<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ABGENIX, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<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>
7601 DUMBARTON CIRCLE
FREMONT, CA 94555
(510) 608-6500
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
R. SCOTT GREER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ABGENIX, INC.
7601 DUMBARTON CIRCLE
FREMONT, CA 94555
(510) 608-6500
(Name, Address Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
--------------------------
COPY TO:
PETER T. HEALY, ESQ.
STELLA S. LEUNG, ESQ.
MARIO M. KASHOU, ESQ.
O'MELVENY & MYERS LLP
275 BATTERY STREET, 26TH FLOOR
SAN FRANCISCO, CA 94111
(415) 984-8833
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per share (2)... 4,050,000 $81.28 $329,184,000 $86,904.58
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act"), the price of the Common Stock is based upon the average
of the high and low prices of the Common Stock on the Nasdaq National Market
on November 9, 2000 (which is a date within five business days prior to the
date of filing of this Registration Statement).
(2) This Registration Statement also relates to the rights ("Rights") to
purchase shares of Series A Participating Preferred Stock of the Registrant
which are attached to all shares of Common Stock outstanding as of, and
issued subsequent to, June 14, 1999, pursuant to the terms of the
Registrant's Shareholder Rights Agreement, dated June 14, 1999, as amended.
Until the occurrence of certain prescribed events, the Rights are not
exercisable, are evidenced by the certificates for Common Stock and will be
transferred with and only with such Common Stock.
--------------------------
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 OR UNTIL THIS 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>
[LOGO]
4,050,000 SHARES
COMMON STOCK
---------------
The holders of our common stock who are identified as selling shareholders
in this prospectus may offer and sell from time to time up to 4,050,000 shares
of our common stock by using this prospectus. We sold 3,300,000 of these shares
to the selling shareholders in a private placement transaction on November 6,
2000.
The offering price for our common stock may be the market price for our
common stock prevailing at the time of sale, a price related to the prevailing
market price, at negotiated prices or such other price as the selling
shareholders determine from time to time. We will not receive any of the
proceeds from the sales of the shares.
Our common stock is traded on the Nasdaq National Market under the ticker
symbol "ABGX." On November 9, 2000, the closing sale price of our common stock,
as reported by Nasdaq, was $80.25 per share.
------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 3 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is , 2000.
<PAGE>
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 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 OUR COMMON STOCK.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Risk Factors................................................ 3
Certain Information......................................... 19
Use of Proceeds............................................. 20
Price Range of Common Stock................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 31
Management.................................................. 55
Certain Transactions........................................ 66
Description of Capital Stock................................ 70
Shares Eligible for Future Sale............................. 73
Principal Shareholders...................................... 74
Selling Shareholders........................................ 76
Plan of Distribution........................................ 79
Where You Can Find More Information......................... 81
Legal Matters............................................... 81
Experts..................................................... 81
Index to Financial Statements............................... F-1
</TABLE>
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Abgenix and the Abgenix logo are trademarks of Abgenix. XenoMouse is a
registered trademark of Xenotech, Inc., a wholly-owned subsidiary of Abgenix.
This prospectus also contains trademarks of third parties.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS BASED LARGELY ON OUR
CURRENT EXPECTATIONS AND PROJECTIONS ABOUT FUTURE EVENTS AND FINANCIAL TRENDS
AFFECTING THE FINANCIAL CONDITION OF OUR BUSINESS. THE WORDS "BELIEVE," "MAY,"
"WILL," "ESTIMATE," "CONTINUE," "ANTICIPATE," "INTEND," "EXPECT" AND SIMILAR
EXPRESSIONS IDENTIFY THESE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS,
INCLUDING THOSE DESCRIBED BELOW UNDER THE CAPTION "RISK FACTORS." IN LIGHT OF
THESE RISKS AND UNCERTAINTIES, THE FORWARD-LOOKING EVENTS AND CIRCUMSTANCES
DISCUSSED IN THIS PROSPECTUS MAY NOT OCCUR AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. WE
UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
RISKS DESCRIBED BELOW BEFORE PURCHASING OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS COULD BE MATERIALLY HARMED, AND
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY HARMED. AS
A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT
LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS
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. Moreover, 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 an
early stage of development. Clinical trials have begun with respect to only
three fully human antibody product candidates generated by XenoMouse technology.
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 customers 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 harmed.
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 on our own, or through others, product candidates
on a commercial scale;
- inability to market products due to third-party proprietary rights;
- election by our customers not to pursue product development;
- failure by our customers to develop products successfully; and
- failure to achieve market acceptance.
Because of these risks, our research and development efforts or those of our
customers may not result in any commercially viable products. To date, our
customers' right to obtain a product license has been exercised for only six
product candidates. 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 harmed.
3
<PAGE>
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 pre-clinical 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,
pre-clinical testing and clinical trials.
Historically, the results from pre-clinical 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
pre-clinical 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.
As of November 9, 2000, three of our product candidates, ABX-CBL, ABX-IL8
and ABX-EGF, were 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 Federal
Drug Administration, or FDA, guidelines. As a result, this data will not support
an application for regulatory approval without further clinical trials. Clinical
trials conducted by us or by third parties on our behalf may not demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals for
ABX-CBL, ABX-IL8, ABX-EGF and/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 pre-clinical development,
but we have not submitted investigational new drug applications nor begun
clinical trials for these product candidates. Our pre-clinical or clinical
development efforts may not be successfully completed, we may not file further
investigational new drug applications and clinical trials may not commence as
planned.
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials may be delayed by many factors, including:
- inability to manufacture sufficient quantities of materials for use in
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 customers, to assist us in managing and
monitoring clinical trials. Our reliance on these third parties may result in
delays in completing, or failing to complete, these trials if the third parties
fail to perform under our agreements with them.
Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. This failure may delay development of other product candidates
and hinder our ability to conduct related pre-clinical testing and clinical
trials. As a result of these failures, we may also be unable to obtain
additional financing. Any delays in, or termination of, our clinical trials will
materially harm our business, financial condition and results of operations.
4
<PAGE>
THE CLINICAL SUCCESS OF ABX-CBL IS UNCERTAIN.
We recently completed a multi-center Phase II trial for the treatment of
graft versus host disease, or GVHD, with our mouse antibody, ABX-CBL.
As of October 11, 2000, ABX-CBL had been administered to a total of only 191
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 the
time we obtained an exclusive license to ABX-CBL. 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.
Data from 27 patients included in the Phase II study was submitted to the
FDA. As an extension to the original Phase II trial protocol, we have enrolled
an additional 32 patients. In December 1999, we initiated a multicenter
randomized and controlled Phase II/III study comparing ABX-CBL to ATG(R). The
study is designed to demonstrate statistically significant efficacy of a single
dose level of ABX-CBL in comparison to a control group of patients receiving
ATG(R). The results of the Phase II/ III trial may not be favorable or may not
extend the findings of the original Phase II study. The FDA may view the result
of our Phase III trial as insufficient and may require additional clinical
trials. There are several issues that could adversely affect the clinical trial
results, including the lack of a standard therapy for GVHD patients in the
control group, unforeseen side effects, variability in the number and types of
patients in the study and response rates required to achieve statistical
significance in the study. 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. These adverse effects may affect the interpretation of clinical trial
results. There is a risk that the FDA will not accept the results of the Phase
II/III study or other elements of the product license application as being
sufficient for approval to market. 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
harmed.
WE CURRENTLY RELY ON A SOLE SOURCE THIRD-PARTY MANUFACTURER.
We currently rely, and will continue to rely for at least the next two
years, on a sole source third-party manufacturer to produce ABX-CBL, ABX-IL8 and
ABX-EGF under good manufacturing practice regulations, for use in our clinical
trials. Our third-party manufacturer has a limited number of facilities in which
our product candidates can be produced and has limited experience in
manufacturing ABX-CBL, ABX-IL8 and ABX-EGF in quantities sufficient for
conducting clinical trials or for commercialization. We currently rely on our
third-party manufacturer to produce our product candidates under good
manufacturing practice regulations, which meet acceptable standards for our
clinical trials.
Third-party manufacturers often encounter difficulties in scaling up
production, including problems involving production yields, quality control and
assurance, shortage of qualified personnel, compliance with FDA regulations,
production costs, and development of advanced manufacturing techniques and
process controls. Our third-party 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 third-party
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 harmed.
5
<PAGE>
OUR OWN ABILITY TO MANUFACTURE IS UNCERTAIN.
We are in the planning stages of establishing our own pilot scale
manufacturing facility for the manufacture of products for Phase I and Phase II
clinical trials, in compliance with FDA good manufacturing practices. In
May 2000, we signed a long-term lease for a building to be built to contain this
pilot scale facility. Construction schedules for this facility may take longer
than expected, and the planned and actual construction costs of building and
qualifying the facility for regulatory compliance may be higher than expected.
The process of manufacturing antibody products is complex. We have no experience
in the clinical or commercial scale manufacturing of ABX-CBL, ABX-IL8 and
ABX-EGF, or any other antibody products. Such antibody products will also need
to be manufactured in a facility and by a process which complies with FDA and
other regulations. It may take a substantial period of time to begin producing
antibodies in compliance with such regulations. Our manufacturing operations
will be subject to ongoing, periodic unannounced inspection by the FDA and state
agencies to ensure compliance with good manufacturing practices. If we are
unable to establish and maintain a manufacturing facility within our planned
time and cost parameters, the development and sales of our products and our
financial performance may be materially harmed.
We also may encounter problems with the following:
- production yields;
- quality control and assurance;
- shortages of qualified personnel;
- compliance with FDA regulations;
- production costs; and
- development of advanced manufacturing techniques and process controls.
We are currently evaluating our options for Phase III clinical trial
supplies and commercial production of our antibody products, which include use
of third-party manufacturers, establishing our own commercial scale
manufacturing facility or entering into a manufacturing joint venture
relationship with a third party. We are aware of only a limited number of
companies on a worldwide basis who operate manufacturing facilities in which our
product candidates can be manufactured under good manufacturing practice
regulations, a requirement for all pharmaceutical products. It would take a
substantial period of time for a contract facility which has not been producing
antibodies to begin producing antibodies under good manufacturing practice
regulations. We cannot assure you that we will be able to contract with any of
these companies on acceptable terms, if at all.
In addition, we and any third-party manufacturer will be required to
register manufacturing facilities with the FDA and other regulatory authorities.
The facilities will then be subject to inspections confirming compliance with
FDA good manufacturing practice or other regulations. If we or any of our
third-party manufacturers fail to maintain regulatory compliance, our business,
financial condition and results of operations will be materially harmed.
WE WILL NEED TO FIND THIRD PARTIES TO LICENSE AND 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 collaboration
agreements with third parties. Potential third parties include pharmaceutical
and biotechnology companies, academic institutions and other entities. We must
enter into these agreements to successfully develop and commercialize product
candidates. These agreements are necessary in order for us to:
- access proprietary antigens for which we can generate fully human antibody
products;
6
<PAGE>
- fund our research and development activities;
- fund pre-clinical development, 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 collaboration agreements, and only three antibody
product candidates generated with XenoMouse technology have entered clinical
testing. We cannot assure you that any of these product candidates will result
in commercially successful products. Current or future collaboration agreements
may not be successful. If we fail to maintain our existing collaboration
agreements or to enter into additional agreements, our business, financial
condition and results of operations will be materially harmed.
Our dependence on licensing and other agreements with third parties subjects
us to a number of risks. These agreements may not be on terms favorable to us,
and collaborators typically are afforded significant discretion in electing
whether to pursue any of the planned activities. We cannot control the amount
and timing of resources our collaborators may devote to the product candidates,
and collaborators may not perform their obligations as expected. Additionally,
business combinations or significant changes in a collaborator's business
strategy may adversely affect a collaborator's willingness or ability to
complete its obligations under the arrangement. Even if we fulfill our
obligations under an agreement, typically our collaborators can terminate the
agreement at any time following proper written notice. If any of our
collaborators were to terminate or breach our agreement, or otherwise fail to
complete its obligations in a timely manner, our business, financial condition
and results of operations may be materially harmed. If we are not able to
establish further collaboration agreements or any or all of our existing
agreements are terminated, we may be required to seek new collaborators 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 our management's time.
Existing or future collaborators 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 collaborator. Lengthy negotiations with potential new collaborators or
disagreements between us and our collaborators 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
collaborators 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 harmed.
WE DO NOT HAVE MARKETING AND SALES EXPERIENCE.
We do not have 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
7
<PAGE>
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 harmed.
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 pre-clinical
studies and clinical trials of each product candidate, is lengthy, expensive and
uncertain. Securing FDA approval requires the submission of extensive
pre-clinical and clinical data and supporting information to the FDA for each
indication to establish the product candidates' safety and efficacy. The
approval process takes many years, requires the expenditure of substantial
resources, involves post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. Delays in obtaining regulatory
approvals may:
- adversely affect the successful commercialization of any drugs that we or
our customers develop;
- impose costly procedures on us or our customers;
- diminish any competitive advantages that we or our customers 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, we or our third-party 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.
8
<PAGE>
We expect to rely on our customers to file investigational new drug
applications and generally direct the regulatory approval process for many of
our products. Our customers 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
customers 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 harm our business,
financial condition and results of operations.
We and our third-party 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. These facilities must be approved before we can use them in commercial
manufacturing of our products. We or our third-party manufacturers may not be
able to comply with the applicable good manufacturing practice requirements and
other FDA regulatory requirements. If we or our third-party manufacturers fail
to comply, our business, financial condition and results of operations will be
materially harmed.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN.
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. We may not achieve market
acceptance even if clinical trials demonstrate safety and efficacy, and the
necessary regulatory and reimbursement approvals are obtained. The degree of
market acceptance of any product candidates that we develop will depend on a
number of factors, including:
- establishment and demonstration of clinical efficacy and safety;
- cost-effectiveness of our product candidates;
- their potential advantage over alternative treatment methods;
- reimbursement policies of government and third-party payors; and
- marketing and distribution support for our product candidates.
Physicians will not recommend therapies using our products until such time
as clinical data or other factors demonstrate the safety and efficacy of such
procedures as compared to conventional drug and other 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 we or our customers develop. If
our products do not achieve significant market acceptance, our business,
financial condition and results of operations will be materially harmed.
9
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RISKS RELATED TO OUR FINANCES
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, pre-clinical testing and clinical trials, regulatory
and sales and marketing activities to commercialize current and future product
candidates. Our product candidates, if successfully developed, may not 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 five years of operation,
including net losses of approximately $8.3 million in 1995, $7.1 million in
1996, $35.9 million in 1997, $16.8 million in 1998, $20.5 million in 1999 and
$4.3 million in the nine months ended September 30, 2000. As of September 30,
2000, our accumulated deficit was approximately $94.1 million. Our losses to
date have resulted principally from:
- research and development costs relating to the development of our
XenoMouse technology and antibody product candidates;
- costs associated with certain agreements with Japan Tobacco;
- costs related to a cross-license and settlement agreement relating to our
intellectual property portfolio; and
- general and administrative costs relating to our operations.
We expect to incur additional losses for the foreseeable future as a result
of increases in our research and development costs, including costs associated
with conducting pre-clinical development and clinical trials, and charges
related to purchases of technology or other assets. We intend to invest
significantly in our products prior to entering into licensing agreements. This
may increase our need for capital and will result in losses for several years.
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 licensing and contractual
agreements, or the initiation, success or failure of clinical trials.
OUR FUTURE PROFITABILITY IS UNCERTAIN.
Prior to June 1996, our business was owned by Cell Genesys, Inc. and
operated as a business unit. Since that time, we have funded our research and
development activities primarily from:
- initial contributions from Cell Genesys;
- private placements of our capital stock;
- the initial public offering of our common stock;
- the follow-on public offering of our common stock in 1999;
- the follow-on public offering of our common stock in February 2000;
- a private placement of our common stock in November 2000, which shares of
common stock are to be registered by the registration statement of which
this prospectus forms a part;
- revenues generated from our licensing and contractual agreements;
- equipment leaseline financings; and
- loan facilities.
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We expect that substantially all of our revenues for the foreseeable future
will result from payments under licensing and contractual agreements and
interest income. To date, payments under licensing and contractual agreements
have been in the form of option fees, reimbursement for research and development
expenses, license fees and milestone payments. Payments under our existing and
any future customer agreements 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 may not be able
to:
- enter into further licensing and contractual agreements;
- successfully complete pre-clinical development 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 harmed.
WE MAY REQUIRE ADDITIONAL FINANCING.
We will continue to expend substantial resources for the expansion of
research and development, including costs associated with conducting
pre-clinical development and clinical trials. We will be required to expend
substantial funds in the course of completing required additional development,
pre-clinical 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 pre-clinical development and clinical trials;
- the retention of existing and establishment of further licensing and
contractual agreements, if any;
- continued scientific progress in our research and development programs;
- the size and complexity of these programs;
- the cost of establishing manufacturing capabilities and conducting
commercialization activities and arrangements;
- 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;
- investment in, or acquisition of, other companies;
- product in-licensing; and
- other factors not within our control.
We believe that our cash and cash equivalents, short-term investments and
cash generated from our customer agreements will be sufficient to meet our
operating and capital requirements for at least two years. However, we may need
additional financing within this time period. We may need to raise additional
funds through public or private financings, licensing and contractual agreements
or other arrangements. Additional funding may not be available to us on
favorable terms, if at all. Furthermore, any additional equity financing would
be dilutive to our shareholders, and debt financing, if available, may involve
restrictive covenants. Contractual arrangements may require us to relinquish our
rights to certain of our technologies, product candidates or marketing
territories. If we fail to raise additional
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<PAGE>
funds when needed, our business, financial condition and results of operations
will be materially harmed.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
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. We
solely own two issued patents in the United States, one granted patent in
Europe, three granted patents in Japan and have several pending patent
applications in the United States and abroad relating to XenoMouse technology.
Our wholly-owned subsidiary, Xenotech, owns two issued U.S. patents, one
Australian patent and several pending U.S. and foreign patent applications
related to methods of treatment of bone disease in cancer patients. In addition,
we have four issued U.S. patents and several pending patent applications in the
United States and abroad that are jointly owned with Japan Tobacco relating to
antibody technology or genetic manipulation. We attempt to protect our
proprietary position by filing U.S. and foreign patent applications related to
our proprietary technology, inventions and improvements that are important to
the development of our business. However, 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 adequate proprietary
protection or competitive advantages against competitors with similar
technologies. 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, and, in addition, the parties may
breach such agreements. Also, our trade secrets may otherwise become known to,
or be independently developed by, our competitors. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed.
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
pending patent applications. Patent applications in the United States are, in
most cases, maintained in secrecy until patents are issued. 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 unintentionally infringe the patents or violate other
proprietary rights of third parties. In the event of such infringement or
violation, we and our customers may be prevented from
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<PAGE>
pursuing product development or commercialization. Such a result will materially
harm our business, financial condition and results of operations.
In March 1997, we entered into a cross-license and settlement agreement with
GenPharm International Inc. 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 harmed if any
of the parties breaches the cross-license agreement.
We have one granted 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.
Glaxo Wellcome Inc. has a family of patents which it is asserting against
Genentech in ongoing litigation. If any of the claims of these patents are
finally determined in the litigation to be valid and if they can be asserted by
Glaxo to be infringed by ABX-EGF, then we may need to obtain a license should
one be available. Should a license be denied or unavailable on commercially
reasonable terms, our commercialization of ABX-EGF could be impeded in any
territories in which these patents were in force.
