<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1999
REGISTRATION NO. 333-70631
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ABGENIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2836 94-3248826
(STATE OR OTHER JURISDICTION 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:
MARIO M. ROSATI, ESQ.
CHRIS F. FENNELL, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time as the selling stockholders may decide.
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. [X]
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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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(2)
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Common stock, $0.0001 par value... 1,146,300 $15.50 $17,767,650 $4,940.00
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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 13, 1999.
(2) Previously paid. ------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
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.
LOGO
1,146,300 SHARES
COMMON STOCK
The selling stockholders identified in this prospectus are offering
1,146,300 shares of Abgenix, Inc.'s common stock. Abgenix's 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 June 30, 1999 was $19.875
per share. We advise you to obtain a current market quotation for our common
stock. We will not receive any of the proceeds from the sale of shares by the
selling stockholders and we are not offering any shares for sale under this
prospectus. See "Plan of Distribution" for a description of sales of the shares
by the selling stockholders.
------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------------
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.
THE DATE OF THIS PROSPECTUS IS JULY , 1999
<PAGE> 3
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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Summary..................................................... 3
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 22
Certain Information......................................... 23
Use of Proceeds............................................. 23
Price Range of Common Stock................................. 23
Dividend Policy............................................. 23
Capitalization.............................................. 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 33
Management.................................................. 56
Certain Transactions........................................ 65
Principal and Selling Stockholders.......................... 69
Plan of Distribution........................................ 72
Description of Capital Stock................................ 73
Shares Eligible for Future Sale............................. 75
Legal Matters............................................... 76
Experts..................................................... 76
Where You Can Find Additional Information................... 77
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> 4
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 11 companies covering at least
14 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.,
BASF Bioresearch Corporation, Amgen, Inc. and Japan Tobacco, Inc. Among our 11
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 recently completed 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. 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> 5
In February 1999, we reported the preliminary results of our multi-center
confirmatory Phase II clinical trial for ABX-CBL in graft versus host disease.
This trial supports the safety and efficacy data seen in previously published
clinical trials conducted by third parties. The trial was conducted at nine
sites on 27 patients. Data from 23 of the 27 patients was evaluated for efficacy
at four dosing levels. A response rate of 73% was reported among the 15 patients
in the three highest dose groups. The remaining eight patients reported a 25%
response at the lowest dose. We believe the treatment was safe and well
tolerated except for temporary muscle pain. We will submit the complete report
to the FDA and, if approved, expect to commence a pivotal Phase III clinical
trial for ABX-CBL in mid-1999.
In March 1999, we entered into a research collaboration agreement with BASF
Bioresearch Corporation. Under the agreement, BASF can utilize our XenoMouse
technology to develop fully human antibodies to an undisclosed antigen target.
In return, we received an upfront research payment, and could receive additional
fees and milestone payments plus royalties on future product sales by BASF, if
any. BASF will be responsible for product development, manufacturing and
marketing of any products developed through the collaboration.
In April 1999, we entered into a research, option and license agreement
with Amgen, Inc. Under the agreement, we will use our XenoMouse technology to
generate for Amgen fully human monoclonal antibodies to an undisclosed antigen.
In return, we received an upfront research payment and could receive additional
fees and milestone payments plus royalties on future product sales by Amgen, if
any. Amgen will be responsible for product development, manufacturing, and
marketing of any products developed through the collaboration.
In June 1999, the Board of Directors adopted a Stockholder Rights Plan that
will entitle our stockholders to purchase shares of our common stock at a
discounted price in the event that any person or group acquires 15% of more of
our outstanding common stock (with an exception for Cell Genesys, which
currently owns more than 15% of our outstanding common stock).
In June 1999, we entered into a collaboration with Japan Tobacco on
ABX-IL8. Under the agreement, Japan Tobacco will make certain payments to
Abgenix and, subject to additional payments, Japan Tobacco could potentially
receive the right to use clinical data generated by Abgenix in its own
regulatory filings in Japan, Taiwan and Korea.
THE OFFERING
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Common stock to be offered by the selling stockholders... 1,146,300 shares
Common stock outstanding after the offering as of
March 31, 1999......................................... 14,684,953 shares
Use of proceeds.......................................... We will not receive any proceeds from
the sales of common stock by the
selling stockholders. 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 in April 1999 of 208,000 shares
of common stock to the public at a per share public offering price of $15.00
pursuant to the exercise by the underwriters of our March 1999 public offering
of their option to cover over-allotments.
4
<PAGE> 6
Unless otherwise stated, all 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 and 2,179,211 shares of common
stock issuable upon exercise of stock options at a weighted average
exercise price of $6.225 per share outstanding as of March 31, 1999;
(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 March 31, 1999; and
(3) 25,000 shares of common stock issuable pursuant to a license agreement
outstanding as of December 31, 1998 and March 31, 1999.
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1994 1995 1996 1997 1998 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Total revenues(1)........................ $ 6,200 $ 6,200 $ 4,719 $ 1,954 $ 3,842 $ 891 $ --
Operating expenses:
Research and development............... 7,921 11,879 9,433 11,405 17,588 5,366 4,567
General and administrative............. 1,955 2,603 2,565 3,525 3,405 918 1,084
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 -- 8
------- -------- ----------- ---------- -------- ---------- -----------
Total operating expenses......... 9,876 14,482 11,998 37,430 21,100 6,284 5,659
------- -------- ----------- ---------- -------- ---------- -----------
Operating loss........................... (3,676) (8,282) (7,279) (35,476) (17,258) (5,393) (5,659)
Interest income (expense), net........... -- -- 179 (404) 431 48 262
------- -------- ----------- ---------- -------- ---------- -----------
Net loss................................. $(3,676) $ (8,282) $ (7,100) $ (35,880) $(16,827) $ (5,345) $ (5,397)
======= ======== =========== ========== ======== ========== ===========
Net loss per share(3).................... $(46,710.53) $(1,032.70) $ (3.00) $ (0.67) $ (0.44)
=========== ========== ======== ========== ===========
Shares used in computing net loss per
share(3)............................... 152 34,744 5,602,963 7,953,044 12,136,744
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
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ACTUAL PRO FORMA(4)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 62,315 $ 65,216
Working capital............................................. 57,433 60,334
Total assets................................................ 68,914 71,815
Long-term debt, less current portion........................ 1,746 1,746
Accumulated deficit......................................... (74,698) (74,698)
Total stockholders' equity.................................. 61,581 64,482
</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 proceeds from the sale of 208,000
shares of common stock by Abgenix in April 1999 at a public offering price
of $15.00 per share after deducting the underwriting discount of six percent
and the estimated public offering expenses of $32,000.
6
<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 and 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.
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<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 recently completed a multi-center confirmatory Phase II trial in graft
versus host disease, or GVHD. As of March 31, 1999, ABX-CBL had been
administered to a total of only 151 patients for GVHD and organ transplant
rejection indications. ABX-CBL was administered to a total of 85 of these
patients by third parties prior to Abgenix obtaining an exclusive license to
ABX-CBL. In our clinical trials, we administered ABX-CBL to only 66 of these
patients, 27 of which were used for our preliminary Phase II report submitted to
the FDA. We cannot rely on data obtained from patients studied prior to our
obtaining an exclusive license to ABX-CBL 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.
