royalties.
Certain material changes to an approved product such as manufacturing
changes or additional labeling claims are subject to further FDA review and
approval. Any required approvals, once obtained, may be withdrawn. Compliance
with other regulatory requirements may not be maintained. Further, if we fail to
comply with applicable FDA and other regulatory requirements at any stage during
the regulatory process, Abgenix or our contract manufacturers may be subject to
sanctions, 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.
We expect to rely on our collaborative partners to file investigational new
drug applications and generally direct the regulatory approval process for many
of our products. Our collaborative partners may not be able to conduct clinical
testing or obtain necessary approvals from the FDA or other regulatory
authorities for any product candidates. If we fail to obtain required
governmental approvals, our collaborative partners will experience delays in or
be precluded from marketing products developed through our research. In
addition, the commercial use of our products will be limited. Delays and
limitations may materially adversely affect our business, financial condition
and results of operations.
Abgenix and our contract manufacturers also are required to comply with the
applicable FDA current good manufacturing practice regulations. Good
manufacturing practice regulations 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. Such facilities must be approved before we can use them in commercial
manufacturing of our products. Abgenix or our contract manufacturers may not be
able to comply with the applicable good manufacturing practice requirements and
other FDA regulatory requirements. If Abgenix or our contract manufacturers
fails to comply, our business, financial condition and results of operations
will be materially adversely affected. See "Business -- Government Regulation."
WE RELY ON A SOLE SOURCE THIRD-PARTY MANUFACTURER AND DO NOT HAVE COMMERCIAL
SCALE MANUFACTURING EXPERIENCE
We lack the resources and capability to manufacture our products on a
commercial scale. We currently manufacture only limited quantities of antibody
products for preclinical testing. While we maintain a limited inventory of
antibody products, we depend on a sole source contract manufacturer to produce
ABX-CBL, ABX-IL8 and ABX-EGF under good manufacturing practice regulations for
use in our clinical trials. Our contract manufacturer has a limited number of
facilities in which our product candidates can be produced. Our contract
manufacturer has limited experience in manufacturing ABX-CBL, ABX-IL8 and
ABX-EGF in quantities sufficient for conducting clinical trials or for
commercialization.
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There are, on a worldwide basis, a limited number of contract facilities in
which our product candidates can be produced under good manufacturing practice
regulations for use in pharmaceutical drugs. It can also take a substantial
period of time for a contract facility to begin producing antibodies under good
manufacturing practice regulations. Accordingly, we depend on our contract
manufacturer to produce our product candidates under good manufacturing practice
regulations which meet acceptable standards for our 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. Our contract manufacturer
may not perform as agreed or may not remain in the contract manufacturing
business for the time required by us to successfully produce and market our
product candidates. If our contract manufacturer fails to deliver the required
quantities of our product candidates for clinical use on a timely basis and at
commercially reasonable prices, and we fail to find a replacement manufacturer
or develop our own manufacturing capabilities, our business, financial condition
and results of operations will be materially adversely affected.
In addition, Abgenix and our third-party manufacturer are required to
register manufacturing facilities with the FDA and foreign regulatory
authorities. The facilities will then be subject to inspections confirming
compliance with good manufacturing practice requirements established by the FDA
or corresponding foreign regulations. If Abgenix or our third-party manufacturer
fails to maintain compliance with the good manufacturing practice requirements,
our business, financial condition and results of operations will be materially
adversely affected. See "Business -- Manufacturing."
WE DO NOT HAVE MARKETING AND SALES EXPERIENCE
We do not have a marketing, sales or distribution capability. For certain
products, we may establish an internal marketing and sales force. We intend to
enter into arrangements with third parties to market and sell most of our
products. We may not be able to enter into marketing and sales arrangements with
others on acceptable terms, if at all. To the extent that we enter into
marketing and sales arrangements with other companies, our revenues, if any,
will depend on the efforts of others. These efforts may not be successful. If we
are unable to enter into third-party arrangements, then we must develop a
marketing and sales force, which may need to be substantial in size, in order to
achieve commercial success for any product candidate approved by the FDA. We may
not successfully develop marketing and sales experience or have sufficient
resources to do so. If we do develop such capabilities, we will compete with
other companies that have experienced and well-funded marketing and sales
operations. If we fail to establish successful marketing and sales capabilities
or fail to enter into successful marketing arrangements with third parties, our
business, financial condition and results of operations will be materially
adversely affected.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY EMPLOYEES
AND CONSULTANTS
We are highly dependent on the principal members of our scientific and
management staff. If we lose any of these persons, our business, financial
condition and results of operations may be materially adversely affected. For us
to pursue product development, marketing and commercialization plans, we will
need to hire additional qualified scientific personnel to perform research and
development. We will also need to hire personnel with expertise in clinical
testing, government regulation, manufacturing, marketing and finance. Attracting
and retaining qualified personnel will be critical to our success. We may not 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, we rely on members of our Scientific and Medical Advisory
Boards and other consultants to assist us in formulating our research and
development strategy. All of our consultants and the members of our Scientific
and Medical Advisory Boards are employed by other entities. They may have
commitments to, or advisory or consulting agreements with, other entities that
may limit their availability
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to us. If we lose the services of these personnel, the achievement of our
development objectives may be impeded. Such impediments may materially adversely
affect our business, financial condition and results of operations. See
"Business -- Scientific and Medical Advisory Boards."
DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED ENTITIES
OWN A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK
Upon completion of this offering, our directors, executive officers,
principal stockholders and affiliated entities will beneficially own, in the
aggregate, approximately 33.6% of our outstanding common stock. These
stockholders, if acting together, will be able to significantly influence all
matters requiring approval by our stockholders. Such matters include the
election of directors and the approval of mergers or other business combination
transactions. We may be adversely impacted by the control that such stockholders
will have with respect to matters affecting us. See "Principal Stockholders."
WE MAY REQUIRE ADDITIONAL FINANCING
We will continue to expend substantial resources for the expansion of
research and development, including costs associated with conducting preclinical
testing and clinical trials. We will be required to expend substantial funds in
the course of completing required additional development, preclinical testing
and clinical trials of and regulatory approval for product candidates. Our
future liquidity and capital requirements will depend on many factors,
including:
- the scope and results of preclinical testing and clinical trials;
- the retention of existing and establishment of further collaborative
arrangements, if any;
- continued scientific progress in our research and development programs;
- the size and complexity of these programs;
- the time and expense involved in obtaining regulatory approvals, if any;
- competing technological and market developments;
- 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 and product in-licensing;
and
- other factors not within our control.
We believe that the proceeds from this offering, together with our current
cash balances, cash equivalents, short-term investments and cash generated from
our collaborative arrangements will be sufficient to meet our operating and
capital requirements for at least the next two years. However, we may need
additional financing within this timeframe. We may need to raise additional
funds through public or private financing, collaborative arrangements or other
arrangements. Additional funding may not be available to us on favorable terms,
if at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Collaborative arrangements may require us to relinquish our rights to
certain of our technologies, product candidates or marketing territories. If we
fail to raise additional funds when needed, our business, financial condition
and results of operations will be materially adversely affected.
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CELL GENESYS EXERCISES SIGNIFICANT INFLUENCE OVER US
Upon completion of this offering, Cell Genesys will beneficially own 23.0%
of our outstanding capital stock. As a result, Cell Genesys will have
significant influence over all matters requiring the approval of our
stockholders. Such matters include the election of our Board of Directors and
changes in control of Abgenix. We have entered into a governance agreement with
Cell Genesys which provides that so long as Cell Genesys or a group to which it
belongs owns a specific percentage of our outstanding voting stock, Cell Genesys
or the group shall have the right to nominate a fixed number of directors to
serve on our Board. The details of this arrangement are set forth in the table
below:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP NUMBER OF DIRECTORS
-------------------- -------------------
<S> <C>
50% or more........................................ 4 out of 7
Less than 50% but greater than 25%................. 3 out of 7
Less than 25% but greater than 15%................. 1 out of 7
</TABLE>
The governance agreement also provides that Cell Genesys and each of our
officers and directors who owns voting stock shall agree to vote for the persons
nominated as set forth above. We may be adversely impacted by the significant
influence which Cell Genesys will have with respect to matters affecting us. See
"Certain Transactions" and "Management -- Board Composition."
WE FACE UNCERTAINTY OVER REIMBURSEMENT AND HEALTHCARE REFORM
In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Such third-party payors include 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. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. Such studies may require us to provide a
significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Domestic 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 our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third-party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance of our products may be adversely affected. If our products do not
receive market acceptance, our business, financial condition and results of
operations will be materially adversely affected.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE
The use of any of our product candidates in clinical trials, and the sale
of any approved products, may expose us to liability claims resulting from such
use or sale of our products. These claims might be made directly by consumers,
healthcare providers or by pharmaceutical companies or others selling such
products. We may experience financial losses in the future due to product
liability claims. We have obtained limited product liability insurance coverage
for our clinical trials. Our insurance coverage limits are $5.0 million per
occurrence and $5.0 million in the aggregate. We intend to expand our 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. We may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against
losses. If a successful product liability claim or series of claims is brought
against us for uninsured liabilities or in excess of insured liabilities, our
business, financial condition and results of operations may be materially
adversely affected.
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OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS
Our research and manufacturing activities involve the controlled use of
hazardous materials. We cannot eliminate the risk of accidental contamination or
injury from these materials. In the event of an accident or environmental
discharge, we may be held liable for any resulting damages, which may exceed our
financial resources and may materially adversely affect our business, financial
condition and results of operations.
OUR STOCK PRICE IS HIGHLY VOLATILE
The market price of our common stock has been highly volatile and is likely
to continue to be volatile. Factors affecting our stock price include:
- fluctuations in our operating results;
- announcements of technological innovations or new commercial therapeutic
products by us or our competitors;
- published reports by securities analysts;
- progress with clinical trials;
- governmental regulation;
- changes in reimbursement policies;
- developments in patent or other proprietary rights;
- developments in our relationship with collaborative partners;
- public concern as to the safety and efficacy of our products; and
- general market conditions.
SUBSTANTIAL SALES OF SHARES MAY IMPACT MARKET PRICE OF OUR COMMON STOCK
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. Such sales also might make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate. After completion of this offering, we will have
outstanding 14,615,649 shares of common stock, assuming no exercise of
outstanding options or warrants after December 31, 1998 and no exercise of the
underwriters' over-allotment option. Of these shares, the following are freely
tradeable:
- the 3,000,000 shares sold in this offering;
- the 1,146,300 shares that may be sold by certain individuals and entities
upon the effectiveness of a registration statement we filed with the
Securities and Exchange Commission on January 15, 1999;
- the 2,875,000 shares sold in our initial public offering in July 1998;
and
- an additional 2,771,302 shares, subject in certain instances to volume
re-sale limitations under Rule 144.
4,327,691 shares of common stock held by existing stockholders may not be
sold publicly unless they are registered under the Securities Act of 1933, as
amended, or are sold pursuant to Rule 144 or another exemption from
registration. These shares 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.
The remaining 495,356 shares were sold to Genentech in January 1999. We are
obligated to register for public resale the 495,356 shares sold to Genentech
pursuant to the terms of a registration rights agreement. Genentech has certain
demand rights with respect to the registration of these shares. The
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<PAGE> 21
demand rights are currently exercisable and expire in July 1999. In July 1999,
whether or not Genentech exercises its demand rights, we are obligated to
register the Genentech shares for public resale. Our registration of the
Genentech shares may have an adverse effect on our ability to raise capital.
Sales of the Genentech shares into the public market may have an adverse effect
on the market price of our common stock.
2,479,223 of the freely tradeable shares, all of the 4,327,691 restricted
shares and the 495,356 Genentech shares are subject to lock-up agreements under
which the holders have agreed not to sell their shares for a period of 90 days
after the date of this prospectus without the prior written consent of
BancBoston Robertson Stephens Inc.
In addition, the holders of 6,698,052 shares of common stock and 121,667
shares issuable upon the exercise of warrants 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,
cause a large number of securities to be registered and sold in the public
market, such sales may have an adverse effect on the market price for our common
stock. If we were to initiate a registration and include shares held by these
holders pursuant to the exercise of their piggyback registration rights, such
sales may have an adverse effect on our ability to raise capital.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS
Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws contain provisions which may discourage takeover attempts,
including transactions in which stockholders might receive a premium for their
shares. This may limit stockholders' ability to approve a transaction that they
may think is in their best interest. Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws require that any action required
or permitted to be taken by our stockholders must be taken at a properly called
meeting of stockholders that may be called only by the Board of Directors, the
Chairman of the Board or the President. In addition, the Board of Directors has
the authority, without stockholder action, to fix the rights and preferences of
and issue shares of preferred stock, which may have the effect of delaying or
preventing a change in control. See "Description of Capital Stock -- Preferred
Stock" and "-- Certain Charter and Bylaw Provisions and Delaware Law."
WE DO NOT INTEND TO PAY DIVIDENDS
We intend to retain any future earnings to finance the growth and
development of our business and we do not plan to pay cash dividends in the
foreseeable future.
WE FACE UNCERTAINTY WITH YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This may
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to receive supplies from
our venders, or operate our accounting and other internal systems. If our
software vendors are unable to address the Year 2000 compliance of their
products, or should our suppliers' operations be disrupted by the Year 2000
Issue, then our ability to serve collaborative partners and develop products may
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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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, or the Reform
Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements, 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:
- our XenoMouse technology may not produce safe, efficacious or
commercially viable products;
- clinical trials will be expensive and their outcome is uncertain;
- the clinical success of ABX-CBL is uncertain;
- successful development of our products is uncertain;
- we are an early stage company;
- we have a history of losses;
- our future profitability is uncertain;
- we will need to find collaborative partners to develop many of our
product candidates;
- our joint venture with JT America, Inc. may limit our ability to develop
product candidates;
- we face intense competition and rapid technological change;
- market acceptance of our products is uncertain;
- our patent position is uncertain and our success depends on our
proprietary rights;
- we may face challenges from third parties regarding the validity of our
patents and proprietary rights;
- we are subject to extensive government regulations and we may not be able
to obtain regulatory approvals;
- we rely on a sole source third-party manufacturer and do not have
commercial scale manufacturing experience;
- we do not have marketing and sales 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, you should not
place undue reliance on such forward-looking statements. We disclaim 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.
20
<PAGE> 23
CERTAIN INFORMATION
We were incorporated on June 24, 1996, and subsequently on July 15, 1996,
were organized pursuant to a stock purchase and transfer agreement with Cell
Genesys. Our business and operations were started in 1989 by Cell Genesys and
prior to our organization were conducted within Cell Genesys. In 1991, Cell
Genesys and JT Immunotech USA, Inc., the predecessor company to JT America and a
medical subsidiary of Japan Tobacco, formed Xenotech, an equally owned joint
venture, to develop genetically modified strains of mice known as XenoMouse
technology which can produce fully human monoclonal antibodies and to
commercialize products generated from these mice. Upon our organization, Cell
Genesys assigned to us substantially all of its rights in Xenotech.
Our principal executive offices are located at 7601 Dumbarton Circle,
Fremont, California 94555. Our telephone number is (510) 608-6500.
USE OF PROCEEDS
Our proceeds from the sale of the 3,000,000 shares of Common Stock we are
offering are estimated to be $47.4 million ($54.6 million if the underwriters'
over-allotment option is exercised in full) assuming a public offering price of
$17.00 per share and after deducting the underwriting discount and our estimated
offering expenses.
We intend to use the proceeds of the offering for research and development
including clinical trials and preclinical testing of our product candidates, and
for working capital and general corporate purposes. The amounts spent for each
purpose may vary significantly, depending on the progress of our product
development efforts, the results of clinical studies, the timing of regulatory
approvals, technological advances, determinations of the commercial potential of
our product candidates, status of competitive products, the rate at which
operating losses are incurred, the receipt of funding from collaborative
partners and other factors, many of which are beyond our control. We may also
use some of the proceeds to acquire other companies, technology or products that
complement our business, although we are not currently planning any of these
transactions. Pending these uses, the net proceeds of this offering will be
invested in short-term, interest-bearing securities.
21
<PAGE> 24
PRICE RANGE OF COMMON STOCK
Our common stock began trading publicly on the Nasdaq National Market on
July 2, 1998 under the symbol "ABGX." The following table lists quarterly
information on the price range of the common stock based on the high and low
reported last sale prices for our common stock as reported on the Nasdaq
National Market for the periods indicated below. These prices do not include
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
Fiscal 1999:
First Quarter (through January 26, 1999)........ $17.00 $ 15.00
Fiscal 1998:
Fourth Quarter.................................. $18.00 $ 6.00
Third Quarter................................... 9.25 5.375
</TABLE>
As of December 31, 1998, there were approximately 162 holders of record of
the common stock. On January 26, 1999, the last reported sale price on the
Nasdaq National Market for the common stock was $17.00.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Our loan and security agreement prohibits the payment of
dividends without the consent of the lender.
22
<PAGE> 25
CAPITALIZATION
The following table sets forth as of December 31, 1998 (1) our actual
capitalization (2) our capitalization on a pro forma basis to give effect to the
sale of 495,356 shares of our common stock to Genentech in January 1999 at a
purchase price of $16.15 per share and (3) our pro forma capitalization as
adjusted to reflect the proceeds from the sale of 3,000,000 shares of our common
stock offered hereby at an assumed public offering price of $17.00 per share and
after deducting the underwriting discount and estimated offering expenses. You
should read our capitalization information set forth below in conjunction with
our Financial Statements and Notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion...................... $ 2,180 $ 2,180 $ 2,180
Stockholders' equity:
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized, none issued and outstanding.............. -- -- --
Common stock, $0.0001 par value; 50,000,000 shares
authorized, shares issued and outstanding, at amount
paid in(1):
Actual: 11,120,293 shares;
Pro forma: 11,615,649 shares; and
Pro forma as adjusted: 14,615,649 shares(1);......... 55,842 63,842 111,282
Contributions from parent............................... 29,277 29,277 29,277
Additional paid-in capital.............................. 2,311 2,311 2,311
Deferred compensation................................... (1,170) (1,170) (1,170)
Accumulated deficit..................................... (69,301) (69,301) (69,301)
-------- -------- --------
Total stockholders' equity...................... 16,959 24,959 72,399
-------- -------- --------
Total capitalization............................ $ 19,139 $ 27,139 $ 74,579
======== ======== ========
</TABLE>
- ---------------
(1) The number of shares of common stock outstanding at December 31, 1998
excludes:
(a) 1,642,187 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1998, with a weighted average exercise
price of $2.44 per share;
(b) 121,667 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1998, with an exercise price of $6.00 per
share; and
(c) 25,000 shares of common stock issuable pursuant to the terms of a
license agreement outstanding as of December 31, 1998.
23
<PAGE> 26
DILUTION
Our net tangible book value as of December 31, 1998 was approximately $17.0
million, or approximately $1.53 per share of common stock. Net tangible book
value per share represents the amount of tangible assets less total liabilities,
divided by 11,120,293 shares of common stock outstanding.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of the 14,615,649 shares of
common stock outstanding immediately after this offering. After giving effect to
our sale of 3,000,000 shares of common stock in this offering at an assumed
public offering price of $17.00 per share and after deduction of the
underwriting discount and estimated offering expenses and after giving effect to
the sale of 495,356 shares at common stock to Genentech on January 27, 1999, our
pro forma net tangible book value as of December 31, 1998 would have been
approximately $72.4 million, or $4.95 per share. This represents an immediate
increase in pro forma net tangible book value of $3.42 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$12.05 per share to purchasers of common stock in this offering.
<TABLE>
<S> <C> <C>
Public offering price per share............................. $17.00
Net tangible book value per share before offering......... $1.53
Increase per share attributable to new investors.......... 3.42
-----
Pro forma net tangible book value per share after
offering.................................................. 4.95
------
Net tangible book value dilution per share to new
investors................................................. $12.05
======
</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 an assumed public offering price of $17.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 11,120,293 76.1% $ 60,249,007 50.5% $ 5.42
Genentech.................. 495,356 3.4% 8,000,000 6.7% $16.15
New investors.............. 3,000,000 20.5% 51,000,000 42.8% $17.00
----------- ----- ------------ -----
Total................. 14,615,649 100.0% $119,249,007 100.0%
=========== ===== ============ =====
</TABLE>
The foregoing computations excludes:
(1) 1,642,187 shares of common stock issuable upon exercise of stock
options at a weighted average exercise price of $2.44 per share
outstanding as of December 31, 1998;
(2) 121,667 shares of common stock issuable upon exercise of warrants with
an exercise price of $6.00 per share outstanding as of December 31,
1998; and
(3) 25,000 shares of common stock issuable pursuant to a license agreement
outstanding as of December 31, 1998.
24
<PAGE> 27
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our Financial Statements and Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The statement of operations data for the years ended December 31,
1996, 1997, and 1998 and the balance sheet data as of December 31, 1997 and 1998
are derived from our Financial Statements that have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this prospectus.
The balance sheet data at December 31, 1996 and the statement of operations data
for the years ended December 31, 1994 and 1995 are derived from our Financial
Statements audited by Ernst & Young LLP that are not included in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Revenue under collaborative agreements from related
parties................................................. $ 6,200 $ 6,200 $ 4,719 $ 1,343 $ 1,344
Contract revenue.......................................... -- -- -- 611 2,498
------- ------- ----------- ---------- ----------
Total revenues(1)................................... 6,200 6,200 4,719 1,954 3,842
Operating expenses:
Research and development.................................. 7,921 11,879 9,433 11,405 17,588
General and administrative................................ 1,955 2,603 2,565 3,525 3,405
Charge for cross-license and settlement -- amount
allocated from Cell Genesys(2).......................... -- -- -- 11,250 --
Equity in losses from the Xenotech joint venture (charge
for cross-license and settlement in 1997)(2)............ -- -- -- 11,250 107
------- ------- ----------- ---------- ----------
Total operating expenses............................ 9,876 14,482 11,998 37,430 21,100
------- ------- ----------- ---------- ----------
Operating loss.............................................. (3,676) (8,282) (7,279) (35,476) (17,258)
Interest income (expense), net.............................. -- -- 179 (404) 431
------- ------- ----------- ---------- ----------
Net loss.................................................... $(3,676) $(8,282) $ (7,100) $ (35,880) $ (16,827)
======= ======= =========== ========== ==========
Net loss per share(3)....................................... $(46,710.53) $(1,032.70) $ (3.00)
=========== ========== ==========
Shares used in computing net loss per share(3).............. 152 34,744 5,602,963
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 10,172 $ 15,321 $ 16,744
Working capital............................................. 5,564 6,637 13,101
Total assets................................................ 14,357 22,084 24,220
Long-term debt, less current portion........................ 1,757 3,979 2,180
Redeemable convertible preferred stock(4)................... 10,150 31,189 --
Accumulated deficit......................................... (16,594) (52,474) (69,301)
Total stockholders' equity (net capital deficiency)......... (2,316) (22,318) 16,959
</TABLE>
- ---------------
(1) Our statement of operations includes our revenues and expenses as a business
unit within Cell Genesys prior to July 15, 1996. During the years ended
December 31, 1994, 1995 and 1996, our revenues were derived principally from
Xenotech for the development of XenoMouse technology, which was essentially
completed in 1996.
(2) In 1997, we incurred a non-recurring charge for cross-license and settlement
of $22.5 million. This amount represents an allocation from Cell Genesys of
$11.25 million and an entry of $11.25 million to record the equity in the
losses of Xenotech L.P., our equally owned joint venture with JT America,
Inc. See Note 6 of Notes to our Financial Statements.
(3) Net loss per share data has not been presented prior to 1996 as there were
no equity securities outstanding prior to that date.
(4) In connection with the initial public offering of our common stock in July
1998, each outstanding share of preferred stock was converted into one share
of common stock.
25
<PAGE> 28
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. When used in this prospectus,
the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and
similar expressions as they relate to Abgenix are included to identify
forward-looking statements. Our 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
Our business and operations commenced in 1989 and were initially conducted
as a business unit of Cell Genesys. On June 24, 1996, we were incorporated and
subsequently on July 15, 1996 were organized pursuant to a stock purchase and
transfer agreement with Cell Genesys. The agreement sets forth the terms and
conditions for the transfer of the antibody business unit within Cell Genesys to
us. Our accompanying financial statements include our operations since July 15,
1996, and the revenues and expenses of the Abgenix business unit within Cell
Genesys prior to July 15, 1996. 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 us from Cell Genesys. General and administrative expenses
were allocated based on our research and development expenses 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 our behalf. As of December 31, 1998, Cell Genesys beneficially
owned 30.2% of our outstanding capital stock.
OVERVIEW
We are a biopharmaceutical company that develops and intends to
commercialize antibody therapeutic products for the treatment of a variety of
disease conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, and cancer. We have developed XenoMouse technology, a
proprietary technology which we believe enables quick generation of high
affinity, fully human antibody product candidates to essentially any disease
target appropriate for antibody therapy. We intend to use XenoMouse technology
to build a large and diversified product portfolio that we plan to commercialize
either through corporate collaborations or internal product development
programs.
We have established collaborative arrangements to use XenoMouse technology
to produce fully human antibodies with eight companies covering at least 11
antigen targets. Pursuant to these collaborations, we and our partners intend to
generate antibody product candidates for the treatment of cancer, inflammation,
transplant rejection, cardiovascular disease and growth factor modulation. Our
collaborative partners include Cell Genesys, Pfizer, Schering-Plough, Genentech,
Millennium BioTherapeutics, Research Corporation Technologies, Centocor and AVI
BioPharma. Among our eight collaborative partners, Pfizer, Genentech and
Millennium BioTherapeutics have each entered into additional collaborations with
us specifying additional antigens for XenoMouse antibody development. We expect
that substantially all of our revenues for the foreseeable future will result
from payments under collaborative arrangements. The terms of the collaboration
arrangements vary, reflecting the value we add to the development of any
particular product candidate. These collaborations typically provide our
collaborative partners with access to XenoMouse technology for the purpose of
generating fully human antibody product candidates to one or more specific
antigen targets provided by the collaborative partner. In most cases, we provide
our mice to collaborative partners who then carry out immunizations with their
specific antigen target. In other cases, we may immunize the mice with the
collaborative partner's antigen target for additional compensation. As an
extension of this concept, we may grant multi-antigen research licenses to
select collaborative partners, allowing them to incorporate XenoMouse technology
into early
26
<PAGE> 29
stages of their antibody product research efforts without specifically knowing
the antigens that they intend to target for XenoMouse antibody generation. These
collaborative partners will need to execute product licenses for any antibody
product they wish to develop and commercialize.
The financial terms of our existing collaborations typically include
upfront payments, potential license fees and milestone payments paid to us by
the collaborative partner. Based on our collaborative agreements entered into,
these payments and fees may approximate $8.0 million per antigen target assuming
our collaborative partner takes the antibody product candidate to
commercialization. In certain instances, the collaborative partner could make
reimbursement payments to us for research that we conduct on its behalf.
Additionally, if a product receives marketing approval from the FDA or an
equivalent foreign agency, we are entitled to receive royalties on any future
product sales by the collaborative partner. Furthermore, the collaborative
partner will be responsible for worldwide manufacturing, product development and
marketing of any product developed through the collaboration.
Our dependence on collaborative and licensing arrangements with third
parties subjects us to a number of risks. Agreements with collaborative partners
typically allow them significant discretion in electing whether to pursue any of
the planned activities. We cannot control the amount and timing of resources our
collaborative partners may devote to the product candidates. Even if we fulfill
our obligations under a collaborative agreement, the collaborative partner can
terminate the agreement at any time following proper written notice. If any
collaborative partner were to terminate or breach its agreement with us, or
otherwise fail to complete its obligations in a timely manner, our business,
financial condition and results of operations may be materially adversely
affected.
We also have four antibody product candidates that are under development
internally. Our lead product candidate, ABX-CBL, is an in-licensed mouse
antibody. We are currently conducting a multi-center confirmatory Phase II
clinical trial for ABX-CBL for the treatment of a transplant-related disease
known as graft versus host disease. Once the final report on the Phase II
clinical trial has been completed, we plan to submit the data to the FDA for
approval to commence a Phase III clinical trial for ABX-CBL during 1999. Our
other three product candidates were generated using XenoMouse technology. We
completed a Phase I clinical trial for our fully human antibody product
candidate in psoriasis, ABX-IL8, and began a Phase I/II clinical trial in
November 1998. In addition, we entered a Phase I clinical trial for ABX-IL8 in
rheumatoid arthritis in January 1999. We are in preclinical development with two
other fully human antibody product candidates: ABX-EGF for use in the treatment
of cancer; and ABX-RB2 for use in the treatment of chronic immunological
disorders. We expect to initiate Phase I clinical trials with ABX-EGF in
mid-1999.
In January 1999, we entered into a multi-antigen research license and
option agreement with Genentech. Under the agreement, we granted Genentech a
license to utilize XenoMouse technology in its antibody product research efforts
and an option to obtain product licenses for up to ten antigen targets. Included
in the ten are two previously identified antigen targets under previous
collaboration arrangements with Genentech. We believe that this license will
allow Genentech to integrate the use of XenoMouse technology much earlier in its
research and development efforts, allowing a more complete realization of the
advantages of XenoMouse technology. We plan to pursue similar multi-antigen
research licenses with new or existing collaborative partners.
In 1991, Cell Genesys and JT America formed Xenotech, an equally owned
joint venture, to develop XenoMouse technology and to commercialize products
generated from XenoMouse technology. 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 Abgenix and JT
America, and Abgenix is obligated to fund 50% of all Xenotech expenses. During
1995, 1996 and 1997, Abgenix derived revenues principally from performing
research for Xenotech for the continued development of XenoMouse technology.