Genentech owns a U.S. patent that relates to inhibiting the growth of tumor
cells involving an anti-EGF receptor antibody in combination with a cytotoxic
factor. If the claims of the patent are valid, we may be required to obtain a
license to Genentech's patent to label and sell ABX-EGF for some or all such
combination indications. Should a license be denied or unavailable on
commercially reasonable terms, our commercialization of ABX-EGF could be impeded
in the United States.
ImClone Systems, Inc. has announced that the United States Patent and
Trademark Office has issued a notice of allowability of a patent covering a
composition of matter of any EGFr monoclonal antibody that inhibits the binding
of EGF to its receptor in combination with any anti-neoplastic agent, as well as
the therapeutic use of such combinations. In addition, other third parties have
or may receive other patents relating to EGFr monoclonal antibodies, their
manufacture or their use. The scope and validity of any such patent may
materially impede our planned activities.
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 patents that we own or license;
- 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 loss of our proprietary position or 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 harm our business, financial condition and results of operations.
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<PAGE>
RISKS RELATED TO OUR INDUSTRY
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 us or our customers. 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., Medarex's joint venture partner, Kirin
Brewing Co., Ltd., 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. For example, SangStat Medical Corp. and Protein Design Labs market
organ transplant rejection products that may compete with ABX-CBL, which is in
clinical trials. In addition, MedImmune, Inc. has a potential antibody product
candidate in clinical trials for graft versus host disease that may compete with
ABX-CBL. We are also aware that several companies, including Genentech, Inc.,
have potential product candidates that may compete with ABX-IL8, which is in
clinical trials. Furthermore, we are aware that ImClone Systems, Inc., Medarex,
AstraZeneca and OSI Pharmaceuticals, Inc., have potential antibody and small
molecule product candidates in clinical development that may compete with
ABX-EGF, which is also in clinical trials.
Many of these companies and institutions, either alone or together with
their customers, 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 customers, have significantly
greater experience than we do in:
- developing products;
- undertaking pre-clinical testing and human clinical trials; and
- obtaining FDA and other regulatory approvals of 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 non-competitive. We face and will continue to face
intense competition from other companies for agreements with pharmaceutical and
biotechnology companies for establishing relationships with academic and
research institutions, and for licenses to proprietary technology. These
competitors, either
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<PAGE>
alone or with their customers, may succeed in developing technologies or
products that are more effective than ours.
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 harmed.
OTHER RISKS RELATED TO OUR COMPANY
WE ACQUIRED IMMGENICS PHARMACEUTICALS INC., A VANCOUVER-BASED BIOTECHNOLOGY
COMPANY IN NOVEMBER 2000. WE MAY EXPERIENCE DIFFICULTY IN THE INTEGRATION
OF THIS ACQUISITION, OR ANY FUTURE ACQUISITION, WITH THE OPERATIONS OF OUR
BUSINESS.
In early November, we acquired all of the voting stock of ImmGenics
Pharmaceuticals Inc., a Canadian biotechnology company that develops and intends
to commercialize antibody-based therapeutic and diagnostic products for the
treatment and diagnosis of a variety of diseases, for an aggregate consideration
of approximately $77.5 million payable in a special class of ImmGenics non-
voting shares that may be exchanged into our common stock.
We have a limited history of operating the business of our company and
ImmGenics on a consolidated basis, and we have no experience operating a
business outside of the United States. We may have difficulty integrating
ImmGenics' research and development operations with our own. Difficulty managing
the integration of ImmGenics could result from many factors, some of which are
beyond our control, including the following:
- the geographic distance between our Fremont, California headquarters and
our acquired Vancouver, British Columbia office;
- potential differences in research and development protocols between
ImmGenics and ourselves; and
- the potential loss of personnel from our acquired operations.
In the future, we may from time to time seek to expand our business through
additional corporate acquisitions. Our acquisition of companies and businesses
and expansion of operations, including the recent acquisition of ImmGenics,
involve risks such as the following:
- the potential inability to identify target companies best suited to our
business plan;
- the potential inability to successfully integrate acquired operations and
businesses and to realize anticipated synergies, economies of scale or
other expected value;
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<PAGE>
- incurrence of expenses attendant to transactions that may or may not be
consummated; and
- difficulties in managing and coordinating operations at multiple venues,
which, among other things, could divert our management's attention from
other important business matters.
In addition, our acquisition of companies and businesses and expansion of
operations, including the recent acquisition of ImmGenics, may result in
dilutive issuances of equity securities, the incurrence of additional debt,
large one-time write-offs and the creation of goodwill or other intangible
assets that could result in amortization expense.
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. For us to pursue product development, marketing and
commercialization plans, we will need to hire additional qualified scientific
personnel to perform research and development. We will also need to hire
personnel with expertise in clinical testing, government regulation,
manufacturing, marketing and finance. Attracting and retaining qualified
personnel will be critical to our success. We may not be able to attract and
retain personnel on acceptable terms given the competition for such personnel
among biotechnology, pharmaceutical and healthcare companies, universities and
non-profit research institutions. If we lose any of these persons, or are unable
to attract and retain qualified personnel, our business, financial condition and
results of operations may be materially harmed.
In addition, we rely on members of our Scientific Advisory Board and other
consultants to assist us in formulating our research and development strategy.
All of our consultants and the members of our Scientific Advisory Board 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 advisors, the achievement of our
development objectives may be impeded. Such impediments may materially harm our
business, financial condition and results of operations.
WE HAVE IMPLEMENTED A STOCKHOLDER RIGHTS PLAN AND ARE SUBJECT TO OTHER
ANTI-TAKEOVER PROVISIONS.
In June 1999, our board of directors adopted a stockholder rights plan,
which was amended in November 1999. The stockholder rights plan provides for a
dividend distribution of one preferred share 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, other than Cell Genesys or its affiliates, successors or
assigns, announces an acquisition of 15% 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% or more of our common stock. In the
case of Cell Genesys, or its affiliates, successors or assigns, which
beneficially owned 11.89% of our outstanding common stock as of September 30,
2000, each right will become exercisable following the tenth day after it
announces the acquisition of more than 25% of our common stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by Cell Genesys, or its affiliates, successors or assigns, of more
than 25% of our common stock. We will be entitled to redeem the rights at $0.01
per right at any time on or before the close of business on the tenth day
following acquisition by a person or group of 15% or more, or in the case of
Cell Genesys, or its affiliates, successors or assigns, more than 25%, 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 us. This could
limit the price that certain investors might be willing to pay in the future for
our common stock.
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Certain provisions of our amended and restated certificate of incorporation and
amended and restated bylaws allow us 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 us. 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 us, 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.
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, and 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. 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 harmed.
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 harm our business, financial condition
and results of operations.
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.
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 on our
common stock in the foreseeable future.
OUR STOCK PRICE IS HIGHLY VOLATILE.
The market price and trading volume of our common stock are volatile, and we
expect such volatility to continue for the foreseeable future. For example,
during the period between September 30, 1999 and September 30, 2000, our common
stock closed as high as $99.75 per share and as low as
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$9.32 per share. This may impact your decision to buy or sell our common stock.
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;
- government regulation;
- changes in reimbursement policies;
- developments in patent or other proprietary rights;
- developments in our relationship with customers;
- public concern as to the safety and efficacy of our products; and
- general market conditions.
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CERTAIN INFORMATION
We were incorporated on June 24, 1996, and subsequently on July 15, 1996,
were organized pursuant to a stock purchase and transfer agreement with Cell
Genesys. Our business and operations were started in 1989 by Cell Genesys and
prior to our organization were conducted within Cell Genesys. In 1991, Cell
Genesys and JT Immunotech USA, Inc., the predecessor company to JT America and a
medical subsidiary of Japan Tobacco, formed Xenotech, an equally owned joint
venture, to develop genetically modified strains of mice known as XenoMouse
technology which can produce fully human monoclonal antibodies and to
commercialize products generated from these mice. At the time of our
organization, Cell Genesys assigned to us substantially all of its rights in
Xenotech. On December 31, 1999, we became the sole owner of Xenotech by buying
JT America's interest therein. As used in this prospectus, Japan Tobacco refers
to either or both of Japan Tobacco or its wholly-owned subsidiary, JT America.
Our principal executive offices are located at 7601 Dumbarton Circle, Fremont,
California 94555, and our telephone number is (510) 608-6500.
Unless otherwise indicated, the information in this prospectus is based on
81,607,172 shares of common stock outstanding as of September 30, 2000 and:
- excludes 10,531,613 shares of common stock issuable upon exercise of
options outstanding as of September 30, 2000 under our various stock
incentive plans, with a weighted average exercise price of $23.56 per
share;
- excludes 100,000 shares of common stock issuable pursuant to the terms of
a license agreement entered into prior to September 30, 2000; and
- reflects both a two-for-one common stock split effective on April 6, 2000
and a two-for-one common stock split effective on July 7, 2000.
Subsequent to September 30, 2000 and through the date of this prospectus, we
granted approximately 281,824 additional options at a weighted average exercise
price of approximately $81.42 per share. Some of these additional options were
granted to holders of options to acquire shares in ImmGenics prior to our
acquisition of ImmGenics. The exact number of shares of common stock issuable
upon the exercise of these options will be determined by a formula based on the
five-day average closing price of our common stock ending on the business day
immediately preceding the effective date of the registration statement covering
our common stock issuable upon the exchange of the ImmGenics special shares. We
have not issued any additional warrants or issued any new shares, except
pursuant to the exercise of outstanding options.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common stock
offered by the selling shareholders 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 our common stock based on the high and low
reported closing prices for our common stock as reported on the Nasdaq National
Market for the periods indicated below, as adjusted to reflect a two-for-one
common stock split effective on April 6, 2000 and a two-for-one common stock
split effective on July 7, 2000. These prices do not include retail markups,
markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1999:
First Quarter............................................. $ 4.53 $ 3.31
Second Quarter............................................ 4.97 3.31
Third Quarter............................................. 11.91 4.72
Fourth Quarter............................................ 33.13 9.32
FISCAL 2000:
First Quarter............................................. $ 99.75 $29.03
Second Quarter............................................ 69.02 32.31
Third Quarter............................................. 85.81 50.13
Fourth Quarter (through November 9, 2000)................. 93.19 69.00
</TABLE>
As of September 30, 2000, there were approximately 195 holders of record of
our common stock. On November 9, 2000, the closing price on the Nasdaq National
Market for our common stock was $80.25.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common 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 on
our common stock in the foreseeable future.
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CAPITALIZATION
The following table sets forth as of September 30, 2000 (1) our unaudited
actual capitalization, (2) our pro forma capitalization giving effect to our
acquisition of ImmGenics Pharmaceuticals Inc. in November 2000 for an aggregate
consideration of approximately $77.5 million payable in shares that are
exchangeable into shares of our common stock and (3) our pro forma
capitalization as adjusted to reflect both our acquisition of ImmGenics and the
sale of 3,300,000 shares of our common stock in a private placement completed on
November 6, 2000.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)
-------- ------------ --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, par value $0.0001: 5,000,000 shares
authorized; no shares issued and outstanding......... $ -- $ -- $ --
Common stock, par value $0.0001: 220,000,000 shares
authorized; 81,607,172 shares issued and outstanding
actual: 82,409,222 shares issued and outstanding pro
forma; 85,709,222 shares issued and outstanding pro
forma as adjusted, at amount paid in................. 683,317 761,288 981,488
Additional paid-in capital............................. 32,849 32,849 32,849
Deferred compensation.................................. (325) (1,592) (1,592)
Accumulated other comprehensive income................. 41,627 41,627 41,627
Accumulated deficit.................................... (94,098) (99,501) (99,501)
-------- -------- --------
Total stockholders' equity............................. 663,370 734,671 954,871
-------- -------- --------
Total capitalization................................. $663,370 $734,671 $954,871
======== ======== ========
</TABLE>
------------------------
(1) The pro forma and the pro forma as adjusted information assumes the
effective registration prior to February 11, 2001 of the shares of our
common stock to be issued in exchange for special shares issued by our
wholly-owned subsidiary ImmGenics Pharmaceuticals Inc. Should the
registration statement not be declared effective by that time, the holders
of the special shares may have the right to put those shares to us for cash.
You should read this capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included in this
prospectus.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1998 and 1999 are derived from our audited consolidated financial
statements. These financial statements are included elsewhere in this
prospectus. The balance sheet data at December 31, 1997, and the statement of
operations data for the years ended December 31, 1995 and 1996, are derived from
our audited financial statements. These financial statements are not included in
this prospectus. The selected data for each of the nine-month periods ended
September 30, 1999 and 2000 have been derived from our unaudited consolidated
financial statements, which reflect, in our management's judgment, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of these periods. The results for the
nine-month period ended September 30, 2000 are not necessarily indicative of
results for the full year.
You should read the following selected consolidated financial data in
conjunction with our financial statements and notes that are included elsewhere
in this prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." You should also refer to the unaudited pro
forma combined condensed financial statements included elsewhere in this
prospectus that reflect our November 3, 2000 acquisition of ImmGenics
Pharmaceuticals Inc.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- -----------------------
1999 1998 1997 1996 1995 2000 1999
---------- ---------- -------- ----------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues
Contract revenue................ $ 12,285 $ 2,498 $ 611 $ -- $ -- $13,077 $ 5,390
Revenue under collaborative
agreements from related
parties....................... -- 1,344 1,343 4,719 6,200 - -
Interest income................. 3,045 961 307 203 -- 22,334 1,954
---------- ---------- -------- ----------- ------- ---------- ----------
Total revenues................ 15,330 4,803 2,261 4,922 6,200 35,411 7,344
Costs and expenses:
Research and development........ 21,106 17,588 11,405 9,433 11,879 31,910 14,371
General and administrative...... 5,164 3,405 3,525 2,565 2,603 5,152 3,428
Amortization of intangible
assets........................ -- -- -- -- -- 2,330 -
Charge for cross-liscense and
settlement amount allocated
from Cell Genesys............. -- -- 11,250 -- -- - -
Equity in (income) losses from
the Xenotech joint venture.... (546) 107 11,250 -- -- - (558)
Non-recurring termination fee... 8,667 -- -- -- -- - -
Interest expense................ 438 530 711 24 -- 317 347
---------- ---------- -------- ----------- ------- ---------- ----------
Total costs and expenses...... 34,829 21,630 38,141 12,022 14,482 39,709 17,588
---------- ---------- -------- ----------- ------- ---------- ----------
Loss before income taxes.......... (19,499) (16,827) (35,880) (7,100) (8,282) (4,298) (10,244)
Foreign income tax expense...... 1,000 -- -- -- -- - -
---------- ---------- -------- ----------- ------- ---------- ----------
Net loss.......................... $(20,499) $(16,827) $(35,880) $ (7,100) $(8,282) $ (4,298) $(10,244)
========== ========== ======== =========== ======= ========== ==========
Net loss per share(1)............. $ (0.35) $ (0.75) $(258.17) $(11,677.63) $ (0.05) $ (0.18)
========== ========== ======== =========== ========== ==========
Shares used in computing net loss
per share....................... 58,146,908 22,411,852 138,976 608 78,799,000 56,196,000
</TABLE>
------------------------------
(1) Net loss per share data has not been presented prior to 1996, as there were
no equity securities outstanding prior to that date.
22
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ SEPTEMBER 30,
1999 1998 1997 2000
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities...................................... $58,012 $16,744 $15,321 $552,823
Working capital................................... $56,113 $13,101 $6,637 $539,588
Total assets...................................... $148,541 $24,220 $22,084 $687,406
Long term debt, less current portion.............. $421 $2,180 $3,979 $--
Redeemable convertible preferred stock............ $-- $-- $31,189 $--
Accumulated deficit............................... $(89,800) $(69,301) $(52,474) $(94,098)
Total stockholders' equity (net capital
deficiency)..................................... $137,060 $16,959 $(22,318) $663,370
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"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 US 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.
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, cardiovascular disease, infectious diseases and cancer. We
have developed XenoMouse technology, a proprietary technology that enables rapid
generation of highly specific, fully human antibody product candidates that bind
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 develop and commercialize through licensing to pharmaceutical
companies and others, joint development and internal product development
programs.
As of November 9, 2000, we have entered into contracts to use our XenoMouse
technology to produce and/or to develop the resulting fully human antibodies
with twenty-three customers covering numerous antigen targets. Pursuant to these
contracts, we and our customers intend to generate antibody product candidates
for the treatment of cancer, inflammation, autoimmune diseases, transplant
rejection, cardiovascular disease, growth factor modulation, neurological
diseases and infectious diseases. We expect that substantially all of our
revenues for the foreseeable future will result from payments under these and
other contracts. The terms of the contracts vary, reflecting the value we add to
the development of any particular product candidate. The contracts typically
provide our contract parties 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 applicable contract party. In most cases, we
provide our mice to contract parties who then carry out immunizations with their
specific antigen target. In other cases, we immunize the mice with the contract
party's antigen target for additional compensation. Our contract parties will
need to obtain product licenses for any antibody product they wish to develop
and commercialize.
The financial terms of our existing contracts often include upfront
payments, potential license fees and potential milestone payments paid to us by
the contract party. Based on our contracts, these payments and fees would
average $8.0 to $10.0 million per antigen target if our contract party takes the
antibody product candidate into development and ultimately to commercialization.
If not, such payments and fees will be less. In certain instances, the contract
party 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 contract party. Furthermore, the contract party will
be responsible for worldwide manufacturing, product development and marketing of
any product developed through the contract.
Our dependence on contractual arrangements with third parties subjects us to
a number of risks. For example, agreements with contract parties 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 contract
parties may devote to the product candidates. Even if we fulfill our obligations
under a contract, the contract party can terminate the agreement at any time
following proper written notice. If
24
<PAGE>
any contract party 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 could be materially harmed.
We also have three antibody product candidates that are under development
internally. Our lead product candidate, ABX-CBL, is an in-licensed mouse
antibody. We completed a multi-center Phase II clinical trial for ABX-CBL for
the treatment of a transplant-related disease known as graft versus host
disease. Following completion of the Phase II trial, we initiated a Phase II/III
clinical trial in December 1999. Our other two antibody product candidates were
generated using XenoMouse technology. We completed Phase I and Phase I/II
clinical trials for our fully human antibody product candidate in psoriasis,
ABX-IL8. We initiated a Phase II clinical trial for ABX-IL8 in April 2000 and
patient enrollment is ongoing. We initiated a Phase I clinical trial for ABX-EGF
in cancer in 1999 and patient enrollment is ongoing.
We will expend significant capital to conduct clinical trials for these
products. We believe that more extensive clinical data will enable us to enter
into additional contractual arrangements. We expect that this will substantially
increase our capital needs over the next few years and increase operating
losses. However, we believe that we will be able to receive more favorable fees
and payments from our contract parties if we have completed significant
development of these products.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Contract revenue totaled $13.1 million in the nine-month period ended
September 30, 2000 compared to $5.4 million in the nine-month period ended
September 30, 1999.