As an extension to the original Phase II trial protocol, we filed for and
received permission from the FDA to enroll additional patients at a single dose.
This protocol remains open and continues to enroll patients. Our application to
the FDA for approval to advance to Phase III clinical trials will contain the
original Phase II data plus all additional data then available from the
extension protocol. There can be no assurance that the results of the extension
protocol will be favorable or will extend the findings of the original Phase II
study. In addition, the FDA may view our application as insufficient and 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.
8
<PAGE> 10
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;
- 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. We have also incurred net
losses of approximately $5.4 million in the three months ended March 31, 1999.
As of March 31, 1999, our accumulated deficit was approximately $74.7 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."
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<PAGE> 11
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 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
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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 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 AKROS PHARMA, INC. MAY LIMIT OUR ABILITY TO DEVELOP
PRODUCT CANDIDATES
In 1991, Cell Genesys and Akros Pharma, Inc. (formerly 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 Akros or others to acquire such rights.
Disputes with Akros, 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 Akros 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 plc, Protein Design Labs, Inc. and MorphoSys AG.
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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.
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;
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- 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 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."
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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 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
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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;
- 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."
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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.
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
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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 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
As of March 31, 1999, our directors, executive officers, principal
stockholders and affiliated entities beneficially own, in the aggregate,
approximately 28.3% of our outstanding common stock after giving effect to our
sale of 208,000 shares of common stock to the public in April 1999. 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 and Selling
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 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
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additional funds when needed, our business, financial condition and results of
operations will be materially adversely affected.
CELL GENESYS EXERCISES SIGNIFICANT INFLUENCE OVER US
As of March 31, 1999, Cell Genesys beneficially owns 22.6% of our
outstanding capital stock after giving effect to our sale of 208,000 shares of
common stock to the public in April 1999. 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. As of December 31, 1998, we have outstanding
11,615,649 shares of common stock, after giving effect to our sale of 495,356
shares of common stock to Genentech in January 1999 and assuming no exercise of
outstanding options or warrants after December 31, 1998. Of these shares, the
following are freely tradeable:
- the 1,146,300 shares that may be sold in this offering;
- the 2,875,000 shares sold in our initial public offering in July 1998;
- the 3,208,000 shares sold by us to the public in March and April 1999;
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 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.
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In connection with our 1999 public offering, certain of our outstanding
shares are subject to lock-up agreements under which the holders agree that they
will not sell their shares for a period of 90 days after the date the public
offering is declared effective by the Securities and Exchange Commission, March
3, 1999, without the prior written consent of BancBoston Robertson Stephens
Inc., one of the underwriters managing our 1999 public offering. 350,740 of the
freely tradeable shares, 4,317,691 of the 4,327,691 restricted shares and the
495,356 Genentech shares are subject to these lock-up agreements.
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 AND WE HAVE IMPLEMENTED A
STOCKHOLDERS RIGHTS PLAN
In June 1999, our Board of Directors adopted a Stockholder Rights Plan. The
Stockholder Rights Plan provides for a dividend distribution of one Preferred
Shares Purchase Right on each outstanding share of our common stock. Each Right
entitles stockholders to buy 1/1000th of a share of our Series A participating
preferred stock at an exercise price of $120.00. Each Right will become
exercisable following the tenth day after a person or group announces
acquisition of 15 percent or more of our common stock, or announces commencement
of a tender offer, the consummation of which would result in ownership by the
person or group of 15 percent or more of our common stock. In the case of Cell
Genesys, which beneficially owns 22.6% of our outstanding capital stock as of
March 31, 1999, each right will become exercisable following the tenth day after
it announces the acquisition of 25 percent or more of our common stock, or
announces commencement of a tender offer, the consummation of which would result
in ownership by Cell Genesys of 25 percent or more of our common stock. We will
be entitled to redeem the Rights at $0.01 per Right at any time on or before the
tenth day following acquisition by a person or group of 15 percent or more (or
in the case of Cell Genesys, 25 percent or more) of our common stock.
The Stockholder Rights Plan and 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. This
could limit the price that certain investors might be willing to pay in the
future for our shares of common stock. Certain provisions of our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws 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, specify procedures for director nominations by stockholders
and submission of other proposals for consideration at stockholder meetings, and
eliminate cumulative voting in the election of directors. We are subject to
certain provisions of Delaware law which could also delay or make more difficult
a merger, tender offer or proxy contest involving Abgenix. In particular,
Section 203 of the Delaware General Corporation Law prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years unless certain conditions are met. The
Stockholder Rights Plan, the possible issuance of preferred stock, the
procedures required for director nominations and stockholder proposals and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of Abgenix, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a substantial block of our
common stock. The provisions could also limit the price that investors might be
willing to pay in the future for shares of our common stock. See "Description of
Capital Stock -- Preferred Stock" and "-- Certain Charter and Bylaw Provisions
and Delaware Law."
20
<PAGE> 22
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."
21
<PAGE> 23
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 Akros Pharma, 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.
22
<PAGE> 24
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 Akros 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
We will not receive any proceeds from the sales of common stock by the
selling stockholders pursuant to this prospectus.
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:
Second Quarter................................. $19.875 $ 13.25
First Quarter.................................. $18.125 $ 14.00
Fiscal 1998:
Fourth Quarter................................. $ 18.00 $ 6.00
Third Quarter.................................. 9.25 5.375
</TABLE>
As of March 31, 1999, there were approximately 236 holders of record of the
common stock. On June 30, 1999, the last reported sale price on the Nasdaq
National Market for the common stock was $19.875.
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.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth as of March 31, 1999 (1) our actual
capitalization and (2) our capitalization on a pro forma basis to give effect to
the sale of 208,000 shares of our common stock to the public in April 1999 at a
public offering price of $15.00 per share after deducting the underwriting
discount of six percent and estimated public offering expenses of $32,000. You
should read our capitalization information set forth below in conjunction with
our Financial Statements and Notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion........................ $ 1,746 $ 1,746
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: 14,684,953 shares; and
Pro forma: 14,892,953 shares(1);....................... 105,566 108,467
Additional paid-in capital................................ 31,759 31,759
Deferred compensation..................................... (1,046) (1,046)
Accumulated deficit....................................... (74,698) (74,698)
-------- --------
Total stockholders' equity........................ 61,581 64,482
-------- --------
Total capitalization.............................. $ 63,327 $ 66,228
======== ========
</TABLE>
- ---------------
(1) The number of shares of common stock outstanding at March 31, 1999 excludes:
(a) 2,179,211 shares of common stock issuable upon exercise of options
outstanding as of March 31, 1999, with a weighted average exercise price
of $6.225 per share;
(b) 121,667 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 1999, 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 March 31, 1999.