During this three-year period, Abgenix recognized aggregate revenues from
Xenotech research in the approximate amount of $12.3 million. The development of
XenoMouse technology was substantially completed in 1996 with modest ongoing
research activities in 1997 and 1998. Therefore, Abgenix does not expect to
recognize significant revenues from research performed on behalf of Xenotech in
the future. Abgenix accounts for its investment in Xenotech under the equity
method of accounting.
27
<PAGE> 30
Since inception, we have funded our research and development activities
primarily through:
- contributions from Cell Genesys;
- revenues from collaborative arrangements;
- private placements of preferred stock;
- our initial public offering of common stock in July 1998 resulting in net
proceeds of $19.9 million; and
- equipment leaseline financings and loan facilities.
We have incurred operating losses in each of the last three years of
operation, including net losses of approximately $7.1 million in 1996, $35.9
million in 1997 and $16.8 million in 1998. As of December 31, 1998, we had an
accumulated deficit of approximately $69.3 million. Our losses have resulted
principally from costs incurred in performing research and development for our
XenoMouse technology and antibody product candidates, from the non-recurring
cross-license and settlement charge (described in the next paragraph) and from
general and administrative costs associated with our operations. We expect to
incur additional operating losses until at least the year 2000 as a result of
our expenditures for research and product development, including costs
associated with conducting preclinical testing and clinical trials. We expect
the amount of such losses will fluctuate significantly from quarter to quarter
as a result of increases or decreases in our research and development efforts,
the execution or termination of collaborative arrangements, or the initiation,
success or failure of clinical trials.
In 1994, Cell Genesys and GenPharm and, beginning in 1996, Abgenix, became
involved in litigation primarily related to intellectual property rights
associated with a method for inactivating a mouse's antibody genes and
technology pertaining to transgenic mice capable of producing fully human
antibodies. Rather than endure the cost and business interruption of protracted
litigation, in March 1997, Cell Genesys, along with Abgenix, Xenotech and Japan
Tobacco, signed a comprehensive patent cross-license and settlement agreement
with GenPharm that resolved all related litigation and claims between the
parties. Under the cross-license and settlement agreement, Abgenix 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. We use
our XenoMouse technology to generate fully human antibody products and have not
licensed the use of, and do not use, any transgenic rodents developed or used by
GenPharm. 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. 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 by GenPharm,
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. We recorded a liability of
approximately $3.8 million in our balance sheet representing our equal share of
the Xenotech obligation. The obligation was paid in November 1998. No additional
payments will accrue under this agreement. We have recognized, as a
non-recurring charge for cross-license and settlement, a total of $22.5 million.
We concluded that the cost of the cross-license and settlement agreement was
properly expensed under Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs" because the cross-license
received by us from GenPharm is non-exclusive and has no alternative future uses
for us. We also concluded that the $11.3 million was properly allocated from
Cell Genesys because it related to the technology Cell Genesys contributed to
Abgenix upon our organization. We do not have any future financial obligations
under the cross-license and settlement agreement.
In connection with the grant of stock options since our organization on
July 15, 1996, we have recorded aggregate deferred compensation of approximately
$2.3 million through December 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
28
<PAGE> 31
four years. These valuations resulted in charges to operations of $528,000 and
$598,000 in the years ended December 31, 1997, and 1998, respectively.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
During 1996, 1997 and 1998, we derived revenues principally from performing
research for Xenotech and from our XenoMouse technology collaborations. Revenues
from the joint venture are recognized when earned, net of our 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 $4.7
million in 1996 to $1.3 million in 1997 and to $1.3 million in 1998. Revenues in
1997 decreased because Xenotech's research related to developing XenoMouse
technology was essentially completed in 1996 with limited research activities in
1997 and 1998.
Contract revenues of $611,000 in 1997 consisted principally of
nonrefundable signing fees paid in connection with the execution of
collaborative agreements. Contract revenues of $2.5 million in 1998 consisted
principally of nonrefundable signing fees and fees paid for the achievement of
research milestones under collaborative agreements. No future obligations exist
for such fees.
Research and development expenses increased from $9.4 million in 1996 to
$11.4 million in 1997 and $17.6 million in 1998. The increase in research and
development expenses reflected increased expenses primarily for the manufacture
of antibody products in connection with the preparation for the initiation of
clinical trials of two of our antibody product candidates under development,
ABX-CBL and ABX-IL8, in addition to the expenses of conducting these trials. We
anticipate that research and development expenses will increase in future
periods as we expand research and development efforts and clinical trials.
General and administrative expenses increased from $2.6 million in 1996 to
$3.5 million in 1997 and decreased to $3.4 million in 1998. The increase in 1997
was primarily attributable to increased personnel levels associated with the
expansion of our operations, increased professional services expenses associated
with negotiation of Abgenix's collaborative arrangements and increased costs
associated with moving to our current facilities.
The aggregate 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 Abgenix'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 our equipment leaseline financing and loan facilities. Interest
income increased in 1997 and 1998 due to higher average balances of short-term
investments and interest expense declined in 1998 due to lower average balances
of debt. Interest expense increased from 1996 to 1997 as a result of the
increased debt balances from our equipment leaseline financing and loan
facilities entered into in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since formation, we have financed our operations primarily through capital
contributions by, and borrowings from Cell Genesys, revenue from collaborative
arrangements, private placements of preferred stock, an initial public offering
of common stock and equipment leaseline financings and loan facilities. Through
December 31, 1998, we received net cash of $75.6 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, $20.1 million from our initial public offering in July 1998,
$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 us. In January 1999,
we received $8.0 million from the sale of 495,356 shares of our common stock to
Genentech.
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Our net cash used in operating activities was $2.2 million in 1996, $10.2
million in 1997 and $20.0 million in 1998. 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 December 31, 1998, we had cash, cash equivalents and short-term
investments of $16.7 million. We have invested the net proceeds of our initial
public offering in short-term, interest-bearing, investment grade securities. We
have an agreement with a financing company under which we have financed
purchases of about $2.0 million of our 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. We also have
a construction financing line with a bank in the amount of $4.3 million that was
used to finance construction of leasehold improvements at our current facility.
The line matures in January 2001, bears interest at a rate of prime plus one
percent (8.75% at December 31, 1998). As of December 31, 1998, no further
borrowings were available under the construction financing line.
Our proceeds from the sale of the 3,000,000 shares of Common Stock we are
offering are estimated to be $47.4 million ($54.6 million if the underwriters'
over-allotment option is exercised in full) after deducting the underwriting
discount and our estimated offering expenses.
We intend to use proceeds of the offering for research and development
including clinical trials and preclinical testing of our product candidates, and
for working capital and general corporate purposes. The amounts actually spent
for each purpose may vary significantly, depending on the progress of our
product development efforts, the results of clinical studies, the timing of
regulatory approvals, technological advances, determinations of the commercial
potential of our product candidates, status of competitive products, the rate at
which operating losses are incurred, the receipt of funding from collaborative
partners and other factors, many of which are beyond our control. We may also
use some of the proceeds to acquire other companies, technology or products that
complement our business, although we are not currently planning any of these
transactions. Pending these uses, the net proceeds of this offering will be
invested in short-term, interest-bearing securities.
We plan to continue to expend substantial resources for the expansion of
research and development, including costs associated with conducting preclinical
testing and clinical trials. We may be required to expend substantial funds if
unforeseen difficulties arise in the course of completing required additional
development of product candidates, manufacturing of product candidates,
performing preclinical testing and clinical trials of such product candidates,
obtaining necessary regulatory approvals or other aspects of our business. Our
future liquidity and capital requirements will depend on many factors,
including:
- continued scientific progress in our research and development programs;
- size and complexity of these programs;
- scope and results of preclinical testing and clinical trials;
- time and expense involved in obtaining regulatory approvals;
- competing technological and market developments;
- establishment of further collaborative arrangements;
- maintaining current collaborations;
- time and expense of filing and prosecuting patent applications and
enforcing patent claims;
- cost of establishing manufacturing capabilities, conducting
commercialization activities and arrangements;
- product in-licensing; and
- other factors not within our control.
We believe that the proceeds from this offering, together with our current cash
balances, cash equivalents, short-term investments and cash generated from our
collaborative arrangements will be sufficient to meet
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our operating and capital requirements for at least the next two years. However,
we may need additional financing within this timeframe. We may need 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 favorable to us.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants.
Collaborative arrangements may require us to relinquish its rights to certain of
our technologies, products or marketing territories. Our failure to raise
capital when needed may have a material adverse effect on our business,
financial condition and results of operations.
As of December 31, 1998 we had federal net operating loss carryforwards of
approximately $36.5 million. Our 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 that have been expensed for
financial statement accounting purposes have been capitalized and are being
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
2018, 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.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This may
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to receive supplies from
our vendors, or operate our accounting and other internal systems.
Our plan to resolve the Year 2000 Issue is based on a recently completed
assessment of our exposure. All of our time-sensitive software is widely used
and purchased from major vendors, all of whom have announced that their software
is either currently Year 2000-compliant or will be made so with upgrades before
the end of 1999. We have already purchased the Year 2000-compliant upgrade of
our accounting system. We will be testing each of our 60 personal computers and
will replace or repair those that are non-compliant. In addition, we will be
gathering information about the Year 2000 compliance status of third parties
with whom we have significant relationships to determine the extent to which our
operations are vulnerable to these third parties' failure to solve their own
Year 2000 issue. None of our systems interface with those of third parties.
Upgrading the accounting system was already planned in order to acquire the
benefits of its improved features, and was not accelerated by the Year 2000
Issue. We believe that the total cost of our compliance with the Year 2000 Issue
will be less than $50,000.
We believe we have an effective program in place to resolve the Year 2000
Issue in a timely manner. However, should our software vendors be unable to
address the Year 2000 compliance of their products, or should our suppliers'
operations be disrupted by the Year 2000 Issue, then our ability to serve our
collaborative partners and develop products may be materially and adversely
impacted. Our contingency plans for minimizing the impact include increasing
supplies of materials used in clinical trials, establishing accounts with
alternative vendors, and temporarily employing manual accounting systems until
alternative systems can be installed.
RECENT ACCOUNTING PRONOUNCEMENTS
We have reviewed all recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on our results of
operations or financial position. Based on the review, we believe that none of
these pronouncements will have a significant effect on current or future
earnings, operations or financial position.
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BUSINESS
The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. The description
contains certain forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "intend," "anticipate,"
believe," "estimate," "plan" and "expect" and similar expressions as they relate
to us are included to identify forward-looking statements. Our actual results
could differ materially from the results discussed in the forward-looking
statements as a result of certain of the risk factors set forth below and
elsewhere in this prospectus.
OVERVIEW
We are a biopharmaceutical company that develops and intends to
commercialize antibody therapeutic products for the treatment of a variety of
disease conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, and cancer. We have developed XenoMouse technology, a
proprietary technology which we believe enables quick generation of high
affinity, fully human antibody product candidates to essentially any disease
target appropriate for antibody therapy. We intend to use XenoMouse technology
to build and commercialize a large and diversified product portfolio through the
establishment of corporate collaborations and internal product development
programs.
We have established collaborative arrangements to use our XenoMouse
technology to produce fully human antibodies for eight companies covering at
least 11 antigen targets. Pursuant to these collaborations, we and our partners
intend to generate antibody product candidates for the treatment of cancer,
inflammation, transplant rejection, cardiovascular disease and growth factor
modulation. Our collaborative partners include Cell Genesys, Pfizer,
Schering-Plough, Genentech, Millennium BioTherapeutics, Research Corporation
Technologies, Centocor and AVI BioPharma. Among our eight collaborative
partners, Pfizer, Genentech and Millenium BioTherapeutics have each entered into
additional collaborations with us specifying additional antigens for XenoMouse
antibody development. The financial terms of the XenoMouse technology
collaborations typically include upfront payments, potential license fees and
milestone payments payable to us by the collaborative partner assuming the
partner takes the product candidate to commercialization. Additionally, if a
product receives marketing approval from the FDA or an equivalent foreign
agency, we are entitled to receive royalties on any future product sales by the
collaborative partner.
We also have four antibody product candidates that are under development
internally. Our lead product candidate, ABX-CBL, is an in-licensed mouse
antibody. We are currently conducting a multi-center confirmatory Phase II
clinical trial for ABX-CBL for the treatment of a transplant-related disease
known as graft versus host disease. Once the final report on our Phase II
clinical trial has been completed, we plan to submit the data to the FDA for
approval to commence a Phase III clinical trial for ABX-CBL during 1999. Our
other three antibody product candidates were generated using XenoMouse
technology. We completed a Phase I clinical trial for our fully human antibody
product candidate in psoriasis, ABX-IL8, and began a Phase I/II clinical trial
with psoriasis patients in November 1998. In addition, we entered a Phase I
clinical trial for ABX-IL8 in rheumatoid arthritis in January 1999. We are in
preclinical development with two other fully human antibody product candidates:
ABX-EGF for use in the treatment of cancer; and ABX-RB2 for use in the treatment
of chronic immunological disorders. We expect to initiate Phase I clinical
trials with ABX-EGF in mid-1999.
In January 1999, we entered into a multi-antigen research license and
option agreement with Genentech. Under the agreement, we granted Genentech a
license to utilize XenoMouse technology in its antibody product research efforts
and an option to obtain product licenses for up to ten antigen targets. Included
in the ten are two previously identified antigen targets under previous
collaboration arrangements with Genentech. We believe that this license will
allow Genentech to integrate the use of XenoMouse technology much earlier in its
research and development efforts, allowing a more complete realization of the
advantages of XenoMouse technology. We plan to pursue similar multi-antigen
research licenses with new or existing collaborative partners.
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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.
[FIGURE 1]
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
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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 2]
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.
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 20% of all biopharmaceutical products in clinical
development. As of December 31, 1998, we are aware of eight antibody therapeutic
products approved for marketing in the United States for the treatment of a wide
range of medical disorders. These products are Orthoclone, ReoPro, Rituxan,
Zenapax, Herceptin, Synagis, Remicaid and Simulect. These products are currently
being marketed for a wide range of medical disorders such as transplant
rejection, cardiovascular disease, cancer and infectious diseases.
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We believe that, as products, antibodies have several potential clinical
and commercial advantages over traditional therapies. These advantages include
the following:
- faster product development;
- fewer unwanted side effects as a result of high specificity for the
disease target;
- greater patient compliance and higher efficacy as a result of favorable
pharmacokinetics;
- delivery of various payloads, including drugs, radiation and toxins, to
specific disease sites; and
- ability to elicit 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, or 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.
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. 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.
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[EVOLUTION OF ANTIBODY TECHNOLOGIES GRAPHIC]
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 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.
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.
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THE ABGENIX SOLUTION -- XENOMOUSE TECHNOLOGY
Our 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 our transgenic mice a robust tool capable of consistently
generating high affinity antibodies which can recognize a broad range of
antigens, we equipped the XenoMouse with approximately 80% of the human heavy
chain antibody genes and a significant amount of the human light chain genes. We
believe 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, we have developed multiple strains of XenoMouse, each of which is
capable of producing a different class of antibody to perform different
therapeutic functions. We believe that our 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
We believe that our XenoMouse technology offers the following advantages:
Producing Antibodies With Fully Human Protein Sequences. Our 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, 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 without the need
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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, we reduce 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 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
Our objective is to be a leader in the generation, development and
commercialization of novel antibody-based biopharmaceutical products. Key
elements of our strategy to accomplish this objective include the following:
Building a Large and Diversified Product Portfolio. Utilizing our XenoMouse
technology, we intend to build a large and diversified product portfolio,
including a mix of out-licensed and internally developed product candidates. We
are targeting serious medical conditions including: cancer, inflammation,
transplant rejection, cardiovascular disease and growth factor modulation. For
our internal programs, we intend to collaborate with leading academic
researchers and companies involved in the identification and development of
novel antigens. We believe the speed and cost advantages of our technology will
enable us to make cost-effective use of available human and capital resources.
We can thus pursue multiple product candidates in parallel through the
preclinical and early clinical stages before entering into a corporate
collaboration to complete clinical and developmental stages and to bring the
product candidate to market. Thus, we believe we can create a package that
includes antigen rights, human antibodies, and preclinical and clinical data for
use by Abgenix or for marketing to potential collaborative partners.
Leveraging XenoMouse Technology Through Technology Collaborations. We
intend to diversify our product portfolio and generate revenues by licensing
XenoMouse technology to numerous pharmaceutical and biotechnology companies
interested in developing antibody-based products. We expect to enter into
several XenoMouse technology collaborations each year. These agreements
typically allow our collaborative partner to generate fully human antibodies to
one or more specific antigen targets provided by the collaborative partner. In
most cases, we provide our mice to collaborative partners who then carry out
immunizations with their specific antigen target. In other cases, we may
immunize the mice with the collaborative partner's antigen target for additional
compensation. As an extension of this concept, we may grant multi-antigen
research licenses to select collaborative partners, allowing them to incorporate
XenoMouse technology into early stages of their antibody product research
efforts without specifically knowing the antigens that they intend to target for
XenoMouse antibody generation. These collaborative partners would then need to
execute product licenses for any antibody product they wished to develop and
commercialize.
The financial terms of our XenoMouse technology collaborations typically
include upfront payments, potential license fees and milestone payments plus
royalties on any future product sales. We have established collaborative
arrangements with eight corporate partners covering at least 11 antigen targets.
To
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date, three of these collaborative partners have each entered into additional
collaborations specifying additional antigens for XenoMouse antibody
development.
Establishing Collaborations for Proprietary Product Candidates. We also
intend to build our product portfolio and generate revenues by licensing
proprietary product candidates. These proprietary product collaborations would
involve antibodies made to antigen targets that we source. We expect to enter
into at least one proprietary product collaboration each year. After generating
antibody product candidates and self funding preclinical and in some cases
clinical activities to determine preliminary safety and efficacy, we intend to
enter into development and commercialization agreements with collaborative
partners for these proprietary product candidates that we created. For some of
our products, we may enter into proprietary product collaborations at the
preclinical or early clinical development stage allowing the collaborative
partner to complete development and to market the product. For other products,
we may develop the product through clinical trials and license the product
candidate to a collaborative partner for marketing.
Current antibody candidates for potential proprietary product
collaborations include ABX-CBL, ABX-IL8, ABX-EGF and ABX-RB2. The financial
terms of these product collaborations could include license fees upon signing,
milestone payments, and reimbursement for research and development activities
that we perform plus royalties on future product sales, if any. Given our
greater investment in creating a proprietary product candidate, we expect that
an arrangement for these product candidates could afford higher payments and
royalty rates than a typical XenoMouse technology collaboration.
PROPRIETARY PRODUCT DEVELOPMENT PROGRAMS
We are currently developing antibody therapeutics for a variety of
indications. The table below sets forth the development status of our product
candidates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRODUCT
CANDIDATE INDICATION STATUS(1)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
ABX-CBL GVHD Phase II
- ------------------------------------------------------------------------------------------------------------
Psoriasis Phase I/II
ABX-IL8 ----------------------------------------------------------------------------
Rheumatoid Arthritis Phase I
- ------------------------------------------------------------------------------------------------------------
ABX-EGF EGF-Dependent Cancers Preclinical
- ------------------------------------------------------------------------------------------------------------
Transplant Rejection Preclinical
ABX-RB2 ----------------------------------------------------------------------------
Autoimmune Disease Preclinical
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) "Phase II" indicates efficacy testing in a limited patient population.
"Phase I" indicates safety and proof of concept 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
The CBL antigen is selectively expressed on activated immune cells
including T cells, B cells and natural killer cells. To accelerate our
commercialization plans, we obtained an exclusive license to ABX-CBL in February
1997. We believe that a mouse antibody can be utilized to treat GVHD patients
because their immune system is either non-functioning or severely suppressed
and, therefore, no HAMA responses should be generated. We believe ABX-CBL has
the ability to destroy activated immune cells without affecting the rest of the
immune system.
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Graft Versus Host Disease. We are developing ABX-CBL to reduce unwanted
immune responses that occur 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, 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 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. We believe that
a safer and more effective treatment for GVHD could result in increased use of
BMTs.
Clinical Status. We are currently conducting a multi-center confirmatory
Phase II clinical trial for ABX-CBL for the treatment of steroid-resistant,
grade II/IV GVHD. This trial is studying four escalating intravenous dose
regimens. As of December 31, 1998, we have treated 48 patients, and we have
collected data for 23 patients from the clinical trial sites. This data is
available for efficacy analysis. We continue to treat patients and collect data
from our Phase II clinical trials. Once the final report on the Phase II
clinical trials has been completed, we plan to submit the data to the FDA for
approval to commence a Phase III clinical trial. There can be no assurance that
the results of our clinical trials will be favorable. In addition, the FDA may
require additional clinical trials before allowing us to commence a Phase III
clinical trial. If required, additional clinical trials will be extensive,
expensive and time-consuming.
In four separate clinical studies conducted prior to Abgenix 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 on eleven patients 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. There
can be no assurance that the results of our ABX-CBL clinical trials will
demonstrate the same levels of safety and efficacy as those shown by the
clinical trials completed prior to Abgenix obtaining an exclusive license to
ABX-CBL.
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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, reperfusion injury 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. Using our XenoMouse technology, we have generated ABX-IL8, a
proprietary fully human monoclonal antibody, that binds to IL-8 with high
affinity. We in-licensed ABX-IL8 from Xenotech in March 1996. In exchange for a
license fee and royalty payments on future product sales, we 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. We are
evaluating ABX-IL8 for possible use in the treatment of psoriasis and rheumatoid
arthritis.
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. We believe
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.
Clinical Status. We have completed a Phase I dose-escalating human clinical
trial examining the safety of administering a single intravenous infusion of
five different doses of ABX-IL8 to patients with moderate to severe psoriasis.
There were no serious or unexpected drug-related adverse events. In late 1998,
we initiated a multi-center, multi-dose, dose-escalating study in moderate to
severe psoriasis patients. This study is expected to be completed in the second
half of 1999 and data will be collected from 40 patients at eight sites.
Rheumatoid Arthritis. Rheumatoid arthritis is a chronic disease marked by
inflammation and pain in joints throughout the body. The disease affects over
two million people in the United States. 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.
Clinical Status. Because of the similarity in the histopathology of the
inflamed joint and that of the psoriatic plaque, we entered a Phase I clinical
trial for ABX-IL8 in rheumatoid arthritis in January 1999. ABX-IL8 will be
administered by injection to the inflamed knee joints of arthritis patients who
have undergone a pre-dose biopsy and a high resolution ultrasound scan.
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 ("TGFa"), both of
which are expressed
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by the tumor or by neighboring cells. We believe that blocking the ability of
EGF and TGFa 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. We in-licensed ABX-EGF from Xenotech in November
1997. In exchange for a license fee and royalty payments on future product
sales, we received an exclusive worldwide license to ABX-EGF. We are 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. Based on the results seen to date in preclinical studies, we plan to
initiate clinical trials with ABX-EGF in mid-1999.
ABX-RB2
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 response. Such diseases include organ
transplant rejection, primarily kidney and corneal transplant rejection, as well
as autoimmune disorders.
Using our XenoMouse technology, we have generated ABX-RB2, a fully human
antibody which targets the CBL antigen, and we are 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 prior to Abgenix
obtaining an exclusive license to ABX-CBL, the first generation mouse antibody
to the CBL antigen, for the treatment of kidney and corneal transplant
rejection. 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, we believe the ABX-CBL studies may assist in the
design of preclinical and clinical protocols for future development of ABX-RB2.
Organ Transplant Rejection. 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 to suppress the immune
system. These therapies suffer from suboptimal efficacy profiles or dose
limiting toxicities.
Prior to Abgenix obtaining an exclusive license to ABX-CBL, three clinical
trials had been conducted using ABX-CBL for the treatment of kidney transplant
rejection. 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.
In addition to the use of ABX-RB2 in kidney transplant rejection, we are
also exploring its potential use in corneal transplantation. In a clinical trial
conducted at the University of California at San Diego prior to Abgenix
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.
Autoimmune Disease. In autoimmune disease, a subset of the patient's immune
cells react abnormally to a natural component of the patient's own tissue.
Because the CBL antigen is selectively
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expressed on activated immune cells including T cells, B cells and natural
killer cells, we believe that ABX-RB2 may be effective in treating autoimmune
disease. We intend to conduct preclinical studies in a series of animal models
of autoimmune disease, including rheumatoid arthritis, lupus, multiple
sclerosis, and diabetes.
XENOMOUSE TECHNOLOGY COLLABORATIONS
We have entered into multiple XenoMouse technology collaborations with
pharmaceutical and biotechnology companies. To date, we have collaborative
arrangements with eight companies covering at least 11 antigen targets. These
collaborations typically provide our collaborative partners with access to
XenoMouse technology for the purpose of generating fully human antibody product
candidates to one specific antigen target provided by the collaborative partner.
Some of these agreements involve multiple antigen targets. In most cases, we
provide our mice to collaborative partners who carry out immunizations with
their specific antigen target. In other cases, we may perform the immunizations
for the collaborative partner and receive additional compensation.
Our XenoMouse technology collaborations have similar structures. Our
collaborative partner first enters into a research collaboration agreement. This
agreement permits our collaborative partner to conduct limited research on a
specific antigen using our XenoMouse technology. Our collaborative partner may
then elect to enter into a research license and option agreement. If entered
into, this agreement allows our collaborative partner to conduct additional
research to develop antibody product candidates to a specific antigen target.
Generally, a research license and option agreement does not allow our
collaborative partner to initiate clinical trials with antibody product
candidates. To initiate clinical trials with antibody product candidates to a
specific antigen target, our collaborative partner must exercise the option to
enter into a product license agreement. If our collaborative partner exercises
its product license option, it has the right to conduct all clinical trials and
commercialize antibody product candidates. To date, none of our collaborative
partners has exercised its option to enter into a product license agreement and
none of these options has expired.
As an extension of this concept, we may grant multi-antigen research
licenses to select collaborative partners, allowing them to incorporate
XenoMouse technology into early stages of their antibody product research
efforts without specifically knowing the antigens that they intend to target for
XenoMouse antibody generation. These collaborative partners would then need to
execute product licenses for any antibody product they wished to develop and
commercialize.
The financial terms of our XenoMouse technology collaborations typically
include upfront payments, potential license fee and milestone payments. Based
upon our current collaborative agreements, these fees and payments may
approximate $8.0 million per antigen target assuming our collaborative partner
takes the antibody product candidate to commercialization. In certain instances,
the collaborative partner could make reimbursement payments to Abgenix for
research that we conduct on behalf of such partner. Additionally, if a product
receives marketing approval from the FDA or an equivalent foreign agency, we are
entitled to receive royalties on future product sales by the collaborative
partner, if any. Generally, the collaborative partner is responsible for and
bears the costs of product development, worldwide manufacturing and marketing of
product candidates generated under these collaborations.
Our dependence on collaborative arrangements with third parties subjects us
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. We cannot control the amount and timing of resources our
collaborative partners may devote to the product candidates. Even if we fulfill
our obligations under a collaborative agreement, the collaborative partner can
terminate the agreement at any time following proper written notice. If any
collaborative partner were to terminate or breach its agreement with us, or
otherwise fail to complete its obligations in a timely manner, our business,
financial condition and results of operations may be materially adversely
affected.
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Among our eight collaborative partners, Pfizer, Genentech and Millennium
have each entered into additional collaborations specifying additional antigens
for XenoMouse antibody development. The following table lists our collaborations
to date.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PARTNER FIELD DATE
<S> <C> <C>
- -----------------------------------------------------------------------------------
Genentech Multiple Targets 1/99
Growth Factor Modulation 6/98*
Cardiovascular 4/98*
- -----------------------------------------------------------------------------------
AVI BioPharma Cancer 1/99
- -----------------------------------------------------------------------------------
Centocor Cardiovascular 12/98
- -----------------------------------------------------------------------------------
Research Corporation Technologies Transplant Rejection 12/98
- -----------------------------------------------------------------------------------
Pfizer Cancer 10/98
Cancer 12/97
- -----------------------------------------------------------------------------------
Millennium Inflammation 9/98
Inflammation 7/98
- -----------------------------------------------------------------------------------
Schering-Plough Inflammation 1/98
- -----------------------------------------------------------------------------------
Cell Genesys Gene Therapy 11/97
- -----------------------------------------------------------------------------------
</TABLE>
- -------------------------
* These agreements were superceded by the January 1999 multi-antigen agreement.
Genentech. In April 1998, we entered into a research license and option
agreement with Genentech to produce fully human antibodies to an antigen target
in the field of growth factor modulation. In June 1998, Genentech expanded its
research collaboration with us to include a second antigen target in the field
of cardiovascular disease.
In January 1999, we entered into a multi-antigen research license and
option agreement with Genentech. Under the agreement, we granted Genentech a
license to utilize XenoMouse technology in its antibody product research efforts
and an option to obtain product licenses for up to ten antigen targets, but not
more than two in any one year, over the agreement's six year term. Included in
the ten are the two previously identified antigen targets under the now
superceded research license and option agreement at the new option, license fee
and milestone payment levels. The agreement can be renewed by Genentech for up
to an additional four targets over a subsequent three year period. Genentech
acquired 495,356 shares of our common stock for an aggregate purchase price of
$8.0 million. To renew the agreement at the end of the sixth year, Genentech
must purchase an additional $2.5 million of our common stock at a 50% premium to
the then current market price. Genentech, of South San Francisco, California, is
a leading biotechnology company with extensive efforts in antibody-based
products.