Contract revenue in the nine months ended September 30, 2000 included the
following:
- Research and license fees of $7.0 million were recognized from the $10
million payment received under the agreement with Millennium
Biotherapeutics. Although the payment from Millennium is non-refundable
and was received at the inception of a research license and product
licenses granted to Millennium upon signing of the agreement, we are
obligated up to December 31, 2000 to provide assistance to enable
Millennium to practice these licenses, so the payment from Millennium is
being recognized ratably over this period.
- License and certain fees of $5.0 million were received from Immunex and
Sangstat. These fees related to the respective joint development and
commercialization agreements of ABX-EGF and ABX-CBL. We are recognizing
these fees ratably over the periods we are obligated to share in
development costs. For Immunex this is the 17-month period ended
December 31, 2001 and the amount recognized in the quarter ended
September 30, 2000 was $0.6 million. For Sangstat this is the six-month
period ended January 31, 2001, and the amount recognized in the quarter
ended September 30, 2000 was $0.7 million. Additionally, in the third
quarter ended September 30, 2000, Abgenix recognized in total
$1.0 million as revenue from both Immunex and Sangstat, which represents
50% of the development costs of ABX-EGF and ABX-CBL incurred and recorded
as expense in the third quarter by Abgenix, net of 50% of the development
costs incurred by Immunex and Sangstat.
- A milestone fee was received and recognized from Pfizer related to
Pfizer's filing of an Investigational New Drug application with the FDA
for an antibody product candidate for the treatment of cancer, which was
generated with our XenoMouse technology under an existing collaborative
agreement.
- A product license fee was received and recognized from Amgen for an
antibody product generated with our XenoMouse technology under an existing
collaborative agreement.
25
<PAGE>
Additionally, two product license fees were received and recognized from
Japan Tobacco under an existing collaborative agreement.
- Research funding and fees for research milestones and certain research
work were recognized related to six of our collaborative agreements.
Contract revenue in the nine months ended September 30, 1999 included
non-refundable fees totaling $2.3 million under the collaborative agreement with
Japan Tobacco on ABX-IL8 clinical development. Such fees were for the
reimbursement of clinical trial costs and certain joint interest rights in data
from the clinical trials. Additionally, in this period, contract revenue
included fees for the achievement of research milestones, an execution fee for
electing another antigen target and licensing fees for an antigen target, under
existing collaborative agreements. Additionally, in the nine-month period ended
September 30, 1999, contract revenue included non-refundable signing and option
fees in connection with the execution of collaborative agreements, fees for the
achievement of research milestones, an execution fee for electing another
antigen target and licensing fees for an antigen target.
Interest income consists primarily of interest from cash, cash equivalents
and short-term investments. Interest income totaled $22.3 million in the
nine-month period ended September 30, 2000 compared to $2.0 million in the
comparable 1999 period. This is a result of our follow-on offering in
February 2000 in which we received net proceeds of approximately $496.5 million,
after the costs of the offering.
Research and development expenses consist primarily of compensation and
other expenses related to research and development personnel, costs associated
with pre-clinical testing and clinical trials of our product candidates,
including the costs of manufacturing the product candidates, and facilities
expenses. Research and development expenses increased to $31.9 million in the
nine months ended September 30, 2000 from $14.4 million in the comparable period
in 1999. The increase reflects primarily costs associated with the following:
- Increased personnel--Staffing at September 30, 2000 increased by
approximately 88% from September 30, 1999. The increase is to support the
increased level of product development activities, including new target
validation, process sciences, manufacturing and increased clinical
activities. Additionally, the increase in personnel is related to
increased licensing activity. Included in the increase are salary and
related fringe benefits, recruiting and relocation costs. We expect
personnel costs to increase further as we continue to build our
organization.
- Product Supply Agreement--Included in the nine-month period ended
September 30, 2000 is a charge of approximately $2.3 million to reserve
manufacturing capacity by acquiring an option to negotiate a supply
agreement with a contract manufacturer. The total amount paid for this
agreement was approximately $3.8 million, of which approximately
$1.5 million is creditable to the supply agreement. If a supply agreement
is not executed, the $3.8 million is non-refundable to us, except under
limited circumstances.
- Research Fee--Included in the nine-month period ended September 30, 2000
is a fee paid to Genzyme Transgenics Corporation related to research they
are performing in which they agreed to produce our antibody product
candidate, ABX-IL8 using Genzyme's manufacturing system. Under this
agreement, for undisclosed fees and milestone payments, Genzyme will
develop transgenic goats that express ABX-IL8 in their milk. Additionally,
several future payments are required if certain milestones are met.
- Clinical Costs--In the first nine months of 2000, we had clinical trials
in progress for three of our product candidates, ABX-CBL, ABX-IL8 and
ABX-EGF, which are continuing. In 1999, during the comparable period, we
had clinical trials in progress for two of our product candidates, ABX-CBL
and ABX-IL8. The costs of such trials include the clinical investigator
site fees, monitoring costs and data management costs. Additionally, such
costs include the costs of
26
<PAGE>
manufacturing the antibody used in clinical trials. In July and
August 2000, we entered into separate agreements with Immunex and SangStat
to share equally in the costs of developing and commercializing ABX-EGF
and ABX-CBL, respectively. However, we expect clinical costs will increase
in the future as we enter additional clinical trials for both new and
existing product candidates.
General and administrative expenses include compensation and other expenses
related to finance and administrative personnel, professional services and
facilities. General and administrative expenses increased to $5.2 million in the
nine months ended September 30, 2000 from $3.4 million in the comparable period
in 1999. The increase reflects increased personnel costs, including an accrual
for incentive compensation, and additional investor relations costs. We expect
personnel costs to increase further as we continue to build our organization.
Amortization of intangible assets relates primarily to patents and certain
royalty rights which were acquired through the acquisition of the Xenotech joint
venture in December 1999.
Equity from the Xenotech joint venture in 1999 reflects our percentage
ownership of the net income from the joint venture, prior to our acquisition of
100% of the joint venture in December 1999.
Interest expense consists of interest incurred in connection with equipment
lease line financing and loan facilities. Interest expense decreased due to pay
down of debt.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues increased to $12.3 million in 1999 from $3.8 million in 1998. The
increase relates primarily to revenues of $8.3 million from Japan Tobacco Inc.
as follows: $6.0 million for the license of certain technology in
December 1999; and $1.3 million in fees for the reimbursement of clinical trial
costs and certain joint interest rights in the data from the ABX-IL8 clinical
trials. Additionally, revenues in 1999 included non-refundable license and
option fees in connection with the execution of collaborative agreements, fees
for the achievement of research milestones and licensing fees for three antigen
targets under existing collaboration agreements.
Revenues increased to $3.8 million in 1998 from $2.0 million in 1997. The
increase was primarily from the increase in fees under collaborative agreements,
including nonrefundable license fees and fees paid for the achievement of
research milestones. During 1998 we also derived revenues from performing
research for Xenotech, which, up until December 1999 when we acquired 100% of
Xenotech, was an equally owned joint venture with JT America. Revenues from the
joint venture were recognized when earned, net of our cash contributions to
Xenotech, under the terms of the related agreements. Revenues from Xenotech were
$1.3 million in 1997, $1.3 million in 1998 and none in 1999 as Xenotech's
research related to developing XenoMouse technology was essentially completed in
1996 with limited research activities in 1997 and 1998. Research and development
funding received in advance under these agreements was recorded as deferred
revenue.
Research and development expenses increased to $21.1 million in 1999 from
$17.6 million in 1998 and from $11.4 million in 1997. The increase in 1999
reflects primarily costs associated with increased personnel, the clinical
trials of ABX-CBL, ABX-IL8 and the initiation of the ABX-EGF clinical trial, the
valuation of stock options awarded to certain consultants and lab supplies. The
increase in 1998 reflects primarily costs associated with the initiation of
clinical trials of ABX-CBL and ABX-IL8. 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 to $5.2 million in 1999 from
$3.4 million in 1998 and $3.5 million in 1997. The increase in 1999 was in part
due to costs associated with increased personnel, including recruiting costs and
incentive compensation (which is based on our meeting certain annual
objectives). Additionally, the increase was due to becoming a publicly traded
company and the
27
<PAGE>
costs associated with investor relations, and to increased financing activities
related to our follow-on public offering in March 1999 and our private offering
in November 1999.
Equity in income from the Xenotech joint venture in 1999 reflects our
percentage ownership in the net income from the joint venture, prior to our
acquisition of 100% of the joint venture in December 1999. In 1999, prior to our
acquisition, the joint venture recorded net income primarily from the sale of
licenses to us and our partner, JT America, Inc. In 1998, the joint venture
incurred losses and our equity in those losses was in part netted against our
revenues from the joint venture.
The non-recurring termination fee in 1999 is a one-time net charge of
$8.7 million related to the termination of certain rights licensed by Japan
Tobacco from Xenotech. See Note 2 of Notes to Consolidated Financial Statements.
The aggregate non-recurring charge for the 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 Note 6 of Notes to
Consolidated Financial Statements.
Interest income increased in 1999 and 1998 due to higher average balances of
marketable securities and cash equivalents from the net proceeds of our initial
and follow-on public offerings and our November 1999 private placement. Interest
expense declined in 1999 and 1998 due to the continued pay-down of debt on our
equipment leaseline financing and loan facility.
Foreign income tax in 1999 reflects the withholding income tax imposed by
Japan on certain transactions with Japan Tobacco.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had cash, cash equivalents and marketable
securities of $545.3 million. In November 2000, we completed a private placement
in which we raised net proceeds of $221.0 million by selling 3,300,000 shares of
our common stock to institutional accredited investors. Including our
November 2000 sale of stock, our total cash, cash equivalents and marketable
securities exceed $760.0 million. We invest our cash equivalents and marketable
securities in highly liquid, interest bearing, investment grade and government
securities in order to preserve principal.
During the nine months ended September 30, 2000, net cash provided by
investing activities was $502.0 million provided primarily from our follow-on
public offering in which we raised net proceeds of $496.4 million by selling
9,936,000 shares of our common stock in February 2000. Additionally during this
period, we received $0.7 million from Cell Genesys for the exercise of warrants
and $4.9 million from the exercise of stock options and our employee stock
purchase plan. In the first nine months of 1999 net cash provided by financing
activities was $51.9 million, received primarily from a secondary offering and
the sale of stock to Genentech.
Net cash provided by operating activities was $6.3 million for the nine
months ended September 30, 2000 and net cash used in operating activities was
$12.6 million for the nine months ended September 30, 1999. In the nine months
ended September 30, 2000, cash was provided by interest income of $16.0 million
net of the increase in interest receivable of $6.4 million. Additionally in this
period, customers provided cash of $26.7 million including $10.6 million
recorded as net deferred revenue and $3.0 million from a net reduction in
accounts receivable. Cash was used for operations in both periods primarily to
fund research and development expenses and manufacturing costs related to the
development of new products. Additionally, cash was used in the nine-month
period ended September 30, 2000 for a deposit related to a supply agreement.
Net cash used in investing activities was $412.5 million for the nine months
ended September 30, 2000 and $36.5 million for the nine months ended
September 30, 1999. The activity in both years reflects the purchasing of
investments with the funds we received from follow-on public offerings earlier
28
<PAGE>
in both years. Additionally, in the nine months ended September 30, 2000, we
invested $15.0 million in common stock of Immunogen and $3.4 million in capital
expenditures.
In March 2000, we were issued a stand-by letter of credit for $2.0 million
from a commercial bank as a deposit on our new leased facility. The stand-by
letter of credit is secured by an investment account, which must maintain a
$2.0 million balance. Additionally, 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 had 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 was paid off in
May 2000 and had an interest rate of prime plus one percent (9.5% per annum at
December 31, 1999).
We plan to make significant expenditures to establish our own manufacturing
facility and expand our research and development activities, including
pre-clinical product development and clinical trials. We may be required to make
substantial expenditures if unforeseen difficulties arise in the course of our
developing product candidates, manufacturing product candidates, performing
pre-clinical development and clinical trials of such product candidates,
obtaining necessary regulatory approvals or in other aspects of our business.
Our future liquidity and capital requirements will depend on many factors,
including:
- scope and results of pre-clinical testing and clinical trials;
- the retention of existing and establishment of further licensing and
contractual agreements, if any;
- continued scientific progress in our research and development programs;
- size and complexity of these programs;
- cost of establishing our manufacturing capabilities, conducting
commercialization activities and arrangements;
- time and expense involved in obtaining regulatory approvals;
- competing technological and market developments;
- time and expense of filing and prosecuting patent applications and
enforcing patent claims;
- investment in, or acquisition of, other companies;
- product in-licensing; and
- other factors not within our control.
We believe that our current cash balances, cash equivalents, marketable
securities, including the proceeds from our November 2000 sale of stock, and the
cash generated from our licensing and contractual agreements will be sufficient
to meet our operating and capital requirements for at least two years. However,
we may need additional financing within this time period. We may need to raise
additional funds through public or private financing, licensing and contractual
agreements or other arrangements. We cannot assure you that such additional
funding, if needed, will be available on terms favorable to us. Furthermore, any
additional equity financing may be dilutive to our shareholders, and debt
financing, if available, may involve restrictive covenants. Licensing and other
contractual agreements may require us to relinquish our rights to certain of our
technologies, products or marketing territories. Our failure to raise capital
when needed may harm our business, financial condition and results of
operations.
29
<PAGE>
We have incurred operating losses in each of the last three years of
operation, including net losses of approximately $35.9 million in 1997,
$16.8 million in 1998, $20.5 million in 1999 and $4.3 million in the nine months
ended September 30, 2000. As of September 30, 2000, we had an accumulated
deficit of approximately $94.1 million. Our losses have resulted principally
from costs incurred in performing research and development for our XenoMouse
technology and antibody product candidates, costs associated with certain
agreements with Japan Tobacco, costs related to the non-recurring cross-license
and settlement charge in 1997 and from general and administrative costs
associated with our operations. We expect to incur additional operating losses
for the foreseeable future as a result of our expenditures for research and
product development, including pre-clinical testing and clinical trials, and
charges related to purchases of technology or other assets. We intend to invest
significantly in our products prior to entering into licensing arrangements.
This may increase our need for capital and will result in losses for several
years. 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 licensing arrangements, or
the initiation, success or failure of clinical trials.
As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $61.0 million. Our net operating loss carryforwards exclude losses
incurred prior our formation 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 15 years for tax purposes. The net operating loss and credit
carryforwards will expire in the years 2011 through 2019, 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK. The objective of our investment activities is to
preserve principal, while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we invest in highly
liquid and high quality debt securities. Our investments in debt securities are
subject to interest rate risk. To minimize the exposure due to an adverse shift
in interest rates, we invest in short-term securities and maintain an average
maturity of one year or less. A hypothetical 1.0% per annum increase in interest
rates would result in an approximate $1.0 million decrease in the fair value of
our debt securities, classified as available-for-sale securities, at
September 30, 2000.
EQUITY PRICE RISK. We are exposed to equity price risk on strategic
investments in CuraGen Corporation and Immunogen. We typically do not attempt to
reduce or eliminate our market exposure on these securities. Assuming a 10%
adverse change in the market price of the CuraGen and Immunogen stock, the fair
value of these equity investments would decrease in value by approximately
$7,163,900, based upon the value of the stock as of September 30, 2000. This
estimate is not necessarily indicative of future performance and actual results
may differ materially.
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<PAGE>
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 IN THIS PROSPECTUS.
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, cardiovascular disease, infectious diseases and cancer. We
have developed XenoMouse technology, a proprietary technology that offers many
advantages, including rapid generation of highly specific, fully human antibody
product candidates that bind to essentially any disease target appropriate for
antibody therapy. In addition, we believe our technology offers advantages in
product development and flexibility in manufacturing. We intend to use XenoMouse
technology to build a large and diversified product portfolio that we plan to
develop and commercialize through licensing to pharmaceutical companies and
others, joint development and internal product development programs. We have
contractual arrangements with multiple pharmaceutical, biotechnology and
genomics companies involving our XenoMouse technology. In addition, we have
three proprietary antibody product candidates currently in clinical trials, two
of which we recently agreed to co-develop and commercialize with others.
OVERVIEW OF CONTRACTUAL ARRANGEMENTS
As of November 9, 2000, we have entered into contracts to use our XenoMouse
technology to produce and/or to develop the resulting fully human antibodies
with twenty-three customers covering numerous antigen targets. Pursuant to these
contracts, we and our customers intend to generate antibody product candidates
for the treatment of cancer, inflammation, autoimmune diseases, transplant
rejection, cardiovascular disease, growth factor modulation, neurological
diseases and infectious diseases. Our customers as of November 9, 2000 include
Abbott Laboratories, Amgen, AVI BioPharma, BASF Bioresearch Corporation, Cell
Genesys, Centocor/Johnson and Johnson, Chiron, Corixa, CuraGen, Elan, Genentech,
Gliatech, Human Genome Sciences, Immunex, Japan Tobacco, Lexicon Genetics,
Millenium, Pfizer, Research Corporation Technologies, SangStat, Schering-Plough,
SmithKline Beecham and the U.S. Army. Of these customers, six have entered into
new or expanded agreements with us specifying additional antigens for XenoMouse
antibody development. Additionally, of the customers with whom we have entered
technology license contracts, AVI BioPharma, Japan Tobacco, Millenium, Pfizer
and Schering-Plough have entered into product licenses. Furthermore, one of our
customers, Pfizer, has begun human clinical trials with a fully human antibody
generated with XenoMouse technology. The terms of the arrangements vary, but can
generally be categorized as follows:
- Antigen Target Sourcing Contracts--Four of our contracts are target
sourcing contracts with genomics and biopharmaceutical companies that may
enable us to generate a pipeline of proprietary fully human antibody
product candidates. Typically, these contracts provide that we make fully
human antibodies to the contract parties' antigen targets. There are
various mechanisms for each of the parties to evaluate and select
antibodies from the pool of generated antibodies for further development
and commercialization. The party selecting a product candidate will
generally pay to the other, for rights to develop and commercialize such
product, license fees, milestone payments and royalty payments on any
eventual product sales.
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- Proprietary Product Licensing--In July and August 2000, we entered into
two joint development and commercialization agreements. The first is with
Immunex Corporation for ABX-EGF, a fully human antibody created by us.
Under the agreement, Immunex agrees to make an initial license fee payment
to us and second license fee payment to us upon commencement of Phase II
clinical trials of ABX-EGF. Development costs will be shared equally, as
would any potential profits from sales of collaboration products. We both
share responsibility for product development. We will be responsible for
completing the ongoing Phase I trials, and if the Phase I trials are
successful, both companies will share responsibility for the execution of
Phase II trials across a variety of indications. Immunex will have primary
responsibility for Phase III clinical trials and will market any potential
product, while we will retain co-promotion rights. The second agreement is
with SangStat Medical Corporation for ABX-CBL, an antibody developed by
us. Under that agreement, SangStat agrees to make an initial license fee
payment to us and additional milestone payments to us. Development costs
will be shared equally, as would any potential profits from sales of
collaboration products. We both will share responsibility for product
development, including the ongoing Phase II/III clinical trials. SangStat
will market any potential product and we will be responsible for
manufacturing ABX-CBL.
We intend to build our product portfolio by generating antibodies to
antigen targets that we source, self-funding clinical activities to
determine preliminary safety and efficacy and entering into more
development and commercialization agreements with pharmaceutical and
biotechnology companies. These arrangements may or may not involve joint
sharing of costs and profits.