24
<PAGE> 26
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. The statement of operations data for the three month periods ended
March 31, 1998 and 1999 and balance sheet data as of March 31, 1999 are derived
from our unaudited interim financial statements, which are included elsewhere in
this prospectus. These unaudited financial statements include all adjustments
which we consider necessary for a fair presentation of our financial condition
and results of operations. The results of operations for the three month period
ended March 31, 1999 are not necessarily indicative of the results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ----------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Revenue under collaborative agreements
from related parties................... $ 6,200 $ 6,200 $ 4,719 $ 1,343 $ 1,344 $ 291 $ --
Contract revenue......................... -- -- -- 611 2,498 600 --
------- ------- ----------- ---------- ---------- ---------- -----------
Total revenues(1).................. 6,200 6,200 4,719 1,954 3,842 891 --
Operating expenses:
Research and development................. 7,921 11,879 9,433 11,405 17,588 5,366 4,567
General and administrative............... 1,955 2,603 2,565 3,525 3,405 918 1,084
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 -- 8
------- ------- ----------- ---------- ---------- ---------- -----------
Total operating expenses........... 9,876 14,482 11,998 37,430 21,100 6,284 5,659
------- ------- ----------- ---------- ---------- ---------- -----------
Operating loss............................. (3,676) (8,282) (7,279) (35,476) (17,258) (5,393) (5,659)
Interest income (expense), net............. -- -- 179 (404) 431 48 262
------- ------- ----------- ---------- ---------- ---------- -----------
Net loss................................... $(3,676) $(8,282) $ (7,100) $ (35,880) $ (16,827) $ 5,345) $ (5,397)
======= ======= =========== ========== ========== ========== ===========
Net loss per share(3)...................... $(46,710.53) $(1,032.70) $ (3.00) $ (0.67) $ (0.44)
=========== ========== ==========
Shares used in computing net loss per
share(3)................................. 152 34,744 5,602,963 7,953,044 12,136,774
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
-------------------------------- 31,
1996 1997 1998 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 10,172 $ 15,321 $ 16,744 $ 62,315
Working capital............................................. 5,564 6,637 13,101 57,433
Total assets................................................ 14,357 22,084 24,220 68,914
Long-term debt, less current portion........................ 1,757 3,979 2,180 1,746
Redeemable convertible preferred stock(4)................... 10,150 31,189 -- --
Accumulated deficit......................................... (16,594) (52,474) (69,301) (74,698)
Total stockholders' equity (net capital deficiency)......... (2,316) (22,318) 16,959 61,581
</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 Akros Pharma,
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> 27
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 March 31, 1999, Cell Genesys beneficially owned
22.6% 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 11 companies covering at least 14 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, AVI
BioPharma, BASF Bioresearch Corporation, Amgen, Inc. and Japan Tobacco, Inc.
Among our 11 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
26
<PAGE> 28
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 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 recently completed 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. 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 February 1999, we reported the preliminary results of our multi-center
confirmatory Phase II clinical trial for ABX-CBL in graft versus host disease.
This trial supports the safety and efficacy data seen in previously published
clinical trials conducted by third parties. The trial was conducted at nine
sites on 27 patients. Data from 23 of the 27 patients was evaluated for efficacy
at four dosing levels. A response rate of 73% was reported among the 15 patients
in the three highest dose groups. The remaining eight patients reported a 25%
response at the lowest dose. We believe the treatment was safe and well
tolerated except for temporary muscle pain. We will submit the complete report
to the FDA and, if approved, expect to commence a pivotal Phase III clinical
trial for ABX-CBL in mid-1999.
In March 1999, we entered into a research collaboration agreement with BASF
Bioresearch Corporation. Under the agreement, BASF can utilize our XenoMouse
technology to develop fully human antibodies to an undisclosed antigen target.
In return, we received an upfront research payment, and could receive additional
fees and milestone payments plus royalties on future product sales by BASF, if
any.
27
<PAGE> 29
BASF will be responsible for product development, manufacturing and marketing of
any products developed through the collaboration.
In April 1999, we entered into a research, option and license agreement
with Amgen, Inc. Under the agreement, we will use our XenoMouse technology to
generate for Amgen fully human monoclonal antibodies to an undisclosed antigen.
In return, we received an upfront research payment and could receive additional
fees and milestone payments plus royalties on future product sales by Amgen, if
any. Amgen will be responsible for product development, manufacturing, and
marketing of any products developed through the collaboration.
In June 1999, the Board of Directors adopted a Stockholder Rights Plan that
will entitle our stockholders to purchase shares of our common stock at a
discounted price in the event that any person or group acquires 15% or more of
our outstanding common stock (with an exception for Cell Genesys, which
currently owns more than 15% of our outstanding common stock.)
In June 1999, we entered into a collaboration with Japan Tobacco on
ABX-IL8. Under the agreement, Japan Tobacco will make certain payments to
Abgenix and, subject to additional payments, Japan Tobacco could potentially
receive the right to use clinical data generated by Abgenix in its own
regulatory filings in Japan, Taiwan and Korea.
In 1991, Cell Genesys and Akros 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 Akros, 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.
Since inception, we have funded our research and development activities
primarily through:
- contributions from Cell Genesys;
- revenues from collaborative arrangements;
- private placements of capital stock;
- our initial public offering of common stock in July 1998 resulting in net
proceeds of $20.1 million;
- our follow-on public offering in March and April 1999 resulting in net
proceeds of $44.5 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. We have also incurred net losses of
approximately $5.4 million in the three months ended March 31, 1999. As of March
31, 1999, we had an accumulated deficit of approximately $74.7 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.
28
<PAGE> 30
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 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, and charges to operations of $149,000 and $125,000 in the
three months ended March 31, 1998 and 1999, 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.
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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.
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Revenue under collaborative agreements from related parties for the three
months ended March 31, 1998 consisted of revenue derived principally from
performing research for Xenotech. The development of XenoMouse technology was
substantially completed in 1996 with modes ongoing research activities in 1997
and 1998. Therefore, we do not expect to recognize significant revenues from
research performed on behalf of Xenotech in the future.
Contract revenue of $600,000 in the three months ended March 31, 1998
consisted of a nonrefundable signing fee paid in connection wit the execution in
January 1998 of a collaboration agreement and the achievement of a milestone
under an existing collaborative agreement. In the three months ended March 31,
1999, no contract revenues were recognized.
Research and development expenses consist primarily of compensation and
other expenses related to research and development personnel, costs associated
with preclinical testing and planned clinical trials of our product candidates
and facilities expenses. Research and development expenses decreased from $5.4
million in the three months ended March 31, 1998 to $4.6 million in the three
months ended March 31, 1999. The decrease in research and development expenses
reflects decreased expenses primarily for the manufacture of antibody products
in 1998 in connection with the preparation for and the initiation of clinical
trials of ABX-CBL and ABX-IL8.
General and administrative expenses include compensation and other expenses
related to finance and administrative personnel, professional services expenses
and facilities expenses. General and administrative expenses increased slightly
from $916,000 in the three months ended March 31, 1998 to $1,084,000 in the
three months ended March 31, 1999. The increase in general and administrative
expenses reflects additional investor relation costs due to being a publicly
traded company and increased financing activity, primarily related to our
follow-on public offering.