AVI BioPharma. In January 1999, we entered into a research license and
option agreement with AVI to generate fully human antibodies to human chorionic
gonadotropin (hCG) for the treatment of various cancers. AVI has reported that a
therapeutic vaccine based on hCG has shown promise in Phase II clinical trials.
AVI, of Portland, Oregon, is a publicly traded biotechnology company.
Centocor. In December 1998, we entered into a research collaboration
agreement with Centocor to generate fully human antibodies to an undisclosed
Centocor antigen in the cardiovascular field. Centocor, of Malvern,
Pennsylvania, is a leading developer and marketer of antibody-based products.
Research Corporation Technologies. In December 1998, we entered into a
binding memorandum of understanding for a research collaboration agreement with
RCT to generate fully human antibodies to CD45rb. Resultant antibody product
candidates could potentially be used in treating organ transplant rejection and
autoimmune disorders. RCT, of Tucson, Arizona, is a corporation involved in
technology transfer between universities and industry. Under the RCT agreement,
we may receive either a percentage of sublicense income received by RCT or
milestone and royalty payments on sales of products.
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Pfizer. In December 1997, we entered into a research collaboration
agreement with Pfizer to generate fully human antibodies to an antigen target in
the cancer field. In October 1998, Pfizer exercised its option to expand its
research collaboration with us to include a second antigen target in the field
of cancer. Pfizer is paying us to perform the immunizations and to undertake
certain research activities. As part of this arrangement, in January 1998 Pfizer
purchased 160,000 shares of our series C preferred stock for $1.3 million and
received an option to collaborate with us on up to three antigen targets. These
shares converted into 160,000 shares of common stock at our initial public
offering. Pfizer, of Groton, Connecticut, is a leading global pharmaceutical
company.
Millennium BioTherapeutics. In July 1998, we entered into a research
collaboration agreement with Millennium BioTherapeutics to generate fully human
antibodies to an antigen target in the field of inflammation. In October 1998,
we entered into a research, license and option agreement with Millennium
BioTherapeutics covering the same antigen target. In September 1998, we entered
into a second research collaboration agreement with Millennium BioTherapeutics
covering a second antigen target in the field of inflammation. Millennium
BioTherapeutics, of Cambridge, Massachusetts, is a leading genomics company.
Schering-Plough. In January 1998, we entered into a research collaboration
agreement with Schering-Plough to generate fully human antibodies to an antigen
target in the field of inflammation. Under this agreement, Schering-Plough is
paying us to perform the immunizations and certain research activities.
Schering-Plough, of Kenilworth, New Jersey, is a leading global pharmaceutical
company.
Cell Genesys. In November 1997, we entered into the gene therapy rights
agreement (the "GTRA") with Cell Genesys. Cell Genesys received certain rights
to commercialize products based on antibodies generated with XenoMouse
technology in the field of gene therapy. Cell Genesys, of Foster City,
California, is a leading gene therapy company.
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 Abgenix in connection with the formation of Abgenix. As
part of the Xenotech relationship, Abgenix provides research and development on
behalf of Xenotech in exchange for cash payments. As of December 31, 1998,
Abgenix has made capital contributions to Xenotech of approximately $18.6
million and has received approximately $42.9 million in funding for research
related to the development of XenoMouse technology.
PRODUCT RIGHTS
Under the master research, license and option agreement among Abgenix,
Japan Tobacco and Xenotech (the "MRLOA"), Abgenix and Japan Tobacco have been
provided with colonies of transgenic mice that have been developed for Xenotech
pursuant to Abgenix's research and development efforts on behalf of Xenotech.
Under the MRLOA, Abgenix 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 Abgenix and/or Japan Tobacco pursuant to a nomination
process. This process gives Abgenix and Japan Tobacco 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 Abgenix and Japan
Tobacco are obligated to make royalty payments to Xenotech on revenues derived
from the sale of such antibody products. All payments to Xenotech are then
shared equally by Abgenix and JT America.
During the nomination process, if either Abgenix or Japan Tobacco, but not
both, selects an antigen, the selecting party receives an option to obtain an
exclusive worldwide license. If both Abgenix and Japan
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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 Abgenix 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.
We must obtain licenses from Xenotech to commercialize antibody products
generated by XenoMouse technology. If we have used our yearly allotment of
licenses to develop antigen targets and desire to acquire a license to develop
additional antigen targets, we may have to negotiate with JT America or others
to acquire such rights. Disputes with JT America or its parent company, Japan
Tobacco, may result in the loss of the right to commercialize a product
candidate by either party. Limits on our ability to acquire additional licenses
to develop antigen targets or disputes with JT America or Japan Tobacco will
limit our ability to establish collaborations and fully realize the commercial
potential of XenoMouse technology.
GENE THERAPY RIGHTS AGREEMENT WITH CELL GENESYS
As stated above, the GTRA provides Cell Genesys 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 us 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 us for these rights including reimbursement of license fees
and royalties on future product sales payable to Xenotech under the MRLOA, and
Abgenix would then receive a portion of such royalties from Xenotech. The GTRA
also prohibits us from granting any third-party licenses for antibody products
based on antigens nominated by us for our own purposes where the primary field
of use is gene therapy. In the case of third-party licenses granted by us where
gene therapy is a secondary field, we are 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.
INTELLECTUAL PROPERTY
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
While we have pending patent applications in the United States relating to
XenoMouse technology, no patents have issued. We try to protect our proprietary
position by filing United States and foreign patent applications related to our
proprietary technology, inventions and improvements that are important to the
development of our business. The patent position of biopharmaceutical companies
involves complex legal and factual questions and, therefore, enforceability
cannot be predicted with certainty. Patents, if issued, may be challenged,
invalidated or circumvented. Thus, any patents that we own or license from third
parties may not provide any protection against competitors. Our pending patent
applications, those we may file in the future, or those we may license from
third parties, may not result in patents being issued. Also, patent rights may
not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have developed.
The laws of certain foreign countries do not protect our intellectual property
rights to the same extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary know-how.
We seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or adequate
remedies for our technology in the event of unauthorized use or
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disclosure of such information. The parties to these agreements may breach them.
Furthermore, our trade secrets may otherwise become known to, or be
independently developed by, our competitors.
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. The publication of discoveries
in the scientific or patent literature frequently occurs substantially later
than the date on which the underlying discoveries were made. Our commercial
success depends significantly on our ability to operate without infringing the
patents and other proprietary rights of third parties. Our technologies may
infringe the patents or violate other proprietary rights of third parties. In
the event of infringement or violation, Abgenix and our collaborative partners
may be prevented from pursuing product development or commercialization. Such a
result will materially adversely affect our business, financial condition and
results of operations.
In March 1997, we entered into a cross-license and settlement agreement
with GenPharm to avoid protracted litigation. See "-- Patent Cross-License and
Settlement Agreement with GenPharm." Abgenix has one issued European patent
relating to XenoMouse technology that is currently undergoing opposition
proceedings within the European Patent Office and the outcome of this opposition
is uncertain.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property suits, United States Patent
and Trademark Office 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 our issued and licensed patents;
- protect trade secrets or know-how that we own or license; or
- determine the enforceability, scope and validity of the proprietary
rights of others.
If we become involved in any litigation, interference or other administrative
proceedings, we will incur substantial expense and the efforts of our technical
and management personnel will be significantly diverted. An adverse
determination may subject us to significant liabilities or require us to seek
licenses that may not be available from third parties. We may be restricted or
prevented from manufacturing and selling our products, if any, in the event of
an adverse determination in a judicial or administrative proceeding or if we
fail to obtain necessary licenses. Costs associated with such arrangements may
be substantial and may include ongoing royalties. Furthermore, we may not be
able to obtain the necessary licenses on satisfactory terms, if at all. These
outcomes will materially adversely affect our business, financial condition and
results of operations.
PATENT CROSS-LICENSE AND SETTLEMENT AGREEMENT WITH GENPHARM
In 1994, Cell Genesys and GenPharm and, beginning in 1996, Abgenix became
involved in litigation primarily related to intellectual property rights
associated with a method for inactivating a mouse's antibody genes and
technology pertaining to transgenic mice capable of producing fully human
antibodies. Rather than endure the cost and business interruption of protracted
litigation, in March 1997, Cell Genesys, along with Abgenix, Xenotech and Japan
Tobacco, signed a comprehensive patent cross-license and settlement agreement
with GenPharm that resolved all related litigation and claims between the
parties. Under the cross-license and settlement agreement, Abgenix 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. We use
our XenoMouse technology to generate fully human antibody products and have not
licensed the use of, and do not use, any transgenic rodents developed or used by
GenPharm. 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. Of this
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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 by GenPharm, 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. We recorded a liability of approximately $3.8 million in our balance
sheet representing our equal share of the Xenotech obligation. The obligation
was paid in November 1998. No additional payments will accrue under this
agreement. We have recognized, as a non-recurring charge for cross-license and
settlement, a total of $22.5 million. We concluded that the cost of the
cross-license and settlement agreement was properly expensed under Statement of
Financial Accounting Standards No. 2, "Accounting for Research and Development
Costs" because the cross-license received by us from GenPharm is non-exclusive
and has no alternative future uses for us. We also concluded that the $11.3
million was properly allocated from Cell Genesys because it related to the
technology Cell Genesys contributed to Abgenix upon our organization. We do not
have any future financial obligations under the cross-license and settlement
agreement.
GOVERNMENT REGULATION
Our product candidates under development are subject to extensive and
rigorous domestic government regulation. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record-keeping,
labeling, storage, approval, advertising, promotion, sale and distribution of
biopharmaceutical products. If our products are marketed abroad, they also are
subject to extensive regulation by foreign governments. 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.
Abgenix 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: (1)
preclinical testing; (2) the submission to the FDA of an investigational new
drug application ("IND"), which must become effective before clinical trials may
commence; (3) adequate and well-controlled clinical trials to establish the
safety and efficacy of the biologic; (4) the submission to the FDA of a
Biologics License Application; and (5) 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. 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. If we submit an IND, our submission may not result in FDA
authorization to commence clinical trials. Also, the lack of an objection by the
FDA does not mean it will ultimately approve an application for marketing
approval. Furthermore, we may encounter problems in clinical trials that cause
us or the FDA to delay, suspend or terminate our 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 under
protocols submitted to the FDA as part of the IND. In 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 which 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
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<PAGE> 51
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.
Historically, the results from preclinical testing and early clinical
trials have often not been predictive of results obtained in later clinical
trials. A number of new drugs and biologics have shown promising results in
clinical trials, but subsequently failed to establish sufficient safety and
efficacy data to obtain necessary regulatory approvals. 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.
Only two of our product candidates, ABX-CBL and ABX-IL8, are currently in
clinical trials. Patient follow-up for these clinical trials has been limited.
To date, data obtained from these clinical trials has been insufficient to
demonstrate safety and efficacy under applicable FDA guidelines. As a result,
such data will not support an application for regulatory approval without
further clinical trials. Clinical trials conducted by Abgenix or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals for ABX-CBL, ABX-IL8 or any other
potential product candidates. Regulatory authorities may not permit us to
undertake any additional clinical trials for our product candidates.
Our other product candidates are still in preclinical development, and we
have not submitted INDs or begun clinical trials for these product candidates.
Our preclinical or clinical development efforts may not be successfully
completed. Further INDs may not be filed. Clinical trials may not commence as
planned.
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials 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;
- lack of efficacy during the clinical trials; or
- government or regulatory delays.
We have limited experience in conducting and managing clinical trials. We rely
on third parties, including our collaborative partners, to assist us in managing
and monitoring clinical trials. Our reliance on third parties may result in
delays in completing, or failing to complete, clinical trials if they fail to
perform under our agreements with them.
Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. Such failure may delay development of other product candidates,
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of such failures, we may also be unable to obtain additional
financing. Our business, financial condition and results of operations will be
materially adversely affected by any delays in, or termination of, our clinical
trials.
Abgenix and our contract manufacturers also are required to comply with the
applicable FDA current good manufacturing practice ("cGMP") regulations. cGMP
regulations 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. The facilities
must be approved before they can be used in commercial manufacturing of our
products. Abgenix or our contract manufacturers may not be able to comply with
the applicable cGMP requirements and other FDA
49
<PAGE> 52
regulatory requirements. If Abgenix or our contract manufacturers fails to
comply, our business, financial condition and results of operations will be
materially adversely affected.
For clinical investigation and marketing outside the United States, we 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.
COMPETITION
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. We are aware of several
pharmaceutical and biotechnology companies that are actively engaged in research
and development in areas related to antibody therapy. These companies have
commenced clinical trials of antibody products or have successfully
commercialized antibody products. Many of these companies are addressing the
same diseases and disease indications as Abgenix or our collaborative partners.
Also, we compete with companies that offer antibody generation services to
companies that have antigens. These competitors have specific expertise or
technology related to antibody development. These companies include GenPharm,
Cambridge Antibody Technology Group, Inc., Protein Design Labs, Inc. and
Morphosys, Inc.
Some of our competitors have received regulatory approval or are developing
or testing product candidates that may compete directly with our product
candidates. Recently, Sangstat Medical Corp. received approval for an organ
transplant rejection product that may compete with ABX-CBL, which is in clinical
trials. We are also aware that several companies, including Genentech, Inc.,
have potential product candidates that may compete with ABX-IL8. Furthermore, we
are aware that ImClone Systems, Inc., Medarex and OSI Pharmaceuticals, Inc. have
potential antibody and small molecule product candidates already in clinical
development that may compete with ABX-EGF, which is in preclinical development.
We may also compete with Japan Tobacco in supplying XenoMouse technology or
antibody product candidates to potential collaborative partners.
Many of these companies and institutions, either alone or together with
their collaborative partners, have substantially greater financial resources and
larger research and development staffs than we do. In addition, many of these
competitors, either alone or together with their collaborative partners, have
significantly greater experience than we do in:
- developing products;
- undertaking preclinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before us. If we commence
commercial product sales, we will be competing against companies with greater
marketing and manufacturing capabilities, areas in which we have limited or no
experience.
We also face, 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 we are
seeking to develop therapeutic products. In addition, any product candidate that
we successfully develop 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;
- new small molecules; or
- other classes of therapeutic agents.
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<PAGE> 53
Developments by others may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies for establishing relationships with
academic and research institutions, and for licenses to proprietary technology.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
PHARMACEUTICAL PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Third-party payors include 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. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. These studies may require us to provide
a significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Domestic 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 our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third-party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance of our products may be adversely affected. If our products do not
receive market acceptance, our business, financial condition and results of
operations will be materially adversely affected.
MANUFACTURING
We lack the resources and capability to manufacture our products on a
commercial scale. We currently manufacture only limited quantities of antibody
products for preclinical testing. While we maintain a limited inventory of
antibody products, we depend on a sole source contract manufacturer to produce
ABX-CBL, ABX-IL8 and ABX-EGF under cGMP regulations for use in our clinical
trials. Our contract manufacturer has a limited number of facilities in which
our product candidates can be produced. Our contract manufacturer has limited
experience in manufacturing ABX-CBL, ABX-IL8 and ABX-EGF in quantities
sufficient for conducting clinical trials or for commercialization.
There are, on a worldwide basis, a limited number of contract facilities in
which our product candidates can be produced under cGMP regulations for use in
pharmaceutical drugs. It can also take a substantial period of time for a
contract facility to begin producing antibodies under cGMP regulations.
Accordingly, we depend on our contract manufacturer to produce our product
candidates under cGMP regulations which meets acceptable standards for our
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. Our contract manufacturer
may not perform as agreed or may not remain in the contract manufacturing
business for the time required by us to successfully produce and market our
product candidates. If our contract manufacturer fails to deliver the required
quantities of our product candidates for clinical use on a timely basis and at
commercially reasonable prices, and we fail to find a replacement manufacturer
or develop our own manufacturing capabilities, our business, financial condition
and results of operations will be materially adversely affected.
In addition, Abgenix and our third-party manufacturer are required to
register manufacturing facilities with the FDA and foreign regulatory
authorities. The facilities will then be subject to inspections confirming
compliance with good manufacturing practice requirements established by the FDA
or corresponding foreign regulations. If Abgenix or our third-party manufacturer
fail to maintain compliance
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<PAGE> 54
with the good manufacturing practice requirements, our business, financial
condition and results of operations will be materially adversely affected.
EMPLOYEES
As of December 31, 1998, we employed 61 persons, of whom 16 hold Ph.D. or
M.D. degrees and 11 hold other advanced degrees. Approximately 49 employees are
engaged in research and development, and 12 support administration, finance,
management information systems and human resources.
Our success will depend in large part upon our ability to attract and
retain employees. We face competition in this regard from other companies,
research and academic institutions, government entities and other organizations.
We believe that we maintain good relations with our employees.
FACILITIES
We are currently leasing 52,400 square feet of office and laboratory
facilities in Fremont, California. During 1997, we built out approximately
46,000 square feet of laboratory and office space at the Fremont site. Abgenix
believes this facility, with potential additional build-outs, will meet its
space requirements for research and development and administration for the next
several years. Our lease expires in the year 2007 with options to extend.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
SCIENTIFIC AND MEDICAL ADVISORY BOARDS
We have established Scientific and Medical Advisory Boards to provide
specific expertise in areas of research and development relevant to our
business. The Scientific and Medical Advisory Boards meet periodically with our
scientific and development personnel and management to discuss our present and
long-term research and development activities. Scientific and Medical Advisory
Board members include:
<TABLE>
<S> <C>
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 Medical
School
</TABLE>
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of December 31, 1998, certain
information concerning our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Scott Greer.......................... 40 President, Chief Executive Officer and Director
C. Geoffrey Davis, Ph.D. ............... 47 Vice President, Research
Kurt W. Leutzinger...................... 47 Vice President, Finance and Chief Financial Officer
John A. Lipani, M.D. ................... 58 Vice President, Clinical Development
Raymond M. Withy, Ph.D. ................ 43 Vice President, Corporate Development
Stephen A. Sherwin, M.D.(1)(2).......... 50 Chairman of the Board
M. Kathleen Behrens, Ph.D.(2)........... 46 Director
Raju S. Kucherlapati, Ph.D. ............ 55 Director
Mark B. Logan(1)(2)..................... 60 Director
Joseph E. Maroun........................ 69 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
R. Scott Greer has served as our President and Chief Executive Officer and
as one of our directors 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 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 our Vice President, Research 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 our Vice President, Finance and Chief
Financial Officer 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. There, he was 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 Dickinson 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 our Vice President, Clinical
Development since April 1997. From 1992 to April 1997, Dr. Lipani was Group
Director of Inflammation and Tissue Repair 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 our Vice President, Corporate
Development 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
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<PAGE> 56
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 our Chairman of the Board since
June 1996. Since March 1990, Dr. Sherwin has served as President, Chief
Executive Officer and 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 one of our directors 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 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 one of our directors 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 one of our directors 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 one of our directors 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.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Compensation Committee consists of Dr. Sherwin and Mr. Logan. The
Compensation Committee makes recommendations regarding our various incentive
compensation and benefit plans and determines salaries for our executive
officers and incentive compensation for our employees and consultants.
Our 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 our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our control functions.
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<PAGE> 57
BOARD COMPOSITION
Our Amended and Restated Bylaws provide that the number of members of our
Board of Directors shall be determined by the Board of Directors. The number of
directors is currently set at seven. All members of our 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
our directors, officers or key employees.
We have entered into a governance agreement with Cell Genesys which
provides that so long as Cell Genesys or a group to which it belongs owns a
specific percentage of our outstanding voting stock, Cell Genesys or the group
shall have the right to nominate a fixed number of directors to serve on our
Board. The details of this arrangement are set forth in the table below:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP NUMBER OF DIRECTORS
-------------------- -------------------
<S> <C>
50% or more........................................ 4 out of 7
Less than 50% but greater than 25%................. 3 out of 7
Less than 25% but greater than 15%................. 1 out of 7
</TABLE>
The governance agreement also provides that Cell Genesys and each of our
officers and directors who owns voting stock shall agree to vote for the persons
nominated as set forth above. We may be adversely impacted by the significant
influence which Cell Genesys will have with respect to matters affecting us.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation Committee was, at any time since
our formation, an officer or employee of Abgenix. None of our executive officers
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 our Board
of Directors or Compensation Committee. See "Certain Transactions" for a
description of transactions between Abgenix and entities affiliated with members
of our Compensation Committee.
DIRECTOR COMPENSATION
Our non-employee directors currently receive $5,000 per year in retainer
plus $1,000 per Board meeting attended as cash compensation for their service as
members of our Board of Directors, and are reimbursed for certain expenses in
connection with attendance at our Board and committee meetings. We provide $500
per meeting as additional compensation for committee participation or special
assignments of the Board of Directors. From time to time, certain of our
directors have received grants of options to purchase shares of our 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 our 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 our 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 our 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 our common stock,
respectively, at a per share exercise price of $6.00. On June 15, 1998, Stephen
A. Sherwin received options to purchase 10,000 shares of our common stock at a
per share exercise price of $10.00. Beginning with the 1999 annual meeting of
stockholders, our non-employee directors are eligible to receive
nondiscretionary, automatic grants of options to purchase shares of our common
stock pursuant to the 1998 Director Option Plan. See "Management -- Stock
Plans -- 1998 Director Option Plan" and "Certain Transactions."
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us during the years
ended December 31, 1998 and 1997 to our President and Chief Executive Officer
and to our four other most highly compensated executive officers, each of whose
aggregate compensation during our 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 FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ----------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
R. Scott Greer...................... 1998 $267,120 $ -- 40,000 $ --
President and Chief Executive
Officer 1997 252,000 55,200 67,500 4,112(1)
C. Geoffrey Davis, Ph.D............. 1998 165,350 -- 10,000 --
Vice President, Research 1997 152,250 21,750 25,500 1,974(2)
Kurt W. Leutzinger(3)............... 1998 179,830 -- 12,750 19,638(4)
Vice President, Finance and Chief 1997 81,555 -- 100,000 127,059(5)
Financial Officer
John A. Lipani, M.D.(6)............. 1998 180,147 -- 12,750 607(7)
Vice President, Clinical
Development 1997 131,250 -- 100,000 64,585(8)
Raymond M. Withy, Ph.D.............. 1998 165,350 -- 10,000 --
Vice President, Corporate
Development.................... 1997 152,250 21,750 25,500 --
</TABLE>
- ---------------
(1) Consists of imputed interest income on a loan from Abgenix to Mr. Greer.
(2) Consists of imputed interest income on a loan from Abgenix to Dr. Davis.
(3) Mr. Leutzinger has been our Vice President, Finance and Chief Financial
Officer since July 1997. His 1997 annualized salary was $175,000.
(4) Consists of $18,734 for reimbursement of relocation expenses and $904 for
imputed interest income on a loan from Abgenix to Mr. Leutzinger.
(5) Consists of $126,568 for reimbursement of relocation expenses and $491 for
imputed interest income on a loan from Abgenix to Mr. Leutzinger.
(6) Dr. Lipani has been our Vice President, Clinical Development since April
1997. His 1997 annualized salary was $175,000.
(7) Consists of imputed interest income on a loan from Abgenix to Dr. Lipani.
(8) Consists of $63,232 for reimbursement of relocation expenses and $1,353 for
imputed interest income on a loan from Abgenix to Dr. Lipani.
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<PAGE> 59
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31, 1998.
All such options were awarded under our 1996 Incentive Stock Plan.
<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) 1998(2) PRICE(3) DATE 5% 10%
---- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Greer................ 40,000 11.3% $ 6.00 2/17/08 $150,935 $382,498
C. Geoffrey Davis, Ph.D....... 10,000 2.8 6.00 2/17/08 37,734 95,625
Kurt W. Leutzinger............ 12,750 3.6 6.00 2/17/08 48,110 121,921
John A. Lipani, M.D........... 12,750 3.6 6.00 2/17/08 48,110 121,921
Raymond M. Withy, Ph.D........ 10,000 2.8 6.00 2/17/08 37,734 95,625
</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 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 Abgenix. 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 353,551 options granted by Abgenix in the year
ended December 31, 1998 to our employees, non-employee directors of and
consultants, including the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our 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 our
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 our 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
fair value of our common stock on the date of grant of $6.00 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.
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<PAGE> 60
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, 1998 and the number and
value of securities underlying unexercised options held at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Greer............. 31,875 $207,189 63,744 179,641 $ 940,226 $2,571,888
C. Geoffrey Davis, Ph.D.... -- -- 73,009 62,491 1,109,914 908,211
Kurt W. Leutzinger......... -- -- 38,603 74,147 519,637 986,051
John A. Lipani, M.D........ -- -- 44,853 67,897 684,740 1,010,948
Raymond M. Withy, Ph.D..... 25,416 188,078 37,593 62,491 555,654 908,211
</TABLE>
- ---------------
(1) Value realized reflects the fair market value of our common stock underlying
the option on the date of exercise minus the aggregate exercise price of the
option.
(2) Value of unexercised in-the-money options are based on a value of $16.25 per
share, the closing price of our common stock on December 31, 1998. Amounts
reflected are based on the value of $16.25 per share, minus the per share
exercise price, multiplied by the number of shares underlying the option.
STOCK PLANS
1996 Incentive Stock Plan. As of December 31, 1998, a total of 2,891,250
shares of common stock have been authorized for issuance under our 1996
Incentive Stock Plan (the "1996 Plan"). Under the 1996 Plan, as of December 31,
1998, options to purchase an aggregate of 1,642,187 shares were outstanding,
386,810 shares of common stock had been purchased pursuant to exercises of stock
options and stock purchase rights and 862,253 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, nonqualified stock
options and stock purchase rights to our employees, consultants and nonemployee
directors. 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 our
common stock on the date of grant. However, for any employee holding more than
10% of the voting power of all classes of our 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 our 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.
An optionee whose relationship with Abgenix or any related corporation
ceases for any reason, other than 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 Abgenix
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.
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<PAGE> 61
None of our employees may be granted, in any fiscal year, options to
purchase more than 750,000 shares, 1,500,000 shares in the case of a new
employee's initial employment with Abgenix. 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, and the price to be paid for the shares
granted thereunder is determined by the administrator. Abgenix is generally
granted a repurchase option exercisable on the voluntary or involuntary
termination of the purchaser's employment with Abgenix 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. We have adopted the 1998 Employee Stock
Purchase Plan, or the Purchase Plan, and have 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 our
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. Under the Purchase Plan, as of December
31, 1998, 14,130 shares were issued and were outstanding, and 235,870 shares
were available for future issuance. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, is administered by our Board of Directors
or by a committee appointed by the Board of Directors.
Under the Purchase Plan, Abgenix withholds 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
Abgenix or by one of our majority-owned subsidiaries, is 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 commenced on July 2, 1998. Thereafter, new
24-month offering periods commence every six months on each November 1 and May
1. In the event of a change in control of Abgenix, including a merger of Abgenix
with or into another corporation, or the sale of all or substantially all of our
assets, the offering and purchase periods then in progress will be shortened.
The price of common stock purchased under the Purchase Plan is 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 Abgenix. 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 extent
such person would own 5% or more of the total combined value or voting power of
all classes of our capital stock or of any of our 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. We have adopted the 1998 Director Option Plan,
or the Director Plan, and have reserved a total of 250,000 shares of common
stock for issuance thereunder. Each non-employee director who becomes an Abgenix
director after July 2, 1998 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. At each annual stockholders meeting beginning with the 1999
Annual Stockholders Meeting, each non-employee 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 non-employee director. The exercise
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<PAGE> 62
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 we merge with or
into another corporation, all outstanding options may either be 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 non-employee
director is involuntarily terminated following option assumption, the 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
All of our employees who are located in the United States and who work a
minimum of 30 hours per week are eligible to participate in our 401(k)
Retirement Plan (the "401(k) Plan"). 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 us, but does not require
us, to make additional matching contributions on behalf of all participants in
the 401(k) Plan. We have 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 Abgenix, and the investment
earnings thereon, are not taxable to employees until withdrawn from the 401(k)
Plan, and that our contributions, if any, will be deductible by us when made.
CHANGE IN CONTROL ARRANGEMENTS
Our Board of Directors has approved a plan which provides that in the event
of a change in control of Abgenix, the options of each Abgenix employee whose
employment is terminated without cause within 24 months of the change in control
will become exercisable in full. For this purpose, a change in control includes:
(i) a person becoming the beneficial owner of 50% or more of our outstanding
voting securities, (ii) certain changes in the composition of our Board of
Directors occurring within a two-year period or (iii) a merger or consolidation
in which Abgenix stockholders 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
Our Amended and Restated 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 (1) any breach of their duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) unlawful payments of
dividends or unlawful stock repurchases or redemptions or (4) 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.
Our Amended and Restated Bylaws provide that we shall indemnify our
directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Amended and Restated Bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our Amended
and Restated
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<PAGE> 63
Bylaws also permit us 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 Amended and Restated Bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Amended and
Restated Bylaws. These agreements, among other things, indemnify our 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 us arising out of such person's
services as our director or executive officer, any of our subsidiaries or any
other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
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CERTAIN TRANSACTIONS
OUR INCORPORATION AND ORGANIZATION
Pursuant to the terms of the stock purchase and transfer agreement between
Abgenix and Cell Genesys, we 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. In exchange, Cell Genesys contributed to Abgenix 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. We are responsible for the remaining lease obligations
for such capital equipment which total approximately $30,000 per month. Cell
Genesys also assigned us two notes receivable totaling $150,000.