- Technology Licensing--These agreements typically provide our customers
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 customer. In most cases, we provide our mice to the
customers who then carry out immunizations with their specific antigen
targets. In other cases, we immunize the mice with the customers' antigen
targets for additional compensation. The customer generally has a period
of time to acquire product licenses for any antibody product they wish to
develop and commercialize, generally referred to as an option. The
financial terms of these agreements may include license fees, option fees
and milestone payments paid to us by our customers. Based on our
agreements, these payments and fees would average $8.0 to $10.0 million
per antigen target if our customer takes the antibody product candidate
into development and ultimately to commercialization. Additionally, we are
entitled to receive royalties on any future product sales by the customer.
Our dependence on contracts with third parties subjects us to a number of
risks. Agreements with licensees typically allow such licensees significant
discretion in electing whether to pursue any of the planned activities. We
cannot control the amount and timing of resources our licensees may devote to
the product candidates. Even if we fulfill our obligations under an agreement,
the licensee can terminate the agreement at any time following proper written
notice. If any licensee 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 harmed.
PROPRIETARY PRODUCTS
We have three antibody product candidates that are currently in clinical
trials, as follows:
- ABX-IL8--Generated using XenoMouse technology, ABX-IL8 is our fully human
antibody candidate for the treatment of psoriasis. We completed Phase I
and Phase I/II clinical trials and initiated Phase II clinical trials in
April 2000 in which enrollment is ongoing.
- ABX-EGF--Generated using XenoMouse technology, ABX-EGF is our fully human
antibody candidate for the treatment of a variety of cancers. We initiated
a Phase I clinical trial for
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ABX-EGF in cancer in 1999 in which enrollment is ongoing. In July 2000, we
entered the joint development and commercialization agreement with Immunex
Corporation for ABX-EGF, as described above.
- ABX-CBL--An in-licensed mouse antibody, we developed ABX-CBL for the
treatment of a transplant-related disease known as graft versus host
disease, or GVHD. We completed a multi-center Phase II clinical trial for
ABX-CBL and initiated a Phase II/III clinical trial in December 1999 in
which enrollment is ongoing. In August 2000, we entered into the joint
development and commercialization agreement with SangStat Medical
Corporation for ABX-CBL, as described above.
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 that consists of a constant region and a
variable region. As shown in the diagram below, an antibody molecule may be
represented schematically in the form of a "Y" structure.
["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.]
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 the diagram below).
["GENETIC MAKEUP OF XENOMOUSE"
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
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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."]
The human body is repeatedly exposed to a variety of different antigens.
Accordingly, the immune system must be able to generate a diverse repertoire of
antibodies that are capable of recognizing these multiple antigen structures
with a high degree of specificity. The immune system has evolved a two-step
mechanism in order to accomplish this objective. The first step, immune
surveillance, is achieved through the generation of diverse circulating B cells,
each of which assembles different antibody gene segments in a semi-random
fashion to produce and display on its surface a specific antibody. As a result,
a large number of distinct, albeit lower affinity, antibodies are generated in
the circulation so as to recognize essentially any foreign antigen that enters
the body. While capable of recognizing the antigens as foreign, these lower
affinity antibodies are generally incapable of effectively neutralizing them.
This limitation of the immune surveillance process is generally overcome by
the normal immune system in a second step called "affinity maturation."
Triggered by the initial binding to a specific antigen, the small fraction of B
cells that recognize this antigen is then primed by the immune system to
progressively generate antibodies with higher and higher affinity through a
process of repeated mutation and selection. As a result, the reactive antibodies
develop increasingly higher specificity and affinity with the latter being
potentially a hundred to a thousand times higher than those generated in the
previous immune surveillance process. These more specific, higher affinity
antibodies have a greater likelihood of effectively neutralizing or eliminating
the antigen while minimizing the potential of damaging healthy cells.
ANTIBODIES AS PRODUCTS
Recent advances in the technologies for creating and producing antibody
products coupled with a better understanding of how antibodies and the immune
system function in key disease states have led to renewed interest in the
commercial development of antibodies as therapeutic products. According to a
recent survey by the Pharmaceutical Research and Manufacturers of America,
antibodies account for over 20% of all biopharmaceutical products in clinical
development. As of [September 30, 1999], we are aware of eight antibody
therapeutic products approved for marketing in the United States. These products
are Orthoclone, ReoPro, Rituxan, Zenapax, Herceptin, Synagis, Remicade 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
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antibody-secreting B cells. These hybridoma cells are derived from normal mouse
B cells that 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 that produce one single type of mouse
antibody capable of recognizing one specific antigen ("monoclonal antibody").
While mouse monoclonal antibodies can be generated to bind to a number of
antigens, they contain mouse protein sequences and tend to be recognized as
foreign by the human immune system. As a result, they are quickly eliminated by
the human body and have to be administered frequently. When patients are
repeatedly treated with mouse antibodies, they will begin to produce antibodies
that effectively neutralize the mouse antibody, a reaction referred to as a
Human Anti-Mouse Antibody, or HAMA, response. In many cases, the HAMA response
prevents the mouse antibodies from having the desired therapeutic effect and may
cause the patient to have an allergic reaction. The potential use of mouse
antibodies is thus best suited to situations where the patient's immune system
is compromised or where only short-term therapy is required. In such settings,
the patient is often incapable of producing antibodies that neutralize the mouse
antibodies or has insufficient time to do so.
Recognizing the limitations of mouse monoclonal antibodies, researchers have
developed a number of approaches to make them appear more human-like to a
patient's immune system. For example, improved forms of mouse antibodies,
referred to as "chimeric" and "humanized" antibodies, are genetically engineered
and assembled from portions of mouse and human antibody gene fragments. While
these 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 pre-clinical 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"
This diagram depicts four Y-shaped figures, extending horizontally across
the page, which represent antibodies produced by four alternate methods. From
left to right, the figures are labeled "Ordinary Mouse," "Chimeric," "Humanized"
and "XenoMouse," with arrows connecting the labels. A legend indicates that
shaded areas represent mouse protein while unshaded areas represent human
protein. The left-most Y-shaped figure is entirely shaded and below is labeled
"100% Mouse Protein." The next figure from the left is unshaded with a thick
shaded stripe on each upper arm of the "Y" and below is labeled "34% mouse
protein." The following figure from the left is unshaded with three small shaded
stripes on each upper arm of the "Y" and below is labeled "10% mouse protein."
The right-most figure is completely unshaded and below is labeled "100% Human
Protein."]
HUMAN ANTIBODIES
The HAMA response can potentially be avoided through the generation of
antibody products with fully human protein sequences. Such fully human
antibodies may increase the market acceptance and expand the use of antibody
therapeutics. Several antibody technologies have been developed to produce
antibodies with 100% human protein sequences (see the diagram 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
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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
pre-clinical 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 that 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 that 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 has 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.
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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.
Another approach to generating fully human antibodies in mice being pursued
by a competitor is transchromosomic mice. Transchromosomic mice are a strain of
mice that are bred with an extra chromosome, specifically human chromosome 14
that is purported to contain all of the antibody genes. The transchromosomic
mice technology is relatively new and it is not yet known how useful the
technology will be.
XENOMOUSE TECHNOLOGY ADVANTAGES
We believe that our XenoMouse technology offers the following advantages:
PRODUCING ANTIBODIES WITH FULLY HUMAN PROTEIN SEQUENCES. Our XenoMouse
technology, unlike chimeric and humanization technologies, allows the generation
of antibodies with 100% human protein sequences. Antibodies created using
XenoMouse technology are not expected to cause a HAMA response even when
administered repeatedly to immunocompetent patients. For this reason, antibodies
produced using XenoMouse technology are expected to offer a better safety
profile and to be eliminated less quickly from the human body, reducing the
frequency of dosing.
GENERATING A DIVERSE ANTIBODY RESPONSE TO ESSENTIALLY ANY DISEASE TARGET
APPROPRIATE FOR ANTIBODY THERAPY. Because a substantial majority of human
antibody genes has been introduced into XenoMouse, the technology has the
potential to generate high affinity antibodies that recognize more antigen
structures than other transgenic technologies. In addition, through immune
surveillance, XenoMouse technology is expected to be capable of generating
antibodies to almost any medically relevant antigen, human or otherwise. For a
given antigen target, having multiple antibodies to choose from could be
important in selecting the optimal antibody product.
GENERATING HIGH AFFINITY ANTIBODIES THAT 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 that 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 pre-clinical and clinical studies. Furthermore, since XenoMouse
technology can potentially produce multiple product candidates more quickly than
humanization and phage display technology, pre-clinical testing can be conducted
on several antibodies in parallel to identify the optimal product candidate that
will be tested in clinical trials.
PROVIDING FLEXIBILITY IN CHOOSING MANUFACTURING PROCESSES. Once an antibody
with the desired characteristics has been identified, pre-clinical 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 timesaving, production in
hybridomas avoids the need to license certain third party intellectual property
rights covering the production of antibodies in recombinant cell lines.
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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,
autoimmune diseases, transplant rejection, cardiovascular disease, growth factor
modulation, neurological diseases and infectious diseases. For our internal
programs, we intend to enter into contractual agreements with leading academic
researchers and companies involved in the identification and development of
novel antigens. Our contractual agreements with three leading genomics
companies, Human Genome Sciences, CuraGen and Lexicon, could be potential
sources of many novel antigens for our proprietary product programs. 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 as far as completion of the Phase II
clinical stage before entering into a contractual agreement 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 pre-clinical and clinical data for use by us or for marketing to potential
contract parties.
LEVERAGING XENOMOUSE TECHNOLOGY THROUGH TECHNOLOGY LICENSES. 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 multiple XenoMouse
technology licenses each year. These agreements typically allow our licensee to
generate fully human antibodies to one or more specific antigen targets provided
by the licensee. In most cases, we provide our mice to licensees who then carry
out immunizations with their specific antigen target. In other cases, we
immunize the mice with the licensee's antigen target for additional
compensation. Our licensees will also need to obtain product licenses for any
antibody product they wish to develop and commercialize.
The financial terms of our XenoMouse technology licenses often include
upfront payments, potential license fees and milestone payments plus royalties
on any future product sales. We have established technology licenses with
twenty-three partners covering numerous antigen targets. To date, six of these
licensees have each entered into new or expanded licenses 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. After generating
antibody product candidates and self-funding clinical activities to determine
preliminary safety and efficacy, we intend to enter into development and
commercialization agreements with contract parties for these proprietary product
candidates that we created. For most of our products, we may enter into
proprietary product contracts before entering the Phase III clinical development
stage allowing the contract parties 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 contract party for marketing.
The financial terms of these product contracts could include license fees
upon signing, milestone payments, and reimbursement for research and development
activities that we perform, plus profit-sharing or 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
contract. We have entered into two such product contracts: with Immunex for
ABX-EGF; and with SangStat for ABX-CBL.
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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 November 9, 2000:
<TABLE>
<CAPTION>
PRODUCT
CANDIDATE INDICATION STATUS(1)
--------- ----------------------- ------------
<S> <C> <C>
ABX-CBL GVHD Phase II/III
ABX-IL8 Psoriasis Phase II
Rheumatoid Arthritis Phase I
ABX-EGF EGF-Dependent Cancers Phase I
</TABLE>
------------------------
(1) "Phase I" indicates safety and proof of concept testing in a limited patient
population and toxicology testing in animal models. "Phase II" indicates
safety, dosing and efficacy testing in a limited patient population. "Phase
III" indicates safety and efficacy testing with a larger patient population.
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 effecting 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, or 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. 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 completed a multi-center Phase II clinical trial for
ABX-CBL for the treatment of steroid-resistant, grade II to IV GVHD. Data from
27 patients included in the Phase II Study was submitted to the FDA. As an
extension to the original Phase II trial protocol, we have enrolled an
additional 32 patients. The trial studied four escalating intravenous dose
regimens. It was conducted at nine sites and involved 59 patients evaluated for
safety, 51 of which were evaluable for response of GVHD. 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
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from grade I, which is the mildest form, to grade IV, which is the most severe
form. Three of eight patients responded in the lowest dose cohort. Twenty-three
of 43 patients responded among the three highest doses.
In December 1999, we reported additional data from this trial regarding
survival. Among patients in the three higher dose cohorts, 52% (26 of
50) survived at least 100 days from the start of treatment with ABX-CBL. This
compared to a 22% (2 of 9) survival rate in the low dose cohort.
In December 1999, we initiated a Phase II/III clinical trial with ABX-CBL.
The results of the Phase II/III trial may not be favorable or may not extend the
findings of the original Phase II study. The FDA may view the results of our
Phase II/III trial as insufficient and may require additional clinical trials.
There are several issues that could adversely affect the clinical trial results,
including the lack of a standard therapy for GVHD patients in the control group,
unforeseen side effects, variability in the number and types of patients in the
study, and response rates required to achieve statistical significance in the
study. 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. These adverse
effects may affect the interpretation of clinical trial results. There can be no
assurance that the FDA will accept the results of the Phase II/III study or
other elements of the product license application as being sufficient for
approval to market. Additional clinical trials will be extensive, expensive and
time-consuming.
In four separate clinical studies conducted prior to our obtaining an
exclusive license to ABX-CBL, a total of 25 patients with GVHD were treated with
the antibody. 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 our 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 pre-clinical 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
tissues or body 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
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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 (subsequently broadened to be an exclusive license) in the
rest of the world, excluding Japan, Taiwan and South Korea. In December 1999,
Japan Tobacco terminated its interest in this agreement and Abgenix and Xenotech
now have worldwide rights to ABX-IL8. We are evaluating ABX-IL8 for possible use
in the treatment of psoriasis and rheumatoid arthritis.
PSORIASIS. Psoriasis is a chronic disease that results in plaques, a
thickening and scaling of the skin accompanied by local inflammation. The
disease effects 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 that contribute to the
inflammation of the psoriatic plaque. Finally, IL-8 promotes angiogenesis that
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.
In October 1999, we completed a Phase I/II multi-center, multi-dose, dose
escalating, placebo-controlled clinical trial with ABX-IL8 including 45 patients
with moderate to severe psoriasis. In 2000, we completed enrollment in a Phase
II trial of approximately 90 patients. We plan to conduct additional Phase II
trials in 2001.
RHEUMATOID ARTHRITIS. Rheumatoid arthritis is a chronic disease marked by
inflammation and pain in joints throughout the body. The disease effects over
two million people in the United States. Elevated levels of IL-8 in the synovial
fluid of rheumatoid arthritis patients have been reported to correlate with the
number of infiltrating immune cells. Third-party published studies have reported
that the injection of non-human antibodies to IL-8 into a rabbit model of
rheumatoid arthritis blocked immune cell infiltration and synovial membrane
damage.
CLINICAL STATUS. Because of the similarity in the histopathology of the
inflamed joint and that of the psoriatic plaque, we entered a Phase I clinical
trial for ABX-IL8 in rheumatoid arthritis in January 1999. ABX-IL8 will be
administered by injection to the inflamed knee joints of arthritis patients who
have undergone a pre-dose biopsy and a high-resolution ultrasound scan.
ABX-EGF
Tumor cells that overexpress epidermal growth factor receptors, or 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, or 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, on an exclusive worldwide basis. We are conducting
pre-clinical studies and assessing which tumor types to
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pursue as possible targets for treatment with ABX-EGF. Published 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.
CLINICAL STATUS. In November 1999, we initiated a Phase I dose-escalating
human clinical trial examining the safety of administering a single intravenous
infusion of seven different doses of ABX-EGF in the treatment of a variety of
cancers, and patient enrollment is ongoing. We plan to initiate multiple Phase
II studies in 2001.
CONTRACTUAL ARRANGEMENTS
The following table lists contract parties utilizing our XenoMouse
technology as of November 9, 2000:
<TABLE>
<CAPTION>
CONTRACT PARTY FIELD DATE
---------------------------------------------------- ------------------------ ------------
<S> <C> <C>
Abbott Laboratories................................. Various May 2000
Amgen............................................... Undisclosed Apr 1999
AVI................................................. Cancer Jan 1999
BASF................................................ Undisclosed Mar 1999
Cell Genesys........................................ Gene Therapy Nov 1997
Centocor/Johnson and Johnson........................ Cardiovascular Disease Dec 1998
Chiron.............................................. Autoimmune Diseases Dec 1999
Corixa.............................................. Various Mar 2000
CuraGen............................................. Various Dec 1999
Elan................................................ Neurological Diseases Jan 2000
Genentech........................................... Multiple Targets Jan 1999
Growth Factor
Modulation.............. Jun 1998*
Cardiovascular Disease Apr 1998*
</TABLE>
(TABLE CONTINUED ON NEXT PAGE.)
42
<PAGE>
(TABLE CONTINUED FROM PREVIOUS PAGE.)
<TABLE>
<CAPTION>
CONTRACT PARTY FIELD DATE
---------------------------------------------------- ------------------------ ------------
<S> <C> <C>
Gliatech............................................ Cardiovascular Disease Jan 2000
Human Genome Sciences............................... Various Dec 1999
Immunex............................................. Cancer Jul 2000
Japan Tobacco....................................... Various Dec 1999
Lexicon............................................. Various Jul 2000
Millennium.......................................... Various Mar 2000
Inflammation Oct 1998
Inflammation Sep 1998
Inflammation Mar 1998
Pfizer.............................................. Cancer Nov 1999
Cancer Oct 1998
Cancer Dec 1997
Research Corporation Technologies................... Transplant Rejection Dec 1998
SangStat............................................ GVHD Aug 2000
Schering-Plough..................................... Inflammation Jan 1998
SmithKline Beecham.................................. Undisclosed May 2000
U.S. Army........................................... Poxviruses Oct 1999
Filoviruses Jul 1999
</TABLE>
------------------------
* These agreements were superseded by the January 1999 multi-antigen
agreement.
ABBOTT: In May 2000, we entered into a research collaboration and license
agreement with Abbott Laboratories under which we will generate fully human
antibodies to several undisclosed disease targets for Abbott.
AMGEN: In April 1999, we entered into a research collaboration agreement
with Amgen Inc., to generate fully human antibodies to an undisclosed antigen
target. Under this agreement, Amgen is paying us to perform the immunizations
and certain research activities.
AVI: In January 1999, we entered into a research license and option
agreement with AVI BioPharma to generate fully human antibodies to human chronic
gonadotropin, or 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.
BASF: In March 1999, we entered into a research collaboration agreement
with BASF Bioresearch Corporation to generate fully human antibodies to an
undisclosed antigen target.
CELL GENESYS: In November 1997, we entered into the gene therapy rights
agreement, or GTRA, with Cell Genesys, Inc. Cell Genesys received certain rights
to commercialize products based on antibodies generated with XenoMouse
technology in the field of gene therapy.
CENTOCOR/JOHNSON AND JOHNSON: 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.
CHIRON: In December 1999, we entered into a research license and option
agreement with Chiron Corporation to generate fully human antibodies to an
undisclosed antigen in the field of autoimmune diseases. Under a separate
research collaboration agreement, Chiron may use XenoMouse to generate fully
human antibodies to up to four cancer targets.
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CORIXA: In March 2000, we entered into a collaboration agreement with
Corixa to discover and develop human monoclonal antibodies against selected
targets from Corixa's library of autoimmune disease, cancer and infectious
disease antigens.