Other income and expenses consist of interest income from cash, cash
equivalents and short term investments and interest expense incurred in
connection with equipment lease line financing and loan facilities. Interest
income increased due to higher average balances of short-term investments as a
result of our initial and follow-on public offerings.
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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 capital stock, an initial public offering of
common stock, our follow-on public offering of common stock in March and
equipment leaseline financings and loan facilities. Through March 31, 1999, we
received net cash of $125.5 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, $42.3 million from our follow-on public
offering in March 1999, $8.0 million from the sale of common stock to Genentech
in January 1999, $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.
Our net cash used in operating activities was $2.2 million in 1996, $10.2
million in 1997, $20.0 million in 1998, $5.4 million in the three month period
ended March 31, 1998 and $3.6 million in the three month period ended March 31,
1999. The cash used for operations was primarily to fund research and
development expenses and manufacturing costs related to the development of new
products.
As of March 31, 1999, we had cash, cash equivalents and short-term
investments of $62.3 million. We have invested the net proceeds of our initial
and follow-on public offerings 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 and March 31, 1999). As of
March 31, 1999, no further borrowings were available under the construction
financing line.
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 our current cash balances, cash equivalents, marketable
securities 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 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
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available, may involve restrictive covenants. Collaborative arrangements may
require us to relinquish our 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 11 companies covering at least
14 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, AVI BioPharma, BASF Bioresearch Corporation, Amgen, Inc.
and Japan Tobacco, Inc. Among our 11 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 recently completed 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. 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.
In February 1999, we reported the preliminary results of our multi-center
confirmatory Phase II clinical trial for ABX-CBL in graft versus host disease.
This trial supports the safety and efficacy data seen
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in previously published clinical trials conducted by third parties. The trial
was conducted at nine sites on 27 patients. Data from 23 of the 27 patients was
evaluated for efficacy at four dosing levels. A response rate of 73% was
reported among the 15 patients in the three highest dose groups. The remaining
eight patients reported a 25% response at the lowest dose. We believe the
treatment was safe and well tolerated except for temporary muscle pain. We will
submit the complete report to the FDA and, if approved, expect to commence a
pivotal Phase III clinical trial for ABX-CBL in mid-1999.
In March 1999, we entered into a research collaboration agreement with BASF
Bioresearch Corporation. Under the agreement, BASF can utilize our XenoMouse
technology to develop fully human antibodies to an undisclosed antigen target.
In return, we received an upfront research payment, and could receive additional
fees and milestone payments plus royalties on future product sales by BASF, if
any. BASF will be responsible for product development, manufacturing and
marketing of any products developed through the collaboration.
In April 1999, we entered into a research, option and license agreement
with Amgen, Inc. Under the agreement, we will use our XenoMouse technology to
generate for Amgen fully human monoclonal antibodies to an undisclosed antigen.
In return, we received an upfront research payment and could receive additional
fees and milestone payments plus royalties on future product sales by Amgen, if
any. Amgen will be responsible for product development, manufacturing, and
marketing of any products developed through the collaboration.
In June 1999, the Board of Directors adopted a Stockholder Rights Plan that
will entitle our stockholders to purchase shares of our common stock at a
discounted price in the event that any person or group acquires 15% of more of
our outstanding common stock (with an exception for Cell Genesys, which
currently owns more than 15% of our outstanding common stock).
In June 1999, we entered into a collaboration with Japan Tobacco on
ABX-IL8. Under the agreement, Japan Tobacco will make certain payments to
Abgenix and, subject to additional payments, Japan Tobacco could potentially
receive the right to use clinical data generated by Abgenix in its own
regulatory filings in Japan, Taiwan and Korea.
BACKGROUND
THE NORMAL ANTIBODY RESPONSE
The human immune system protects the body against a variety of infections
and other illnesses. Specialized cells, which include B cells and T cells, work
in concert with the other components of the immune system to recognize,
neutralize and eliminate from the body numerous foreign substances, infectious
organisms and malignant cells. In particular, B cells generally produce protein
molecules, known as antibodies, which are capable of recognizing substances
potentially harmful to the human body. Such substances are called antigens. Upon
being bound by an antibody, antigens can be neutralized and blocked from
interacting with and causing damage to normal cells. In order to effectively
neutralize or eliminate an antigen without harming normal cells, the immune
system must be able to generate antibodies that bind tightly (i.e., with high
affinity) to one specific antigen (i.e., with specificity).
All antibodies have a common core structure composed of four subunits, two
identical light (L) chains and two identical heavy (H) chains, named according
to their relative size. The heavy and light chains are assembled within the B
cell to form an antibody molecule which consists of a constant region and a
variable region. As shown in figure one, an antibody molecule may be represented
schematically in the form of a "Y" structure.
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[FIGURE 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 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
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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 March 31, 1999, 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.
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
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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.
[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
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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.
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
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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 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.
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<PAGE> 41
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 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.
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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 as of March 31, 1999.
<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 safety, dosing and 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.
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 BMT patients. It is estimated that
approximately 12,000 allogeneic BMTs were 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 recently completed a multi-center confirmatory Phase II
clinical trial for ABX-CBL for the treatment of steroid-resistant, grade II/IV
GVHD. In February 1999, preliminary results were reported for the trial, which
studied four escalating intravenous dose regimens. It was
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<PAGE> 43
conducted at nine sites and involved 27 patients evaluated for safety, 23 of
which were also evaluated for efficacy end points. A clinical response was
defined as a two-grade improvement in the International Bone Marrow Transplant
Registry GVHD Severity Scale. GVHD is graded based on clinical symptoms from
grade I, which is the mildest form, to grade IV, which is the most severe form.
Two of eight patients responded in the lowest dose cohort. Eleven of 15 patients
responded among the three highest doses. Temporary muscle pain during the
infusions determined the maximum tolerated dose. We believe the treatment was
safe and well tolerated except for the observed muscle pain.
As an extension to the original Phase II trial protocol, we filed for and
received permission from the FDA to enroll additional patients at a single dose.
This protocol remains open and continues to enroll patients. Our application to
the FDA for approval to advance to Phase III clinical trials will contain the
original Phase II data plus all additional data then available from the
extension protocol. There can be no assurance that the results of the extension
protocol will be favorable or will extend the findings of the original Phase II
study. In addition, the FDA may view our application as insufficient and require
additional clinical trials before allowing us to commence a Phase III clinical
trial. 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.
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.
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<PAGE> 44
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. The planned
commencement of this pilot trial is the first quarter of 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 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 to date in preclinical studies, we
plan to initiate clinical trials with ABX-EGF in mid-1999.
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<PAGE> 45
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 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 11 companies covering at least 14 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
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<PAGE> 46
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 11 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 as
of June 30, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PARTNER FIELD DATE
<S> <C> <C>
- -----------------------------------------------------------------------------------
Japan Tobacco Psoriasis 6/99
- -----------------------------------------------------------------------------------
Amgen Undisclosed 4/99
- -----------------------------------------------------------------------------------
BASF Undisclosed 3/99
- -----------------------------------------------------------------------------------
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.