On July 15, 1996, Abgenix, 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. Also, in connection with, and contemporaneous to,
the series B preferred stock financing, the shares of series A senior
convertible preferred stock, and the shares of series 1 subordinated convertible
preferred stock were converted into an aggregate 3,750,000 shares of series A
preferred stock. (See "Preferred Stock Financings").
Simultaneously with the execution of the stock purchase and transfer
agreement, we entered into a governance agreement, tax sharing agreement,
services agreement, and patent assignment agreement with Cell Genesys. In
addition, we entered into an immunization services agreement, gene therapy
agreement, and voting agreement with Cell Genesys. The immunization services
agreement, gene therapy agreement, and voting agreement were superseded by the
gene therapy rights agreement. See "Business -- Gene Therapy Rights Agreement
with Cell Genesys."
The governance agreement with Cell Genesys provides that so long as Cell
Genesys or a group to which it belongs owns a specific percentage of our
outstanding voting stock, Cell Genesys or the group shall have the right to
nominate a fixed number of directors to serve on our Board. The details of this
arrangement are set forth in the table below:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP NUMBER OF DIRECTORS
-------------------- -------------------
<S> <C>
50% or more........................................ 4 out of 7
Less than 50% but greater than 25%................. 3 out of 7
Less than 25% but greater than 15%................. 1 out of 7
</TABLE>
The governance agreement also provides that Cell Genesys and each of our
officers and directors who owns voting stock shall agree to vote for the persons
nominated as set forth above.
The tax sharing agreement provides for the allocation of federal and state
tax liabilities between Abgenix and Cell Genesys. Pursuant to the terms of the
agreement, we will pay to Cell Genesys the federal and state income and
franchise tax liability that we would have owed if Cell Genesys had filed a
separate tax return. If we realize a loss or credit that reduces the
consolidated tax liability of Cell Genesys, then Cell Genesys shall pay us the
amount of the reduction. The 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 Abgenix is an includable party in
such consolidated return. As of December 31, 1998, Cell Genesys' ownership of
our outstanding capital stock was 30.2%. Therefore, a consolidated tax return
will not be filed for 1998.
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. No fees were incurred in 1998, and Cell Genesys no longer
provides services under this agreement.
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Pursuant to the terms of the patent assignment agreement, Cell Genesys
assigned us 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, we 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.
In October 1997, Cell Genesys extended a short-term, convertible line of
credit facility to Abgenix. The credit facility terminated in accordance with
its terms, without Abgenix drawing upon the credit facility, upon the closing of
the series B preferred stock financing in December 1997.
In November 1998, Cell Genesys sold 1,146,300 shares of Abgenix common
stock to certain individuals and entities in a private placement. Pursuant to
that sale, we agreed to register the shares under the Securities Act for resale
to the public. Under the registration rights agreement, we must use reasonable
efforts to cause this registration statement to be declared effective by the
Securities and Exchange Commission as soon as practicable and to keep this
registration statement, or a replacement, continuously effective under the
Securities Act until the earlier of (1) November 18, 2000 or (2) such time as
the selling stockholders have sold all shares offered by this prospectus, or a
replacement prospectus.
BANCBOSTON ROBERTSON STEPHENS INC. RELATIONSHIP
M. Kathleen Behrens, Ph.D., one of our directors, is also a managing
director of Robertson Stephens Investment Management Co. Robertson Stephens
Investment Management Co. was formerly affiliated with BancBoston Robertson
Stephens Inc. BancBoston Robertson Stephens Inc. acted as one of our placement
agents in the series B preferred stock financing in December 1997 and as the
managing underwriter for our initial public offering in July 1998. BancBoston
Robertson Stephens Inc. received approximately $759,000 in fees for services
provided in the private placement. Also, persons and entities currently or
formerly affiliated with Robertson Stephens Investment Management Co. and
BancBoston Robertson Stephens Inc. purchased, in the aggregate, 784,616 shares
of the series B preferred stock for an aggregate purchase price of approximately
$5.1 million. BancBoston Robertson Stephens Inc. together with the other
underwriters received approximately $1.6 million in discounts and commissions in
connection with its services as the managing underwriter of our initial public
offering. In connection with Cell Genesys' sale of shares of our common stock to
certain individuals and entities, BancBoston Robertson Stephens Inc. received
approximately $475,000 in fees in connection with its services as placement
agent. BancBoston Robertson Stephens Inc., together with the other underwriters,
will receive approximately $2.9 million in discounts and commissions in
connection with its services as the managing underwriter of this offering.
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PREFERRED STOCK FINANCINGS
In connection with the initial public offering of our common stock in July
1998, each outstanding share of preferred stock was converted into one share of
common stock. The following directors and holders of more than 5% of our
outstanding stock purchased the following shares of our preferred stock prior to
the consummation of our initial public offering.
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------
PREFERRED STOCKHOLDER SERIES A SERIES B
--------------------- --------- --------
<S> <C> <C>
Cell Genesys(1)............................................. 4,538,334 --
Robertson Stephens Investment Management Co. Entities(2).... -- 769,231
Stephen A. Sherwin, M.D.(3)................................. 4,538,334 --
M. Kathleen Behrens, Ph.D.(4)............................... -- 784,616
Raju Kucherlapati, Ph.D.(5)................................. 4,538,334 10,000
Joseph E. Maroun(6)......................................... 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 "RSIM Shares"). Each of the
above entities is affiliated with Robertson Stephens Investment Management
Co.
(3) 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. 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.
(4) Includes the RSIM Shares. Dr. Behrens, a managing director of Robertson
Stephens Investment Management Co., disclaims beneficial ownership of the
RSIM Shares except to the extent of her pro rata pecuniary interest therein.
(5) 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 pro rata pecuniary interest therein.
(6) 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.
Certain holders of our common stock are entitled to certain registration
rights. See "Description of Capital Stock -- Registration Rights of Certain
Holders."
After the completion of this offering, Cell Genesys will beneficially own
approximately 23.0% of our outstanding capital stock. As a result, Cell Genesys
will have significant influence over all matters requiring the approval of our
stockholders, including the election of our Board of Directors. See "Risk
Factors -- Cell Genesys Exercises Significant Influence Over Us."
Three of our 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.
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<PAGE> 67
TRANSACTIONS WITH EMPLOYEES
On May 27, 1997, John A. Lipani, M.D. our Vice President, Clinical
Development, and Abgenix entered into a relocation loan agreement pursuant to
which we 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, 1998 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, was
forgiven in April 1998 when Dr. Lipani completed 12 months of employment with
Abgenix.
On December 2, 1992, R. Scott Greer, our 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 Abgenix. Mr. Greer repaid the entire loan to Abgenix in September 1997.
On April 21, 1995, C. Geoffrey Davis, Ph.D. our 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 Abgenix. As
of December 31, 1998, 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, was forgiven in July 1998 when Mr. Leutzinger
completed 12 months of employment with Abgenix. 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. As of December 31, 1998, the outstanding principal balance of the
promissory note was $100,000.
We have entered into indemnification agreements with each of our directors
and executive officers. See "Management -- Limitations of Liability and
Indemnification Matters."
All future transactions, including any loans from Abgenix to our 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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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 31, 1998, and as
adjusted to reflect the sale of the common stock being offered hereby by (1)
each person, or group of affiliated persons, who is known by us to own
beneficially more than 5% of the common stock, (2) each of our directors, (3)
each of our executive officers and (4) all of our directors and executive
officers as a group. Except as otherwise noted, the persons or entities in this
table have sole voting and investing power with respect to all the shares of
common stock owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
------------------------ ----------------------
NUMBER PERCENT(1) NUMBER PERCENT(1)
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
BENEFICIAL OWNER
Cell Genesys(2)..................................... 3,392,034 30.2% 3,392,034 23.0%
342 Lakeside Drive
Foster City, CA 94404
Robertson Stephens Investment Management Co.
Entities(3)....................................... 907,468 8.2 907,468 6.2%
555 California Street, Suite 2500
San Francisco, CA 94104
Joseph E. Maroun(4)................................. 3,569,911 31.7 3,569,911 24.2%
Stephen A. Sherwin, M.D.(5)......................... 3,464,565 30.6 3,464,565 23.4%
Raju S. Kucherlapati, Ph.D.(6)...................... 3,432,315 30.4 3,432,315 23.2%
M. Kathleen Behrens, Ph.D.(7)....................... 932,228 8.4 932,228 6.4%
R. Scott Greer(8)................................... 220,588 2.0 220,588 1.5%
C. Geoffrey Davis, Ph.D.(9)......................... 79,395 * 79,395 *
Raymond M. Withy, Ph.D.(10)......................... 80,647 * 80,647 *
Kurt W. Leutzinger(11).............................. 45,737 * 45,737 *
John A. Lipani, M.D.(12)............................ 51,899 * 51,899 *
Mark B. Logan(13)................................... 12,250 * 12,250 *
All directors and executive officers as a group (10
persons)(14)...................................... 5,105,467 43.7 5,105,467 33.6%
</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 have 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 11,120,293 shares of
common stock outstanding as of December 31, 1998 and 14,615,649 shares
outstanding after the completion of this offering, which includes 495,356
shares sold to Genentech in January 1999.
(2) Consists of 3,270,367 shares and 121,667 shares issuable pursuant to
warrants exercisable within 60 days of December 31, 1998 (the "CG Shares").
(3) Includes 56,280 shares held by Bayview Investors, LTD, 50,000 shares held
by The Robertson Stephens Orphan Fund, L.P., 17,500 shares held by The
Robertson Stephens Orphan Offshore Fund, L.P., 362,545 shares held by
Crossover Fund II, L.P., 334,079 shares held by Omega Ventures II, L.P. and
87,064 shares held by Omega Ventures II Cayman, L.P. (the "Robertson
Stephens Investment Management Co. Shares"). Bayview Investors, LTD, The
Robertson Stephens Orphan Fund, L.P. and the Robertson Stephens Orphan
Offshore Fund, L.P. are affiliated with Robertson Stephens Investment
Management Co. Robertson Stephens Investment Management Co. disclaims
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<PAGE> 69
beneficial ownership of the Robertson Stephens Investment Management Co.
Shares except to the extent of its pro rata pecuniary interests therein.
(4) Includes the CG Shares. Also includes 24,031 shares issuable upon exercise
of options exercisable within 60 days of December 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 CG Shares. However,
Mr. Maroun disclaims beneficial ownership of the CG Shares except to the
extent of his pro rata pecuniary interest therein based upon his beneficial
ownership of the capital stock of Cell Genesys.
(5) Includes the CG Shares. Also includes, 72,531 shares issuable upon exercise
of options exercisable within 60 days of December 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 CG Shares.
However, Dr. Sherwin disclaims beneficial ownership of the CG 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 CG Shares. Also includes, 30,281 shares issuable upon exercise
of options exercisable within 60 days of December 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 CG
Shares. However, Dr. Kucherlapati disclaims beneficial ownership of the
shares of the CG Shares except to the extent of his pro rata pecuniary
interest therein based upon his beneficial ownership of the capital stock
of Cell Genesys.
(7) Includes the Robertson Stephens Investment Management Co. Shares. Also
includes 9,375 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998. Dr. Behrens, a managing director of Robertson
Stephens Investment Management Co., disclaims beneficial ownership of the
Robertson Stephens Investment Management Co. Shares except to the extent of
her pro rata pecuniary interests therein.
(8) Includes 80,819 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(9) Includes 79,395 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(10) Includes 43,979 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(11) Includes 45,649 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(12) Includes 51,899 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(13) Includes 12,250 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(14) Includes 450,209 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1998 and 121,667 shares subject to warrants.
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<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Amended and Restated Certificate of Incorporation 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 our Board of Directors. As of December 31, 1998, 11,120,293
shares of common stock were issued and outstanding and held by 162 stockholders
and no shares of preferred stock were issued and outstanding.
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 Abgenix, holders of common stock would be entitled
to share in our 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 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 we may designate in the future.
PREFERRED STOCK
Our Board of Directors is authorized, without any further action by the
stockholders, subject to any limitations prescribed by law, 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 our
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 our outstanding voting stock. We have no present plans to
issue any shares of preferred stock.
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of December 31, 1998, we have two outstanding warrants to purchase an
aggregate of 121,667 shares of common stock at an exercise price of $6.00 per
share. These warrants are currently exercisable in full. One warrant will expire
on January 23, 2000, and the other warrant will expire on March 27, 2000. Also,
as of December 31, 1998, we are obligated to issue 25,000 shares of the common
stock upon the occurrence of certain milestones pursuant to the terms of a
license agreement.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 6,698,052 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 Abgenix and the holders of the Registrable
Securities. The holders of at least 50% of the Registrable Securities may
require, subject to certain limitations in the Amended and Restated Stockholder
Rights
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<PAGE> 71
Agreement, on two occasions, that we use our best efforts to register the
Registrable Securities for public resale. If we register any of our common stock
either for our 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 Abgenix, 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 Abgenix, 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
Abgenix (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 our
common stock. If we 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 our ability to
raise capital.
In November 1998, Cell Genesys sold 1,146,300 shares of Abgenix common
stock to certain individuals and entities. Pursuant to that sale, we agreed to
register the shares under the Securities Act for resale to the public. On
January 15, 1999, we filed a registration statement with the Securities and
Exchange Commission for the public resale of the shares. Under the registration
rights agreement, we must use reasonable efforts to cause this registration
statement to be declared effective by the Securities and Exchange Commission as
soon as practicable and to keep this registration statement, or a replacement,
continuously effective under the Securities Act until the earlier of (1)
November 18, 2000 or (2) such time as the selling stockholders have sold all
shares offered by this prospectus, or a replacement prospectus.
In January 1999, we sold 495,356 shares of common stock to Genentech. We
are obligated to register for public resale the 495,356 shares sold to Genentech
pursuant to the terms of a registration rights agreement. Genentech has certain
demand rights with respect to the registration of these shares. The demand
rights are currently exercisable and expire in July 1999. In July 1999, whether
or not Genentech exercises its demand rights, we are obligated to register the
Genentech shares for public resale.
CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of our Amended and Restated Certificate of Incorporation
and Amended and Restated 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 Abgenix. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of our common
stock. Certain of these provisions allow Abgenix 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 and could have
the effect of delaying or preventing a change in control of Abgenix. In
addition, Abgenix 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:
(1) 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; (2) 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; or (3) on or
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<PAGE> 72
subsequent to such date, the business combination is approved by the Board of
Directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
Our Amended and Restated Certificate of Incorporation eliminates the right
of stockholders to call special meetings of stockholders or to act by written
consent without a meeting. The Amended and Restated Certificate of Incorporation
and Amended and Restated 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 Abgenix. These and other provisions may have the effect of
deferring hostile takeovers or delaying changes in control or management of
Abgenix. 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 ChaseMellon
Shareholder Services.
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<PAGE> 73
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Lehman Brothers Inc. and Pacific Growth
Equities, Inc., the representatives, have severally agreed with Abgenix, 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 OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Lehman Brothers Inc.........................................
Pacific Growth Equities, Inc................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at such price less a
concession of not more than $ per share, of which $ may be reallowed to
other dealers. After the completion of this 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 us as set
forth on the cover page of this prospectus.
Over-Allotment Option. We have 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 we will receive for the 3,000,000 shares that the underwriters have
agreed to purchase from us. 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 total number of shares offered hereby. If purchased, such
additional shares will be sold by the underwriters on the same terms as those on
which the shares are being sold.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and Abgenix against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Pursuant to the terms of lock-up agreements, the
holders of 6,806,914 shares of our common stock, have agreed, for a period of up
to 90 days after the date of this prospectus, that, subject to certain
exceptions, they will not contract to sell or otherwise dispose of any shares of
common stock, any options to purchase shares of common stock or any securities
convertible into, or exchangeable for, shares of common stock, owned directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of BancBoston Robertson Stephens Inc. However,
BancBoston Robertson Stephens Inc. may, in its sole discretion, and at any time
or from time to time, without notice, release all or any portion of the
securities subject to lock-up agreements. All of the shares of common stock
subject to the lock-up agreements will be eligible for sale in the public market
upon the expiration of the lock-up agreements subject in the case of shares held
by affiliates pursuant to Rule 144.
Future Sales. In addition, we have agreed that until 90 days after the date
of this prospectus, we will not, without prior written consent of BancBoston
Robertson Stephens Inc., subject to certain exceptions, offer, sell, contract to
sell or otherwise dispose of any shares of common stock, any options to purchase
any share of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, the issuance of shares of common stock upon the exercise of
outstanding options and the grant of options to purchase shares of common stock
under existing employee stock option or 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.
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<PAGE> 74
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Exchange 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 us that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Passive Market Making. In connection with this offering, certain
underwriter and selling group members (if any) who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in the common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Exchange Act, during the business day prior to the
pricing of the offering, before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock in the public market
following this offering, including shares issued upon exercise of outstanding
options and warrants, could adversely affect market prices prevailing from time
to time and could impair our ability to raise capital through sale of our equity
securities. Sales of substantial amounts of our common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 14,615,649
shares of common stock, assuming no exercise of outstanding options or warrants
after December 31, 1998. Of these shares, the following are freely tradeable:
- the 3,000,000 shares sold in this offering;
- the 1,146,300 shares that may be sold by certain individuals and entities
upon the effectiveness of a registration statement we filed with the
securities and Exchange Commission on January 15, 1999;
- the 2,875,000 shares sold in our initial public offering in July 1998;
and
- an additional 2,771,302 shares, subject in certain instances to volume
re-sale limitations under Rule 144.
4,327,691 shares of common stock held by existing stockholders may not be
sold publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. These shares 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.
The remaining 495,356 shares were sold to Genentech in January 1999. We are
obligated to register for public resale the 495,356 shares sold to Genentech
pursuant to the terms of a registration rights agreement. Genentech has certain
demand rights with respect to the registration of these shares. The demand
rights are currently exercisable and expire in July 1999. In July 1999, whether
or not Genentech
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<PAGE> 75
exercises its demand rights, we are obligated to register the Genentech shares
for public resale. Our registration of the Genentech shares may have an adverse
effect on our ability to raise capital. Sales of the Genentech shares into the
public market may have an adverse effect on the market price of our common
stock.
2,479,223 of the freely tradeable shares, all of the 4,327,691 restricted
shares and the 495,356 Genentech shares are subject to lock-up agreements under
which the holders have agreed not to sell their shares for a period of 90 days
after the date of this prospectus without the prior written consent of
BancBoston Robertson Stephens Inc.
The holders of 6,698,052 shares of our 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 exercise the demand registration
rights and cause a large number of securities to be registered and sold in the
public market, such sales may have an adverse effect on the market price for our
common stock. If we 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 our ability to raise capital.
Additionally, 121,667 shares issuable pursuant to warrants will also be entitled
to similar registration rights. The number of shares sold in the public market
could increase if such registration rights are exercised.
In connection with our initial public offering, a director and a certain
stockholder who, in the aggregate, hold 71,665 of the shares of common stock
outstanding immediately prior to the completion of this offering 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 until June 27, 1999, without the prior written
consent of BancBoston Robertson Stephens Inc. Upon expiration of the 360-day
lock-up agreements, all 71,655 of these shares will become eligible for public
resale, subject to volume limitations imposed by Rule 144.
On October 23, 1998 we filed a Registration Statement on Form S-8
registering 3,053,819 shares of common stock subject to outstanding options or
reserved for future issuance under our stock plans, thus permitting the resale
of such shares in the public market without restriction under the Securities Act
after expiration of any vesting restrictions. As of December 31, 1998, we are
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, a number of
shares during any three-month period that does not exceed the greater of (1) one
percent of the number of shares of common stock then outstanding, approximately
146,156 shares after completion of this offering, or (2) 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
Abgenix. Under Rule 144(k), a person who is not deemed to have been an affiliate
of Abgenix 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 of the Securities Act, persons who purchase shares upon exercise of
options granted prior to the effective date of our initial public offering are
currently entitled to sell such shares 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.
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<PAGE> 76
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Abgenix by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters with this offering will be passed upon
for the underwriters by Cooley Godward LLP, Palo Alto, California. As of
December 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 Abgenix.
EXPERTS
The financial statements of Abgenix, Inc. at December 31, 1997 and 1998,
and for each of the three years in the period ended December 31, 1998 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.
The financial statements of Xenotech, L.P. at December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998 and for
the period from inception (June 12, 1991) to December 31, 1998, 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.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Abgenix has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby by the selling stockholders. 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
Abgenix and our 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 Securities and
Exchange Commission's principal office in Washington, D.C., or obtained at
prescribed rates from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Securities and Exchange Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
Abgenix is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following Regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
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<PAGE> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Abgenix, Inc., 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-6
Notes to Financial Statements............................. F-7
Xenotech, LP, Financial Statements
Report of Ernst & Young LLP, Independent Auditors......... F-21
Balance Sheets............................................ F-22
Statements of Operations.................................. F-23
Statement of Partners' Capital............................ F-24
Statements of Cash Flows.................................. F-25
Notes to Financial Statements............................. F-26
</TABLE>
F-1
<PAGE> 78
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, 1997 and 1998, 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, 1998. 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, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 22, 1999
F-2
<PAGE> 79
ABGENIX, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,617 $ 1,415
Short-term investments.................................... 10,704 15,329
Prepaid expenses and other current assets................. 550 1,438
-------- --------
Total current assets.............................. 15,871 18,182
Property and equipment, net................................. 5,776 5,435
Deposits and other assets................................... 437 603
-------- --------
$ 22,084 $ 24,220
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Short-term payable to related party....................... $ 212 $ 45
Payable to Xenotech for cross-license and settlement
obligation............................................. 3,750 --
Accounts payable.......................................... 426 394
Deferred revenue.......................................... -- 425
Accrued stock issuance costs.............................. 1,200 --
Accrued product development costs......................... 743 1,225
Other accrued liabilities................................. 1,257 1,293
Current portion of long-term debt......................... 1,646 1,699
-------- --------
Total current liabilities......................... 9,234 5,081
Long-term debt.............................................. 3,979 2,180
Commitments
Redeemable convertible preferred stock, $0.0001 par value;
20,000,000 shares authorized, 7,263,209 shares issued and
outstanding at December 31, 1997, and no shares issued and
outstanding at December 31, 1998; at amount paid in....... 31,189 --
Redeemable convertible preferred stock subscription
receivable................................................ (2,737) --
Redeemable convertible preferred stock issuable............. 2,737 --
Stockholders' equity (net capital deficiency):
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; none issued and outstanding at December 31,
1997 and 1998, respectively............................ -- --
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 233,542 and 11,120,293 shares issued and
outstanding at December 31, 1997 and 1998,
respectively, at amount paid in........................ 351 55,842
Contributions from parent................................. 29,277 29,277
Additional paid-in capital................................ 1,776 2,311
Deferred compensation..................................... (1,248) (1,170)
Accumulated deficit....................................... (52,474) (69,301)
-------- --------
Total stockholders' equity (net capital
deficiency)..................................... (22,318) 16,959
-------- --------
$ 22,084 $ 24,220
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 80
ABGENIX, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Revenue under collaborative agreements from related
parties (net of related contributions to Xenotech
of $3,866, $897 and $304 for the years ended
December 31, 1996, 1997 and 1998,
respectively).................................... $ 4,719 $ 1,343 $ 1,344
Contract revenue.................................... -- 611 2,498
----------- ---------- ----------
Total revenues.............................. 4,719 1,954 3,842
Operating expenses:
Research and development............................ 9,433 11,405 17,588
General and administrative.......................... 2,565 3,525 3,405
Charge for cross-license and settlement amount
allocated from Cell Genesys...................... -- 11,250 --
Equity in losses from the Xenotech joint venture
(excluding contributions) (charge for
cross-license settlement in 1997)................ -- 11,250 107
----------- ---------- ----------
Total operating expenses.................... 11,998 37,430 21,100
----------- ---------- ----------
Operating loss........................................ (7,279) (35,476) (17,258)
Other income and expenses:
Interest income..................................... 203 307 961
Interest expense.................................... (24) (711) (530)
----------- ---------- ----------
Net loss.............................................. $ (7,100) $ (35,880) $ (16,827)
=========== ========== ==========
Net loss per share.................................... $(46,710.53) $(1,032.70) $ (3.00)
=========== ========== ==========
Shares used in computing net loss per share........... 152 34,744 5,602,963
=========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 81
ABGENIX, INC.
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE REDEEMABLE
REDEEMABLE PREFERRED CONVERTIBLE
CONVERTIBLE STOCK PREFERRED
PREFERRED SUBSCRIPTION STOCK
STOCK RECEIVABLE ISSUABLE
----------- ------------ -----------
<S> <C> <C> <C>
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 totaling
$150................................... 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
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............ 4,000 -- --
Stock subscription to purchase 421,143
shares of series B redeemable
convertible preferred stock at $6.50
per share.............................. -- (2,737) 2,737
Issuance of 232,350 shares of common
stock upon exercise of stock options
and 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..................... 1,280 -- --
Issuance of 421,143 shares of series B
redeemable convertible preferred stock
at $6.50 per share (net of issuance
costs of $81).......................... 2,656 2,737 (2,737)
Conversion of 7,844,352 shares of series
A, series B and series C redeemable
convertible preferred stock to common
stock.................................. (35,125) -- --
Issuance of 2,875,000 shares of common
stock at $8.00 per share upon initial
public offering (net of issuance costs
of $2,860)............................. -- -- --
Issuance of 153,268 shares of common
stock upon exercise of stock options... -- -- --
Issuance of 14,130 shares of common stock
at $6.80 per share pursuant to the
employee stock purchase plan........... -- -- --
Deferred compensation related to grant of
certain stock options below deemed fair
value.................................. -- -- --
Amortization of deferred compensation.... -- -- --
Compensation related to grant of stock
options to consultants................. -- -- --
Net loss................................. -- -- --
-------- ------- -------
Balance at December 31, 1998............... $ -- $ -- $ --
======== ======= =======
<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, 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 totaling
$150................................... -- -- -- -- -- --
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
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............ -- -- -- -- -- --
Stock subscription to purchase 421,143
shares of series B redeemable
convertible preferred stock at $6.50
per share.............................. -- -- -- -- -- --
Issuance of 232,350 shares of common
stock upon exercise of stock options
and stock purchase rights.............. 350 -- -- -- -- 350
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..................... -- -- -- -- -- --
Issuance of 421,143 shares of series B
redeemable convertible preferred stock
at $6.50 per share (net of issuance
costs of $81).......................... -- -- -- -- -- --
Conversion of 7,844,352 shares of series
A, series B and series C redeemable
convertible preferred stock to common
stock.................................. 35,125 -- -- -- -- 35,125
Issuance of 2,875,000 shares of common
stock at $8.00 per share upon initial
public offering (net of issuance costs
of $2,860)............................. 20,140 -- -- -- -- 20,140
Issuance of 153,268 shares of common
stock upon exercise of stock options... 130 -- -- -- -- 130
Issuance of 14,130 shares of common stock
at $6.80 per share pursuant to the
employee stock purchase plan........... 96 -- -- -- -- 96
Deferred compensation related to grant of
certain stock options below deemed fair
value.................................. -- -- 520 (520) -- --
Amortization of deferred compensation.... -- -- -- 598 -- 598
Compensation related to grant of stock
options to consultants................. -- -- 15 -- -- 15
Net loss................................. -- -- -- -- (16,827) (16,827)
------- ------- ------ ------- -------- --------
Balance at December 31, 1998............... $55,842 $29,277 $2,311 $(1,170) $(69,301) $ 16,959
======= ======= ====== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 82
ABGENIX, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(7,100) $(35,880) $(16,827)
Adjustments to reconcile net loss to net cash used by
operating activities:
Equity in losses of Xenotech (including the charge for
cross-license and settlement in 1997)................... 3,866 12,147 411
Depreciation and amortization............................. 8 1,489 1,715
Charge for cross-license and settlement................... -- 11,250 --
Changes for certain assets and liabilities:
Prepaid expenses and other current assets............... (58) (392) (888)
Deposits and other assets............................... (337) (78) (166)
Short-term payable to related party..................... 730 -- (167)
Payable to Xenotech for cross-license and settlement
obligation............................................ -- -- (3,750)
Accounts payable........................................ -- 426 (32)
Deferred revenue........................................ 376 (376) 425
Accrued stock issuance costs............................ -- 1,200 (1,200)
Accrued product development costs....................... -- 743 482
Other accrued liabilities............................... 345 (704) 36
------- -------- --------
Net cash used in operating activities....................... (2,170) (10,175) (19,961)
------- -------- --------
INVESTING ACTIVITIES
Purchases of short-term investments......................... (2,982) (15,505) (24,868)
Sales of short-term investments............................. -- 7,783 20,243
Capital expenditures........................................ (334) (1,075) (697)
Contributions to Xenotech................................... (3,864) (4,647) (475)
------- -------- --------
Net cash used in investing activities....................... (7,180) (13,444) (5,797)
------- -------- --------
FINANCING ACTIVITIES
Net proceeds from issuances of redeemable convertible
preferred preferred stock................................. 10,000 17,039 3,936
Proceeds from issuance of note payable to parent............ 1,757 -- --
Proceeds from long-term debt................................ -- 4,300 --
Contributions from parent................................... 4,783 -- --
Payments under long-term debt............................... -- (643) (1,746)
Net proceeds from issuances of common stock................. -- 350 20,366
------- -------- --------
Net cash provided in financing activities................... 16,540 21,046 22,556
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 7,190 (2,573) (3,202)
Cash and cash equivalents at the beginning of the period.... -- 7,190 4,617
------- -------- --------
Cash and cash equivalents at the end of the period.......... $ 7,190 $ 4,617 $ 1,415
======= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 10 $ 632 $ 549
======= ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Allocation of charges related to the cross-license and
settlement from parent and Xenotech....................... $ -- $ 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 $ --
======= ======== ========
Deferred compensation related to grant of certain stock
options................................................... $ -- $ 1,776 $ 520
======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 83
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"),
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 operations
of Abgenix commenced in 1989 and were initially conducted as a research project
within Cell Genesys, Inc., ("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 research
project within Cell Genesys prior to July 15, 1996. The Company was not a
separate business unit or division within Cell Genesys and, therefore, no
separate accounting records existed for the Company during the period it was
operated as a research project within Cell Genesys. All administrative functions
were handled by Cell Genesys and the costs of operations, while part of Cell
Genesys, were estimated from project cost records and were recorded as
contributions. All assets and liabilities for 1994 and 1995 were combined with
Cell Genesys and it was impractical and not meaningful to carve out the balance
sheets for such periods
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 an aggregate 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).