CURAGEN: In December 1999, we entered into a broad collaboration agreement
with CuraGen Corporation to make fully human antibodies to genomics-based
antigen targets. Under the agreement, CuraGen will supply a large number of
antigen targets to us and we will be responsible for generating fully human
antibodies to them. We will share responsibility for evaluation of the
antibodies product candidates generated. Each of us will be able to select
antibody product candidates from the pool generated in the course of the
agreement. The party selecting a product candidate will pay to the other, for
rights to develop and commercialize any such product, license fees, milestone
payments and royalty payment on any eventual product sales.
ELAN: In January 2000, we entered into a research license and option
agreement with Elan Corporation, plc. to generate fully human antibodies to an
undisclosed antigen in the field of neurological diseases.
GENENTECH: In April 1998, we entered into a research license and option
agreement with Genentech, Inc. to produce fully human antibodies to an antigen
target in the field of growth factor modulation. In June 1998, Genentech
expanded its research collaboration with us to include a second antigen target
in the field of cardiovascular disease.
In January 1999, we entered into a multi-antigen research license and option
agreement with Genentech. Under the agreement, we granted Genentech a license to
utilize XenoMouse technology in its antibody product research efforts and an
option to obtain product licenses for up to ten antigen targets, but not more
than two in any one year, over the agreement's six-year term. Included in the
ten are the two previously identified antigen targets under the now superseded
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.
GLIATECH: In January 2000, we entered into a research license and option
agreement with Gliatech Inc. to generate fully human antibodies to the
complement protein properdin for use in the fields of cardiovascular and
inflammatory diseases.
HUMAN GENOME SCIENCES: In December 1999, we entered into a broad
collaboration agreement with Human Genome Sciences, Inc. to generate fully human
antibodies to genomics-based antigen targets. Under the agreement, Human Genome
Sciences has the right to use XenoMouse technology for research purposes and to
take out options and/or licenses on a pre-set number of antigen targets. We also
may collaborate with Human Genome Sciences on a pre-set number of antigen
targets to which we will generate fully human antibodies. The companies will
then jointly develop and commercialize any such products. We also are able to
select antigen targets from the Human Genome Sciences database to make
antibodies against and will have an option to license a pre-set number of such
antigen targets for our in-house development and commercialization. If we enter
into a license regarding Human Genome Science's antigen target, we would pay
them license fees, milestone and royalties equivalent to what they pay us for
licenses regarding XenoMouse technology.
IMMUNEX: In July 2000, we entered into a joint development and
commercialization agreement with Immunex Corporation for ABX-EGF, a fully human
antibody created by us and currently in a Phase I clinical trial involving
several tumor types.
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JAPAN TOBACCO: In December 1999, we entered into a collaboration agreement
with Japan Tobacco allowing it to use XenoMouse for research purposes and to
obtain options and/or product licenses for a limited number of specific antigen
targets each year.
LEXICON: In July 2000, we entered into a drug discovery alliance with
Lexicon Genetics Incorporated in which Lexicon will contribute drug targets for
which we will generate fully human antibodies using XenoMouse technology.
MILLENNIUM: In July 1998, we entered into a research collaboration
agreement with Millennium BioTherapeutics, Inc. 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
covering the same antigen target. In September 1998, we entered into a second
research collaboration agreement with Millennium covering a second antigen
target in the field of inflammation. In March 2000, we entered into a broad
collaboration agreement with Millenium. Under the agreement, Millenium receives
a license to use XenoMouse technology for research purposes and a group of
product licenses for a certain number of antigens. For additional future
payments to us, Millenium may renew its research license and buy additional
groups of product licenses.
PFIZER: In December 1997, we entered into a research collaboration
agreement with Pfizer Inc. 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. In November 1999, Pfizer exercised its option to expand its
research collaboration with us to include a third 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 upon
our initial public offering.
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.
SANGSTAT: In August 2000, we entered into a co-development, supply and
license agreement with SangStat Medical Coporation for ABX-CBL, an antibody
developed by us. SangStat will have an exclusive worldwide license for the
marketing and sale of ABX-CBL and, subject to the terms and conditions of the
agreement, the right to commercialize other CD-147 antibodies, including
ABX-RB2, the next generation fully human antibody to CD-147, generated using
XenoMouse technology.
SCHERING-PLOUGH: In January 1998, we entered into a research collaboration
agreement with Schering-Plough Research Institute 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. In September 1999, Schering-Plough exercised its option for
a product license.
SMITHKLINE BEECHAM: In May 2000, we entered into a license agreement under
which SmithKline Beecham Pharmaceuticals Inc. will use XenoMouse technology to
generate fully human antibodies to an undisclosed antigen target.
U.S. ARMY: In July 1999, we entered into a collaboration agreement with the
U.S. Army to generate fully human antibodies to filoviruses. In October 1999,
the U.S. Army expanded the agreement to include poxviruses.
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JOINT VENTURE WITH JAPAN TOBACCO
XENOTECH
In June 1991, Cell Genesys entered into several agreements with Japan
Tobacco for the purpose of forming an equally owned limited partnership named
Xenotech. In connection with the formation of Xenotech, both Cell Genesys and
Japan Tobacco contributed cash, and Cell Genesys contributed the exclusive right
to certain of its technology for the research and development of genetically
modified strains of mice that can produce fully human antibodies. Cell Genesys
assigned its rights in Xenotech to us in connection with our organization. As
part of the Xenotech relationship, we provide research and development on behalf
of Xenotech in exchange for cash payments. As of December 31, 1998, we have made
capital contributions to Xenotech of approximately $18.6 million and have
received approximately $42.9 million in funding for research related to the
development of XenoMouse technology.
XENOMOUSE TECHNOLOGY
On December 20, 1999, we executed several agreements with Japan Tobacco that
became effective December 31, 1999 under which we acquired Japan Tobacco's
interest in the XenoMouse. Under the agreements, we paid $47.0 million in cash
to Japan Tobacco for its 50% interest in the Xenotech joint venture under which
the XenoMouse technology was developed; and we also made a non-recurring payment
of $10.0 million to Japan Tobacco to terminate its then applicable rights to the
current XenoMouse technology. Additionally, Japan Tobacco paid $4.0 million to
us for a license to use the existing XenoMouse technology on a more limited
basis than previously, and to use future XenoMouse technology that we develop.
Japan Tobacco will also make royalty payments on any future sales of antibody
products generated using XenoMouse. Lastly, under the December agreements, we
granted to Japan Tobacco a license for certain new technology related to the
generation of mouse models of certain human diseases. In return for this
license, Japan tobacco paid us $6.0 million, which was recorded in contract
revenue.
GENE THERAPY RIGHTS AGREEMENT WITH CELL GENESYS
The GTRA provides Cell Genesys with certain rights to commercialize products
based on antibodies generated with XenoMouse technology in the field of gene
therapy. Under the GTRA, Cell Genesys has certain rights to direct us to make
antibodies to two antigens per year. In addition, Cell Genesys has an option to
enter into a license to commercialize antibodies binding to such antigens in the
field of gene therapy. Cell Genesys is obligated to make certain payments to us
for these rights, including reimbursement of license fees and royalties on
future product sales. 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. We
solely own two issued patents in the United States, one granted patent in
Europe, three granted patents in Japan and have several pending patent
applications in the United States and abroad relating to XenoMouse technology.
Our wholly-owned subsidiary, Xenotech, owns two issued U.S. patents, one
Australian patent and several pending U.S. and foreign patent applications
related to methods of treatment of bone disease in cancer patients. In addition,
we have four issued
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<PAGE>
U.S. patents and several pending patent applications in the United States and
abroad that are jointly owned with Japan Tobacco relating to antibody technology
or genetic manipulation. We attempt to protect our proprietary position by
filing U.S. 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
adequate proprietary protection or competitive advantages against competitors
with similar technology. 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. Also, our
trade secrets may otherwise become known to, or be independently developed by,
our competitors. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed.
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
pending patent applications. Patent applications in the United States are, in
most cases, maintained in secrecy until patents are issued. 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 unintentionally infringe the patents or violate other
proprietary rights of third parties. In the event of such infringement or
violation, we and our contract parties may be prevented from pursuing product
development or commercialization. Such a result will materially harm our
business, financial condition and results of operations.
We have one granted 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.
Glaxo Wellcome Inc. has a family of patents which it is asserting against
Genentech in ongoing litigation. If any of the claims of these patents are
finally determined in the litigation to be valid and if they can be asserted by
Glaxo to be infringed by ABX-EGF, then we may need to obtain a license should
one be available. Should a license be denied or unavailable on commercially
reasonable terms, our commercialization of ABX-EGF could be impeded in any
territories in which these patents were in force.
Genentech owns a U.S. patent that relates to inhibiting the growth of tumor
cells involving an anti-EGF receptor antibody in combination with a cytotoxic
factor. If the claims of the patent are valid, we may be required to obtain a
license to Genentech's patent to label and sell ABX-EGF for some or all such
combination indications. Should a license be denied or unavailable on
commercially reasonable terms, our commercialization of ABX-EGF could be impeded
in the United States.
ImClone Systems, Inc., has announced that the United States Patent and
Trademark Office has issued a notice of allowability of a patent covering a
composition of matter of any EGFr monoclonal antibody that inhibits the binding
of EGF to its receptor in combination with any anti-neoplastic agent, as well as
the therapeutic use of such combinations. In addition, other third parties have
or may receive
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other patents relating to EGFr monoclonal antibodies, their manufacture or their
use. The scope and validity of any such patent may materially impede our planned
activities.
We believe that ABX-EGF may effective alone, and may be used without
chemotherapy. We believe use of ABX-EGF alone is not covered by claims in other
companies' patents.
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 patents that we own or license;
- 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 loss of our proprietary position or 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 harm 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, we 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 us, 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, we have 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 for $15 million, which was
paid in full on September 30, 1998. Of this note, approximately $3.8 million
thereof satisfied certain of Xenotech's obligations under the agreement. Japan
Tobacco also made an initial payment. During 1997, GenPharm achieved two patent
milestones, and Xenotech was obligated to pay $7.5 million for each milestone.
No additional payments will accrue under this agreement. In 1997, we recognized,
as a non-recurring charge for the 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 alternate
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 us upon our
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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.
We believe our antibody products will be classified by the FDA as "biologic
products" as opposed to "drug products." The steps ordinarily required before a
biological product may be marketed in the United States include:
- pre-clinical testing;
- the submission to the FDA of an investigational new drug application, or
IND, which must become effective before clinical trials may commence;
- adequate and well-controlled clinical trials to establish the safety and
efficacy of the biologic;
- the submission to the FDA of a Biologics License Application; and
- FDA approval of the application, including approval of all product
labeling.
Pre-clinical 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. Pre-clinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding good laboratory
practices. The results of the pre-clinical 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, or 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 that 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
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<PAGE>
studies is to obtain definitive statistical evidence of the efficacy and safety
of the proposed product and dosage regimen.
Historically, the results from pre-clinical 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
pre-clinical 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 three of our product candidates, ABX-CBL, ABX-IL8 and ABX-EGF are
currently in clinical trials. Patient follow-up for these clinical trials has
been limited. To date, we have not obtained enough data from these clinical
trials 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 us or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals for ABX-CBL, ABX-IL8, ABX-EGF 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 pre-clinical development, and we
have not submitted INDs or begun clinical trials for these product candidates.
Our pre-clinical or clinical development efforts may not be successfully
completed. Further INDs may not be filed. Clinical trials may not commence as
planned.
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials may be delayed by many factors, including:
- inability to manufacture sufficient quantities of materials for use in
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 contract parties, 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 pre-clinical 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 harmed by any delays in, or termination of, our clinical trials.
We and our third-party manufacturer also are required to comply with the
applicable FDA current good manufacturing practice, or 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. We or our third-party
50
<PAGE>
manufacturer may not be able to comply with the applicable cGMP requirements and
other FDA regulatory requirements. If we or our third-party manufacturer fails
to comply, our business, financial condition and results of operations will be
materially harmed.
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 us or our contract parties. 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 Medarex, Medarex's joint
venture partner, Kirin Brewing Co., Ltd, 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. For example, SangStat Medical Corporation and Protein Design Labs
market organ transplant rejection products that may compete with ABX-CBL, which
is in clinical trials. In addition, MedImmune, Inc. has a potential antibody
product candidate in clinical trials for graft versus host disease. 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, AstraZeneca and OSI Pharmaceuticals, Inc. have potential
antibody and small-molecule product candidates already in clinical development
that may compete with ABX-EGF.
Many of these companies and institutions, either alone or together with
their contract parties, 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 contract parties, have
significantly greater experience than we do in:
- developing products;
- undertaking pre-clinical 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
51
<PAGE>
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 non-competitive. We face and will continue to face intense
competition from other companies for contractual 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 contract parties, may succeed in
developing technologies or products that are more effective than ours.
PHARMACEUTICAL PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Third-party payors include government health administration authorities, managed
care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. These studies may require us to provide
a significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Domestic and foreign governments
continue to propose and pass legislation designed to reduce the cost of
healthcare. Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance of our products may be adversely affected. If our products do not
receive market acceptance, our business, financial condition and results of
operations will be materially harmed.
MANUFACTURING
We are in the planning stages of establishing our own pilot scale
manufacturing facility for the manufacture of products for Phase I and Phase II
clinical trials, in compliance with FDA good manufacturing practices. In May
2000, we entered into a long-term lease for this facility. The construction
schedules may take longer than expected, and the planned and actual construction
costs of building and qualifying the facility for regulatory compliance may be
higher than expected. The process for manufacture of antibody products is
complex. We have no experience in clinical or commercial scale manufacture of
ABX-CBL, ABX-IL8, ABX-EGF or any other antibody products. Such antibody products
will also need to be manufactured in a facility and by a process which complies
with FDA and other regulations. It may take a substantial period of time to
begin producing antibodies in compliance with such regulations. If we are unable
to establish and maintain such manufacturing facility within our planned time
and costs parameters, the development and sales of our products and our
financial performance may be adversely affected.
We currently rely, and will continue to rely for at least the next two
years, on a sole source contract manufacturer to produce ABX-CBL, ABX-IL8 and
ABX-EGF under good manufacturing
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<PAGE>
practice regulations, for use in our clinical trials. Our third-party
manufacturer has a limited number of facilities in which our product candidates
can be produced and has limited experience in manufacturing ABX-CBL, ABX-IL8 and
ABX-EGF in quantities sufficient for conducting clinical trials or for
commercialization. We currently rely on our third-party 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
assurance, shortage of qualified personnel, compliance with FDA regulations,
production costs and development of advanced manufacturing techniques and
process controls. Our third-party 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 third-party
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 harmed.
RECENT DEVELOPMENTS
In November 2000, we acquired all of the voting stock of ImmGenics
Pharmaceuticals Inc., a Canadian biotechnology company that develops and intends
to commercialize antibody-based therapeutic and diagnostic products for the
treatment and diagnosis of a variety of diseases, for an aggregate consideration
of approximately $77.5 million payable in a special class of ImmGenics non-
voting shares. These ImmGenics special shares may be exchanged into our common
stock at any time after the effective date of the registration statement
covering the common stock issuable for that purpose. Each ImmGenics special
share is exchangeable into the fraction of one share of our common stock that is
determined based on the average closing price for the five days ending on the
business day immediately preceding the effective date of the registration
statement covering the shares of our common stock to be issued for that purpose.
ImmGenics' proprietary technology is intended to increase both the effectiveness
and speed of antibody product discovery by increasing the number of antibodies
that can be screened for any given antigent target. To account for this
acquisition, we will record a significant one-time charge in the fourth quarter
of 2000 of approximately $4.8 million for in-process research and development,
significant assets related to intangible assets and goodwill acquired and
related amortization over a period of approximately 15 years; and deferred
compensation related to the replacement of ImmGenics options for our stock
options is expected to be amortized over approximately two years.
In November 2000, we acquired IntraImmune Therapies, Inc., a biotechnology
company based in Cambridge, Massachusetts, for a cash consideration of $9
million. IntraImmune's proprietary technology allows antibodies to gain access
to intracellular targets. Currently, antibody-based therapies are limited to
extracellular targets. IntraImmune's technology offers the potential to increase
the range of potential targets appropriate for antibody therapy. IntraImmune's
operations are expected to be phased out as work on the proprietary technologies
is transferred to us.
EMPLOYEES
As of September 30, 2000, we employed 128 persons, of whom 60 hold Ph.D. or
M.D. degrees and 45 hold other advanced degrees. Approximately 107 employees
were engaged in research and development, and 21 supported administration,
finance, management information systems and human resources. ImmGenics, our
newly acquired subsidiary, had 26 employees as of November 3, 2000, of which 24
were engaged in research and development.
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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 about 255,000 square feet of office, laboratory and
pilot scale manufacturing facilities in Fremont, California. Our leases expire
in the years 2007 through 2015 with options to extend. We believe that our
current facilities are adequate for our needs for the foreseeable future and
that, should it be needed, suitable additional space will be available to
accommodate expansion of our operations on commercially reasonable terms. Our
newly acquired ImmGenics facilities in Vancouver, Canada consist of
approximately 10,920 square feet of leased premises.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
SCIENTIFIC ADVISORY BOARD
We have established a Scientific Advisory Board to provide specific
expertise in areas of research and development relevant to our business. The
Scientific Advisory Board meets periodically with our scientific and development
personnel and management to discuss our present and long-term research and
development activities. Scientific Advisory Board members include:
<TABLE>
<CAPTION>
<S> <C>
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, National Institute
of Health
Raju S. Kucherlapati, Ph.D........... Professor and Chair, Molecular
Genetics, Albert Einstein College of
Medicine
Michel Nussenzweig, M.D., Ph.D....... Professor, Molecular Immunology,
Rockefeller University
Greg T. Went......................... President and Chief Executive
Officer, DNA Sciences Inc.
Philip Hieter........................ Professor, Medical Genetics,
University of British Columbia
</TABLE>
54
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names and ages of our executive officers and directors as of
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- -------- -----------------------------------------------
<S> <C> <C>
R. Scott Greer........................... 41 Chairman, President and Chief Executive Officer
C. Geoffrey Davis, Ph.D.................. 49 Chief Scientific Officer
Kurt W. Leutzinger....................... 49 Chief Financial Officer
Gisela M. Schwab, M.D.................... 43 Vice President, Clinical Development
Raymond M. Withy, Ph.D................... 45 Chief Business Officer
Gayle M. Mills........................... 46 Vice President, Business Development
Patrick M. Murphy........................ 47 Vice President, Manufacturing
Gregory M. Landes, Ph.D.................. 49 Vice President, Product Discovery
Steve M. Chamow, Ph.D.................... 48 Vice President, Process Sciences
John C. Meyer............................ 57 Vice President, Human Resources
Stephen A. Sherwin, M.D.(1)(2)........... 52 Director
M. Kathleen Behrens, Ph.D.(2)............ 47 Director
Raju S. Kucherlapati, Ph.D............... 57 Director
Mark B. Logan(1)(2)...................... 62 Director
Joseph E. Maroun......................... 71 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 has served as our Chairman of the
Board since May 2000. He also serves as a director of CV Therapeutics. 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 BA degree in
Economics from Whitman College and an MBA degree from Harvard University and is
a certified public accountant.
C. GEOFFREY DAVIS, PH.D., has served as our Vice President, Research since
June 1996 and Chief Scientific Officer since January 2000. 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 BA degree in Biology from Swarthmore College
and a Ph.D. degree in Immunology from the University of California, San
Francisco.