Japan Tobacco. In June 1999, we entered into a collaboration with Japan
Tobacco on ABX-IL8. Under the agreement, Japan Tobacco will make certain
payments to Abgenix and, subject to additional payments, Japan Tobacco could
potentially receive the right to use clinical data generated by Abgenix in its
own regulatory filings in Japan, Taiwan and Korea.
Amgen. In April 1999, we entered into a research, option and license
agreement with Amgen, Inc. Under the agreement we will use our XenoMouse
technology to generate for Amgen fully human monoclonal antibodies to an
undisclosed antigen. In return, we received an upfront research payment and
could receive additional fees and milestone payments plus royalties on future
product sales by Amgen, if any. Amgen will be responsible for product
development, manufacturing, and marketing of any products developed through the
collaboration.
BASF. In March 1999, we entered into a research collaboration agreement
with BASF Bioresearch Corporation. Under the agreement, BASF can utilize our
XenoMouse technology to develop fully human antibodies to an undisclosed antigen
target. In return, we received an upfront research payment, and could receive
additional fees and milestone payments plus royalties on future product sales by
BASF, if any. BASF will be responsible for product development, manufacturing
and marketing of any products developed through the collaboration.
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
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<PAGE> 48
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.
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 AND ITS SUBSIDIARY AKROS
XENOTECH
In June 1991, Cell Genesys entered into several agreements with Akros for
the purpose of forming an equally owned limited partnership named Xenotech. In
connection with the formation of Xenotech, both Cell Genesys and Akros
contributed cash, and Cell Genesys contributed the exclusive right to certain of
its
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<PAGE> 49
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 March 31, 1999, 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 Akros.
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 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.
ABX-IL-8 AGREEMENT
In June 1999, we entered into a collaboration with Japan Tobacco on
ABX-IL8. Under the agreement, Japan Tobacco will make certain payments to
Abgenix and, subject to additional payments, Japan Tobacco could potentially
receive the right to use clinical data that we generate in its own regulatory
filings in Japan, Taiwan and Korea.
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
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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 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;
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- 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 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
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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
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 and 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.
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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 manufacturer 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 manufacturer may not be able to comply with
the applicable cGMP requirements and other FDA regulatory requirements. If
Abgenix or our contract manufacturer 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 plc, Protein Design Labs, Inc. and MorphoSys
AG.
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 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,
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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 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 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 60 persons, of whom 16 hold Ph.D. or
M.D. degrees and 11 hold other advanced degrees. Approximately 48 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.
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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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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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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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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. The 1999 annual meeting of
stockholders was held on June 2, 1999. On June 2, 1999, M. Kathleen Behrens,
Raju S. Kucherlapati, Mark B. Logan and Joseph E. Maroun were each granted an
option to purchase 7,500 shares of our common stock and Stephen A. Sherwin, the
Chairman of the Board, was granted an option to purchase 10,000 shares of our
common stock each at an exercise price of $14.375 per
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<PAGE> 60
share pursuant to the 1998 Director Option Plan. See "Management -- Stock
Plans -- 1998 Director Option Plan" and "Certain Transactions."
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 19,623(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 $18,714 for reimbursement of relocation expenses and $909 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> 61
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> 62
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 March 31, 1999, 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 March 31,
1999, options to purchase an aggregate of 2,179,211 shares were outstanding,
456,474 shares of common stock had been purchased pursuant to exercises of stock
options and stock purchase rights and 255,565 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> 63
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 March
31, 1999, 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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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. On June 2, 1999, M. Kathleen Behrens, Raju S. Kucherlapati, Mark
B. Logan and Joseph E. Maroun were each granted an option to purchase 7,500
shares of our common stock and Stephen A. Sherwin, the Chairman of the Board,
was granted an option to purchase 10,000 shares of our common stock each at an
exercise price of $14.375 per share pursuant to the 1998 Director Option Plan.
See "Management -- Stock Plans -- 1998 Director Option Plan" and "Certain
Transactions."
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
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<PAGE> 65
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 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 we
issued 2,058,333 shares of series 1 subordinated convertible preferred stock to
Cell Genesys in exchange for 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 superceded 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.
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.
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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 the 1,146,300 shares of Abgenix common
stock offered by this prospectus to the selling stockholders 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
the selling stockholders, BancBoston Robertson Stephens Inc. received
approximately $475,000 in fees in connection with its services as placement
agent. BancBoston Robertson Stephens Inc. provided services as the managing
underwriter of our March 1999 public offering of 3,000,000 shares of common
stock, plus an additional 208,000 shares issued to the underwriters in April
1999 upon exercise of their option to cover over-allotments. BancBoston
Robertson Stephens, Inc., together with the other underwriters, will receive
approximately 6% of the public offering price for underwriting discounts and
commissions.
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<PAGE> 68
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 currently or formerly 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.
Currently, Crossover Fund II, Crossover Fund IIA, Omega Ventures II, L.P.
and Omega Ventures II Cayman, L.P. are no longer affiliated with Robertson
Stephens Investment Management Co.
(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.
The selling stockholders and certain other holders of our common stock are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights of Certain Holders."