INITIAL PUBLIC OFFERING
In July 1998, the Company completed an initial public offering of 2,500,000
shares of its common stock to the public, at a per share price of $8.00. On July
27, 1998, the Company's underwriters exercised an option to purchase an
additional 375,000 shares of common stock at a price of $8.00 per share to cover
over-allotments. The Company received net proceeds from the offerings of
approximately $20,140,000. Upon the closing of the initial public offering, each
of the outstanding 7,844,352 shares of redeemable convertible preferred stock
was automatically converted into one share of common stock.
REVENUE RECOGNITION
Revenues related to collaborative research agreements with corporate
partners are generally recognized ratably over the related funding periods for
each contract. For research funding, the Company is required to perform research
activities as specified in each respective agreement on a best efforts basis,
and the Company is reimbursed based on the fees stipulated in the respective
agreements which approximates cost. Deferred revenue may result when the Company
does not incur the required level of effort or has not
F-7
<PAGE> 84
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fulfilled its obligation under the agreement during a specific period in
comparison to funds received under the respective contracts. Milestone payments
are recognized pursuant to collaborative agreements upon the achievement of the
specified milestone, where no future obligation to perform exists for that
milestone. Nonrefundable signing fees, under which no future obligation to
perform exists, are recognized when invoiced. Revenues related to the Xenotech
research agreement are recognized net of the Company's contributions to
Xenotech.
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").
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
which occurred at the completion of the Company's initial public offering in
July 1998, using the as-if-converted method, from the original date of issuance.
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,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net loss.......................................... $(7,100,000) $(35,880,000) $(16,827,000)
=========== ============ ============
Basic and diluted:
Weighted-average shares of common stock
outstanding used in computing basic and
diluted net loss per share................... 152 34,744 5,602,963
=========== ============ ============
Basic and diluted net loss per share.............. $(46,710.53) $ (1,032.70) $ (3.00)
=========== ============ ============
Pro forma:
Shares used in computing basic and diluted net
loss per share (from above).................. 34,744 5,602,963
Adjusted to reflect the effect of the assumed
conversion of preferred stock from the date
of issuance.................................. 3,858,843 4,300,757
------------ ------------
Weighted-average shares used in computing pro
forma net loss per share..................... 3,893,587 9,903,720
============ ============
Pro forma net loss per share...................... $ (9.22) $ (1.70)
============ ============
</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 1,168,906, 1,630,093, and 1,736,854 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, 1997 and 1998 respectively.
F-8
<PAGE> 85
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. Leasehold improvements are depreciated over the remaining life of
the facility lease, and all other assets are generally depreciated over two to
five years. Furniture and equipment leased under capital leases is amortized
over the shorter of the useful lives or the lease 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
required additional disclosures to be adopted beginning in the first quarter of
1998 and on December 31, 1998, respectively. The Company has determined that the
impact of adopting SFAS 130 and SFAS 131 on its financial statement disclosures
was 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 fully 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 expensed
as research and development $350,000, $172,500 and $453,000 paid to Xenotech
related to licensing the rights to the XenoMouse technology from Xenotech for
the years ended December 31, 1996, 1997 and 1998, respectively.
F-9
<PAGE> 86
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company is obligated to pay 50% of all Xenotech's cash requirements.
The Company accounts for its investment in Xenotech under the equity method; 50%
of Xenotech's net losses up to the Company's investment amount. Details are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ -------- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Abgenix's share of Xenotech losses....................... $3,306 $ 12,347 $411
Losses associated with cross-license and settlement...... -- (11,250) --
Difference due to timing and change in deferred
revenue................................................ 560 (200) --
------ -------- ----
Equity in losses of Xenotech............................. $3,866 $ 897 $411
====== ======== ====
</TABLE>
The Company recognized revenue of $4,719,000, $1,343,000, $1,344,000 for
the years ended December 31, 1996, 1997 and 1998, respectively, net of its cash
contributions to Xenotech related to this revenue.
Summary financial information for Xenotech is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total assets................................................ $ 7,569 $ 219
Total liabilities........................................... 7,556 67
Total revenues.............................................. 272 985
Total operating expenses.................................... (24,964) (1,807)
Net loss.................................................... (24,680) (822)
</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 an annual maintenance fee of
$50,000, to commit at least $1,000,000 annually to the development of ABX-CBL
until ABX-CBL receives regulatory approval in any country and to pay 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 make additional payments to Abgenix upon
completion of certain research milestones. Additionally, Pfizer has an option to
expand the research collaboration to include two additional antigens, one of
which was exercised in October 1998 (see below). 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
F-10
<PAGE> 87
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 shares were automatically
converted to 160,000 shares of the Company's common stock upon the completion of
the Company's initial public offering in July 1998.
In October 1998, Pfizer exercised its option under the December 1997
agreement to expand its research collaboration with the Company to include a
second undisclosed antigen target in the field of cancer and has an option for a
third antigen target. After the exercise of an option by Pfizer, the Company
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.
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 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.
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. In June 1998, the Company and
Genentech expanded their collaboration to include a second undisclosed antigen
in the field of cardiovascular research. Under the research license and option
agreement, as amended, Abgenix will allow Genentech to use XenoMouse technology
to generate fully human antibodies to the antigen targets. Genentech is
obligated to make payments to Abgenix for performance of research activities.
In addition, the agreement provides Genentech with options, for a limited
time, to enter into product license agreements that provide Genentech with an
exclusive worldwide license, with respect to the antigen in the field of growth
factor modulation, and with respect to the antigen in the field of
cardiovascular research, to develop, make, use and sell antibody products
derived from the research collaboration. If an option is exercised, a product
license agreement may provide Abgenix with up to approximately $5,500,000
million per antigen target in license fees and milestone payments to be made
upon completion of certain milestones, including clinical trials and receipt of
regulatory approvals. Additionally, if a product receives
F-11
<PAGE> 88
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
The research collaboration with Genentech was superceded by the agreement
signed with Genentech in January 1999. See Note 10.
RESEARCH COLLABORATION AND LICENSE OPTION AGREEMENT WITH MILLENNIUM
BIOTHERAPEUTICS
In July 1998, the Company entered into a research collaboration agreement
with Millennium BioTherapeutics to generate fully human antibodies to an antigen
target in the field of inflammation. In October 1998, the Company entered into a
research, license and option agreement with Millennium BioTherapeutics covering
the same antigen target. The October 1998 agreement provides Millennium
BioTherapeutics with an option, for a limited time, to obtain a license to
develop, make, use and sell antibody products derived from the research
collaboration. If the product license agreement is signed, it may provide
Abgenix with up to approximately $7,500,000 million in license fees and
milestone payments to be made in the future upon completion of certain
milestones, including completion of research, clinical trials and the receipt of
regulatory approvals. Additionally, if a product receives marketing approval
from the FDA or equivalent foreign agency, the Company is entitled to receive
royalties on future product sales by Millennium BioTherapeutics.
In September 1998, the Company entered into a second research collaboration
agreement with Millennium BioTherapeutics covering a second antigen target in
the field of inflammation.
TECHNOLOGY AGREEMENT WITH CENTOCOR
In December 1998, the Company entered into a research collaboration with
Centocor to generate fully human antibodies to antigens in the cardiovascular
field. This agreement allows the partner to conduct limited research using the
XenoMouse technology for a limited time after which the partner may exercise its
option to enter a Research License and Option Agreement.
MEMORANDUM OF UNDERSTANDING WITH RCT
In December 1998, the Company entered into a binding memorandum of
understanding with Research Corporation Technologies ("RCT") to generate fully
human antibodies to a specified antigen, under which the Company has agreed to
perform certain research for RCT and may receive either a percentage of
sublicense income received by RCT or milestone and royalty payments on sales of
products.
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 two years. These investments are
carried at market, which approximates cost. There were no significant unrealized
gains or losses related to these investments.
F-12
<PAGE> 89
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of available-for-sale securities at fair value,
which approximates amortized cost:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Commercial paper......................................... $12,038 $ 5,106
U.S. government obligations.............................. 2,881 11,575
------- -------
Total.......................................... $14,919 $16,681
======= =======
</TABLE>
Included in cash and cash equivalents at December 31, 1997, and 1998 are
available-for-sale securities of $4,215,000 and $1,352,000, respectively.
Included in short-term investments at December 31, 1997 and 1998 are
available-for-sale securities of $10,704,000 and $15,329,000, respectively. At
December 31, 1998, 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,
-----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Furniture, machinery and equipment........................ $2,188 $ 3,118
Leasehold improvements.................................... 4,503 4,270
------ -------
6,691 7,388
Less accumulated depreciation and amortization............ (915) (1,953)
------ -------
$5,776 $ 5,435
====== =======
</TABLE>
Property and equipment financed under capital leases was $1,956,000 at
December 31, 1997 and 1998.
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. Upon the
completion the Company's initial public offering, in July 1998, these shares
were automatically converted to 666,667 shares of the Company's common stock.
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, the Company
owed $212,000 to Cell Genesys for this reimbursement. The entire amount was paid
to Cell Genesys in 1998.
F-13
<PAGE> 90
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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%. The interest rate at December 31, 1998 was
8.75%. 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.
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,
1999......................................... $ 1,259 $ 594 $ 1,853
2000......................................... 1,258 594 1,852
2001......................................... 105 332 437
------- ------ -------
Total................................ 2,622 1,520 4,142
Less amount representing interest and tax...... -- (263) (263)
------- ------ -------
Present value of future payments............... 2,622 1,257 3,879
Less current portion........................... (1,259) (440) (1,699)
------- ------ -------
Noncurrent portion............................. $ 1,363 $ 817 $ 2,180
======= ====== =======
</TABLE>
The carrying value of the loan approximates fair value at December 31,
1998. 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.
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,
1998 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending December 31, 1999.......................... $ 891
2000................................................. 923
2001................................................. 955
2002................................................. 987
2003................................................. 1,019
Thereafter........................................... 3,341
------
Total lease payments................................... $8,116
======
</TABLE>
Rent expense was approximately $862,000 for the year ended December 31,
1998.
F-14
<PAGE> 91
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
COMMITMENT FOR PRODUCT DEVELOPMENT
The Company has contracted with a third party, located in the United
Kingdom, for the manufacture of certain products it uses in its clinical trials.
As of December 31, 1998, the Company has committed approximately $600,000
related to future deliveries of these products. The Company has not recorded
these obligations in its accrued liabilities as no legal liability exits until
the products are delivered to and accepted by the Company.
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. 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 recorded a liability of $3,750,000 in its balance sheet at December
31, 1997, representing its share of the Xenotech obligation, since the joint
venture partners are equally obligated to fund the cash requirements of
Xenotech. The Company made the payment of $3,750,000 in 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. The full amount of the cross-license and
settlement costs has been recognized in the Company's statement of operations
for the year ended December 31, 1997 because the Company has determined that the
cross-license received by the Company from GenPharm is non-exclusive and has no
alternative future uses for the Company.
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 and the equity method of accounting,
Abgenix has also recorded an expense of $11,250,000 representing 50% of the
Xenotech expense.
7. STOCKHOLDERS' EQUITY
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. 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.
F-15
<PAGE> 92
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PREFERRED STOCK
The Board of Directors is 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.
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 (at a price determined by the
Board of Directors 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.
F-16
<PAGE> 93
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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....................... 15,002 (15,002) 0.60
---------- --------- -----
Balances at December 31, 1996............ 429,902 1,168,906 0.60
Authorized............................... 791,250 -- --
Options granted below fair value....... (676,644) 676,644 2.42
Options exercised...................... -- (232,350) 1.51
Options canceled....................... 104,774 (104,774) 1.11
---------- --------- -----
Balances at December 31, 1997............ 649,282 1,508,426 1.24
Authorized............................... 500,000 -- --
Options granted........................ (353,551) 353,551 6.82
Options exercised...................... -- (153,268) 0.86
Options canceled....................... 66,522 (66,522) 2.11
---------- --------- -----
Balances at December 31, 1998............ 862,253 1,642,187 $2.44
========== ========= =====
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$0.60 to $12.38. The following table summarizes information about options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------------------
REMAINING NUMBER
EXERCISE NUMBER CONTRACTUAL OF OPTIONS
PRICES OF OPTIONS LIFE, IN YEARS EXERCISABLE
-------- ---------- -------------- -----------
<S> <C> <C> <C>
$ 0.60...................................... 907,781 7.66 431,359
$ 1.00...................................... 3,800 8.31 1,634
$ 2.50...................................... 299,739 8.44 102,989
$ 4.00...................................... 67,491 8.62 33,131
$ 5.00...................................... 24,800 8.95 6,283
$ 6.00...................................... 246,176 9.13 59,116
$ 8.50...................................... 57,000 9.82 1,666
$ 9.00...................................... 2,200 9.56 --
$10.00...................................... 31,200 9.44 1,153
$12.38...................................... 2,000 9.94 83
--------- ---- -------
1,642,187 8.20 637,414
========= ==== =======
</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). 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. During the second, third and fourth
quarters of 1998, the Company granted an additional 51,376 options to employees
to purchase shares of common stock at prices ranging from $5.00 to $10.00 per
share. No deferred compensation expense was recorded as the options were granted
at the then current market price of the
F-17
<PAGE> 94
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stock on the date of the grant. The Company amortized $528,000 and $598,000 of
the deferred compensation balance during the years ended December 31, 1997 and
1998, respectively.
Additionally, in the fourth quarter of 1998, the Company granted 42,000
options to purchase shares of common stock at prices ranging from $8.50 to
$12.38 per share to two independent consultants with vesting periods ranging
from one to two years. Compensation expense of $15,000 was recorded for the
services performed through December 31, 1998, and the Company expects to record
additional compensation expense as the services are provided.
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, 1997 and 1998,
respectively: risk-free interest rate of 6.65%, 6.46% and 4.67%; no dividend
yield in 1996, 1997 or 1998; volatility factor of 0.68, 0.67 and 0.78; and an
expected life of the option of five years in 1996, 1997 and 1998. These same
assumptions were applied in the determination of the option values related to
stock options granted to non-employees, except for the option life for which 10
years, the term of the option, was used. The value has been recorded in the
financial statements.
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.
The weighted-average fair values of options granted during the years ended
December 31, 1996, 1997 and 1998 were $0.87, $3.00 and $6.82 per share. All
options granted in 1996 and 1997 were granted at exercise prices below the
deemed fair value of the underlying common stock. All options granted in 1998
were granted at exercise prices at the then current market value of the 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>
DECEMBER 31,
--------------------------
1997 1998
------------ ----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net loss:
As reported................................ $ (35,880) $(16,827)
---------- --------
Pro forma.................................. $ (36,103) $(17,160)
---------- --------
Net loss per share:
As reported................................ $(1,032.70) $ (3.00)
---------- --------
Pro forma.................................. $(1,039.11) $ (3.06)
---------- --------
</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.
F-18
<PAGE> 95
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
250,000 shares of common stock have been reserved under both the 1998 Employee
Stock Purchase Plan and the 1998 Director Option Plan.
The Employee Stock Purchase Plan also provides for an annual increase,
commencing in 1999, in the number of shares reserved for issuance under the
Employee Stock 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 Employee Stock
Purchase Plan over its term would be 2,500,000 shares.
WARRANTS
In connection with the loan guaranteed by Cell Genesys in January 1997, the
Company issued a warrant to purchase 71,667 shares of common stock at an
exercise price of $6.00 per share to Cell Genesys. The warrants are exercisable
immediately and expire three years from issuance.
In connection with the loan guaranteed by Cell Genesys in March 1997, the
Company issued a second warrant to purchase 50,000 shares of common 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.
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
$383,000 in 1996, 1997 and 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, which subsequently was
automatically converted to common stock upon the completion the Company's
initial public offering of its common 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 $111,000 in 1997.
On December 31, 1996, the Company purchased Xenotech's remaining laboratory
equipment. The Company paid $154,000, 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.
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.
F-19
<PAGE> 96
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $36,500,000. The Company also had federal
research and development tax credit carryforwards of approximately $1,100,000 as
of December 31, 1998. The net operating loss and credit carryforwards will
expire in the years 2011 through 2018, 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 as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 5,400 $ 12,900
Research credit carryforwards................ 400 1,500
Capitalized research and development......... 200 1,600
Capitalized license agreements............... 8,000 6,000
Deferred partnership losses.................. -- 1,600
Other, net................................... 400 100
-------- --------
Total deferred tax assets............ 14,400 23,700
Valuation allowance............................ (14,400) (23,700)
-------- --------
Net deferred tax assets.............. $ -- $ --
======== ========
</TABLE>
The net valuation allowance increased by $13,500,000 during the year ended
December 31, 1997. Deferred tax assets relate primarily to net operating loss
carryforwards and to the capitalization of the GenPharm cross-license and
settlement obligation of $22,500,000, which was expensed for accounting
purposes.
10. SUBSEQUENT EVENTS (UNAUDITED)
In January 1999, the Company entered into a research license and option
agreement with AVI BioPharma ("AVI") to generate fully human antibodies to a
specified antigen. This agreement allows the partner to conduct research and
provides the partner with an option, for a limited time, to enter into a product
license agreement at a future date. If the product license agreement is signed,
it may provide the Company with additional license fees, milestone payments and
royalties.
In January 1999, the Company entered into a multi-antigen research license
and option agreement with Genentech. Under the agreement, the Company granted
Genentech a license to utilize XenoMouse technology in its antibody product
research efforts and an option to obtain product licenses for up to ten antigen
targets, but not more than two in any one year, over the agreement's six year
term. Included in the ten are the two previously identified antigen targets
under the now superceded research license and option agreement at the new
option, license fee and milestone payment levels. The agreement can be renewed
by Genentech for up to an additional four targets over a subsequent three year
period. Genentech acquired 495,356 shares of the Company's common stock for an
aggregate purchase price of $8,000,000. To renew the agreement at the end of the
sixth year, Genentech must purchase an additional $2,500,000 of the Company's
common stock at a 50% premium to the then current market price.
F-20
<PAGE> 97
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Xenotech, LP
We have audited the accompanying balance sheets of Xenotech, LP (a
development stage enterprise) as of December 31, 1997 and 1998, and the related
statements of operations, partners' capital and cash flows for each of the three
years in the period ended December 31, 1998 and for the period from inception
(June 12, 1991) to December 31, 1998. 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, LP (a development
stage enterprise) at December 31, 1997 and 1998 and the results of its
operations and its cash flows for each of the three years ended December 31,
1998 and for the period from inception (June 12, 1991) to December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 22, 1999
F-21
<PAGE> 98
XENOTECH, LP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Cash........................................................ $ 58 $ 94
Short-term investments...................................... 3,750 --
Prepaid expenses and other current assets................... 11 11
Receivable from partners.................................... 3,750 114
-------- --------
Total current assets.............................. $ 7,569 $ 219
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities......................................... $ 56 $ 67
Payable related to cross-license and settlement agreement... 7,500 --
-------- --------
Total current liabilities......................... 7,556 67
Partners' capital:
Paid-in capital........................................... 60,746 61,707
Deficit accumulated during the development stage.......... (60,733) (61,555)
-------- --------
Total partners' capital........................... 13 152
-------- --------
Total liabilities and partners' capital........... $ 7,569 $ 219
======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 99
XENOTECH, LP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED DECEMBER 31, (JUNE 12, 1991) TO
----------------------------- DECEMBER 31,
1996 1997 1998 1998
------- -------- ------ ------------------
<S> <C> <C> <C> <C>
Research and license revenues from
partners................................... $ 1,912 $ 272 $ 985 $ 11,289
Expenses:
Research and development................... 8,240 2,396 1,695 48,805
General and administrative................. 307 98 82 1,721
Cross-license and settlement expense....... -- 22,470 30 22,500
------- -------- ------ --------
Total expenses..................... 8,547 24,964 1,807 73,026
Interest income.............................. 21 12 -- 182
------- -------- ------ --------
Net loss..................................... $(6,614) $(24,680) $ (822) $(61,555)
======= ======== ====== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 100
XENOTECH, LP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED PARTNERS
------------------------ TOTAL
GENERAL JAPAN PARTNERS'
PARTNER TOBACCO INC. ABGENIX CAPITAL
------- ------------ -------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995..................... $ 19 $ 368 $ 368 $ 755
Capital contributed............................ 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 contributed............................ 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 contributed............................ 9 476 476 961
Net loss....................................... (9) (406) (407) (822)
----- -------- -------- --------
Balance at December 31, 1998..................... $ -- $ 76 $ 76 $ 152
===== ======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 101
XENOTECH, LP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED DECEMBER 31, (JUNE 12, 1991) TO
------------------------------ DECEMBER 31,
1996 1997 1998 1998
------- -------- ------- ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................... $(6,614) $(24,680) $ (822) $(61,555)
Adjustments to reconcile net loss to net
cash used in operating activities:
Charge for cross-license and settlement... -- 7,485 -- 7,485
Depreciation and amortization expense..... 74 8 -- 325
Changes in certain assets and liabilities:
Decrease (increase) in prepaid and other
current assets......................... 108 181 -- (11)
Decrease (increase) in receivable from
partner................................ 30 (3,750) 3,636 (114)
Increase (decrease) in accrued
liabilities............................ (298) (3) 11 67
Decrease in deferred revenue.............. (250) -- -- --
Increase (decrease) in payable for
cross-license settlement............... -- 7,500 (7,500) --
------- -------- ------- --------
Net cash used in operating activities....... (6,950) (13,259) (4,675) (53,803)
------- -------- ------- --------
CASH USED IN INVESTING ACTIVITIES
Capital expenditures........................ -- -- -- (325)
Purchases (sales) of short-term
investments............................... -- (3,750) 3,750 --
------- -------- ------- --------
Net cash provided by (used in) investing
activities................................ -- (3,750) 3,750 (325)
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions....................... 6,292 16,775 961 54,222
------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents............................... (658) (234) 36 94
Cash and cash equivalents at beginning of
period.................................... 950 292 58 --
------- -------- ------- --------
Cash and cash equivalents at end of
period.................................... $ 292 $ 58 $ 94 $ 94
======= ======== ======= ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 102
XENOTECH, LP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Xenotech, LP, 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 fully 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.
3. RELATED PARTY TRANSACTIONS
Abgenix provides contract research and development services to the
Partnership to develop genetically modified strains of mice, which can produce
fully human monoclonal antibodies pursuant to a
F-26
<PAGE> 103
XENOTECH, LP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
collaboration agreement under which Abgenix receives certain minimum payments.
During the years ended 1996, 1997 and 1998, the Partnership paid Abgenix
$1,200,000, $2,300,000, $1,656,000, respectively ($42,856,000 for the period
from inception to December 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 fully human monoclonal antibodies derived from the
genetically modified strains of mice. Abgenix and Japan Tobacco Inc. ("Japan
Tobacco"), 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 Japan Tobacco (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 $4,747,000,
$1,912,000 and $272,000 and $985,000 for the years ended December 31, 1995,
1996, 1997 and 1998, respectively. The research revenues were derived from
research payments made by Japan Tobacco and Abgenix. Of research payments made
by Japan Tobacco 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. ("GenPharm"), a
subsidiary of Medarex, Inc., 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. 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 recorded a payable to GenPharm for the remaining $7,500,000, which
was paid in 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-27
<PAGE> 104
[ARTWORK]
ALL OF OUR PRODUCT CANDIDATES ARE AT EARLY STAGES OF RESEARCH AND DEVELOPMENT
AND HAVE NOT BEEN APPROVED FOR SALE IN THE UNITED STATES BY THE UNITED STATES
FOOD AND DRUG ADMINISTRATION, AND THEREFORE, NO SALES HAVE BEEN GENERATED.
APPROVAL OF OUR PRODUCT CANDIDATES BY THE FDA OR CORRESPONDING INTERNATIONAL
REGULATORY AUTHORITIES COULD TAKE SEVERAL YEARS. REGULATORY APPROVAL MAY NEVER
BE OBTAINED.
<PAGE> 105
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 "Fully Human," with arrows connecting the diagrams. 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 "100% Human Protein."
SUBHEADER 2: "XenoMouse Technology Collaborations"
This is a depiction of the Table found on page 44 of the Prospectus.
PAGE 33
HEADER: "ANTIBODY STRUCTURE"
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 remainder is shaded.
PAGE 34
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 Assembled 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 Heavy Chain Produced By Gene."
PAGE 36
HEADER: "EVOLUTION OF ANTIBODY TECHNOLOGIES"
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 "100% Human Protein."
INSIDE BACK COVER:
HEADER "Abgenix Proprietary Product Pipeline"
This chart is a horizontal bar graph where each of six bars represents
the stage of development of each of four products with respect to each of the
medical conditions that they treat.
The top line of the chart lays out the various stages, from left to
right, as follows: "Research"; "Preclinical"; "Phase I"; "Phase I/II"; "Phase
II"; "Phase III."
From top to bottom, the six bars are as follows:
1. The "ABX-CBL : GVHD" bar extends through the "Phase II" region.
2. The "ABX-IL8 : Psoriasis" bar extends into the "Phase I/II"
region.
3. The "ABX-IL8 : Rheumatoid Arthritis" bar extends into the "Phase
I" region.
4. The "ABX-EGF : Various Cancers" bar extends through the
"Preclinical" region.
5. The "ABX-RB2 : Transplant Rejection" bar extends into the
"Preclinical" region.
6. The "ABX-RB2 : Autoimmune Disease" bar extends into the
"Preclinical" region.
<PAGE> 106
LOGO
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by Abgenix in
connection with the registration of the common stock hereunder. All of the
amounts shown are estimates except for the SEC registration fee, NASD filing fee
and the Nasdaq National Market listing fees.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
SEC Registration Fee........................................ $ 14,986.00
NASD Filing Fee............................................. 5,891.00
Nasdaq National Market Listing Fee.......................... 17,500.00
Blue Sky Qualification Fees and Expenses.................... 5,000.00
Printing and Engraving Expenses............................. 150,000.00
Legal Fees and Expenses..................................... 150,000.00
Accounting Fees and Expenses................................ 75,000.00
Transfer Agent and Registrar Fees and Expenses.............. 10,000.00
Miscellaneous Expenses...................................... 71,623.00
-----------
Total............................................. $500,000.00
===========
</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. Our Amended and Restated Certificate of Incorporation and our
Amended and Restated Bylaws provide for indemnification of our directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the Delaware General Corporation Law. We have also entered into
agreements with our directors and executive officers that require Abgenix 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 permitted by Delaware law. We have also purchased directors and
officers liability insurance, which provides coverage against certain
liabilities including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since our incorporation (June 24, 1996), we have issued and sold the
following unregistered securities:
(1) On July 15, 1996, we issued 1,691,667 shares of series A senior
convertible preferred stock to Cell Genesys in exchange for $10.0 million.
(2) On July 15, 1996, we 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 specific to
the antibody therapy programs to be pursued by Abgenix, including Cell
Genesys' interest in its joint venture with Japan Tobacco.
(3) On July 15, 1996, Abgenix, 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.
II-1
<PAGE> 108
(4) From July 15, 1996 to October 22, 1998, we granted options to
purchase 2,156,295 shares of common stock to employees, directors and
consultants under the 1996 Plan at exercise prices ranging from $0.60 to
$10.00 per share. Of the 2,156,295 shares granted, 1,622,008 remain
outstanding, 349,023 shares of common stock have been purchased pursuant to
exercises of stock options or stock purchase rights under the 1996 Plan and
185,264 shares have been canceled and returned to the 1996 Plan.
(5) On January 23, 1997 and March 27, 1997, we 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, we 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, we 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 Abgenix and Pfizer.
(8) On January 27, 1999, we issued 495,356 of common stock to
Genentech at a per share purchase price of $16.15. This issuance was in
connection with a multi-antigen research license and option agreement
entered into between Abgenix and Genentech.
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 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 Abgenix, to
information about Abgenix.
(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(1) Amended and Restated Certificate of Incorporation of
Abgenix, as currently in effect.
3.2(1) Amended and Restated Bylaws of Abgenix, as currently in
effect.
4.1(1) Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1(1) Form of Indemnification Agreement between Abgenix and each
of its directors and officers.
10.2(1) 1996 Incentive Stock Plan and form of agreement thereunder.
10.3(1) 1998 Employee Stock Purchase Plan and form of agreement
thereunder.
10.4(1) 1998 Director Option Plan and form of agreement thereunder.
10.5(1) Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.
10.6(1) Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.
</TABLE>
II-2
<PAGE> 109
<TABLE>
<C> <S>
10.7(3) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.
10.7A(6) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.
10.7B(9) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.
10.8(3) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.8A(5) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.
10.8B(13) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.
10.8C(7) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.
10.8D(9) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.
10.8E(2) Amendment No. 5 dated November 1997 to Collaboration
Agreement.