KURT W. LEUTZINGER, has served as our 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 General Electric
Pension Fund. At General Electric, he was responsible for private equity
investments with a focus on medical technology. Mr. Leutzinger received a BA
degree in Economics from Fairleigh Dickinson University and an MBA degree in
Finance from New York University and is a certified public accountant.
GISELA M. SCHWAB, M.D., joined us as our Vice President, Clinical
Development in November 1999. From September 1992 to October 1999, Dr. Schwab
held various positions at Amgen Inc., a
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<PAGE>
biotechnology company, most recently as Director, Clinical Research and
Therapeutic Area Team Leader for Oncology/Hematology. Dr. Schwab received an
M.D. degree from the University of Heidelberg in Germany. She is board certified
in Hematology and Oncology and has performed research in molecular biology at
the National Cancer Institute in Bethesda, Maryland, and at the French National
Institute for Health and Research in Paris.
RAYMOND W. WITHY, PH.D., has served as our Vice President, Corporate
Development since June 1996 and Chief Business Officer since January 2000. He
also serves as a director of Xenotech. From May 1993 to June 1996, Dr. Withy
served in various positions at Cell Genesys, most recently as Director of
Business Development. From 1991 to May 1993, Dr. Withy was a private consultant
to the biotechnology industry in areas of strategic planning, business
development and licensing. From 1984 to 1991, Dr. Withy was an Associate
Director and Senior Scientist at Genzyme Corporation, a biotechnology company.
Dr. Withy received a BS degree in Chemistry and Biochemistry and a Ph.D. degree
in Biochemistry, both from the University of Nottingham.
GAYLE M. MILLS, has served as our Vice President, Business Development since
September 2000. From 1998 to September 2000, Ms. Mills was Vice President,
Business Development at EOS Biotechnology. From 1995 to 1998, Ms. Mills was the
Vice President, Business Development and Strategic Marketing for the
Neurobiology Unit at Roche Bioscience, a biopharmaceutical company. Ms. Mills
served as Director, Business Development both at Affymax Technologies from 1993
to 1995 and at Syntex Corp. from 1991 to 1993. Ms. Mills received a BS degree in
Business Administration from the College of Notre Dame and an MBA degree from
Santa Clara University.
PATRICK M. MURPHY, has served as our Vice President, Manufacturing since
May 2000. From 1981 to May 2000, Mr. Murphy held various positions at Genentech,
a biotechnology company, most recently as Director, Strategic Operations. During
his 18 years at Genentech, Mr. Murphy guided seven new products through the
manufacturing, approval and facility licensing processes. Mr. Murphy received a
BS degree in Biochemistry from the State University of New York.
GREGORY M. LANDES, PH.D., has served as our Vice President, Product
Discovery since May 2000. From 1982 to May 2000, Dr. Landes held various
positions at Genzyme, a biotechnology company, most recently as Vice President,
Genetics and Genomics. From 1978 to 1981, Dr. Landes was a Postdoctoral Fellow
at the Department of Chemistry and Biochemistry at the University of California,
Los Angeles. Dr. Landes received a BA degree in Chemistry and a Ph.D. degree in
Biochemistry from the University of Kansas.
STEVEN M. CHAMOW, PH.D., has served as our Vice President, Process Sciences
since April 2000. From 1998 to April 2000, Dr. Chamow was Director,
Biopharmaceutical Development at Scios, Inc., a biotechnology company. From 1987
to 1998, he held various positions at Genentech, a biotechnology company,
including Senior Scientist, Recovery Sciences. Dr. Chamow received a BA degree
in Biology from the University of California, Santa Cruz and a Ph.D. degree in
Biochemistry from the University of California, Davis.
JOHN C. MEYER, has served as our Vice President, Human Resources since
September 2000. Mr. Meyer was the Vice President, Human Resources at various
high technology and biotechnology companies, including Somnus Medical
Technologies from 1999 to September 2000, Vivus Inc. from 1998 to 1999, Target
Therapeutics from 1996 to 1997 and Chipcom Corporation from 1991 to 1995.
Mr. Meyer received a BS degree in Business Administration from Colorado State
University.
STEPHEN A. SHERWIN, M.D., has served as one of our directors since
June 1996, and Dr. Sherwin served as Chairman of the Board from June 1996 to
May 2000. 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
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<PAGE>
Research. Dr. Sherwin currently serves as a Director of the California
Healthcare Institute and Neurocrine Biosciences, Inc.. Dr. Sherwin received a BA
degree in Biology from Yale University and an M.D. degree 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 the following 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. degree 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 served as a
director of Cell Genesys from 1988 to 1999. 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 Valentis Corp. and Millennium Pharmaceuticals, Inc.
Dr. Kucherlapati received a BS degree in Biology from Andhra University in India
and a Ph.D. degree 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 currently serves as a director of Somnus Medical
Technologies, Inc. and Vivus, Inc. Mr. Logan received a BA degree from Hiram
College and a PMD degree from Harvard Business School.
JOSEPH E. MAROUN, has served as one of our directors since July 1996 and
served as a director of Cell Genesys from June 1995 to June 2000. 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 BA degree from the University of Witwaterrand,
Johannesburg.
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 shareholders or until their successors
are duly elected and qualified. There are no family relationships among any of
our directors, officers or key employees.
BOARD COMMITTEES
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.
57
<PAGE>
Our audit committee consists of Dr. Sherwin, Mr. Logan and Dr. Behrens, who
serves as Chairman of the committee. 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.
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 ours. 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.
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, some 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
270,000, 40,000, 30,000 and 30,000 shares of our common stock, respectively, at
a per share exercise price of $0.625. On August 8, 1997, Mark B. Logan received
an option to purchase 120,000 shares of our common stock at a per share exercise
price of $1.00. On December 11, 1997, Raju S. Kucherlapati received an option to
purchase 80,000 shares of our common stock at a per share exercise price of
$1.25. 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 160,000, 23,600,
120,000, 17,600, 12,800 and 17,600 shares of our common stock, respectively, at
a per share exercise price of $1.50. On June 15, 1998, Stephen A. Sherwin
received options to purchase 40,000 shares of our common stock at a per share
exercise price of $2.50. Beginning with the 1999 annual meeting of shareholders,
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. Accordingly, Stephen A. Sherwin, M. Kathleen Behrens, Raju
S. Kucherlapati, Mark B. Logan and Joseph E. Maroun each received options to
purchase 30,000 shares of our common stock at a per share exercise price of
$3.59 at the time of the 1999 annual meeting and 30,000 shares of our common
stock at a per share price of $48.06 at the time of our 2000 annual meeting.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us during the years
ended December 31, 1999, 1998 and 1997 to our President and Chief Executive
Officer and the four other most highly compensated executive officers, each of
whose aggregate compensation during our last fiscal year exceeded $100,000. We
refer to these individuals as the "named executive officers" elsewhere in this
prospectus.
58
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($)
--------------------------- -------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
R. Scott Greer......................... 1999 $283,147 $200,000 540,000 $ --
President and Chief Executive 1998 267,120 -- 160,000 --
Officer 1997 252,000 55,200 270,000 4,112(1)
C. Geoffrey Davis, Ph.D................ 1999 184,546 100,000 153,000 1,482(2)
Chief Scientific Officer 1998 165,350 -- 40,000 --
1997 152,250 21,750 102,000 1,974(2)
Kurt W. Leutzinger(3).................. 1999 187,922 100,000 153,000 4,940(4)
Chief Financial Officer 1998 179,830 -- 51,000 19,623(5)
1997 81,555 -- 400,000 127,059(6)
Gisela M. Schwab, M.D.(7).............. 1999 36,667 100,000 400,000 --
Vice President, Clinical Development
Raymond M. Withy, Ph.D................. 1999 184,547 100,000 153,000 --
Chief Business Officer 1998 165,350 -- 40,000 --
1997 152,250 21,750 102,000 --
</TABLE>
------------------------
(1) Consists of imputed interest income on a loan from us to Mr. Greer.
(2) Consists of imputed interest income on a loan from us to Dr. Davis.
(3) Mr. Leutzinger has been our Chief Financial Officer since July 1997. His
1997 annualized salary was $175,000.
(4) Consists of imputed interest income on a loan from us to Mr. Leutzinger.
(5) Consists of $18,714 for reimbursement of relocation expenses and $909 for
imputed interest income on a loan from us to Mr. Leutzinger.
(6) Consists of $126,568 for reimbursement of relocation expenses and $491 for
imputed interest income on a loan from us to Mr. Leutzinger.
(7) Dr. Schwab has been our Vice President, Clinical Development since
November 1999. Her 1999 annualized salary was $220,000.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the named executive officers during the year ended December 31, 1999.
All these options were awarded under our 1996 Incentive Stock Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------- AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTIONS TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
---- ---------- -------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Greer................ 540,000 13.1% $3.75 1/11/09 $1,273,050 $3,227,850
C. Geoffrey Davis, Ph.D....... 153,000 3.7 3.75 1/11/09 360,698 914,558
Kurt W. Leutzinger............ 153,000 3.7 3.75 1/11/09 360,698 914,558
Gisela M. Schwab, M.D......... 400,000 9.7 9.75 10/26/09 2,453,000 6,216,000
Raymond M. Withy, Ph.D........ 153,000 3.7 3.75 1/11/09 360,698 914,558
</TABLE>
------------------------
(1) The options granted to Mr. Greer, Mr. Leutzinger 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 Dr. Schwab 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 us. These options expire ten years from the date of grant,
or earlier upon termination of employment.
(2) Based on an aggregate of 4,111,500 options granted by us in the year ended
December 31, 1999 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. We cannot
provide any assurance 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 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.
OPTION EXERCISES AND HOLDINGS
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
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<PAGE>
December 31, 1999 and the number and value of securities underlying unexercised
options held at December 31, 1999:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
# SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Scott Greer............. 60,000 $1,969,125 701,212 752,328 $22,533,549 $23,156,072
C. Geoffrey Davis, Ph.D.... 232,000 5,749,289 230,596 232,404 7,419,398 7,194,777
Kurt W. Leutzinger......... 280,000 7,365,676 22,220 301,780 652,713 9,416,972
Gisela M. Schwab, M.D...... -- -- -- 400,000 -- 9,350,000
Raymond M. Withy, Ph.D..... -- -- 320,932 232,404 10,398,228 7,194,777
</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 $33.125
per share, the closing price of our common stock on December 31, 1999, as
adjusted to reflect a two-for-one common stock split effective on April 6,
2000 and a two-for-one common stock split effective on July 7, 2000. Amounts
reflected are based on the value of $33.125 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 September 30, 2000, a total of 12,765,000
shares of common stock have been authorized for issuance under our 1996
Incentive Stock Plan, or the Incentive Plan. Under the Incentive Plan, as of
September 30, 2000, options to purchase an aggregate of 5,506,213 shares were
outstanding, 5,836,382 shares of common stock had been purchased pursuant to
exercises of stock options and stock purchase rights and 1,422,405 shares were
available for future grant.
The Incentive 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 Incentive 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, the number of shares subject to the award
and the exercisability. The exercise price of incentive stock options granted
under the Incentive 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 Incentive 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 Incentive Plan is ten years.
An optionee whose relationship with us 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 the options terminate or
expire sooner 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 us 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 the options are not assumed or substituted, such options
shall
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<PAGE>
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 the options shall terminate.
None of our employees may be granted, in any fiscal year, options to
purchase more than 3,000,000 shares, 6,000,000 shares in the case of a new
employee's initial employment with us. The Incentive 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 Incentive Plan. These 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. We are generally granted
a repurchase option exercisable on the voluntary or involuntary termination of
the purchaser's employment with us 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 shareholder.
1998 EMPLOYEE STOCK PURCHASE PLAN. We have adopted the 1998 Employee Stock
Purchase Plan, or the Purchase Plan, and have reserved a total of 1,000,000
shares of common stock for issuance under the Purchase Plan. 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
1,000,000, 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 10,000,000 shares. Under the Purchase
Plan, as of September 30, 2000, 1,596,092 shares were issued and were
outstanding, and 1,161,614 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, we withhold a specified percentage, not to exceed
15%, of each salary payment to participating employees over the 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 us 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. New 24-month
offering periods commence every six months on each November 1 and May 1. In the
event of a change in our control, including a merger 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 us. 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.
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<PAGE>
1998 DIRECTOR OPTION PLAN. We have adopted the 1998 Director Option Plan,
or the Director Plan, and reserved a total of 1,000,000 shares of common stock
for issuance under the Director Plan. As of September 30, 2000, options to
purchase an aggregate of 300,000 shares were outstanding and 700,000 shares were
available for future grants under the Director Plan. Each non-employee director
who becomes one of our directors after July 2, 1998 will be automatically
granted a nonstatutory option to purchase 120,000 shares of common stock on the
date on which such person first becomes a director. At each annual shareholders
meeting beginning with the 1999 annual shareholders meeting, each non-employee
director is automatically granted a nonstatutory option to purchase 30,000
shares of common stock. The exercise price of options under the Director Plan
will be equal to the fair market value of the common stock on the date of grant.
The maximum term of the options granted under the Director Plan is ten years.
Each grant made prior to June 1999 under the Director Plan vests 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. Grants made after June 1999 are
fully vested upon grant. 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 these 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 these 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.
1999 NONSTATUTORY STOCK OPTION PLAN. We have adopted the 1999 Nonstatutory
Stock Option Plan, or Nonstatutory Plan, and reserved a total of 5,600,000
shares of common stock for issuance to employees and consultants under the
Nonstatutory Plan. As of September 30, 2000, options to purchase an aggregate of
4,725,400 shares were outstanding and 773,796 shares were available for future
grants under the Nonstatutory Plan. The Nonstatutory Plan provides for the grant
of stock options at no less than the public market closing price of the
underlying common stock on the date of grant. Options granted under the
Nonstatutory Plan generally have a term of ten years and vest over four years at
the rate of 25% one year from the date of hire and 1/48th per month after that.
An optionee whose relationship with us or any related corporation ceases for
any reason, other than death or total and permanent disability, may exercise
options within the time period specified by the terms of the option, to the
extent it is vested on the date of the cessation, or, in the absence of a
specified time, in the three-month period following such cessation. The
three-month period is extended to twelve months for terminations due to death or
total and permanent disability. In the event we or into another corporation, any
outstanding options may either by assumed or an equivalent option may be
substituted by the surviving entity or, if the options are not assumed or
substituted, the 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 15 days, after which the options
shall terminate.
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. 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 this 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
63
<PAGE>
participants in the 401(k) Plan. We have not made any matching 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 us, and the
investment earnings on these contributions, 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 OF CONTROL ARRANGEMENTS
We have entered into Change of Control Severance Agreements with
Messrs. Greer, Davis, Leutzinger, Chamow, Murphy, Landes, Meyer and Withy and
Mss. Schwab and Mills. These agreements provide that if any of the following
events occurs within 24 months following a change of control then we, or the
company with which we merge, must pay the affected officer his salary and bonus,
at the rate in effect just prior to the change of control, for one year or, in
Mr. Greer's case, two years:
- termination of the officer's employment without good cause;
- material reduction in the officer's salary or benefits or a substantial
reduction of the officer's perquisites, such as office space, without his
consent or good business reason;
- significant reduction in the officer's duties, position or
responsibilities without his consent; or
- relocation of the officer's employment by more than 35 miles without his
consent.
The agreements further provide for "gross up" payments to the officers in
the event that they are subject to the tax code's excise tax on so-called
"excess parachute payments."
Our board of directors has approved a plan which provides that in the event
of a change in our control, the options of each of our employees whose
employment is terminated without cause within 24 months of the change in control
will become exercisable in full.
For these purposes, a change in control includes: (1) a person becoming the
beneficial owner of 50% or more of our outstanding voting securities,
(2) certain changes in the composition of our board of directors occurring
within a two-year period or (3) a merger or consolidation in which our
shareholders 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
shareholders, (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. This limitation of
liability does not apply to liabilities arising under the federal securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Our amended and restated bylaws provide that we shall indemnify our
directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our amended and restated bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our amended
and restated 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.
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<PAGE>
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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<PAGE>
CERTAIN TRANSACTIONS
OUR INCORPORATION AND ORGANIZATION
Pursuant to the terms of the stock purchase and transfer agreement between
us and Cell Genesys, we issued 6,766,668 shares of series A senior convertible
preferred stock to Cell Genesys in exchange for $10 million, and we issued
8,233,332 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 us, 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 $15,000 per month. Cell Genesys also assigned us two notes
receivable totaling $150,000.
On July 15, 1996, we, 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 2,666,668 shares of series A preferred stock at
a conversion price of $1.50 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 15,000,000 shares of series A
preferred stock.
Simultaneously with the execution of the stock purchase and transfer
agreement, we entered into a governance agreement, tax sharing agreement,
services agreement and patent assignment agreement with Cell Genesys. In
addition, we entered into an immunization services agreement, gene therapy
agreement, and voting agreement with Cell Genesys. The immunization services
agreement, gene therapy agreement, and voting agreement were superseded by the
gene therapy rights agreement.
The governance agreement with Cell Genesys provided that so long as Cell
Genesys or a group to which it belongs owned a specific percentage of our
outstanding voting stock, Cell Genesys or the group had 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>
<S> <C>
<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 provided that Cell Genesys and each of our
officers and directors who owns voting stock agreed to vote for the persons
nominated as set forth above.
The tax sharing agreement provided for the allocation of federal and state
tax liabilities between us and Cell Genesys. Pursuant to the terms of the
agreement, we would have paid 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 had realized a loss or credit that reduced the
consolidated tax liability of Cell Genesys, then Cell Genesys would have paid us
the amount of the reduction. The agreement remained in effect with respect to
any taxable year for which consolidated or combined returns were filed by Cell
Genesys as a common parent corporation and we were an includable party in such
consolidated return. As of September 30, 2000, Cell Genesys' ownership of our
outstanding capital stock was 11.89%. Therefore, a consolidated tax return will
not be filed for 2000.
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, 1999 or 2000, and Cell Genesys
no longer provides services under this agreement.
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<PAGE>
Pursuant to the terms of the patent assignment agreement, Cell Genesys
assigned us all of its rights in and to certain patents and patent applications
related to antibody development.
OTHER TRANSACTIONS WITH CELL GENESYS
On January 23, 1997 and March 27, 1997, we issued two warrants to purchase
an aggregate of 486,668 shares of series A preferred stock (convertible into
486,668 shares of common stock) to Cell Genesys at the exercise price per share
of $1.50 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. These warrants were exercised in January 2000.
In October 1997, Cell Genesys extended a short-term, convertible line of
credit facility to us. The credit facility terminated in accordance with its
terms, without our drawing upon the credit facility, upon the closing of the
series B preferred stock financing in December 1997.
In November 1998, Cell Genesys sold 4,585,200 shares of our common stock to
certain individuals and entities in a private placement. Pursuant to that sale,
we agreed to register the shares under the Securities Act for resale to the
public. On January 15, 1999, we filed a registration statement with the
Securities and Exchange Commission for the public resale of the shares. Under
the registration rights agreement, we must use reasonable efforts to keep that
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 shareholders have sold all shares offered under that registration
statement.
In November 2000, Cell Genesys participated in the private placement of our
common stock as a selling shareholder. Cell Genesys sold 750,000 shares of our
common stock it owned to the investors listed in the "Selling Shareholders"
section of this prospectus.