As of March 31, 1999, Cell Genesys beneficially owns approximately 22.6% 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> 69
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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<PAGE> 70
PRINCIPAL AND SELLING 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, (4) all of our directors and executive officers
as a group and (5) the selling stockholders. 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 NUMBER SHARES BENEFICIALLY OWNED
OWNED PRIOR TO OFFERING OF AFTER OFFERING
------------------------ SHARES --------------------------
NUMBER PERCENT(1) OFFERED(2) NUMBER PERCENT(1)
---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BENEFICIAL OWNER
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Cell Genesys(3)........................... 3,392,034 28.9% -- 3,392,034 23.0%
342 Lakeside Drive
Foster City, CA 94404
Omega Venture Partners(4)................. 851,351 7.3 -- 851,351 5.8
555 California Street, Suite 2600
San Francisco, CA 94104
Joseph E. Maroun(5)....................... 3,569,911 30.4 -- 3,569,911 24.2
Stephen A. Sherwin, M.D.(6)............... 3,464,565 29.3 -- 3,464,565 23.4
Raju S. Kucherlapati, Ph.D.(7)............ 3,432,315 29.2 -- 3,432,315 23.2
M. Kathleen Behrens, Ph.D.(8)............. 148,540 1.3 -- 148,540 1.0
R. Scott Greer(9)......................... 220,588 1.9 -- 220,588 1.5
C. Geoffrey Davis, Ph.D.(10).............. 79,395 * -- 79,395 *
Raymond M. Withy, Ph.D.(11)............... 80,647 * -- 80,647 *
Kurt W. Leutzinger(12).................... 45,737 * -- 45,737 *
John A. Lipani, M.D.(13).................. 51,899 * -- 51,899 *
Mark B. Logan(14)......................... 12,250 * -- 12,250 *
All directors and executive officers as a
group (10 persons)(15).................. 4,321,779 35.5 -- 4,321,779 28.5
SELLING STOCKHOLDERS
Alan Mandell, Trustee of the 1982
Elizabeth Heller Mandell Trust.......... 8,000 * 8,000 -- --
Barrie Ramsay Zesiger..................... 12,000 * 12,000 -- --
City of Milford Pension & Retirement
Fund.................................... 90,000 * 90,000 -- --
City of Stamford Firemen's Pension Fund... 46,000 * 46,000 -- --
Domenic J. Mizio.......................... 17,000 * 17,000 -- --
Fred & Lucy Giampino JTWROS............... 3,000 * 3,000 -- --
Harold & Grace Willens JTWROS............. 5,000 * 5,000 -- --
HBL Charitable Unitrust................... 8,000 * 8,000 -- --
Helen Hunt................................ 8,000 * 8,000 -- --
Lazar Foundation.......................... 8,000 * 8,000 -- --
Mary Ann S. Hamilton Trust for Self....... 10,000 * 10,000 -- --
Morgan Trust Co. of the Bahamas Ltd. as
Trustee U/A/D 11/30/93.................. 16,000 * 16,000 -- --
Murray Capital, L.L.C..................... 8,000 * 8,000 -- --
NFIB Employee Pension Trust............... 22,000 * 22,000 -- --
Norwalk Employees' Pension Plan........... 48,000 * 48,000 -- --
Planned Parenthood of NY.................. 6,000 * 6,000 -- --
Public Employee Retirement System of
Idaho................................... 181,000 1.6 181,000 -- --
Roanoke College........................... 19,000 * 19,000 -- --
State of Oregon PERS/ZCG.................. 546,300 4.7 546,300 -- --
The Ferris Hamilton Family Trust.......... 8,000 * 8,000 -- --
The Jenifer Altman Foundation............. 16,000 * 16,000 -- --
The Meehan Investment Partnership I,
L.P..................................... 8,000 * 8,000 -- --
Van Loben Sels Foundation................. 19,000 * 19,000 -- --
Wells Family L.L.C........................ 24,000 * 24,000 -- --
Wolfson Investment Partners L.P........... 10,000 * 10,000 -- --
</TABLE>
69
<PAGE> 71
- ---------------
* 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 14,615,649 shares of
common stock outstanding as of December 31, 1998, after giving effect to
our sale of 495,356 shares of common stock to Genentech in January 1999 and
our sale of 3,000,000 shares of common stock to the public in March 1999.
(2) Assumes that the selling stockholders will sell all of their shares of
common stock in this offering.
(3) 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").
(4) Includes 362,545 shares held by Crossover Fund II, L.P., 67,663 shares held
by Crossover Fund IIA, L.P., 334,079 shares held by Omega Ventures II, L.P.
and 87,064 shares held by Omega Ventures II Cayman, L.P.
(5) 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.
(6) 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.
(7) 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.
(8) Includes 56,280 shares held by Bayview Investors, LTD, 50,000 shares held
by The Robertson Stephens Orphan Fund, L.P. and 17,500 shares held by The
Robertson Stephens Orphan Offshore Fund, L.P. (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.
(9) Includes 80,819 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(10) Includes 79,395 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
70
<PAGE> 72
(11) Includes 43,979 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(12) Includes 45,649 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(13) Includes 51,899 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(14) Includes 12,250 shares issuable upon exercise of options exercisable within
60 days of December 31, 1998.
(15) Includes 450,209 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1998 and 121,667 shares subject to warrants.
71
<PAGE> 73
PLAN OF DISTRIBUTION
In November 1998, Cell Genesys sold the 1,146,300 shares of common stock
offered by this prospectus to the selling stockholders. Pursuant to that sale,
we agreed to register the shares under the Securities Act for resale to the
public. Under the registration rights agreement between Abgenix and the selling
stockholders, 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.
The sale of all or a portion of the shares of common stock offered hereby
by the selling stockholders may be effected from time to time at prevailing
market prices at the time of such sales, at prices related to such prevailing
prices, at fixed prices that may be changed or at negotiated prices. The selling
stockholders may effect such transactions by selling directly to purchasers in
negotiated transactions, to dealers acting as principals or through one or more
brokers, or any combination of these methods of sale. In addition, shares may be
transferred in connection with the settlement of call options, short sales or
similar transactions that may be effected by the selling stockholders. Dealers
or brokers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders. The selling stockholders and any
brokers or dealers that participate in the distribution may under certain
circumstances be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by such brokers or dealers and any
profits realized on the resale of shares by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Abgenix and the
selling stockholders may agree to indemnify such brokers or dealers against
certain liabilities, including liabilities under the Securities Act.
To the extent required under the Securities Act or the rules of the
Securities and Exchange Commission, a supplemental prospectus will be filed,
disclosing (1) the name of any such brokers or dealers, (2) the number of shares
involved, (3) the price at which such shares are to be sold, (4) the commissions
paid or discounts or concessions allowed to such brokers or dealers, where
applicable, (5) that such brokers or dealers did not conduct any investigation
to verify the information set out in this prospectus, as supplemented, and (6)
other facts material to the transaction.
There is no assurance that any of the selling stockholders will sell any or
all of the shares of common stock offered hereby.
We have agreed to pay the expenses incurred in connection with the
registration of the shares of common stock offered hereby. The selling
stockholders will be responsible for all selling commissions, transfer taxes and
related charges in connection with the offer and sale of such shares.
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<PAGE> 74
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 March 31, 1999, 14,684,953 shares
of common stock were issued and outstanding and held by 236 stockholders of
record 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.
In June 1999, our Board of Directors adopted a Stockholder Rights Plan. The
Stockholder Rights Plan provides for a dividend distribution of one Preferred
Shares Purchase Right on each outstanding share of our common stock. Each Right
entitles stockholders to buy 1/1000 of a share of our Series A participating
preferred stock at an exercise price of $120.00. Each Right will become
exercisable following the tenth day after a person or group announces
acquisition of 15 percent or more of our common stock, or announces commencement
of a tender offer, the consummation of which would result in ownership by the
person or group of 15 percent or more of our common stock. In the case of Cell
Genesys, which beneficially owns 22.6% of our outstanding capital stock as of
March 31, 1999, each right will become exercisable following the tenth day after
it announces the acquisition of 25 percent or more of our common stock, or
announces commencement of a tender offer, the consummation of which would result
in ownership by Cell Genesys of 25 percent or more of our common stock. We will
be entitled to redeem the Rights at $0.01 per Right at any time on or before the
tenth day following acquisition by a person or group of 15 percent or more (or
in the case of Cell Genesys, 25 percent or more) of our common stock.
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<PAGE> 75
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of March 31, 1999, 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 March 31, 1999, 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 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.
The shares offered by the selling stockholders under this prospectus are
entitled to certain rights with respect to the registration of these shares
under the Securities Act. See "Plan of Distribution."
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.
OUR STOCKHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BYLAW PROVISIONS AND
DELAWARE LAW
Our Stockholder Rights Plan and 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. This
could limit the price that certain investors might be willing to pay in the
future for shares of our common stock. Certain provisions of our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws 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, specify procedures for director nominations by stockholders
and submission of other proposals for consideration at stockholder meetings 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
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<PAGE> 76
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 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 and specify procedures for director nominations by
stockholders and submission of other proposals for consideration at stockholder
meetings. 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 and the Rights Plan 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.