10.9(3) Limited Partnership Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.9A(6) Amendment No. 2 dated January 1, 1994 to Limited Partnership
Agreement.
10.9B(8) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.
10.9C(10) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.
10.10(4) Field License dated June 12, 1991 among Cell Genesys, JT
Immunotech USA Inc. and Xenotech, L.P.
10.10A(10) Amendment No. 1 dated March 22, 1996 to Field License.
10.10B(10) Amendment No. 2 dated June 28, 1996 to Field License.
10.11(3) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.
10.11A(10) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.
10.12(2) Amended and Restated Anti-IL-8 License Agreement dated March
19, 1996 among Xenotech, L.P., Cell Genesys and Japan
Tobacco Inc.
10.13(9) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech,
L.P.
10.13A(2) Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.
10.14(2) Stock Purchase and Transfer Agreement dated July 15, 1996 by
and between Cell Genesys and Abgenix.
10.15(1) Governance Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.15A(1) Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.
10.15B(1) Amendment No. 2 dated December 22, 1997 to the Governance
Agreement.
10.16(1) Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.17(2) Gene Therapy Rights Agreement effective as of November 1,
1997 between Abgenix and Cell Genesys.
10.18(2) Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of Abgenix.
10.19(11) 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
Abgenix.
10.20(1) Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and Abgenix.
10.21(1) Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and Abgenix.
</TABLE>
II-3
<PAGE> 110
<TABLE>
<C> <S>
10.22(2) License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and Abgenix.
10.23(12) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco Inc.
and GenPharm International, Inc.
10.24(12) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco
Inc. and GenPharm International, Inc.
10.25(12) Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, Abgenix, Xenotech, L.P.,
Japan Tobacco Inc. and GenPharm International, Inc.
10.26(2) Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, Abgenix, Japan Tobacco Inc.
and JT Immunotech USA Inc.
10.27(2) Collaborative Research Agreement dated December 22, 1997
between Pfizer, Inc. and Abgenix.
10.27A(16) Amendment No. 1 dated May 26, 1998 to Collaborative Research
Agreement between Abgenix and Pfizer, Inc.
10.27B(16) Amendment No. 2 dated October 22, 1998 to Collaborative
Research Agreement between Abgenix and Pfizer, Inc.
10.28(1) Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among Abgenix and certain holders of
Abgenix's capital stock.
10.29(2) Collaborative Research Agreement effective as of January 28,
1998 between Schering-Plough Research Institute and Abgenix.
10.30(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 23, 1996.
10.31(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 22, 1997.
10.32(2) Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and Abgenix.
10.33(2) Research License and Option Agreement effective as of April
6, 1998 between Abgenix and Genentech, Inc.
10.33A(2) Amendment No. 1 effective as of June 18, 1998 to Research
License and Option Agreement between Abgenix and Genentech,
Inc.
10.34(14) Research Collaboration Agreement dated July 15, 1998 between
Millennium BioTherapeutics, Inc. and Abgenix.
10.35(16) Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.35A(17) Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.
10.36(16) Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
+10.37 Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.
10.38(16) Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.
10.39(15) Registration Rights Agreement dated November 18, 1998
between certain holders of Abgenix capital stock and
Abgenix.
10.40(16) Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix.
10.41 Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.
</TABLE>
II-4
<PAGE> 111
<TABLE>
<C> <S>
*+10.42 Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ Confidential treatment requested for portions of these exhibits. Omitted
portions have been filed separately with the Commission.
* To be filed by amendment.
(1) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-49415).
(2) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-49415), portions of which
have been granted confidential treatment.
(3) Incorporated by reference to the same exhibit filed with Cell Genesys'
Registration Statement on Form S-1 (File No. 33-46452), portions of which
have been granted confidential treatment.
(4) Incorporated by reference to the same exhibit filed with Cell Genesys'
Registration Statement on Form S-1 (File No. 33-46452).
(5) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, portions
of which have been granted confidential treatment.
(6) Incorporated by reference to the same exhibit filed with Cell Genesys'
Annual Report on Form 10-K for the year ended December 31, 1993, portions
of which have been granted confidential treatment.
(7) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, portions
of which have been granted confidential treatment.
(8) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(9) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions
of which have been granted confidential treatment.
(10) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(11) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly report on Form 10-Q for the quarter ended September 30, 1996.
(12) Incorporated by reference to the same exhibit filed with Cell Genesys'
Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, portions of which have been granted confidential treatment.
(13) Incorporated by reference to the same exhibit filed with Cell Genesys'
Annual Report on Form 10-K for the year ended December 31, 1993.
(14) Incorporated by reference to the same exhibit filed with Abgenix's Current
Report on Form 8-K filed with the Commission on July 17, 1998, portions of
which have been granted confidential treatment.
(15) Incorporated by reference to the same exhibit filed with Abgenix's Current
Report on Form 8-K filed with the Commission on November 24, 1998.
(16) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631), portions for which
Abgenix has requested confidential treatment.
(17) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631).
II-5
<PAGE> 112
(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 Abgenix for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Abgenix, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Abgenix of expenses incurred or paid by a director, officer or controlling
person of Abgenix in the successful defense of any action, suit or proceeding)
is asserted by a director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by Abgenix is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
We hereby undertake that:
(a) For purposes of determining any liability under the Securities
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 Abgenix pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Abgenix has duly caused this 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 26th day of January, 1999.
ABGENIX, INC.
By: /s/ R. SCOTT GREER
------------------------------------
R. Scott Greer
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints R. Scott Greer and Kurt
Leutzinger, and each one of them, acting individually and without the other, as
his attorney-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and to sign any registration statement
for the same offering covered by this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) promulgated under the Securities
Act of 1933, and all post-effective amendments thereto, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 January 26, 1999
- -------------------------------------------------------- Officer and Director
R. Scott Greer (Principal Executive
Officer)
/s/ KURT W. LEUTZINGER Vice President, Finance and January 26, 1999
- -------------------------------------------------------- Chief Financial Officer
Kurt W. Leutzinger (Principal Financial and
Accounting Officer)
/s/ STEPHEN A. SHERWIN, M.D. Chairman of the Board January 26, 1999
- --------------------------------------------------------
Stephen A. Sherwin, M.D.
/s/ M. KATHLEEN BEHRENS, PH.D. Director January 26, 1999
- --------------------------------------------------------
M. Kathleen Behrens, Ph.D.
/s/ RAJU S. KUCHERLAPATI, PH.D. Director January 26, 1999
- --------------------------------------------------------
Raju S. Kucherlapati, Ph.D.
/s/ MARK B. LOGAN Director January 26, 1999
- --------------------------------------------------------
Mark B. Logan
/s/ JOSEPH E. MAROUN Director January 26, 1999
- --------------------------------------------------------
Joseph E. Maroun
</TABLE>
II-7
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1(1) Amended and Restated Certificate of Incorporation of
Abgenix, as currently in effect.
3.2(1) Amended and Restated Bylaws of Abgenix, as currently in
effect.
4.1(1) Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1(1) Form of Indemnification Agreement between Abgenix and each
of its directors and officers.
10.2(1) 1996 Incentive Stock Plan and form of agreement thereunder.
10.3(1) 1998 Employee Stock Purchase Plan and form of agreement
thereunder.
10.4(1) 1998 Director Option Plan and form of agreement thereunder.
10.5(1) Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.
10.6(1) Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.
10.7(3) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.
10.7A(6) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.
10.7B(9) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.
10.8(3) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.8A(5) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.
10.8B(13) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.
10.8C(7) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.
10.8D(9) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.
10.8E(2) Amendment No. 5 dated November 1997 to Collaboration
Agreement.
10.9(3) Limited Partnership Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.9A(6) Amendment No. 2 dated January 1, 1994 to Limited Partnership
Agreement.
10.9B(8) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.
10.9C(10) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.
10.10(4) Field License dated June 12, 1991 among Cell Genesys, JT
Immunotech USA Inc. and Xenotech, L.P.
10.10A(10) Amendment No. 1 dated March 22, 1996 to Field License.
10.10B(10) Amendment No. 2 dated June 28, 1996 to Field License.
10.11(3) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.
10.11A(10) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.
10.12(2) Amended and Restated Anti-IL-8 License Agreement dated March
19, 1996 among Xenotech, L.P., Cell Genesys and Japan
Tobacco Inc.
10.13(9) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech,
L.P.
10.13A(2) Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.
</TABLE>
II-8
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
10.14(2) Stock Purchase and Transfer Agreement dated July 15, 1996 by
and between Cell Genesys and Abgenix.
10.15(1) Governance Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.15A(1) Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.
10.15B(1) Amendment No. 2 dated December 22, 1997 to the Governance
Agreement.
10.16(1) Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.17(2) Gene Therapy Rights Agreement effective as of November 1,
1997 between Abgenix and Cell Genesys.
10.18(2) Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of Abgenix.
10.19(11) 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
Abgenix.
10.20(1) Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and Abgenix.
10.21(1) Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and Abgenix.
10.22(2) License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and Abgenix.
10.23(12) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco Inc.
and GenPharm International, Inc.
10.24(12) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco
Inc. and GenPharm International, Inc.
10.25(12) Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, Abgenix, Xenotech, L.P.,
Japan Tobacco Inc. and GenPharm International, Inc.
10.26(2) Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, Abgenix, Japan Tobacco Inc.
and JT Immunotech USA Inc.
10.27(2) Collaborative Research Agreement dated December 22, 1997
between Pfizer, Inc. and Abgenix.
10.27A(16) Amendment No. 1 dated May 26, 1998 to Collaborative Research
Agreement between Abgenix and Pfizer, Inc.
10.27B(16) Amendment No. 2 dated October 22, 1998 to Collaborative
Research Agreement between Abgenix and Pfizer, Inc.
10.28(1) Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among Abgenix and certain holders of
Abgenix's capital stock.
10.29(2) Collaborative Research Agreement effective as of January 28,
1998 between Schering-Plough Research Institute and Abgenix.
10.30(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 23, 1996.
10.31(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 22, 1997.
10.32(2) Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and Abgenix.
10.33(2) Research License and Option Agreement effective as of April
6, 1998 between Abgenix and Genentech, Inc.
</TABLE>
II-9
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
10.33A(2) Amendment No. 1 effective as of June 18, 1998 to Research
License and Option Agreement between Abgenix and Genentech,
Inc.
10.34(14) Research Collaboration Agreement dated July 15, 1998 between
Millennium BioTherapeutics, Inc. and Abgenix.
10.35(16) Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.35A(17) Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.
10.36(16) Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
+10.37 Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.
10.38(16) Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.
10.39(15) Registration Rights Agreement dated November 18, 1998
between certain holders of Abgenix capital stock and
Abgenix.
10.40(16) Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix
10.41 Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.
*+10.42 Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ Confidential treatment requested for portions of these exhibits. Omitted
portions have been filed separately with the Commission.
* To be filed by amendment.
(1) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-49415).
(2) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-49415), portions of which
have been granted confidential treatment.
(3) Incorporated by reference to the same exhibit filed with Cell Genesys'
Registration Statement on Form S-1 (File No. 33-46452), portions of which
have been granted confidential treatment.
(4) Incorporated by reference to the same exhibit filed with Cell Genesys'
Registration Statement on Form S-1 (File No. 33-46452).
(5) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, portions
of which have been granted confidential treatment.
(6) Incorporated by reference to the same exhibit filed with Cell Genesys'
Annual Report on Form 10-K for the year ended December 31, 1993, portions
of which have been granted confidential treatment.
(7) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, portions
of which have been granted confidential treatment.
II-10
<PAGE> 117
(8) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(9) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions
of which have been granted confidential treatment.
(10) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(11) Incorporated by reference to the same exhibit filed with Cell Genesys'
Quarterly report on Form 10-Q for the quarter ended September 30, 1996.
(12) Incorporated by reference to the same exhibit filed with Cell Genesys'
Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, portions of which have been granted confidential treatment.
(13) Incorporated by reference to the same exhibit filed with Cell Genesys'
Annual Report on Form 10-K for the year ended December 31, 1993.
(14) Incorporated by reference to the same exhibit filed with Abgenix's Current
Report on Form 8-K filed with the Commission on July 17, 1998, portions of
which have been granted confidential treatment.
(15) Incorporated by reference to the same exhibit filed with Abgenix's Current
Report on Form 8-K filed with the Commission on November 24, 1998.
(16) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631), portions for which
Abgenix has requested confidential treatment.
(17) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631).
II-11
<PAGE> 1
EXHIBIT 1.1
3,000,000 SHARES(1)
ABGENIX, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1999
BANCBOSTON ROBERTSON STEPHENS INC.
LEHMAN BROTHERS INC.
PACIFIC GROWTH EQUITIES, INC.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Abgenix, Inc., a Delaware corporation (the "Company"), addresses you as the
Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and each
hereby confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell 3,000,000
shares of its authorized and unissued Common Stock, 0.0001 par value per share
(the "Firm Shares") to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to 450,000 additional shares
of the Company's Common Stock, 0.0001 par value per share (the "Option Shares"),
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common Stock,
0.0001 par value per share, of the Company to be outstanding after giving effect
to the sales contemplated hereby, including the Shares, are hereinafter referred
to as "Common Stock."
2. Representations, Warranties and Agreements of the Company
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No. 333- )
with respect to the Shares, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Act and has been filed
with the Commission; such amendments to such registration statement, such
amended prospectuses subject to completion and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file
such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration
statement and amendments, of each related prospectus subject to completion
(the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted
- ---------------
(1)Plus an option to purchase up to 450,000 additional shares from the Company
to cover over-allotments.
1
<PAGE> 2
from the registration statement pursuant to Rule 430A(a) or, if BancBoston
Robertson Stephens Inc., on behalf of the several Underwriters, shall agree
to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to
Rule 434(b) or (c), as applicable, of the Rules and Regulations pursuant to
subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and Regulations or
as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if
BancBoston Robertson Stephens Inc., on behalf of the several Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations,
the information required to be included in any term sheet filed pursuant to
Rule 434(b) or (c), as applicable, of the Rules and Regulations. The term
"Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the
registration statement pursuant to Rule 430A(a) or files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the information deemed
to be a part of the registration statement at the time it became effective
pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations) and,
in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement,
shall also mean (from and after the effectiveness of such amendment or the
filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company
omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part
of the Registration Statement at the time it became effective pursuant to
Rule 430A(b) of the Rules and Regulations); provided, however, that if in
reliance on Rule 434 of the Rules and Regulations and with the consent of
BancBoston Robertson Stephens Inc., on behalf of the several Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant
to Rule 434(b) or (c), as applicable, prior to the time that a confirmation
is sent or given for purposes of Section 2(10)(a) of the Act, the term
"Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the
Underwriters by the Company and circulated by the Underwriters to all
prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective
pursuant to Rule 434(d) of the Rules and Regulations). Notwithstanding the
foregoing, if any revised prospectus shall be provided to the Underwriters
by the Company for use in connection with the offering of the Shares that
differs from the prospectus referred to in the immediately preceding
sentence (whether or not such revised prospectus is required to be filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after
the time it is first provided to the Underwriters for such use. If in
reliance on Rule 434 of the Rules and Regulations and with the consent of
BancBoston Robertson Stephens Inc., on behalf of the several Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant
to Rule 434(b) or (c), as applicable, prior to the time that a confirmation
is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different
from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and,
as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and at the time the Registration Statement became or becomes,
as the case may be, effective and at all times subsequent thereto up to and
on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
2
<PAGE> 3
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to
the requirements of the Act and the Rules and Regulations, (ii) the
Registration Statement, and any amendments or supplements thereto, did not
and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that none of the
representations and warranties contained in this subparagraph (b) shall
apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter specifically for
use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly organized
and is validly existing and in good standing under the laws of the
jurisdiction of its organization with full power and authority to own,
lease and operate its properties and conduct its business as described in
the Prospectus; the Company owns all of the outstanding capital stock or
other equity interests of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of
the Company and its subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing would
not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise; no proceeding
has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification; each of the Company and its subsidiaries is in
possession of and operating in compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal
and other regulatory authorities which are material to the conduct of its
business, all of which are valid and in full force and effect; neither the
Company nor any of its subsidiaries is in violation of its respective
charter or bylaws, as amended to date, or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or
any of its subsidiaries or their respective properties may be bound; and
neither the Company nor any of its subsidiaries, to the best of the
Company's knowledge, is in material violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or over their respective
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other
than Xenotech, Inc., a Delaware corporation ("Xenotech, Inc.") and
Xenotech, L.P. a California limited partnership (Xenotech, L.P.")
(collectively, the "subsidiaries").
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a material breach or violation of
any of the terms and provisions of, or constitute a default under, (i) any
bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws,
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<PAGE> 4
as amended to date, of the Company or any of its subsidiaries, or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or over
their respective properties. No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its subsidiaries or over their respective properties is required for the
execution and delivery of this Agreement and the consummation by the
Company or any of its subsidiaries of the transactions herein contemplated,
except such as may be required under the Act or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or any of their respective officers or any
of their respective properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective officers or properties or otherwise which (i) might result in
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise or might materially and adversely
affect their properties, assets or rights, (ii) might prevent consummation
of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so
disclosed; and there are no agreements, understandings, arrangements,
contracts, leases or documents of the Company or any of its subsidiaries of
a character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement by the Act or the Rules and Regulations which have not been
accurately described in all material respects in the Registration Statement
or Prospectus and filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company have been
duly authorized, validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and the authorized and
outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" as of the date stated therein and
conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have
been duly authorized for issuance and sale to the Underwriters and, when
issued and delivered by the Company against payment therefor in accordance
with the terms of this Agreement, will be duly and validly issued, fully
paid and nonassessable, and will be issued, sold and transferred to the
Underwriters free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares or Option Shares
or the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire
upon and will not apply to the consummation of the transactions
contemplated by this Agreement. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required
for the issuance, sale or transfer of the Shares except as may be required
under the Act or under state or other securities or Blue Sky laws. All
issued and outstanding shares of capital stock of Xenotech, Inc. have been
duly authorized and validly issued and are fully paid and nonassessable,
and were not issued in violation of or subject to any preemptive right, or
other rights to subscribe for or purchase shares and are owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. All issued and outstanding limited partnership
interests of Xenotech, L.P. have been duly authorized and validly issued
and are fully paid and nonassessable, and were not issued in violation of
or subject to any preemptive right, or other similar right, and the limited
partnership interests owned by the Company are free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither
the Company nor any subsidiary has outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities, interests
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<PAGE> 5
or obligations convertible into, or any contracts or commitments to issue
or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option, stock bonus and other equity incentive plans or arrangements,
and the options or other rights granted, exercised or exercisable
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(g) Ernst & Young LLP, which has examined the consolidated financial
statements of the Company and Xenotech, L.P., together with the related
schedules and notes, as of December 31, 1996 and 1997 and for each of the
years in the three (3) years ended December 31, 1998 filed with the
Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act
and the Rules and Regulations; the audited consolidated financial
statements of the Company and Xenotech, L.P., together with the related
schedules and notes, and the unaudited consolidated financial information,
forming part of the Registration Statement and Prospectus, fairly present
the financial position and the results of operations of the Company and its
subsidiaries and Xenotech, L.P., at the respective dates and for the
respective periods to which they apply; and all audited consolidated
financial statements of the Company and Xenotech, L.P., together with the
related schedules and notes, and the unaudited consolidated financial
information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary
financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis consistent with the audited financial statements presented therein.
No other financial statements or schedules are required to be included in
the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise),
earnings, operations, rights, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (ii) any transaction
that is material to the Company and its subsidiaries considered as one
enterprise, except transactions entered into in the ordinary course of
business, (iii) any obligation, direct or contingent, that is material to
the Company and its subsidiaries considered as one enterprise, incurred by
the Company or its subsidiaries, except obligations incurred in the
ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss
or damage (whether or not insured) to the property of the Company or any of
its subsidiaries which has been sustained or will have been sustained which
has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its subsidiaries has good and marketable title
to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (ii) the
agreements to which the Company or any of its subsidiaries is a party
described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company and its subsidiaries (as
applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) each of the Company and its
subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by
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<PAGE> 6
general equitable principles. Except as set forth in the Registration
Statement and Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be
conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid
all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against
the Company or any of its subsidiaries that might have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise; and all tax liabilities are adequately
provided for on the books of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(l) No disturbance by the employees of the Company or any of its
subsidiaries exists or, to the best of the Company's knowledge, is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers that might
be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's knowledge, no such agreement is
imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the
Registration Statement and Prospectus; no patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights have expired
or terminated, where such termination or expiration would have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, and, except for the potential
expiration of certain foreign patents corresponding to United States Patent
Application Serial No. 496,408, filed February 24, 1983, under which the
Company is licensed, no patents, patent rights, trade secrets, trademarks,
service marks, trade names or copyrights whose termination or expiration
would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise will expire or
terminate prior to five (5) years from the Closing Date (as hereinafter
defined); the Company has not received any notice of, and has no knowledge
of facts which could form the basis of a claim of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names or copyrights; and the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
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<PAGE> 7
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act of 1934, as amended ("Exchange Act"), and is listed on The
Nasdaq National Market, and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from The Nasdaq
National Market, nor has the Company received any notification that the
Commission or the National Association of Securities Dealers, Inc. ("NASD")
is contemplating terminating such registration or listing.
(o) There are no issues related to the Company's, or any of its
subsidiaries', preparedness for the Year 2000 that (i) are of a character
required to be described or referred to in the Registration Statement or
Prospectus by the Act or the Rules and Regulations which have not been
accurately described in the Registration Statement or Prospectus or (ii)
might reasonably be expected to result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or that might materially affect their properties, assets or
rights. All internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company
and each of its Subsidiaries fully comply with the Year 2000 Qualification
Requirements. "Year 2000 Qualification Requirements" means that the
internal computer systems and each Constituent Component (as defined below)
of those systems and all computer-related products and each Constituent
Component (as defined below) of those products of the Company and each of
its Subsidiaries (i) have been reviewed to confirm that they store, process
(including sorting and performing mathematical operations, calculations and
computations), input and output data containing date and information
correctly regardless of whether the date contains dates and times before,
on or after January 1, 2000, (ii) have been designated to ensure date and
time entry recognition, calculations that accommodate same century and
multi-century formulas and date values, leap year recognition and
calculations, and date data interface values that reflect the century,
(iii) accurately manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas, and will not
cause an abnormal ending scenario within the application or generate
incorrect values or invalid results involving such dates, (iv) accurately
process any date rollover, and (v) accept and respond to two-digit year
date input in a manner that resolves any ambiguities as to the century.
"Constituent Component" means all software (including operating systems,
programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration.
(p) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
conduct, its affairs in such a manner as to ensure that it will not become
an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(q) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date (as hereinafter defined), or any date on
which Option Shares are to be purchased, as the case may be, and (ii)
completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any
Preliminary Prospectuses, the Prospectus, the Registration Statement and
other materials, if any, permitted by the Act.
(r) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
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<PAGE> 8
(t) Each officer, director and "insider" (as such term is defined in
the Exchange Act) of the Company, and each beneficial owner of one percent
(1%) or more shares of Common Stock has agreed in writing that such person
will not, for a period of 90 days from the date that the Registration
Statement is declared effective by the Commission (the "Lock-up Period"),
offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition")
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 (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has
or hereafter acquires the power of disposition, otherwise than (i) as a
bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners
or stockholders of such person, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii)
with the prior written consent of BancBoston Robertson Stephens Inc. The
foregoing restriction has been expressly agreed to preclude the holder of
the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be
disposed of by someone other than such holder. Such prohibited hedging or
other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any
right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person has
also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by
such person except in compliance with this restriction. The Company has
provided to counsel for the Underwriters a complete and accurate list of
all securityholders of the Company and the number and type of securities
held by each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors, insiders and 1% stockholders
have agreed to such or similar restrictions (the "Lock-up Agreements")
presently in effect or effected hereby. The Company hereby represents and
warrants that it will not release any of its officers, directors, insiders
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of BancBoston
Robertson Stephens Inc.
(u) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances
and protection of health or the environment ("Environmental Laws") which
are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus, (iii) the Company will not be
required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. sec. 9601, et seq.), or otherwise designated as a contaminated
site under applicable state or local law.
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
them, except as disclosed in the Registration Statement and the Prospectus.
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<PAGE> 9
(x) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company at a purchase price of $ per share, the respective
number of Firm Shares as hereinafter set forth opposite the name of the Company
in Schedule B hereto. The obligation of each Underwriter to the Company shall be
to purchase from the Company that number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company, and, in the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach) at the offices of
Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304-1050
(or at such other place as may be agreed upon among the Representatives and the
Company), at 7:00 A.M., San Francisco time (a) on the third (3rd) full business
day following the first day that Shares are traded, (b) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 10 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later than two (2) full business days following delivery
of copies of the Prospectus to the Representatives. The certificates for the
Firm Shares to be so delivered will be made available to you at such office or
such other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $8.00 per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization and over-allotment by the Underwriters, and under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
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<PAGE> 10
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the
date the Registration Statement is declared effective to become effective
as promptly as possible; the Company will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement,
any subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to such
Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to
Rule 434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the
requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations, have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus
is required under Rule 424(b)(3) of the Rules and Regulations, it will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel
for the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus
relating to the Shares as then in effect would include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus
or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations
and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you
may designate and to continue such qualifications in effect for
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<PAGE> 11
so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as
a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction in which it is
not otherwise required to be so qualified or to so execute a general
consent to service of process. In each jurisdiction in which the Shares
shall have been qualified as above provided, the Company will make and file
such statements and reports in each year as are or may be required by the
laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day
following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to
permit compliance with Section 10(a)(3) of the Act, all in such quantities
as you may from time to time reasonably request. Notwithstanding the
foregoing, if BancBoston Robertson Stephens Inc., on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in
such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth
(45th) day following the end of the fiscal quarter first occurring after
the first anniversary of the effective date of the Registration Statement,
an earnings statement covering a period of at least 12 months beginning
after the effective date of the Registration Statement, complying with the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year, and will furnish to you and the other several
Underwriters hereunder, upon request (i) concurrently with furnishing such
reports to its stockholders, statements of operations of the Company for
each of the first three (3) quarters in the form furnished to the Company's
stockholders, (ii) concurrently with furnishing to its stockholders, a
balance sheet of the Company as of the end of such fiscal year, together
with statements of operations, of stockholders' equity, and of cash flows
of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or
other) mailed to stockholders, (iv) as soon as they are available, copies
of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"), (v) every material press release and
every material news item or article in respect of the Company or its
affairs which was generally released to stockholders or prepared by the
Company or any of its subsidiaries, and (vi) any additional information of
a public nature concerning the Company or its subsidiaries, or its business
which you may reasonably request. During such five (5) year period, if the
Company shall have active subsidiaries, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the
Company and its subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be
the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill
any condition of the Underwriters' obligations hereunder, or if the Company
shall terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement
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<PAGE> 12
pursuant to Section 11(b)(i), the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including fees and
disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(k) During the Lock-up Period, the Company will not, without the prior
written consent of BancBoston Robertson Stephens Inc., effect the
Disposition of, directly or indirectly, any Securities other than the sale
of the Firm Shares and the Option Shares hereunder, the Company's issuance
of options or Common Stock under the Company's presently authorized
employee benefit plans (the "Option Plans") or pursuant to warrants or
other rights as of the date hereof.
(l) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under the Option Plans or other employee benefit plans
or pursuant to warrants or other rights outstanding.
5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky
Survey and any Supplemental Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any
of the foregoing; the issuance and delivery of the Shares hereunder to
the several Underwriters, including transfer taxes, if any, the cost of
all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company;
all fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies
of the Registration Statement (including appropriate exhibits),
Preliminary Prospectus and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and the cost of
qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of
Underwriters' Counsel in connection with such NASD filings and Blue Sky
qualifications); and all other expenses directly incurred by the Company
in connection with the performance of its obligations hereunder.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with
interest, compounded daily, determined on the basis of the prime rate
(or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which
represents the base rate on corporate loans
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<PAGE> 13
posted by a substantial majority of the nation's thirty (30) largest
banks (the "Prime Rate"). Any such interim reimbursement payments which
are not made to the Underwriters within thirty (30) days of a request
for reimbursement shall bear interest at the Prime Rate from the date of
such request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
shall promptly return such payment to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any
such interim reimbursement payments which are not made to the Company
within thirty (30) days of a request for reimbursement shall bear interest
at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and
5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of
the Board of Governors of the New York Stock Exchange, Inc. or pursuant to
the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 5(a)(ii) and 5(b) hereof and will not
resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 8(a)
and 8(b) hereof or the obligation to contribute to expenses which is
created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you;
and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus,
and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information
as they may reasonably have requested to enable them to pass upon the
matters referred to in this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been
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<PAGE> 14
any change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration
Statement or Prospectus, which, in your sole good faith judgment, is
material and adverse and that makes it, in your sole good faith judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company dated the Closing Date or such
later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) The Company and each Significant Subsidiary(2) (as that term is
defined in Regulation S-X of the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each Significant Subsidiary has the corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified
to do business and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations
or business of the Company and its subsidiaries considered as one
enterprise. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than Xenotech, Inc. and Xenotech, L.P.;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the date stated therein, the issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of any
preemptive right, co-sale right, registration right, right of first
refusal or other similar right;
(v) All issued and outstanding shares of capital stock of Xenotech,
Inc. have been duly authorized and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been issued in
violation of any preemptive right, co-sale right, registration right,
right of first refusal or other similar right and the issued and
outstanding shares owned by the Company are free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable
interest;
(vi) All issued and outstanding limited partnership interests of
Xenotech, L.P. have been duly authorized and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, have not
been issued in violation of any preemptive right, or other similar
right, and the limited partnership interests owned by the Company are
free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest;
(vii) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly
issued and fully paid and nonassessable, and will not have been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right;
(viii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
- ---------------
2 Legal opinion shall be limited to subsidiaries that are significant
within the meaning of Item 3-01 of Regulation S-X, unless a subsidiary is
otherwise of particular importance to the Company (e.g. limited revenues or
assets but holds proprietary information valuable to the Company.)