XENOTECH TRANSACTION
In December 1999, we paid $47.0 million to purchase Japan Tobacco's interest
in the Xenotech joint venture, and an additional $10.0 million for its
relinquishment of certain options and other rights under our collaboration
agreement with Japan Tobacco. Additionally, Japan Tobacco paid us $6.0 million
to acquire a license under additional technology, and $4.0 million to acquire a
research license and options to acquire commercialization rights under the
XenoMouse technology on a more limited basis than it did under our prior
collaboration with Japan Tobacco.
ROBERTSON STEPHENS INC. RELATIONSHIP
M. Kathleen Behrens, Ph.D., one of our directors, is also a managing
director of Robertson Stephens Investment Management Co., which was formerly
affiliated with Robertson Stephens Inc. Robertson Stephens Inc. acted as one of
our placement agents in the series B preferred stock financing in
December 1997. 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 Robertson Stephens Inc. purchased, in the aggregate, 3,138,464 shares of
the series B preferred stock for an aggregate purchase price of approximately
$5.1 million. Robertson Stephens Inc. acted as the managing underwriter for our
initial public offering in July 1998 and together with the other underwriters
received approximately $1.6 million in discounts and commissions in connection
with its services as the managing underwriter. In connection with Cell Genesys'
sale of shares of our common stock to certain individuals and entities,
Robertson Stephens Inc. received approximately $475,000 in fees in connection
with its services as placement agent. Robertson Stephens Inc. acted as the
managing underwriter for our public offering in March 1999 and together with the
other underwriters received approximately $2.7 million in underwriting discounts
and commissions in connection with its services as the managing underwriter.
Robertson Stephens Inc. acted as the managing underwriter for our public
offering in February 2000
67
<PAGE>
and, together with the other underwriters, received approximately $32.6 million
in underwriting discounts and commissions in connection with its services as the
managing underwriter. In the private placement of our common stock in November
2000, Robertson Stephens Inc. acted as the sole placement agent and received
approximately $8.93 million in placement agency fees.
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 SHAREHOLDER SERIES A SERIES B
--------------------- ---------- ---------
<S> <C> <C>
Cell Genesys(1)....................................... 18,153,336 --
Robertson Stephens Investment Management Co.
Entities(2)......................................... -- 3,076,924
Stephen A. Sherwin, M.D.(3)........................... 18,153,336 --
M. Kathleen Behrens, Ph.D.(4)......................... -- 3,138,464
Raju Kucherlapati, Ph.D.(5)........................... 18,153,336 40,000
Joseph E. Maroun(6)................................... 18,153,336 615,384
</TABLE>
------------------------
(1) Includes 486,668 shares issuable pursuant to warrants to purchase series A
preferred stock.
(2) Includes 225,120 shares held by Bayview Investors, LTD, 896,580 shares held
by Crossover Fund II, L.P., 270,652 shares held by Crossover Fund IIA, L.P.,
1,336,316 shares held by Omega Ventures II, L.P., 348,256 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 17,666,668 shares held by Cell Genesys and 486,668 shares issuable
pursuant to warrants to purchase series A preferred stock, collectively, the
"Cell Genesys Owned Shares." Dr. Sherwin is an officer, director and
beneficial shareholder 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 was a director and
beneficial shareholder of Cell Genesys. As such, he might have been deemed
to have voting power over the Cell Genesys Owned Shares. However,
Dr. Kucherlapati disclaimed 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 was a director and
beneficial shareholder of Cell Genesys. As such, he might have been deemed
to have voting and dispositive power over the Cell Genesys Owned Shares.
However, Mr. Maroun disclaimed beneficial ownership of the Cell Genesys
Owned Shares except to the extent of his pro rata pecuniary interest
therein.
OTHER NOTES
Some holders of our common stock are entitled to certain registration
rights.
As of September 30, 2000, Cell Genesys beneficially owns approximately
11.89% of our outstanding capital stock. As a result, Cell Genesys has
significant influence over all matters requiring the approval of our
shareholders.
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<PAGE>
One of our directors, Stephen A. Sherwin, M.D., is also the Chairman of the
Board and Chief Executive Officer of Cell Genesys.
TRANSACTIONS WITH EMPLOYEES
On May 27, 1997, John A. Lipani, M.D. our prior Vice President, Clinical
Development, entered into a relocation loan agreement with us pursuant to which
we loaned $100,000 to Dr. Lipani in exchange for a promissory note secured by a
deed of trust. This loan was repaid in full in 1999. In addition, Dr. Lipani
received a $35,000 loan from us 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 us.
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 us. Mr. Greer repaid the entire loan to us 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 us. As
of September 30, 2000, the outstanding principal balance was $30,000.
On August 26, 1997, Kurt Leutzinger received a $25,000 loan from us 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 us. On February 27, 1998, Mr. Leutzinger
entered into a relocation loan agreement with us pursuant to which we 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
September 30, 2000, the outstanding principal balance of the promissory note was
$100,000.
On May 5, 2000, Gisela Schwab entered into a relocation loan agreement with
us pursuant to which we loaned $100,000 to Ms. Schwab in exchange for a
promissory note secured by a deed of trust. No interest accrues on the loan
until May 5, 2005. As of September 30, 2000, the outstanding principal balance
of the promissory note was $100,000.
On October 11, 2000, Gayle Mills entered into a loan agreement with us
pursuant to which we loaned $100,000 to Ms. Mills in exchange for a promissory
note secured by her options to buy our stock. No interest accrues on the loan
until October 11, 2005.
On October 18, 2000, Gregory Landes entered into a relocation loan agreement
with us pursuant to which we loaned $100,000 to Dr. Landes in exchange for a
promissory note secured by a deed of trust. No interest accrues on the loan
until October 18, 2005.
We have entered into indemnification agreements with each of our directors
and executive officers.
All future transactions, including any loans from us to our officers,
directors, principal shareholders 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 shareholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our amended and restated certificate of incorporation, as amended,
authorizes the issuance of up to 220,000,000 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 September 30,
2000, 81,607,172 shares of common stock were issued and outstanding and held by
approximately 195 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. In the event of our liquidation, dissolution or winding up,
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. 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.
As of November 3, 2000, there were two series of preferred stock, one
designated as Series A Participating Preferred Stock and one designated as
Special Voting Shares.
The Series A Participating Preferred Stock has a par value of $0.0001 per
share, and the number of shares constituting such series is 50,000, of which
none is issued and outstanding. The Series A Participating Preferred Stock is
entitled to quarterly dividends payable in cash in an amount per share equal to
1,000 times the aggregate per share amount of all dividends declared on our
common stock. Each share of Series A Participating Preferred Stock is entitled
to 1,000 votes on all matters submitted to a vote of our stockholders. In the
event of our liquidation, dissolution or winding up, the holders of shares of
Series A Participating Preferred Stock are entitled to receive an aggregate
amount per share equal to 1000 times the aggregate amount to be distributed per
share to holders of our common stock plus an amount equal to any accrued and
unpaid dividends on such shares of Series A Participating Preferred Stock. The
shares of Series A Participating Preferred Stock are not redeemable. The
Series A Participating Preferred Stock ranks junior to all other series of our
Preferred Stock as to the payment of dividends and the distribution of assets,
unless the terms of any such other series provide otherwise.
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<PAGE>
The Special Voting Share has a par value of $0.0001 per share, and the
number of shares constituting such series is one, which was issued on
November 3, 2000, to CIBC Mellon Trust Company, as trustee under the Voting,
Exchange and Cash Put Trust AGreement we, ImmGenics, and CIBC Mellon Trust
Company entered into on November 3, 2000. Neither the holder nor, if different,
the owner of the Special Voting Share is entitled to receive any dividends in
its capacity as such. The holder of the Special Voting Share is entitled to vote
on each matter on which holders of our common stock are entitled to vote, and is
entitled to cast on each such matter a number of votes equal to the number of
common stock issuable upon the exchange of the then outstanding non-voting
special shares of ImmGenics. In the event of our voluntary or involuntary
liquidation, dissolution or winding-up, the holder of the Special Voting Share
is entitled to receive out of our assets available for distribution to
stockholders $1.00 before any distribution is made on our common stock but is
otherwise not entitled to any further participation in any distribution of our
assets. The Special Voting Share ranks, with respect to rights on liquidation,
winding up and dissolution, senior to our common stock and junior to any other
class or series of our capital stock. The Special Voting Share is not subject to
redemption except under certain limited circumstances.
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of September 30, 2000, we are obligated to issue 100,000 shares of our
common stock upon the occurrence of certain milestones pursuant to the terms of
a license agreement.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of at least 9,704,136 shares of common stock, 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 us 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 with certain
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 us,
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, provided, among other
limitations, that the proposed aggregate selling price, net of underwriting
discounts and commissions, is at least $500,000. We will bear all registration
expenses (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, the market price for our common stock could be adversely affected. If we
were to initiate a registration and include registrable securities pursuant to
the exercise of piggyback registration rights, the sale of such registrable
securities may have an adverse effect on our ability to raise capital.
In November 1998, Cell Genesys sold 4,585,200 shares of our common stock to
certain individuals and entities. Pursuant to that sale, we agreed to register
the shares under the Securities Act for resale to the public. On January 15,
1999, we filed a registration statement with the Securities and Exchange
Commission for the public resale of the shares. Under the registration rights
agreement, we must use reasonable efforts to keep that 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 shareholders
have sold all shares offered under that registration statement.
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<PAGE>
In January 1999, we sold 1,981,424 shares of common stock to Genentech.
Pursuant to that sale, we agreed to register the shares under the Securities Act
for resale to the public. On July 14, 1999, we filed a registration statement
with the Securities and Exchange Commission for the public resale of the shares.
Under the registration rights agreement, we must use reasonable efforts to keep
that registration statement, or a replacement, continuously effective under the
Securities Act until the earlier of (1) January 27, 2001 or (2) such time as the
selling shareholders have sold all shares offered under that registration
statement.
In November 1999, we entered into a common stock purchase agreement with
certain individuals and entities pursuant to which we sold 7,112,000 shares of
our common stock. Pursuant to that sale, we agreed to register the shares under
the Securities Act for resale to the public. Under the registration agreement,
we must use reasonable efforts to keep that registration statement, or a
replacement, continuously effective under the Securities Act until the earlier
of (1) November 19, 2001 or (2) such time as the selling shareholders have sold
all shares offered under that registration statement.
In November 2000, we consummated a private placement of our common stock,
selling 3,300,000 shares of our common stock to certain institutional investors.
The filing of the registration statement of which this prospectus forms a part
relates to our undertaking to register the shares sold in the November 2000
private placement. We have also undertaken to use our best efforts to keep that
registration statement, or a replacement, continuously effective under the
Securities Act until the earliest of (1) two years after the closing of the
private placement; (2) the date on which a selling shareholder may sell all
shares that were bought in the private placement then held by such selling
shareholder without restriction by the volume limitations of Rule 144(e) under
the Securities Act or (3) such time as all shares purchased by such selling
shareholder in the private placement have been sold pursuant to a registration
statement.
In connection with our acquisition of ImmGenics, non-voting special shares
of ImmGenics were issued to former securityholders of ImmGenics. These
non-voting special shares of ImmGenics are exchangeable into our common stock.
We have undertaken to file a registration statement to register the common stock
issuable upon the exchange of such non-voting special shares.
STOCKHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE
LAW
In June 1999, our board of directors adopted a stockholder rights plan,
which was amended in November 1999. Pursuant to the stockholder rights plan, we
made a dividend distribution of one preferred share purchase right on each
outstanding share of our common stock. Preferred share purchase rights will also
accompany all future common stock issuances during the life of the plan,
including the shares issued in this offering. The purchase rights will trade
together with the common shares until they become exercisable. 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, other than Cell
Genesys or its affiliates, successors or assigns, announces an acquisition of
15% 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% or more of our common stock. In the case of Cell Genesys or its affiliates,
successors or assigns, which beneficially owned approximately 11.89% of our
outstanding common stock as of September 30, 2000, each right will become
exercisable following the tenth day after it announces the acquisition of more
than 25% of our common stock, or announces commencement of a tender offer, the
consummation of which would result in ownership by Cell Genesys or its
affiliates, successors or assigns of more than 25% of our common stock. We will
be entitled to redeem the rights at $0.01 per right at any time on or before the
close of business on the tenth day following acquisition by a person or group of
15% or more (or in the case of Cell Genesys or its affiliates, successors or
assigns, more than 25%) of our common stock.
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<PAGE>
The stockholder rights plan and some 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 us. 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 us 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 us. 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 our control, 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
As of October 31, 2000, we had outstanding 81,744,311 shares of common
stock, including the shares covered by this prospectus. On that date, we also
had outstanding employee stock options to purchase 10,447,368 common shares and
other obligations to issue up to 100,000 common shares, including the shares
issuable in connection with our recent acquisition of ImmGenics. All of our
currently outstanding shares and, we expect that upon issuance, all of these
other shares, may be immediately resold by their holders, either pursuant to
Rule 144 under the Securities Act or pursuant to registration statements we have
filed under the Securities Act, some of which have not yet been declared
effective as of the date of this prospectus.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 30, 2000 by (1) each
person, or group of affiliated persons, who is known by us to own beneficially
more than 5% of our common stock, (2) each of our directors, (3) each of our
executive officers and (4) all of our directors and executive officers as a
group. Except as otherwise noted, the persons or entities in this table have
sole voting and investing power with respect to all the shares of our common
stock owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------
NUMBER OF SHARES PERCENT OF TOTAL
---------------- ----------------
<S> <C> <C>
BENEFICIAL OWNER
Cell Genesys ............................................... 9,704,136 11.89%
342 Lakeside Drive
Foster City, CA 94404
Janus Capital Corporation (2) .............................. 9,604,780 11.77
100 Fillmore Street
Denver, CO 80206-4923
FMR Corp. (3) .............................................. 5,838,400 7.15
82 Devonshire Street
Boston, MA 02109
Joseph E. Maroun (4)........................................ 827,842 1.01
Stephen A. Sherwin, M.D. (5)................................ 10,089,676 12.31
Raju S. Kucherlapati, Ph.D. (6)............................. 316,791 *
M. Kathleen Behrens, Ph.D. (7).............................. 260,251 *
R. Scott Greer (8).......................................... 732,173 *
C. Geoffrey Davis, Ph.D. (9)................................ 203,408 *
Raymond M. Withy, Ph.D. (10)................................ 217,390 *
Kurt W. Leutzinger (11)..................................... 174,654 *
Gisela M. Schwab............................................ 103,368 *
Mark B. Logan (12).......................................... 237,133 *
All directors and executive officers as a group (15 persons) 13,162,686 15.69
(13)......................................................
</TABLE>
------------------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedule 13G filed with the Securities and
Exchange Commission. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 81,607,172 shares outstanding on September 30,
2000.
(2) In a filing on Schedule 13G, dated April 10, 2000, Janus Capital
Corporation, a registered investment advisor, reported that it is the
beneficial owner of 9,604,780 shares as a result of acting as investment
advisor to various managed portfolios.
(3) In a filing on Schedule 13G, dated February 11, 2000, Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and a
registered investment adviser reported that it is the beneficial owner of
5,758,000 shares as a result of acting as investment adviser to various
registered investment companies (the "Funds"). The ownership of one Fund,
Fidelity Growth Company Fund, amounted to 4,730,400 shares. Edward C.
Johnson 3d, Chairman of FMR Corp., and FMR Corp., through its control of
Fidelity, and the Funds each has sole power to dispose of the 5,758,000
shares owned by the Funds. Neither FMR Corp. nor Edward C. Johnson
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<PAGE>
3d has the sole power to vote or direct the voting of the shares owned
directly by the Funds, which power resides with the Funds' Boards of
Trustees. Fidelity carries out the voting of the shares under written
guidelines established by the Funds' Boards of Trustees. Fidelity Management
Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank, is the
beneficial owner of 44,400 shares as a result of its service as investment
manager to certain institutional accounts. Edward C. Johnson 3d and FMR
Corp., through its control of Fidelity Management Trust Company, each has
sole dispositive power over 44,400 shares and sole power to vote or to
direct the voting of 44,400 shares owned by such institutional accounts.
Fidelity International Limited and various foreign-based subsidiaries
provide investment advisory and management services to a number of non-U.S.
investment companies and certain institutional accounts. Fidelity
International Limited is the beneficial owner of 36,000 shares.
(4) Includes 218,458 shares issuable upon exercise of options exercisable within
60 days of September 30, 2000.
(5) Includes the 9,704,136 shares beneficially owned by Cell Genesys (the "CG
Shares"). Also includes 385,540 shares issuable upon exercise of options
exercisable within 60 days of September 30, 2000. Dr. Sherwin is an officer,
director and beneficial stockholder of Cell Genesys. As such, he may be
deemed to have voting and dispositive power over the CG Shares. However,
Dr. Sherwin disclaims beneficial ownership of the CG Shares except to the
extent of his pro rata pecuniary interest therein based upon his beneficial
ownership of the capital stock of Cell Genesys.
(6) Includes 276,791 shares issuable upon exercise of options exercisable within
60 days of September 30, 2000.
(7) Includes 147,500 shares issuable upon exercise of options exercisable within
60 days of September 30, 2000.
(8) Includes 608,315 shares issuable upon exercise of options exercisable within
60 days of September 30, 2000.
(9) Includes 191,408 shares issuable upon exercise of options exercisable within
60 days of September 30, 2000.
(10) Includes 113,826 shares issuable upon exercise of options exercisable
within 60 days of September 30, 2000.
(11) Includes 152,512 shares issuable upon exercise of options exercisable
within 60 days of September 30, 2000.
(12) Includes 104,333 shares issuable upon exercise of options exercisable
within 60 days of September 30, 2000.
(13) Includes 2,298,683 shares issuable upon exercise of options exercisable
within 60 days of September 30, 2000.
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<PAGE>
SELLING SHAREHOLDERS
All 4,050,000 shares of our common stock covered by this prospectus were
sold to certain selling shareholders (or their assignees) in a private placement
completed on November 6, 2000 pursuant to an exemption from registration
contained in Regulation D promulgated under Section 4(2) of the Securities Act.
Of the 4,050,000 shares sold, 3,300,000 were newly issued and sold by us and
750,000 were sold by Cell Genesys.
The following table sets forth certain information with respect to the
beneficial ownership of shares of our common stock by the selling shareholders
as of November 6, 2000 and the number of shares which may be offered pursuant to
this prospectus for the account of each of the selling shareholders (or their
transferees) from time to time. Except as described in the footnotes to the
table, to the best of our knowledge, none of the selling shareholders has had
any position, office or other material relationship with us or any of our
affiliates.