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.
As of December 31, 1998, we have outstanding 11,615,649 shares of common
stock after giving effect to our sale of 495,356 shares of common stock to
Genentech in January 1999 and assuming no exercise of outstanding options or
warrants after December 31, 1998. Of these shares, the following are freely
tradeable:
- the 1,146,300 shares that may be sold in this offering;
- the 2,875,000 shares sold in our initial public offering in July 1998;
- the 3,208,000 shares sold by us to the public in March and April 1999;
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
75
<PAGE> 77
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.
In connection with our March 1999 public offering, certain of our
outstanding shares are subject to lock-up agreements under which the holders
agree that they will not sell their shares for a period of 90 days after the
date the public offering is declared effective by the Securities and Exchange
Commission, March 3, 1999, without the prior written consent of BancBoston
Robertson Stephens Inc., one of the underwriters managing our March 1999 public
offering. 350,740 of the freely tradeable shares, 4,317,691 of the 4,327,691
restricted shares and the 495,356 Genentech shares are subject to these lock-up
agreements.
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 currently, 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.
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. 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
76
<PAGE> 78
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.
77
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Abgenix, Inc., Audited Financial Statements
Report of Ernst & Young LLP, Independent Auditors......... F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statement of Changes in Redeemable Convertible Preferred
Stock and Stockholders' Equity (Net Capital
Deficiency)............................................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
Xenotech, LP, Audited Financial Statements
Report of Ernst & Young LLP, Independent Auditors......... F-22
Balance Sheets............................................ F-23
Statements of Operations.................................. F-24
Statement of Partners' Capital............................ F-25
Statements of Cash Flows.................................. F-26
Notes to Financial Statements............................. F-27
Abgenix, Inc. Unaudited Financial Statements
Condensed Balance Sheets -- March 31, 1999 and December
31, 1998............................................... F-29
Condensed Statements of Operations -- Three Months Ended
March 31, 1999 and
March 31, 1998......................................... F-30
Condensed Statements of Cash Flows -- Three Months Ended
March 31, 1999 and
March 31, 1998......................................... F-31
Notes to Condensed Financial Statements................... F-32
</TABLE>
F-1
<PAGE> 80
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> 81
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> 82
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> 83
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> 84
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 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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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 of 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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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 of 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> 98
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> 99
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-22
<PAGE> 100
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-23
<PAGE> 101
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-24
<PAGE> 102
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-25
<PAGE> 103
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-26
<PAGE> 104
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-27
<PAGE> 105
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-28
<PAGE> 106
ABGENIX, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,415 $ 22,977
Marketable securities..................................... 15,329 39,338
Prepaid expenses and other current assets................. 1,438 705
-------- --------
Total current assets.............................. 18,182 63,020
Property and equipment, net................................. 5,435 5,304
Deposits and other assets................................... 603 590
-------- --------
$ 24,220 $ 68,914
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 439 $ 1,192
Deferred revenue.......................................... 425 425
Accrued product development costs......................... 1,225 775
Other accrued liabilities................................. 1,293 1,481
Current portion of long-term debt......................... 1,699 1,714
-------- --------
Total current liabilities......................... 5,081 5,587
Long-term debt.............................................. 2,180 1,746
Commitments
Stockholders' equity:
Preferred Stock, $.0001 par value; 5,000,000 shares
authorized, none outstanding
Common Stock, $.0001 par value; 50,000,000 shares
authorized, 14,684,953 and 11,120,293 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively, at amount paid in........................ 55,842 105,566
Additional paid-in capital................................ 31,588 31,759
Deferred compensation..................................... (1,170) (1,046)
Accumulated deficit....................................... (69,301) (74,698)
-------- --------
Total stockholders' equity........................ 16,959 61,581
-------- --------
$ 24,220 $ 68,914
======== ========
</TABLE>
See accompanying notes.
F-29
<PAGE> 107
ABGENIX, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Revenues:
Revenue from collaborative agreements from related parties
(net of related contributions to Xenotech of $117 for
the three months ended March 31, 1998)................. $ 291 $ --
Contract revenue.......................................... 600 --
------- -------
Total revenues.................................... 891 --
Operating expenses:
Research and development.................................. 5,366 4,567
General and administrative................................ 918 1,084
Equity in losses from the Xenotech joint venture.......... -- 8
------- -------
Total operating expenses.......................... 6,284 5,659
------- -------
Operating loss.............................................. (5,393) (5,659)
Other income and expenses:
Interest income........................................... (197) (395)
Interest expense.......................................... 149 133
------- -------
Net loss.................................................... $(5,345) $(5,397)
======= =======
Net loss per share.......................................... $ (0.67) $ (0.44)
======= =======
Shares used in computing net loss per share................. 7,953 12,137
======= =======
</TABLE>
See accompanying notes.
F-30
<PAGE> 108
ABGENIX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- -------
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (5,345) $(5,397)
Adjustments to reconcile net loss to net cash used by
operating activities:
Equity in losses of Xenotech........................... 115 8
Depreciation and amortization.......................... 445 408
Stock options issued to consultants -- 171
Changes for certain assets and liabilities:
Prepaid expenses and other current assets............ (236) 733
Deposits and other assets............................ (98) --
Accounts payable..................................... (402) 753
Accrued product development costs -- (450)
Other accrued liabilities............................ 137 188
-------- -------
Net cash used in operating activities..................... (5,384) (3,586)
-------- -------
Investing activities:
Purchases of marketable securities........................ (3,643) (26,730)
Sales of marketable securities............................ 1,978 2,721
Capital expenditures...................................... (54) (148)
Contributions to Xenotech................................. (117) --
-------- -------
Net cash used in investing activities..................... (1,836) (24,157)
-------- -------
Financing activities:
Net proceeds from issuances of common stock............... 46 49,724
Net proceeds from issuances of redeemable convertible
preferred stock........................................ 3,936 --
Principal payments on long-term debt and capital lease
obligations............................................ (408) (419)
-------- -------
Net cash provided in financing activities................. 3,574 49,305
-------- -------
Net increase (decrease) in cash and cash equivalents........ (3,646) 21,562
Cash and cash equivalents at the beginning of the period.... 4,617 1,415
-------- -------
Cash and cash equivalents at the end of the period.......... $ 971 $22,977
======== =======
</TABLE>
See accompanying notes.
F-31
<PAGE> 109
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed financial statements of Abgenix, Inc. (the
"Company" or "Abgenix") included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information or footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial information included
therein. While the Company believes that the disclosures are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with the audited financial statements for the year ended
December 31, 1998 and accompanying notes included in the Company's Annual Report
as filed on Form 10-K with the Securities and Exchange Commission on March 18,
1999. The Balance Sheet at December 31, 1998 is derived from audited financial
statements at that date. The results of operations for the quarter ended March
31, 1999 are not necessarily indicative of the results to be expected for the
full year or for any other future period.
2. NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common stock
outstanding. Potentially dilutive securities have been excluded from the
computation, as their effect is antidilutive.
3. FOLLOW-ON PUBLIC OFFERING
On March 4, 1999, the Company completed a follow-on public offering and
issued 3,000,000 shares of its common stock to the public at a price of $15.00
per share. The Company received cash of $42.3 million, after deducting
underwriting discounts and commissions and before deducting expenses payable by
the Company. On April 7, 1999 the Company's underwriters exercised an option to
purchase an additional 208,000 shares of common stock at a price of $15.00 per
share to cover over-allotments. The Company received cash of approximately $2.9
million, net of underwriting discounts and commissions.
4. COLLABORATION AND LICENSE AGREEMENTS
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 AVI 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-32
<PAGE> 110
ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
In March 1999, the Company entered into a research collaboration agreement
with BASF Bioresearch Corporation ("BASF"). Under the agreement, BASF can
utilize Abgenix's XenoMouse technology to develop fully human antibodies to an
undisclosed antigen target. In return, Abgenix will receive an upfront research
payment, and could receive additional fees and milestone payments plus royalties
on future product sales by BASF, if any. BASF will be responsible for product
development, manufacturing and marketing of any products developed through the
collaboration.
5. SUBSEQUENT EVENT
In April 1999 the Company entered into a research option and license
agreement with Amgen, Inc. ("Amgen"). Under the agreement the Company will use
its XenoMouse(TM) technology to generate for Amgen fully human monoclonal
antibodies to an undisclosed antigen. In return, Abgenix will receive an upfront
research payment and could receive additional fees and milestone payments plus
royalties on future product sales by Amgen, if any. Amgen will be responsible
for product development, manufacturing, and marketing of any products developed
through the collaboration.
In June 1999, the Board of Directors adopted a Stockholder Rights Plan that
will entitle the Company's stockholders to purchase shares of the Company's
common stock at a discounted price in the event that any person or group
acquires 15% or more of the Company's outstanding common stock (with an
exception for Cell Genesys, which currently owns more than 15% of the Company's
outstanding common stock).
F-33
<PAGE> 111
DESCRIPTION OF GRAPHICS
PAGE 35:
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 35:
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 37:
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 "Human."
<PAGE> 112
LOGO
<PAGE> 113
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.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
SEC Registration Fee........................................ $ 4,940.00
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...................................... 105,060.00
-----------
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.
(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,
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<PAGE> 114
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 shares 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>
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.
</TABLE>
II-2
<PAGE> 115
<TABLE>
<C> <S>
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.
10.22(2) License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and Abgenix.
</TABLE>
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<PAGE> 116
<TABLE>
<C> <S>
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 Amendment No. 1 dated May 26, 1998 to Collaborative Research
Agreement between Abgenix and Pfizer, Inc.
*+10.27B 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.
10.29A(16) Amendment No. 2 effective January 28, 1999 to Collaborative
Research Agreement between Schering-Plough Research
Institute and Abgenix.
10.29B(16) Amendment No. 3 effective February 12, 1999 to the
Collaborative Research Agreement 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 Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
*10.35A Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.
*+10.36 Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.37(16) Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.
*+10.38 Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.
10.39(15) Registration Rights Agreement dated November 18, 1998
between the selling stockholders and Abgenix.
*+10.40 Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix.
</TABLE>
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<PAGE> 117
<TABLE>
<C> <S>
10.41(17) Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.
10.42(16) Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.
10.43(18) Preferred Share Rights Agreement, dated as of June 14, 1999,
between Abgenix and ChaseMellon Shareholder Services,
L.L.C., including the Certificate of Determinations, the
Form of Rights Certificate and the Summary of Rights
attached thereto as Exhibits A, B and C, respectively.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
*23.2 Consent of Counsel (included in Exhibit 5.1).
*24.1 Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment granted for portions of these exhibits. Omitted
portions have been filed separately with the Commission.
(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. 333-71289), portions for which
Abgenix has requested confidential treatment.
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<PAGE> 118
(17) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-71289).
(18) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form 8-A (File No. 000-24207).
(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:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(c) That, 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.
(d) That, for purposes 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.
(e) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Abgenix has duly caused this Post-Effective Amendment No. 3 to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fremont, State of California, on the 30th day of
June, 1999.
ABGENIX, INC.
By: /s/ R. SCOTT GREER
------------------------------------
R. Scott Greer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933 as amended, this
Post-Effective Amendment No. 3 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ R. SCOTT GREER President, Chief Executive June 30, 1999
- -------------------------------------------------------- Officer and Director
R. Scott Greer (Principal Executive Officer)
/s/ KURT W. LEUTZINGER Vice President, Finance and June 30, 1999
- -------------------------------------------------------- Chief Financial Officer
Kurt W. Leutzinger (Principal Financial and
Accounting Officer)
Chairman of the Board
- --------------------------------------------------------
Stephen A. Sherwin, M.D.
* M. KATHLEEN BEHRENS, PH.D. Director June 30, 1999
- --------------------------------------------------------
M. Kathleen Behrens, Ph.D.
* RAJU S. KUCHERLAPATI, PH.D. Director June 30, 1999
- --------------------------------------------------------
Raju S. Kucherlapati, Ph.D.
* MARK B. LOGAN Director June 30, 1999
- --------------------------------------------------------
Mark B. Logan
* JOSEPH E. MAROUN Director June 30, 1999
- --------------------------------------------------------
Joseph E. Maroun
*By: /s/ R. SCOTT GREER June 30, 1999
---------------------------------------------------
R. Scott Greer
(Attorney-In-Fact)
</TABLE>
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<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
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.
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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
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 Amendment No. 1 dated May 26, 1998 to Collaborative Research
Agreement between Abgenix and Pfizer, Inc.
*+10.27B 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.
10.29A(16) Amendment No. 2 effective January 28, 1999 to Collaborative
Research Agreement between Schering-Plough Research
Institute and Abgenix.
10.29B(16) Amendment No. 3 effective February 12, 1999 to the
Collaborative Research Agreement 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 Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
</TABLE>
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<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C>
*10.35A Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.
*+10.36 Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.37(16) Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.
*+10.38 Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.
10.39(15) Registration Rights Agreement dated November 18, 1998
between the selling stockholders and Abgenix.
*+10.40 Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix
10.41(17) Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.
10.42(16) Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.
10.43(18) Preferred Share Rights Agreement, dated as of June 14, 1999,
between Abgenix and ChaseMellon Shareholder Services,
L.L.C., including the Certificate of Determinations, the
Form of Rights Certificate and the Summary of Rights
attached thereto as Exhibits A, B and C, respectively.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
*23.2 Consent of Counsel (included in Exhibit 5.1).
*24.1 Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment granted for portions of these exhibits. Omitted
portions have been filed separately with the Commission.
(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.
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<PAGE> 123
(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. 333-71289), 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. 333-71289).
(18) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form 8-A (File No. 000-24207).
II-11
<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 Post-Effective Amendment No. 3 to the
Registration Statement (Form S-1) and related Prospectus of Abgenix, Inc. for
the registration of 1,146,300 shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 29, 1999