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<PAGE> 15
(ix) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed
and delivered by the Company and, assuming due authorization, execution
and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as
indemnification provisions may be limited by applicable law and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(x) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(xi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as
to which such counsel need not express an opinion), as of the effective
date of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations;
(xii) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel
and is a fair summary of such matters and conclusions; and the forms of
certificates evidencing the Common Stock and filed as exhibits to the
Registration Statement comply with Delaware law;
(xiii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company, as amended to date,
and of statutes are accurate and fairly present the information required
to be presented by the Act and the applicable Rules and Regulations;
(xiv) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws, as amended to date, or (b) to such
counsel's knowledge, result in a material breach or violation of any of
the terms and provisions of, or constitute a default under, any bond,
debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which
the Company is a party or by which its properties are bound, or any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court, government
or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries, or over any of their properties or operations;
(xvi) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations is necessary in connection with
the consummation by the Company of the transactions herein contemplated,
except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in connection
with the purchase and the distribution of the Shares by the
Underwriters;
(xvii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or
any of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein; and
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<PAGE> 16
(xviii) To such counsel's knowledge, neither the Company nor any of
its subsidiaries is currently (a) in material violation of its
respective charter or bylaws, as amended to date, or (b) in material
breach of any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations; and
(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company
having rights known to such counsel to registration of such shares of
Common Stock or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent
to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of
the Company, the Representatives, Underwriters' Counsel and the
independent certified public accountants of the Company, at which such
conferences the contents of the Registration Statement and Prospectus
and related matters were discussed, and although they have not verified
the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the
attention of such counsel which leads them to believe that, at the time
the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any
amendment or supplement thereto (other than the financial statements
including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need not express
any comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of
the Company and of government officials, in which case their opinion is
to state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in any such opinion, representation
or certificate. Copies of any opinion, representation or certificate so
relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the
following opinion of Fish & Neave, as patent counsel to the Company, dated
the Closing Date or such later date on which Option Shares are to be
purchased addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect
that:
Such counsel is familiar with the technology used by the Company and
its subsidiaries in its business and the manner of its use thereof and have
read the Registration Statement and the Prospectus, including particularly
the portions of the Registration Statement and the Prospectus referring to
patents or other proprietary information or materials (the "Statements")
and:
(i) Subject to any disclosure to the contrary in the Prospectus, to
such counsel's actual knowledge, there are no legal or governmental
proceedings, except patent prosecution, pending or
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<PAGE> 17
threatened, relating to the United States patents or patent applications
of the Company referenced in the Statements.
(ii) Subject to any disclosure to the contrary in the Prospectus,
to such counsel's actual knowledge, there are no legal or governmental
proceedings or claims, pending or threatened, against the Company with
respect to the patents of others.
(iii) Subject to any disclosure to the contrary in the Prospectus,
to such counsel's actual knowledge, there are no facts that would
preclude the Company from having clear title to or a valid license under
the United States patents and patent applications referenced in the
Statements.
(iv) To such counsel's actual knowledge, such counsel and the
Company have properly filed and diligently prosecuted, or are so
prosecuting, each of the Company's pending United States patent
applications referred to in the Statements.
(v) To such counsel's actual knowledge, such counsel and the
Company have complied and are continuing to comply on an ongoing basis
with the required duty of candor and good faith in dealing with the
Patent Office, including the duty to disclose to the Patent Office all
information actually known by such counsel to be material to the
patentability of each pending United States patent application referred
in the Statements.
Further, to such counsel's actual knowledge and based solely on such
counsel's representation, the descriptions in the Statements of the status
of the Company's patents and patent applications, as of the date of this
letter, are accurate statements or summaries of the matters therein set
forth and nothing has come to such counsel's attention that causes such
counsel to believe that the Statements contain any untrue statement of a
material fact or omits to state a material fact necessary to make such
Statements not misleading in the context in which they are made.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion
of Cooley Godward LLP in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished
to such counsel such documents as they may have requested for the purpose
of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter
from Ernst & Young LLP addressed to the Underwriters, dated the Closing
Date or such later date on which Option Shares are to be purchased, as the
case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than five (5) business days prior to the
Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to
the statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. The Original Letter from Ernst &
Young LLP shall be addressed to or for the use of the Underwriters in form
and substance satisfactory to the Underwriters and shall (i) represent, to
the extent true, that they are independent certified public accountants
with respect to the Company and Xenotech, L.P. within the meaning of the
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<PAGE> 18
Act and the applicable published Rules and Regulations, (ii) set forth
their opinion with respect to their examination of the consolidated balance
sheet of the Company and Xenotech, L.P. as of December 31, 1998 and related
consolidated statements of operations, stockholders' or partners' equity,
and cash flows for the twelve (12) months ended December 31, 1998; (iii)
state that in the course of such review, nothing came to their attention
that leads them to believe that any material modifications need to be made
to any of the Quarterly Financial Statements in order for them to be in
compliance with generally accepted accounting principles consistently
applied across the periods presented, and (iv) address other matters agreed
upon by Ernst & Young LLP and you. In addition, you shall have received
from Ernst & Young LLP a letter addressed to the Company and made available
to you for the use of the Underwriters stating that their review of the
Company's and Xenotech L.P.'s system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their
examination of the Company's and Xenotech L.P.'s consolidated financial
statements as of December 31, 1998, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or any later date on which Option Shares are to be purchased, as the
case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations, and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and, since
the effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any change
in the capital stock or outstanding indebtedness of the Company or any
of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its subsidiaries, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition
18
<PAGE> 19
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise.
(i) The Company shall have obtained and delivered to you an agreement
from each officer, director and "insider" (as such term is defined in the
Exchange Act) of the Company, and each beneficial owner of one percent (1%)
or more shares of Common Stock in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of
any Securities now owned or hereafter acquired directly by such person or
with respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to partners or stockholders of such person, provided
that the distributees thereof agree in writing to be bound by the terms of
this restriction, or (iii) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period,
even if such Securities would be disposed of by someone other than the such
holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person will have also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company as to the accuracy of the representations and
warranties of the Company herein, as to the performance by the Company of
its obligations hereunder and as to the other conditions concurrent and
precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with
such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of
the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 450,000 Option Shares at the purchase price per share for the
Firm Shares set forth in Section 3 hereof. Such option may be exercised by
the Representatives on behalf of the several Underwriters on one (1) or
more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the
public, by giving written notice to the Company. The number of Option
Shares to be purchased by each Underwriter upon the exercise of such option
shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such
option as the number of Firm Shares purchased by such Underwriter (set
forth in Schedule A hereto) bears to the total number of Firm Shares
purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or
official bank check or checks drawn in next-day funds, payable to the order
of the Company (and the Company agrees not to deposit any such check in the
bank on which it is drawn, and not to take any other action with the
purpose or effect of receiving immediately available funds, until the
business day following the date of its delivery to the
19
<PAGE> 20
Company). In the event of any breach of the foregoing, the Company shall
reimburse the Underwriters for the interest lost and any other expenses
borne by them by reason of such breach. Such delivery and payment shall
take place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, CA 94304-1050 or at such other place as may be agreed
upon among the Representatives and the Company (i) on the Closing Date, if
written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date, or (ii) on a
date which shall not be later than the third (3rd) full business day
following the date the Company receives written notice of the exercise of
such option, if such notice is received by the Company less than two (2)
full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery
and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date
of payment and delivery. If the Representatives so elect, delivery of the
Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any
Underwriter or Underwriters whose check or checks shall not have been
received by you prior to the date of payment and delivery for the Option
Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of
any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and
to the condition that all proceedings taken at or prior to the payment date
in connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and
you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject (including, without limitation,
in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Rule 2720 of the Conduct Rules of the
NASD), under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and agrees
to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to
20
<PAGE> 21
the extent that any such loss, claim, damage, liability or action arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected had
not been sent or given to such person within the time required by the Act
and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject
under the Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of such Underwriter herein contained, (ii)
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter, directly or through you, specifically
for use in the preparation thereof, and agrees to reimburse the Company for
any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each
director of the Company, and each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act. This indemnity agreement
shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it shall elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded
21
<PAGE> 22
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of the indemnifying party's election so to assume
the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a) or 8(b) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or
(iii) the indemnifying party has authorized the employment of counsel for
the indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; provided that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party
is or could have been a party and indemnification could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time
to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others)
in such proportion so that the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company is responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of
the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. The contribution agreement in this
Section 8(d) shall extend upon the same terms and conditions to, and shall
inure to the benefit of, each person, if any, who controls any Underwriter
or the Company within the meaning of the Act or the Exchange Act and each
officer of the Company who signed the Registration Statement and each
director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required
by the Act and the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter
22
<PAGE> 23
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any of its officers,
directors or controlling persons within the meaning of the Act or the Exchange
Act, and shall survive the delivery of the Shares to the several Underwriters
hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section 10, the Company shall not be liable to any Underwriter
(except as provided in Sections 5 and 8 hereof) nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the number of Firm Shares agreed by
such Underwriter to be purchased hereunder, which Underwriter shall remain
liable to the Company, and the other Underwriters for damages, if any, resulting
from such default) be liable to the Company (except to the extent provided in
Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication,
23
<PAGE> 24
of the first newspaper advertisement relating to the Shares, or the time at
which the Shares are first generally offered by the Underwriters to the
public by letter, telephone, telegram or telecopy, whichever shall first
occur. By giving notice as set forth in Section 12 before the time this
Agreement becomes effective, you, as Representatives of the several
Underwriters, or the Company, may prevent this Agreement from becoming
effective without liability of any party to any other party, except as
provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be,
(i) if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse, or (ii) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such exchange or in the over the counter market by the
NASD, or if a banking moratorium shall have been declared by federal, New
York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as to interfere materially with the conduct of
the business and operations of the Company regardless of whether or not
such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the
Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the
declaration by the United States of a national emergency which, in the
reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. In the event of termination pursuant to
subparagraph (i) above, the Company shall remain obligated to pay costs and
expenses pursuant to Sections 4(i), 5 and 8 hereof. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 5
and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement
from becoming effective, the Company shall promptly notify you by
telephone, telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 7601 Dumbarton Circle, Fremont,
California 94555, telecopier number (510) 608-6547, Attention: R. Scott Greer,
Chief Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole
24
<PAGE> 25
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancBoston Robertson Stephens Inc. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and the several Underwriters.
Very truly yours,
ABGENIX, INC.
By
----------------------------------
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
LEHMAN BROTHERS INC.
PACIFIC GROWTH EQUITIES, INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By
----------------------------------
Authorized Signatory
25
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Lehman Brothers Inc. .......................................
Pacific Growth Equities, Inc. ..............................
CIBC Oppenheimer Corp. .....................................
Hambrecht & Quist LLC.......................................
Adams, Harkness & Hill, Inc. ...............................
Gruntal & Co., L.L.C........................................
Van Kasper & Company........................................
---------
Total............................................. 3,000,000
=========
</TABLE>
1
<PAGE> 27
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------------
<S> <C>
---------
Total............................................. 3,000,000
=========
</TABLE>
1
<PAGE> 1
EXHIBIT 5.1
JANUARY 27, 1999
Abgenix, Inc.
7601 Dumbarton Circle
Fremont, CA 94555
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by you
with the Securities and Exchange Commission (the "Commission") on or about
January 27, 1999 (as such may be further amended or supplemented, the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of up to 3,450,000 shares of your Common
Stock, par value $0.0001 per share (the "Shares"). The Shares, which include up
to 450,000 shares of Common Stock issuable pursuant to an over-allotment option
granted to the underwriters (the "Underwriters"), are to be sold to the
Underwriters as described in such Registration Statement for sale to the public.
As your counsel in connection with this transaction, we have examined the
proceedings proposed to be taken by you in connection with the sale of the
Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or that we, as your counsel, contemplate to be taken
prior to the issuance of the Shares and upon completion of the proceedings taken
in order to permit such transactions to be carried out in accordance with the
securities laws of various states where required, the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
which has been approved by us, as such may be further amended or supplemented,
or incorporated by reference in any Registration Statement relating to the
prospectus filed pursuant to Rule 462(b) of the Act.
Sincerely,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH &
ROSATI
<PAGE> 1
EXHIBIT 10.37
RESEARCH COLLABORATION AGREEMENT
[*]
THIS RESEARCH COLLABORATION AGREEMENT (this "Agreement"), effective as
of December 22, 1998 (the "Effective Date"), is made by and between ABGENIX,
INC., a Delaware corporation ("ABX"), having a place of business at 7601
Dumbarton Circle, Fremont, California 94555, and Centocor, Inc., a Pennsylvania
corporation ("Centocor"), having a place of business at 200 Great Valley
Parkway, Malvern, PA 19355, with respect to the following facts:
RECITALS
A. ABX and Centocor are interested in negotiating a research license and
option agreement (the "Research License and Option Agreement") regarding the
generation of human monoclonal antibodies to [*] each, an "Antigen" and both,
collectively, the "Antigens") where the antibodies to either or both of the
Antigens are generated through the use of certain ABX technology.
B. ABX has certain transgenic mice, XenoMouse(TM) Mice (the "XenoMouse
Animals"), that are capable of producing human antibodies when immunized with
antigen.
C. In connection with and during such negotiations, the parties desire
to conduct a research program pursuant to which (a) Centocor will immunize, with
the Antigens, the XenoMouse(TM) Animals provided by ABX to Centocor in order to
generate antibodies therefrom, (b) Centocor will conduct certain analyses and
characterizations of such antibodies, and (c) the parties will review and
analyze the data and results of such research program.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties agree as follows:
A. Definitions. For purposes of this Agreement, the terms defined in
this Section 1 shall have the respective meanings set forth below:
"ABX Materials and Information" shall mean, collectively, (a) all
XenoMouse Animals, including all XenoMouse Animals immunized with either or both
of the Antigens, and all other materials specified in Exhibit A; [*] provided,
however, the ABX Materials and
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* 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> 2
Information shall not include Research Program Materials and Information.
"Antibody" shall mean a composition comprising (a) a whole
antibody, or any fragment thereof, derived in whole or part from the XenoMouse
Animals, or (b) a whole antibody, or any fragment thereof, which is derived from
a whole antibody, or any fragment thereof, which itself is derived in whole or
part from the XenoMouse Animals (or nucleotide sequences encoding, or amino acid
sequences of, a whole antibody, or any fragment thereof, derived in whole or
part from the XenoMouse Animals).
"Antibody Cells" shall mean all cells that contain, express, or
secrete Antibodies or Genetic Materials.
"Confidential Information" shall mean, with respect to a party,
all information of any kind whatsoever (including without limitation,
compilations, data, formulae, models, patent disclosures, procedures, processes,
projections, protocols, results of experimentation and testing, specifications,
strategies and techniques), and all tangible and intangible embodiments thereof
of any kind whatsoever (including without limitation, apparatus, biological or
chemical materials, animals, cells, compositions, documents, drawings,
machinery, patent applications, records, reports), which is owned or controlled
by such party, is disclosed by such party to the other party pursuant to this
Agreement, and (if disclosed in writing or other tangible medium) is marked or
identified as confidential at the time of disclosure to the receiving party or
(if otherwise disclosed) is identified as confidential at the time of disclosure
to the receiving party and described as such in writing within thirty (30) days
after such disclosure. Notwithstanding the foregoing, Confidential Information
of a party shall not include information which the receiving party can establish
by written documentation (a) to have been publicly known prior to disclosure of
such information by the disclosing party to the receiving party, (b) to have
become publicly known, without fault on the part of the receiving party,
subsequent to disclosure of such information by the disclosing party to the
receiving party, (c) to have been received by the receiving party at any time
from a source, other than the disclosing party, rightfully having possession of
and the right to disclose such information free of confidentiality obligations,
(d) to have been otherwise known by the receiving party free of confidentiality
obligations prior to disclosure of such information by the disclosing party to
the receiving party, or (e) to have been independently developed by employees or
agents of the receiving party without access to or use of such information
disclosed by the disclosing party to the receiving party. The parties
acknowledge that the foregoing exceptions shall be narrowly construed and that
the obligations imposed upon each party under Section 6 below shall be relieved
solely with respect to such Confidential Information of the disclosing party
which falls within the above exceptions and not with respect to related
portions, other combinations, or characteristics of the Confidential Information
of the disclosing party including, without limitation, advantages, operability,
specific purposes, uses and the like.
"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.
"Materials and Information" shall mean, collectively, the ABX
Materials and Information and the Research Program Materials and Information.
"Research Program" shall mean the interim research program
conducted by
-2-
<PAGE> 3
Centocor described in Exhibit B for the generation, creation, and identification
of Antibodies that bind to either or both of the Antigens.
"Research Program Materials and Information" shall mean [*];
which results from the performance of the Research Program by Centocor strictly
in accordance with the terms and conditions set forth in this Agreement.
"XT" shall mean Xenotech L.P., a California limited partnership.
2. Research Program.
a. ABX shall transfer to Centocor those certain ABX Materials and
Information listed in Exhibit A on the terms and subject to the conditions of
this Agreement. Centocor shall use the ABX Materials and Information for the
sole purpose of performing the Research Program at its address listed above
under commercially and scientifically reasonable containment conditions, and not
for any commercial, business or other use or purpose without the prior express
written consent of ABX. Centocor shall not transfer or provide access to the ABX
Materials and Information to any other person or entity (other than ABX) or to
any location other than its address set forth above, without the prior express
written consent of ABX. Centocor shall limit access to the ABX Materials and
Information to those of its employees working on its premises, to the extent
such access is reasonably necessary in connection with its activities as
expressly authorized by this Agreement.
b. Centocor shall conduct the Research Program under the direct
supervision of [*], who shall be the primary contact for Centocor regarding the
Research Program. Centocor shall provide ABX with reasonable access to such
persons (in person, by telephone or otherwise as reasonably requested), on
reasonable notice and during normal business hours, to discuss the status of the
Research Program and the results thereof.
c. In consideration for ABX's resources and efforts expended in
connection with the transfer to Centocor of the ABX Materials and Information
listed on Exhibit A, upon execution of this Agreement, Centocor shall pay to ABX
[*]
d. In addition, on or before [*], Centocor will pay to ABX a [*]
of such fee will be creditable against the first nomination fee described below
in Exhibit C.
3. Further Restrictions on Use and Control over the XenoMouse Animals.
ABX is willing to transfer the XenoMouse Animals to Centocor solely on the terms
and conditions
- ------------------
* 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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<PAGE> 4
contained in this Agreement. ABX owns certain technology and intellectual
property rights, or has been licensed to certain technology and intellectual
property rights under specific terms and conditions set forth in certain
licensing agreements with third parties, including without limitation XT, which
technology and intellectual property rights are included or contained within, or
cover, the XenoMouse Animals and/or the Materials. The transfer of the XenoMouse
Animals to Centocor, and the use of the XenoMouse Animals and the Materials and
Information by Centocor, is made expressly subject to the following terms and
conditions:
a. All XenoMouse Animals transferred to Centocor shall be the
sole property of ABX, and the transfer of physical possession to Centocor,
and/or possession or use by Centocor, of the XenoMouse Animals shall not be, nor
be construed as, a sale, lease, offer to sell or lease, or other transfer of
title to or any interest in the XenoMouse Animals;
b. All XenoMouse Animals and all Materials and Information shall
remain in the control of Centocor, and Centocor shall not (and shall not attempt
or purport to) transfer the XenoMouse Animals or the Materials and Information
to any third party (other than ABX), without the prior express written consent
of ABX;
c. Centocor shall not directly or indirectly use or attempt to
use the XenoMouse Animals or the Materials and Information to reproduce,
generate, create or produce, through breeding, reverse-engineering, genetic
manipulation or otherwise, the XenoMouse Animals or other transgenic mice or
other transgenic animals;
d. Centocor shall not use the XenoMouse Animals for any purpose
other than immunizing the XenoMouse Animals with either or both of the Antigens
as specified in Exhibit B for the generation, creation and identification of
Antibodies and shall not subsequently use such immunized XenoMouse Animals for
any purpose other than conducting the Research Program;
e. Centocor shall not (and shall not attempt or purport to)
assign, sell, have sold, lease, offer to sell or lease, distribute, license,
sublicense or otherwise transfer title to or an interest in, or clinically
develop, commercialize or exploit the XenoMouse Animals or the Materials and
Information, without the prior express written consent of ABX;
f. Centocor shall not directly or indirectly use the XenoMouse
Animals to make or use antibodies to any antigen other than either or both of
the Antigens (including without limitation to [*]);
g. XT shall be a third-party beneficiary of all obligations and
commitments by Centocor set forth in Sections 3(a) through (f) above.
4. Reports. Centocor shall keep ABX informed of all uses made of the
Materials and Information. Within ten (10) days after the expiration or earlier
termination of this Agreement and within ten (10) days of the effective date of
any amendment providing for an extension of this Agreement (if any), Centocor
shall prepare and provide ABX with a written report of the research performed to
such date under, and the results of, the Research Program. Centocor shall
provide ABX with reasonable access to all source data and information resulting
from the Research Program.
- ------------------
* 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
5. Publication. Unless otherwise agreed to in writing by ABX and
Centocor or otherwise provided in Section 6 below, neither party shall have the
right to disclose to third parties, or to otherwise publish, the Research
Program Materials and Information, the reports described in Section 4 above (or
any data or information contained therein), or the source data and information
described in Section 4 above.
6. Confidentiality.
a. During the term of this Agreement and for a period of five (5)
years following the expiration or earlier termination hereof, each party shall
maintain in confidence the Confidential Information of the other party, and
shall not disclose, use or grant the use of the Confidential Information of the
other party except on a need-to-know basis to such party's directors, officers
and employees, and to such party's consultants working on such party's premises,
to the extent such disclosure is reasonably necessary in connection with such
party's activities as expressly authorized by this Agreement. To the extent that
disclosure to any person is authorized by this Agreement, prior to disclosure, a
party shall obtain written agreement of such person to hold in confidence and
not disclose, use or grant the use of the Confidential Information of the other
party except as expressly permitted under this Agreement. Each party shall
notify the other party promptly upon discovery of any unauthorized use or
disclosure of the other party's Confidential Information. Upon the expiration or
earlier termination of this Agreement, each party shall return to the other
party all tangible items regarding the Confidential Information of the other
party and all copies thereof; provided, however, that each party shall have the
right to retain one (1) copy for its legal files for the sole purpose of
determining its obligations hereunder.
b. Notwithstanding anything to the contrary in this Agreement,
for purposes of this Agreement, (i) the ABX Materials and Information and all
oral or written communications regarding the ABX Materials and Information are,
and shall remain, Confidential Information of [*], and (ii) the Research Program
Materials and Information and all oral or written communications regarding the
Research Program Materials and Information are, and shall remain, Confidential
Information of [*].
c. Neither party shall disclose any terms or conditions of this
Agreement to any third party without the prior consent of the other party;
provided, however, that a party may disclose the terms or conditions of this
Agreement, (i) on a need-to-know basis to its legal and financial advisors to
the extent such disclosure is reasonably necessary in connection with such
party's activities as expressly permitted by this Agreement, (ii) to a third
party in connection with (A) an equity investment in such party by a third
party, (B) a merger, consolidation or similar transaction entered into by such
party, or (C) the sale of all or substantially all of the assets of such party,
and (iii) as may, in the reasonable opinion of such party's counsel, be required
by applicable law, regulation or court order, including without limitation, a
disclosure in connection with such party's filing of a registration statement or
other filing with the United States Securities and Exchange Commission (in which
event such party will first consult with the other party with respect to such
disclosure). Notwithstanding the foregoing, prior to execution of this
Agreement, ABX and Centocor shall agree upon the substance of information that
can be used to describe the terms of this transaction, and each party may
disclose such information, as modified by written agreement of ABX and Centocor
from time to time, without the consent of the other.
d. The confidentiality obligations under this Section 6 shall not
apply to the
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* 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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<PAGE> 6
extent that a party is required to disclose Confidential Information of the
other party by applicable law, regulation or order of a governmental agency or a
court of competent jurisdiction; provided, however, that such party shall
provide written notice thereof to the other party and sufficient opportunity to
object to any such disclosure or to request confidential treatment thereof.
7. Ownership and Control of Materials and Information.
a. All right, title and interest to the ABX Materials and
Information and all patent rights and other intellectual property rights therein
shall belong [*]. Centocor shall not (and shall not attempt or purport to)
assign, sell, have sold, lease, offer to sell or lease, distribute, license,
sublicense or otherwise transfer title to or an interest in, or clinically
develop, commercialize or exploit any ABX Materials and Information or any
products derived therefrom, unless ABX otherwise expressly agrees in writing.
Promptly upon the earlier of (i) completion of the Research Program or (ii) the
expiration or termination of this Agreement, Centocor shall destroy all
remaining ABX Materials and Information and any products derived therefrom,
unless the Parties otherwise expressly mutually agree in writing prior to such
completion, expiration or termination. Centocor shall not (and shall not attempt
or purport to) file or prosecute in any country any patent application which
claims or uses or purports to claim or use the ABX Materials and Information,
any products derived therefrom or any use thereof, without the prior express
written consent of ABX.
b. Unless the parties otherwise expressly agree in writing, all
right, title and interest to all the Research Program Materials and Information
and all patent rights and other intellectual property rights therein shall
belong [*]. Notwithstanding the foregoing, Centocor shall use the Research
Program Materials and Information, at its address at 200 Great Valley Parkway,
Malvern, PA 19355, for the sole purpose of performing the Research Program at
its the address listed above under commercially and scientifically reasonable
containment conditions, and not for any commercial, business or other use or
purpose without the prior express written consent of ABX. Centocor shall not
transfer or provide access to the Research Program Materials and Information to
any third party (other than ABX) or to any location other than its address set
forth in this Section 7(b), without the prior express written consent of ABX.
Centocor shall not (and shall not attempt or purport to) assign, sell, have
sold, lease, offer to sell or lease, distribute, license, sublicense or
otherwise transfer title to or an interest in, or clinically develop,
commercialize or exploit any Research Program Materials and Information (or any
products derived therefrom), unless ABX otherwise expressly agrees in writing.
Promptly upon the earlier of (i) completion of the Research Program or (ii) the
expiration or earlier termination of the term of this Agreement, Centocor shall
destroy all remaining Research Program Materials and Information and any
products derived therefrom, unless ABX otherwise expressly agrees in writing
prior to such completion, expiration or termination. Centocor shall not (and
shall not attempt or purport to) file or prosecute in any country any patent
application which claims or uses or purports to claim or use the Research
Program Materials and Information, any products derived therefrom or any use
thereof, unless and until the parties duly execute and deliver the Research
Program License and Option Agreement in accordance with Section 12 below,
without the prior express written consent of ABX.
8. No Warranty. The Materials and Information are intended for research
purposes only solely to facilitate the Research Program. THE ABX MATERIALS ARE
BEING SUPPLIED "AS IS" AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES. ABX MAKES
NO
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* 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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<PAGE> 7
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY TYPE WHATSOEVER
REGARDING THE MATERIALS AND INFORMATION. ABX EXPRESSLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.
9. Care in Use of the Materials and Information. The parties acknowledge
that the Materials and Information are experimental in nature and may have
unknown characteristics. Each party agrees to use prudence and reasonable care
in the use, handling, storage, transportation, disposition, and containment of
the Materials and Information. Centocor shall not administer the Materials and
Information to humans, or file or submit any regulatory application or other
submission to obtain approval therefor, under any circumstances, without the
prior express written consent of ABX.
10. Indemnification. [ * ]
11. Compliance with Laws. Centocor shall use the Materials and
Information in compliance with all applicable laws, guidelines and regulations
which are applicable to the Materials and Information or the use thereof,
including without limitation any biosafety procedures and all safety precautions
accompanying the Materials and Information.
12. Negotiation of Research License and Option Agreement.
a. During the term of this Agreement, the parties shall negotiate
in good faith, and attempt to reach mutual agreement upon and enter into, the
Research License and Option Agreement. The Research License and Option
Agreement, if entered into between the parties, shall include the terms set
forth on Exhibit C and may include such other terms and conditions as the
parties mutually agree.
b. The obligations of ABX relating to the negotiations described
above or the Research License and Option Agreement are limited to the extent
that ABX has, and hereafter will have, the right to grant licenses and other
rights to the XenoMouse Animals, the Research Program Materials and Information
and/or technology related thereto.
c. The Research License and Option Agreement shall not be binding
on the parties unless and until set forth in a separate written agreement which
is mutually acceptable to, and duly authorized, executed and delivered by, both
parties.
13. No Conflict. Each party represents that this Agreement does not, and
during the term of this Agreement will not, conflict with any other right or
obligation provided under any other agreement or obligation that such party has
with any third party.
14. Term of Agreement. This Agreement shall remain in effect through
September 30,
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* 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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<PAGE> 8
1999, or such other date as the parties mutually agree upon in writing. Either
party may terminate this Agreement for any reason immediately upon thirty (30)
days prior written notice to the other party, which notice shall be effective on
receipt. Upon the expiration or termination of this Agreement for any reason,
Sections 2(a) (other than the first sentence thereof), 3, 5, 6, 7, 10, and 17
shall survive.
14. Assignment. Centocor shall not assign its rights or obligations
under this Agreement, in whole or in part, by operation of law or otherwise,
without the prior express written consent of the ABX; provided, however, that
Centocor may, without such consent, assign this Agreement and its rights and
obligations hereunder in connection with the transfer or sale of all or
substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction. Any permitted
assignee shall assume all obligations of its assignor under this Agreement. Any
purported assignment in violation of this Section 15 shall be void.
15. Waivers and Amendments. No change, modification, extension,
termination or waiver of this Agreement, or any of the provisions herein
contained, shall be valid unless made in writing and signed by duly authorized
representatives of the parties.
17. Injunctive Relief. The parties acknowledge that (a) the breach by
one party of the non-disclosure or non-use provisions (including, without
limitations, restrictions on filing patent applications) of this Agreement
relating to Materials and Information or Confidential Information would cause
irreparable harm to the other party; (b) monetary damages alone would be
insufficient to compensate the other party for such a breach; and (c) the other
party shall be entitled to obtain injunctive or other equitable relief to
specifically enforce such provisions of this Agreement relating to Materials and
Information and Confidential Information in addition to all other relief to
which the other party may be entitled without being required to post any bond or
other security.
18. General. This Agreement contains the entire agreement between the
parties regarding the subject matter of this Agreement and supersedes any
previous understandings, representations, acknowledgements, commitments or
agreements, oral or written, regarding such subject matter. This Agreement shall
be governed by and construed under laws of the State of Delaware, without regard
to its conflicts of laws principles.
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<PAGE> 9
IN WITNESS THEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first set forth above.
ABGENIX, INC.
By: /s/ Raymond M. Withy
-------------------------------------
(Signature)
Raymond M. Withy, Ph.D.
-------------------------------------
(Printed Name)
Vice President, Corporate Development
-------------------------------------
(Title)
CENTOCOR, INC.
By: /s/ Christopher Hentschel
-------------------------------------
(Signature)
Christopher Hentschel, Ph.D.
-------------------------------------
(Printed Name)
Senior Vice President and
-------------------------------------
Chief Scientific Officer
-------------------------------------
(Title)
-9-
<PAGE> 10
EXHIBIT A
ABX MATERIALS AND INFORMATION
[*]
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* 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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<PAGE> 11
EXHIBIT B
RESEARCH PROGRAM
[*]
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* 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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<PAGE> 12
EXHIBIT C
TERMS OF RESEARCH LICENSE AND OPTION AGREEMENT
[ * ]
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* 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.
-12-
<PAGE> 13
[ * ]
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* 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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<PAGE> 14
[ * ]
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* 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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<PAGE> 1
EXHIBIT 10.41
ABGENIX, INC.
REGISTRATION RIGHTS AGREEMENT
JANUARY 27, 1999
This Agreement is made as of the date first written above by and between
ABGENIX, INC., a Delaware corporation having its principal executive office at
7601 Dumbarton Circle, Fremont, California 94555 (the "Company"), and GENENTECH,
INC., a Delaware corporation having its principal executive office at 1 DNA Way,
South San Francisco, California 94080 (including any successor to Genentech,
Inc., the "Holder").
RECITALS
A. In connection with the Multi-Antigen Agreement, the Holder is
purchasing 495,396 shares of the Company's Common Stock (the "Shares") for an
aggregate purchase price of $8,000,000 pursuant to the terms and conditions of
the Common Stock Purchase Agreement of even date herewith to which this
Agreement is attached as Exhibit A.
B. To induce the Holder to enter into the Common Stock Purchase Agreement,
the Company has agreed to provide the Holder with certain registration rights
with respect to the Shares pursuant to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises set forth in this Agreement, the parties agree as follows:
1. Certain Definitions. As used in this Rights Agreement, the following
terms shall have the following respective meanings:
Business Day. Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in San Francisco are
authorized or obligated by law or executive order to close.
Effectiveness Period. See Section 2(a) hereof.
Exchange Act. The Securities Exchange Act of 1934, as amended, or any
similar federal statute and the rules and regulations of the SEC
promulgated thereunder.
Initial Shelf Registration. See Section 2(a) hereof.
Losses. See Section 5(a) hereof.
Prospectus. The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including, without limitation, with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration
Statement and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
Such Prospectus and any amendments or supplements shall comply with the
Securities Act.
Register. The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering of
the effectiveness of such registration statement by the SEC.
Registrable Securities. The Shares or other securities issued or
issuable with respect to the Shares as a result of any stock split, stock
dividend, recapitalization, exchange, combination, merger, consolidation,
distribution or similar event.
Registration Expenses. See Section 4 hereof.
1
<PAGE> 2
Registration Statement. Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to
such registration statement, including post-effective amendments, all
exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement. Such Registration
Statement and any amendments or supplements thereto shall comply with the
Securities Act.
Replacement Shelf Registration. See Section 2(b) hereof.
Rule 144. Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC. The Securities and Exchange Commission.
Securities Act. The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Shelf Registration. See Section 2 hereof.
Special Counsel. Special Counsel shall be the counsel specified by the
Holder as special counsel to the Holder.
Subsequent Shelf Registration. See Section 2(c) hereof.
2. Shelf Registration.
(a) If the Company shall receive, at any time after the date hereof, a
written request from the Holder that the Company file a registration
statement under the Securities Act covering the registration of all of the
Holder's Registrable Securities with an aggregate offering price, net of
underwriting discounts and commissions, expected to exceed $2,000,000, then
the Company shall file as soon as practicable (but in no event later than
sixty (60) days following the Company's receipt of the Holder's notice) a
Registration Statement. The Registration Statement shall register the
Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415 of the Securities Act (a "Shelf Registration")
covering all of the Registrable Securities (the "Initial Shelf
Registration"). The Initial Shelf Registration shall be on Form S-1 or
another appropriate form permitting registration of such Registrable
Securities for resale by the Holder. The Company shall use its best efforts
to cause the Initial Shelf Registration to be declared effective under the
Securities Act by the SEC as soon as practicable and to keep the Initial
Shelf Registration continuously effective under the Securities Act until
two years after the date hereof (the "Effectiveness Period"), or such
shorter period ending when (i) all Registrable Securities covered by the
Initial Shelf Registration have been sold or shall have ceased to be
Registrable Securities, (ii) the Replacement Shelf Registration, as defined
below, covering all of the Registrable Securities has been declared
effective under the Securities Act or (iii) a Subsequent Shelf
Registration, as defined below, covering all of the Registrable Securities
has been declared effective under the Securities Act.
The Holder's rights pursuant to this Section 2(a) shall terminate (i)
after the Company has effected one such registration pursuant to this
Section 2(a), and such registration has been declared or ordered effective
by the SEC or (ii) upon the filing with the SEC of the Replacement Shelf
Registration Statement (as defined below); provided, however, that if such
registration statement is not declared or ordered effective by the SEC
within forty-five (45) days from the earlier of the date of filing or July
2, 1999, the Holder's rights pursuant to this Section 2(a) shall not
terminate.
(b) The Company shall prepare and, as soon as the Company is eligible
to use Form S-3 or another appropriate form permitting registration of the
Company's securities for resale by the Holder, the Company shall file with
the SEC a Registration Statement for a Shelf Registration covering all of
the Registrable Securities (the "Replacement Shelf Registration"). The
Replacement Shelf Registration shall be on Form S-3 or another appropriate
form permitting registration of such Registrable Securities for resale by
the Holders. On the date that the Replacement Shelf Registration is
declared effective under
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<PAGE> 3
the Securities Act by the SEC, the Company shall withdraw the Initial Shelf
Registration, if filed or declared effective, and no further sales of
Registrable Securities shall be made pursuant to the Initial Shelf
Registration as of such date; provided, however, that in no event shall the
Initial Shelf Registration be withdrawn until such time as the Replacement
Shelf Registration has been declared effective under the Securities Act by
the SEC. After the Replacement Shelf Registration has been declared
effective by the SEC, the Company shall use its best efforts to keep the
Replacement Shelf Registration continuously effective under the Securities
Act until the end of the Effectiveness Period or such shorter period ending
when (i) all Registrable Securities covered by the Replacement Shelf
Registration have been sold or shall have ceased to be Registrable
Securities, or (ii) a Subsequent Shelf Registration, as defined below,
covering all of the Registrable Securities has been declared effective
under the Securities Act.
(c) If the Initial Shelf Registration or any Subsequent Shelf
Registration, as defined below, ceases to be effective for any reason at
any time during the Effectiveness Period (other than because all
Registerable Securities registered thereunder shall have been sold or shall
have ceased to be Registerable Securities), the Company shall use its best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Shelf Registration in a manner
reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional "shelf" Registration Statement
pursuant to Rule 415 of the Securities Act covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective under the Securities
Act by the SEC as soon as practicable after such filing and shall use its
best efforts to keep such Registration Statement continuously effective
until the end of the Effectiveness Period.
(d) The Company shall supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration, if
required by the Securities Act, or if reasonably requested by any Holder or
by any underwriter of the Registrable Securities.
(e) Notwithstanding anything set forth in this Agreement, Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 2 during the period
starting with the date ninety (90) days prior to the Company's estimated
date of filing of, and ending on the date 90 days immediately following the
effective date of, any registration statement pertaining to securities of
the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith its best efforts to cause such
registration statement to become effective.
(f) The Holder shall have no right to request that the offering, sale,
disposition or distribution of any Registrable Securities to be registered
under the Securities Act pursuant to this Agreement be effected pursuant to
an underwritten offering. If a registration pursuant to this Agreement
involves an underwritten offering, the underwriter or underwriters thereof
shall be selected by the Company in its sole and absolute discretion.
(g) If a registration pursuant to this Agreement involves an
underwritten offering, and the managing underwriter shall advise the
Company in writing that, in its opinion, the number of shares of Common
Stock requested to be included in such registration exceeds the number
which can be sold in such underwritten offering, the Company will include
in such registration, to the extent of the number of shares of Common Stock
which the Company is so advised can be sold in such offering, a portion of
the number of Registrable Securities of the Holder.
3. Piggyback Registration.
(a) If (A) the Company has filed a Replacement Shelf Registration
pursuant to Section 2(b) hereof, and either (i) such registration has not
been declared or ordered effective by the SEC within forty-five (45) days
from the earlier of the date of filing or July 2, 1999 or (ii) if such
registration is declared or ordered effective but does not continue to be
effective for ten trading days and (B) the
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<PAGE> 4
Company determines to register any of its securities for its own account,
other than a registration relating solely to employee benefit plans or
relating to a corporate reorganization or other transaction under Rule 145,
or a registration on any registration form that does not permit secondary
sales, the Company will:
(x) promptly give to each Holder written notice thereof; and
(y) use its best efforts to include in such registration (and any
related qualification under blue sky laws or other compliance), except
as set forth in Section 3(b) below, and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made by any Holder and received by the Company within
twenty (20) days after the written notice from the Company described in
clause (x) above is mailed or delivered by the Company. Such written
request may specify all or a part of a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
right of any Holder to registration pursuant to this Section 3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein pursuant to an underwriting agreement in
customary form with the underwriter or underwriters selected by the
Company.
If the managing underwriter advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company may (subject to the limitations set forth below)
exclude all Registrable Securities from, or limit the number of Registrable
Securities to be included in, the registration and underwriting. The
Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in
the registration and underwriting shall be allocated first to the Company
for securities being sold for its own account and thereafter on a pro rata
basis. If any person does not agree to the terms of any such underwriting,
he may withdraw his securities therefrom by written notice to the Company
or the managing underwriter. Any securities withdrawn from the underwriting
shall be withdrawn from the registration, and the Company shall then offer
to all persons with securities included in the registration the right to
include additional securities in an aggregate amount equal to the number of
shares so withdrawn, with such shares to be allocated on a pro rata basis
among the persons requesting additional inclusion.
4. Registration Procedures. In connection with the Company's registration
obligations under Section 2 hereof, the Company shall effect such registrations
to permit the sale of the Registrable Securities in accordance with the intended
method or methods of disposition thereof and pursuant thereto the Company shall
as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holder in
accordance with the intended method or methods of distribution thereof, and
cause each such Registration Statement to become effective and remain
effective as provided herein; provided, that before filing any such
Registration Statement or Prospectus or any amendments or supplements
thereto (other than documents that would be incorporated or deemed to be
incorporated therein by reference and that the Company is required by
applicable securities laws or stock exchange requirements to file) the
Company shall furnish to the Holder, the Special Counsel and the managing
underwriters of such offering, if any, copies of all such documents
proposed to be filed, which documents will be subject to the review of the
Holder, the Special Counsel and such underwriters.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 2; cause the related Prospectus to be timely
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 (or any similar provisions then in force)
under the Securities Act; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement
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<PAGE> 5
during the applicable period in accordance with the intended methods of
disposition by the Holders set forth in such Registration Statement as so
amended or such Prospectus as so supplemented.
(c) Notify the Holders, the Special Counsel and the managing
underwriters, if any, promptly, and (if requested by any such person)
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to
a Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to a Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC or any other federal or state governmental authority of
any stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose, (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, (v) of the happening of any event which
makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or which requires the
making of any changes in the Registration Statement or Prospectus so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and (vi) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement
would be appropriate.
(d) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of
any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the
earliest possible moment.
(e) Subject to the last paragraph of this Section 3, if reasonably
requested by the managing underwriters, if any, or the Holder (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, or the Holder agrees
should be included therein as required by applicable law, (ii) make all
required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment, and (iii) supplement or make
amendments to any Registration Statement consistent with clause (i) or (ii)
above; provided, that the Company shall not be required to take any actions
under this Section 3(e) that are not, in the opinion of counsel for the
Company, necessary or advisable to comply with applicable law.
(f) Furnish to the Holder, the Special Counsel and each managing
underwriter, if any, without charge, at least one conformed copy of the
Registration Statement or Registration Statements and any post-effective
amendment thereto, including financial statements but excluding schedules,
all documents incorporated or deemed to be incorporated therein by
reference and all exhibits (unless requested in writing by the Holder,
Special Counsel or managing underwriter, if any).
(g) Promptly deliver to the Holder, the Special Counsel and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities (including each
preliminary prospectus) and any amendment or supplement thereto as such
persons may reasonably request; and the Company hereby consents to the use
of such Prospectus or each amendment or supplement thereto by the Holder
and the underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the Holder, the underwriters, if any,
and the Special Counsel in connection with the registration or
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<PAGE> 6
qualification (or exemption from such registration or qualification) of
such Registrable Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions within the United States as the Holder or
underwriter, if any, reasonably requests in writing; keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the applicable Registration Statement; provided, that the Company will not
be required to (i) qualify generally to do business in any jurisdiction
where it is not then so qualified or (ii) take any action that would
subject it to general service of process in suits or to taxation in any
such jurisdiction where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as
may be required solely as a consequence of the nature of the Holder in
which case the Company will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such approvals,
as may be necessary to enable the Holder or the underwriters, if any, to
consummate the disposition of such Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(v)
or 3(c)(vi) above, prepare a supplement or post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(k) Enter into such agreements (including, in the event of an
underwritten offering, an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such
other actions in connection therewith (including, in the event of an
underwritten offering, those reasonably requested by the managing
underwriters, if any, or the Holder) in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection, whether
or not an underwriting agreement is entered into and if the registration is
an underwritten registration, (i) make such representations and warranties,
subject to the Company's ability to do so, to the Holder and the
underwriters, if any, with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested; (ii) use its best efforts to obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters,
if any, Special Counsel and the Holder) addressed to the Holder and each of
the underwriters, if any, covering the matters customarily covered in
opinions requested in underwritten offerings; (iii) use its reasonable
efforts to obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary,
any other certified public accountants of any subsidiary of the Company or
any business acquired or to be acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Holder and each of the
underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and (iv) deliver such documents and
certificates as may be reasonably requested by the Holder, the Special
Counsel and the managing underwriters, if any, to evidence the continued
validity of the representations and warranties of the Company and its
subsidiaries made pursuant to clause (i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company. The above shall be done at
each closing under such underwriting or similar agreement as and to the
extent required thereunder.
(l) If necessary in connection with a disposition of Registrable
Securities pursuant to a Registration Statement, make available for
inspection by a representative of the Holder, any underwriter participating
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<PAGE> 7
in any disposition of Registrable Securities, if any, and any attorney or
accountant retained by the Holders or underwriter, financial and other
records, pertinent corporate documents and properties of the Company, and
cause the executive officers, directors and employees of the Company to
supply all information reasonably requested by any such representative,
underwriter, attorney or accountant in connection with such disposition;
provided that any records, information or documents that are designated by
the Company in writing as confidential at the time of delivery of such
records, information or documents shall be kept confidential by such
persons unless (i) such records, information or documents are in the public
domain or otherwise publicly available, (ii) disclosure of such records,
information or documents is required by court or administrative order after
the exhaustion of appeals therefrom or (iii) disclosure of such records,
information or documents, in the written opinion of counsel (reasonably
acceptable to the Company) to such person, is otherwise required by law
(including, without limitation, pursuant to the requirements of the
Securities Act), which opinion shall be delivered to the Company at least
five days prior to the date on which such disclosure is sought, and
provided further that any information obtained pursuant to this provision
shall only be used in connection with the transaction for which such
information was obtained.
Notwithstanding anything in this Agreement to the contrary, the Holder
shall not be entitled to sell any of such Registrable Securities pursuant
to a Registration Statement or to receive a Prospectus relating thereto
unless the Holder (A) has at such time a current intent to sell such
Registrable Securities, and, at the Company's written request, confirms
such intent in writing, and (B) has furnished the Company promptly after
the Company's written request, such information regarding the Holder and
the distribution of such Registrable Securities as the Company may from
time to time reasonably request. The Company may refrain from filing such
registration for the Holder's Registrable Securities if it does not furnish
such information provided above. The Holder agrees promptly to furnish to
the Company all information required to be disclosed in order to make the
information previously furnished to the Company by the Holder not
misleading.
The Holder agrees by acquisition of such Registrable Securities that,
upon receipt of any written notice from the Company of (A) the happening of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi) hereof or (B) that, in the judgment of the Company, it
is advisable to suspend use of the Prospectus for a discrete period of time
due to pending corporate developments, public filings with the SEC or
similar events, the Holder will forthwith discontinue disposition of such
Registrable Securities covered by such Registration Statement or Prospectus
until the Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(j) hereof, or until it is advised in
writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. The Company shall use its best efforts to
insure that the use of the Prospectus may be resumed as soon as
practicable.
(m) When used herein with respect to a registration, the phrase
"another appropriate form," "such other form" or words to that effect shall
mean such alternative or successor form including, but not limited to, any
Form A or Form B as proposed by the SEC pursuant to Securities Act Release
No. 33-7606 (if such Form A or Form B is adopted by the SEC).
5. Registration Expenses. All fees and expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with federal securities or Blue Sky laws and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holder may designate), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Special Counsel
or the Holder), (iii) fees and disbursements of counsel for the Company in
connection with the Shelf Registration, (iv) fees and disbursements of counsel
for the underwriters, if any,
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<PAGE> 8
(v) fees and disbursements of all independent certified public accountants
referred to in Section 3(k)(iii) hereof (including the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
and (vi) Securities Act liability insurance obtained by the Company in its sole
discretion. In addition, the Company shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on any securities exchange on which similar securities issued by
the Company are then listed and rating agency fees and the fees and expenses of
any person, including special experts, retained by the Company. Notwithstanding
the provisions of this Section 4, the Holder shall pay all registration expenses
to the extent that the Company is prohibited by applicable Blue Sky laws from
paying for or on behalf of the Holder.
All underwriting discounts, selling commissions and stock transfer taxes
applicable to the sale of the Registrable Securities, all fees and disbursements
of Special Counsel and all fees and disbursements of counsel for the
underwriters, if any, shall be paid by the Holder.
6. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless, to the fullest extent permitted by law, the Holder and each
person, if any, who controls the Holder (within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act) from and
against all losses, liabilities, claims, damages and expenses (including
but not limited to reasonable attorney fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing or defending
against litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation)
(collectively, "Losses"), arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as the same are based solely upon information
furnished in writing to the Company by the Holder expressly for use
therein; provided, that the Company shall not be liable to the Holder (or
any person controlling the Holder) to the extent that any such Losses arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any prospectus if either (A) (i) the
Holder failed to send or deliver a copy of the Prospectus with or prior to
the delivery of written confirmation of the sale by the Holder of a
Registrable Security to the person asserting the claim from which such
Losses arise and (ii) the Prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission,
or (B) (x) such untrue statement or alleged untrue statement, omission or
alleged omission is corrected in an amendment or supplement to the
Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, the
Holder thereafter fail to deliver such Prospectus as so amended or
supplemented, with or prior to the delivery of written confirmation of the
sale of a Registrable Security to the person asserting the claim from which
such Losses arise. The Company shall also indemnify each underwriter and
each person who controls such person (within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act) to the same extent
as provided above with respect to the indemnification of the Holder.
(b) Indemnification by Holder. In connection with any Registration
Statement in which the Holder is participating, the Holder shall furnish to
the Company in writing such information as the Company reasonably requests
for use in connection with any Registration Statement or Prospectus and the
Holder agrees to indemnify, to the fullest extent permitted by law, the
Company, its directors and officers and each other person who controls the
Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), from and against all Losses arising out of or
based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out
of or based upon any omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent,
but only to the extent, that such untrue statement or omission is
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<PAGE> 9
contained in any information so furnished in writing by the Holder to the
Company expressly for use in such Registration Statement or Prospectus. In
no event shall the liability of the Holder hereunder exceed the gross
proceeds received from sales of its Registrable Securities. The Company
shall be entitled to receive indemnities from underwriters participating in
the distribution to the same extent as provided above with respect to
information so furnished in writing by such persons expressly for use in
any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. If any person shall be
entitled to indemnity hereunder (an "indemnified party"), such indemnified
party shall give prompt notice to the party from which such indemnity is
sought (the "indemnifying party") of any claim or of the commencement of
any proceeding with respect to which such indemnified party seeks
indemnification or contribution pursuant hereto; provided, that the failure
to so notify the indemnifying party shall not relieve the indemnifying
party from any obligation or liability except to the extent that the
indemnifying party has been prejudiced materially by such failure. All such
fees and expenses (including any fees and expenses incurred in connection
with investigating or preparing to defend such action or proceeding) shall
be paid to the indemnified party on a quarterly basis following written
notice thereof to the indemnifying party (notwithstanding the absence of
judicial determination as to the propriety and enforceability of the
indemnifying party's obligation to reimburse the indemnified party for such
expense and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction). In case any such
action is brought against an indemnified party, the indemnifying party
shall be entitled to participate therein and it may elect by written notice
delivered to the indemnified party within a reasonable period of time after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party.
(d) Contribution. If the indemnification provided for in this Section
5 is unavailable to an indemnified party under Section 5(a) or 5(b) hereof
in respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall, jointly and severally, contribute to the
amount paid or payable by such indemnified party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or indemnifying parties, on the one hand, and
such indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party or indemnifying parties, on the one hand, and such indemnified party,
on the other hand, shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include any reasonable
legal or other reasonable fees or expenses incurred by such party in
connection with any proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method or allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding this Section 5(d), if any of the
Holder is the indemnifying party, the Holder shall not be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities sold by the Holder and distributed to the
public were offered to the public exceeds the amount of any damages which
the Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder or otherwise. The
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<PAGE> 10
provisions of this Section 5 shall survive so long as Registrable
Securities remain outstanding, notwithstanding any termination of this
Agreement.
7. Rule 144 Information Requirements. For so long as any Registerable
Securities are "restricted securities" under Rule 144, the Company agrees to
timely file the reports required to be filed by it under the Securities Act and
the Exchange Act. Notwithstanding the foregoing, nothing in this Section 6 shall
be deemed to require the Company to register any of its securities under any
section of the Exchange Act.
8. Sale without Registration. The Holder agrees to comply in all respects
with the provisions of this Section 7 so long as each certificate representing
the Shares is required to bear the legend in substantially the form set forth in
Section 6(a)(v) of the Common Stock Purchase Agreement (or any similar legend).
Prior to any proposed transfer of any Registrable Securities by the Holder which
shall not be registered under the Securities Act, the Holder shall give written
notice to the Company of its intention to effect such transfer, accompanied by:
(a) such information as is reasonably necessary in order to establish that such
transfer may be made without registration under the Securities Act; and (b) if
requested by the Company, at the Company's expense, an unqualified written
opinion of legal counsel, satisfactory in form and substance to the Company, to
the effect that such transfer may be made without registration under the
Securities Act; provided that nothing contained in this Section 7 shall relieve
the Company from complying with its obligations pursuant to Section 2 of this
Agreement.
9. Lock-Up Agreement. The Holder hereby agrees that, at the written request
of the Company or any managing underwriter of any underwritten offering of
securities of the Company, the Holder shall not, without the prior written
consent of the Company or such managing underwriter, sell, make any short sale
of, loan, grant any option for the purchase of, pledge, encumber, or otherwise
dispose of, or exercise any registration rights with respect to, any Registrable
Securities during the 90-day period commencing on the effective date of the
registration statement relating to such underwritten offering of the Company's
securities.
10. No Transfer of Registration Rights. Notwithstanding anything expressed
or implied in this Agreement to the contrary, the Holder shall not assign,
transfer or convey all or any of its rights under this Agreement, except with
the prior written consent of the Company; provided, however, the Holder may
assign, transfer or convey its rights under this Agreement to (i) Roche
Holdings, Inc. or (ii) any Affiliate of Genentech, Inc. or (iii) any entity
acting as an investment manager of securities owned by Genentech, Inc. provided
such investment manager shall not assign, transfer or convey all or any of its
rights under this Agreement to any third party (other than Genentech) without
the prior written consent of the Company. For purposes of this Agreement, the
term "Affiliate" means, when used with respect to any specified person, any
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and
the terms "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
11. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, the Holder, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action
for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the date
hereof, and shall not, on or after the date of this Agreement, enter into
any agreement with respect to its securities which materially conflicts
with the rights granted to the Holders in this Agreement.
10
<PAGE> 11
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written
consent of the Holder.
(d) Notices. All notices and other communication required or
appropriate to be given hereunder shall be in writing and shall be
delivered by hand or mailed by certified mail, return receipt requested, or
sent by telex or facsimile (in which case a confirming copy shall also be
sent by certified mail or courier), to the following respective addresses
or to such other addresses as may be specified in any notice delivered or
mailed as above provided:
(i) If to the Purchaser, to:
Genentech, Inc.
1 DNA Way
South San Francisco, CA 94080
Telephone: (650) 225-1000
Facsimile: (650) 952-9881
Attention: Corporate Secretary
(ii) If to the Company to:
Abgenix, Inc.
7601 Dumbarton Circle
Fremont, California 94555
Telephone: (510) 608-6500
Facsimile: (510) 608-6547
Attention: President
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Attention: Chris F. Fennell
Any notice or other communication delivered by hand or mailed shall be deemed to
have been delivered on the date on which such notice or communication is
delivered by hand, or in the case of certified mail deposited with the
appropriate postal authorities on the date when such notice or communication is
actually received, and in any other case shall be deemed to have been delivered
on the date on which such notice or communication is actually received.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS
11
<PAGE> 12
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means
to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated
and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions
without including any of such which may be hereafter declared invalid, void
or unenforceable.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein and the
registration rights granted by the Company with respect to the Shares.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein, with respect to the registration
rights granted by the Company with respect to the Shares. This Agreement
supersedes all prior agreements and understandings among the parties with
respect to such registration rights.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any
other available remedy.
(l) Further Assurances. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action,
do or cause to be done all things reasonably necessary, proper or advisable
under applicable law, and execute and deliver such documents and other
papers, as may be required to carry out the provisions of this Agreement
and the other documents contemplated hereby and consummate and make
effective the transactions contemplated hereby.
(m) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the earlier of the end of the Effectiveness
Period or when all of the Registrable Securities have been sold or cease to
be Registrable Securities, except for any liabilities or obligations under
Sections 4 or 5 or 6 or the provisos of Section 3(1) above, which shall
remain in effect in accordance with their terms.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
The foregoing Registration Rights Agreement is hereby executed as of the
date first above written.
"COMPANY" ABGENIX, INC.
By: /s/ R. SCOTT GREER
------------------------------------
R. Scott Greer
President and Chief Executive
Officer
"HOLDER" GENENTECH, INC.
By: /s/ WILLIAM D. YOUNG
------------------------------------
William D. Young
Chief Operating Officer
13
<PAGE> 1
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 on Abgenix, Inc. and
Xenotech, LP dated January 22, 1999 in 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
January 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF ABGENIX AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 63,000
<SECURITIES> 16,681,000
<RECEIVABLES> 908,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,182,000
<PP&E> 7,388,000
<DEPRECIATION> (1,953,000)
<TOTAL-ASSETS> 24,220,000
<CURRENT-LIABILITIES> 5,081,000
<BONDS> 0
0
0
<COMMON> 55,842,000
<OTHER-SE> (38,883,000)
<TOTAL-LIABILITY-AND-EQUITY> 24,220,000
<SALES> 0
<TOTAL-REVENUES> 3,842,000
<CGS> 3,842,000
<TOTAL-COSTS> 21,100,000
<OTHER-EXPENSES> 431,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16,827,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,827,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,827,000)
<EPS-PRIMARY> (3.00)
<EPS-DILUTED> (3.00)
</TABLE>