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM PERCENTAGE OF
SHARES NUMBER OF NUMBER OF SHARES SHARES
BENEFICIALLY SHARES WHICH BENEFICIALLY OWNED BENEFICIALLY
OWNED PRIOR MAY BE SOLD IN AFTER THE OWNED AFTER
SELLING SHAREHOLDER TO OFFERING THIS OFFERING OFFERING(1) THE OFFERING(1)
------------------- ------------ -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Lobstercrew & Co...................... 155,000 40,000 115,000 *
Delaware Pooled Trust, on behalf of
its Mid-Cap Growth Equity
Portfolio........................... 644 644 0 *
Delaware Group Premium Fund, on behalf
of its Growth Opportunities
Series.............................. 24,850 24,850 0 *
Delaware Group Equity Fund IV, on
behalf of its Delaware Growth
Opportunities Fund.................. 114,506 114,506 0 *
Sher Co............................... 1,607,700 250,000 1,357,700 2
Alliance Health Care Fund............. 34,000 34,000 0 *
Alliance Select Investor Series
Biotechnology....................... 272,000 272,000 0 *
ACM International Healthcare.......... 34,000 34,000 0 *
Oppenheimer Enterprise Fund........... 100,000 100,000 0 *
Waterbath & Co........................ 70,000 70,000 0 *
MFS SERIES TRUST X, on behalf of MFS
New Endeavor Fund(2)................ 55 55 0 *
MFS SERIES TRUST I, on behalf of MFS
New Discovery Fund(2)............... 132,205 132,205 0 *
MFS VARIABLE INSURANCE TRUST, on
behalf of MFS New Discovery
Series(2)........................... 13,500 13,500 0 *
MFS/SUN LIFE SERIES TRUST, on behalf
of MFS New Discoveries Series(2).... 18,100 18,100 0 *
MFS/SUN LIFE SERIES TRUST, on behalf
of MFS/Sun Life Emerging Growth
Series(2)........................... 42,800 29,200 13,600 *
MFS EQUITY I-A, L.P.(2)............... 310 310 0 *
MFS EQUITY I, L.P.(2)................. 1,800 1,800 0 *
MFS EQUITY I, Ltd.(2)................. 1,630 1,630 0 *
MFS MERIDIAN VERTEX LONG/ SHORT
FUND(2)............................. 18,600 18,600 0 *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM PERCENTAGE OF
SHARES NUMBER OF NUMBER OF SHARES SHARES
BENEFICIALLY SHARES WHICH BENEFICIALLY OWNED BENEFICIALLY
OWNED PRIOR MAY BE SOLD IN AFTER THE OWNED AFTER
SELLING SHAREHOLDER TO OFFERING THIS OFFERING OFFERING(1) THE OFFERING(1)
------------------- ------------ -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
MFS SERIES TRUST II, on behalf of MFS
Emerging Growth Fund(2)............. 186,300 186,300 0 *
MFS VARIABLE INSURANCE TRUST, on
behalf of MFS Emerging Growth
Series(2)........................... 48,300 48,300 0 *
Bay Star Capital, LP.................. 122,222 122,222 0 *
Bay Star International, LTD........... 27,778 27,778 0 *
DCF Partners L.P...................... 25,000 25,000 0 *
Van Wagoner Funds..................... 120,000 120,000 0 *
Mainstay Institutional Growth Fund.... 100,000 100,000 0 *
Mainstay Total Return Fund............ 100,000 100,000 0 *
Evergreen Small Company Growth Fund... 43,707 43,707 0 *
Evergreen Health Care Fund............ 6,293 6,293 0 *
TaiB BioMed Fund...................... 500 500 0 *
Merlin BioMed, L.P.................... 14,000 14,000 0 *
Merlin BioMed II, L.P................. 1,500 1,500 0 *
Merlin BioMed, Int'l LTD.............. 24,000 24,000 0 *
Barnett & Co.......................... 177,000 177,000 0 *
The Paisley Pacific Fund.............. 22,500 22,500 0 *
The Paisley Fund, L.P................. 7,500 7,500 0 *
RS Pacific Partners ONSHORE LP........ 200 200 0 *
RS Emerging Growth Pacific Partners... 7,800 7,800 0 *
Harbour Holdings LTD.................. 62,000 62,000 0 *
Strong Quest Limited Partnership...... 12,000 12,000 0 *
Strong Special Investment Limited
Partnership......................... 77,300 77,300 0 *
Strong Discovery Fund, Strong
Discovery Fund, Inc................. 15,700 15,700 0 *
Strong Discovery Fund II, a series of
Strong Variable Insurance Funds,
Inc................................. 13,000 13,000 0 *
Strong Enterprise Fund, a series of
Strong Equity Funds, Inc............ 50,000 50,000 0 *
Sealion & Co.......................... 995,460 437,000 558,460 1
Pirate Ship & Co...................... 422,700 184,700 238,000 *
Above anchor & Co..................... 134,140 59,100 75,040 *
Cudd & Co............................. 251,500 110,900 140,600 *
Covegrass & Co........................ 140,000 61,500 78,500 *
Canal Reef & Co....................... 336,200 146,800 189,400 *
Chelsey Capital....................... 190,000 190,000 0 *
Les Fils Dreyfus & CIE SA,
Banquiers........................... 15,000 15,000 0 *
Crosslink Crossover Fund II, L.P...... 5,000 5,000 0 *
Offshore Crosslink Crossover Fund
III................................. 14,000 14,000 0 *
Crosslink Crossover Fund III, L.P..... 76,000 76,000 0 *
Delta Growth Fund, L.P................ 5,000 5,000 0 *
Crosslink Partners Fund, L.P.......... 20,000 20,000 0 *
JP Morgan Investment Management....... 1,556,288 250,000 1,306,288 2
Lombard Odier & Cie................... 40,000 40,000 0 *
RS Emerging Growth Partners LP........ 5,600 5,600 0 *
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM PERCENTAGE OF
SHARES NUMBER OF NUMBER OF SHARES SHARES
BENEFICIALLY SHARES WHICH BENEFICIALLY OWNED BENEFICIALLY
OWNED PRIOR MAY BE SOLD IN AFTER THE OWNED AFTER
SELLING SHAREHOLDER TO OFFERING THIS OFFERING OFFERING(1) THE OFFERING(1)
------------------- ------------ -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
RS Premium Partners LP................ 9,400 9,400 0 *
</TABLE>
------------------------
* less than one percent.
(1) Assumes that each selling shareholder will sell all shares of common stock
offered pursuant to this prospectus, but not any other shares of common
stock beneficially owned by such shareholder.
(2) The selling shareholder has appointed Massachusetts Financial Services
Company (MFS) as its investment adviser with respect to the shares. As
investment adviser, MFS has been given discretionary voting and dispositive
control over the shares. As of November 10, 2000, MFS, acting in its
capacity as investment adviser and not for its own account, also exercised
voting and dispositive control over 7,365,515 shares of our common stock on
behalf of all of its client accounts. This number does not include the
450,000 shares of our common stock purchased in the private placement in
November 2000 to which this prospectus relates.
78
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders may sell the shares from time to time. The selling
shareholders will act independently of us in making decisions regarding the
timing, manner and size of each sale. The sales may be made on one or more
exchanges or in the over-the-counter market or otherwise, at prices and at terms
then prevailing or at prices related to the then current market price, or in
privately negotiated transactions. The selling shareholders may effect these
transactions by selling the shares to or through broker-dealers. The selling
shareholders may sell their shares in one or more of, or a combination of:
- a block trade in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by a broker-dealer
for their account under this prospectus;
- an exchange distribution in accordance with the rules of an exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution.
From time to time, a selling shareholder may transfer, pledge, donate or
assign our shares of common stock to lenders or others and each of such persons
will be deemed to be a "selling shareholder" for purposes of this prospectus.
The number of shares of common stock beneficially owned by the selling
shareholder will decrease as and when it takes such actions. The plan of
distribution for the selling shareholders' shares of common stock sold under
this prospectus will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be selling shareholders hereunder.
The selling shareholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with selling shareholders. The
selling shareholders also may sell shares short and redeliver the shares to
close out short positions. The selling shareholders may enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer the shares under this prospectus. The selling shareholders also may
loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
loaned shares, or upon a default the broker-dealer may sell the pledged shares
under this prospectus.
In effecting sales, broker-dealers engaged by the selling shareholders may
arrange for other broker-dealers to participate in the resales. Broker-dealers
or agents may receive compensation in the form of commissions, discounts or
concessions from selling shareholders. Broker-dealers or agents may also receive
compensation from the purchasers of the shares for whom they act as agents or to
whom they sell as principals, or both. Compensation as to a particular
broker-dealer might be in excess of customary commissions and will be in amounts
to be negotiated in connection with the sale. Broker-dealers or agents and any
other participating broker-dealers or the selling shareholders may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, in
connection with sales of the shares. Accordingly, any commission, discount or
concession received by them and any profit on the resale of the shares purchased
by them may be deemed to be underwriting discounts or commissions under the
Securities Act. Because selling shareholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the selling
shareholders will be subject to the prospectus delivery requirements of the
Securities Act.
79
<PAGE>
In addition, any securities covered by this prospectus that qualify for sale
under Rule 144 promulgated under the Securities Act may be sold under Rule 144
rather than under this prospectus. There is no underwriter or coordinating
broker acting in connection with the proposed sale of shares by the selling
shareholders. The shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in some states the shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
80
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
A registration statement on Form S-1, including amendments thereto, relating
to the common stock offered by this prospectus has been filed by us with the
Securities and Exchange Commission. This prospectus, which constitutes a part of
the Registration Statement, 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 us and the common stock offered by this prospectus,
reference is made to the registration statement, exhibits and schedules. A copy
of the registration statement may be inspected by anyone without charge at the
public reference facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, NW, Judiciary Plaza, Washington, D.C. 20549, and copies of
all or any part thereof may be obtained from the Securities and Exchange
Commission upon payment of certain fees. The public may obtain information on
the operation of the public reference room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information filed electronically with it. The address of
the site is http://www.sec.gov.
LEGAL MATTERS
O'Melveny & Myers LLP, San Francisco, California will pass upon legal
matters for us regarding the validity of the securities intended to be sold
pursuant to this prospectus.
EXPERTS
Our financial statements at December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, appearing in this prospectus
and the registration statement of which this prospectus forms a part 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 ImmGenics Pharmaceuticals Inc. at August 31,
2000 and 1999, and for each of the three years in the period ended August 31,
2000, appearing in this prospectus and the registration statement of which this
prospectus forms a part 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.
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Abgenix, Inc., Audited Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Changes in Redeemable
Convertible Preferred Stock and Stockholders' Equity
(Net Capital Deficiency)................................ F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
Abgenix, Inc., Unaudited Condensed Consolidated Financial
Statements
Condensed Consolidated Balance Sheets..................... F-23
Condensed Consolidated Statements of Operations........... F-24
Condensed Consolidated Statements of Cash Flows........... F-25
Notes to Unaudited Condensed Consolidated Financial
Statements.............................................. F-26
ImmGenics Pharmaceuticals Inc., Audited Financial Statements
Auditors' Report.......................................... F-32
Balance Sheets............................................ F-33
Statements of Loss and Deficit............................ F-34
Statements of Cash Flows.................................. F-35
Notes to Financial Statements............................. F-36
Abgenix, Inc., Unaudited Pro Forma Condensed Combined
Financial Statements
Balance Sheet............................................. F-50
Statements of Operations:
For the year ended December 31, 1999.................... F-51
For the nine months ended September 30, 2000............ F-52
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.............................................. F-53
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Abgenix, Inc.
We have audited the accompanying consolidated balance sheets of Abgenix,
Inc. as of December 31, 1999 and 1998, and the related consolidated 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, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Abgenix, Inc.
at December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 28, 2000, except for the last
paragraph of Note 1, as to
which the date is July 7, 2000
F-2
<PAGE>
ABGENIX, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 13,366 $ 1,415
Marketable securities..................................... 44,646 15,329
Accounts receivable....................................... 4,150 908
Prepaid expenses and other current assets................. 4,861 530
-------- --------
Total current assets.................................... 67,023 18,182
Property and equipment, net................................. 5,300 5,435
Long-term investment........................................ 29,225 --
Intangible assets, net...................................... 46,591 --
Deposits and other assets................................... 402 603
-------- --------
$148,541 $ 24,220
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,705 $ 439
Deferred revenue.......................................... 3,767 425
Accrued product development costs......................... 1,667 1,225
Accrued employee benefits................................. 1,287 259
Other accrued liabilities................................. 725 1,034
Current portion of long-term debt......................... 1,759 1,699
-------- --------
Total current liabilities............................... 10,910 5,081
Deferred rent............................................... 150 --
Long-term debt.............................................. 421 2,180
Commitments
Stockholders' equity:
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; none issued and outstanding at December 31,
1999 and 1998, respectively............................. -- --
Common stock, $0.0001 par value; 220,000,000 shares
authorized, 68,669,092 and 44,481,172 shares issued and
outstanding at December 31, 1999 and 1998, respectively,
at amount paid in....................................... 181,263 55,842
Additional paid-in capital................................ 32,254 31,588
Deferred compensation..................................... (670) (1,170)
Accumulated other comprehensive income.................... 14,013 --
Accumulated deficit....................................... (89,800) (69,301)
-------- --------
Total stockholders' equity.............................. 137,060 16,959
-------- --------
$148,541 $ 24,220
======== ========
</TABLE>
See Accompanying Notes
F-3
<PAGE>
ABGENIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Contract revenue.......................................... $ 12,285 $ 2,498 $ 611
Revenue under collaborative agreements from related
parties................................................. -- 1,344 1,343
-------- -------- --------
Total revenues.......................................... 12,285 3,842 1,954
Operating expenses:
Research and development.................................. 21,106 17,588 11,405
General and administrative................................ 5,164 3,405 3,525
Charge for cross-license and settlement amount allocated
from Cell Genesys....................................... -- -- 11,250
Equity in (income) losses from the Xenotech joint venture
(charge for cross-license settlement in 1997)........... (546) 107 11,250
Non-recurring termination fee............................. 8,667 -- --
-------- -------- --------
Total operating expenses................................ 34,391 21,100 37,430
-------- -------- --------
Operating loss............................................ (22,106) (17,258) (35,476)
Other income and expenses:
Interest income........................................... (3,045) (961) (307)
Interest expense.......................................... 438 530 711
-------- -------- --------
Loss before income tax...................................... (19,499) (16,827) (35,880)
Foreign income tax expense................................ 1,000 -- --
-------- -------- --------
Net loss.................................................... $(20,499) $(16,827) $(35,880)
======== ======== ========
Net loss per share.......................................... $ (0.35) $ (0.75) $(258.17)
======== ======== ========
Shares used in computing net loss per share................. 58,147 22,412 139
======== ======== ========
</TABLE>
See Accompanying Notes
F-4
<PAGE>
ABGENIX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
-------------------------------------------------------------------------------------
TOTAL
REDEEMABLE ACCUMULATED STOCKHOLDERS'
CONVERTIBLE ADDITIONAL OTHER EQUITY (NET
PREFERRED COMMON PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED CAPITAL
STOCK STOCK CAPITAL COMPENSATION INCOME DEFICIT DEFICIENCY)
----------- -------- ---------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... $ 10,150 $ 1 $14,277 $ -- $ -- $(16,594) $ (2,316)
Contributions from Cell
Genesys Inc............. -- -- 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.................. 17,039 -- -- -- -- -- --
Conversion of note payable
to parent into 666,667
shares of series A
redeemable convertible
preferred stock......... 4,000 -- -- -- -- -- --
Issuance of 929,400 shares
of common stock upon
exercise of stock
options and stock
pruchase 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...................... 31,189 351 31,053 (1,248) -- (52,474) (22,318)
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 cost of
$81).................... 2,656 -- -- -- -- -- --
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 -- -- -- -- 35,125
Issuance of 11,500,000
shares of common stock
at $2.00 per share upon
initial public offering
(net of issuance costs
of $2,860).............. -- 20,140 -- -- -- -- 20,140
Issuance of 613,076 shares
of common stock upon
exercise of stock
options................. -- 130 -- -- -- -- 130
Issuance of 56,520 shares
of common stock at $1.70
per share pursuant to
the employee stock
purchase plan........... -- 96 -- -- -- -- 96
Deferred compensation
related to grant of
certain stock 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 31,588 (1,170) -- (69,301) 16,959
Issuance of 12,000,000
shares of common stock
at $3.75 per share (net
of issuance costs of
$664)................... -- 41,636 -- -- -- -- 41,636
Issuance of 1,981,424
shares of common at
$4.04 per share to
Genentech............... -- 8,000 -- -- -- -- 8,000
Issuance of 832,000 shares
of common stock at $3.75
per share (net of
issuance costs of
$20).................... -- 2,913 -- -- -- -- 2,913
Issuance of 7,112,000
shares of common stock
at $10.50 per share (net
of issuance costs of
$117)................... -- 71,073 -- -- -- -- 71,073
Issuance of 2,058,388
shares of common stock
upon exercise of stock
options................. -- 1,463 -- -- -- -- 1,463
Issuance of 194,104 shares
of common stock at $1.73
per share pursuant to
the employee stock
purchase plan........... -- 336 -- -- -- -- 336
Amortization of deferred
compensation............ -- -- -- 500 -- -- 500
Compensation related to
grant of stock options
to consultants.......... -- -- 666 -- -- -- 666
Unrealized gains on
available for sale
securities.............. -- -- -- -- 14,013 -- 14,013
Net loss.................. -- -- -- -- -- (20,499) (20,499)
--------
Comprehensive loss........ -- -- -- -- -- -- (6,486)
-------- -------- ------- ------- ------- -------- --------
Balance at December 31,
1999.................... $ -- $181,263 $32,254 $ (670) $14,013 $(89,800) $137,060
======== ======== ======= ======= ======= ======== ========
</TABLE>
See Accompanying Notes
F-5
<PAGE>
ABGENIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(20,499) $(16,827) $(35,880)
Adjustments to reconcile net loss to net cash used by
operating activities:
Equity in (income) losses of Xenotech (including the
charge for cross-license and settlement in 1997)........ (546) 411 12,147
Depreciation and amortization............................. 1,763 1,715 1,489
Stock options issued to consultants....................... 666 -- --
Charge for cross-license and settlement................... -- -- 11,250
Changes for certain assets and liabilities:
Accounts receivable..................................... (3,242) -- --
Prepaid expenses and other current assets............... (4,337) (888) (392)
Deposits and other assets............................... 100 (166) (78)
Payable to Xenotech for cross-license and settlement
obligation............................................ -- (3,750) --
Accounts payable........................................ 1,266 (199) 426
Deferred revenue........................................ 3,342 425 (376)
Accrued stock issuance costs............................ -- (1,200) 1,200
Accrued product development costs....................... 442 482 743
Accrued employee benefits............................... 1,028 39 (130)
Other accrued liabilities............................... (329) (3) (574)
Deferred rent........................................... 150 -- --
-------- -------- --------
Net cash used in operating activities....................... (20,196) (19,961) (10,175)
-------- -------- --------
INVESTING ACTIVITIES
Purchases of short-term investments......................... (61,598) (24,868) (15,505)
Sales of short-term investments............................. 32,069 20,243 7,783
Capital expenditures........................................ (1,108) (697) (1,075)
Acquistion of Xenotech, net of cash acquired................ (45,938) -- --
Purchase of long-term investment............................ (15,000) -- --
Contributions to Xenotech................................... -- (475) (4,647)
-------- -------- --------
Net cash used in investing activities....................... (91,575) (5,797) (13,444)
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from issuances of common stock................. 125,421 20,366 350
Net proceeds from issuances of redeemable convertible
preferred stock........................................... -- 3,936 17,039
Proceeds from long-term debt................................ -- -- 4,300
Payments on long-term debt.................................. (1,699) (1,746) (643)
-------- -------- --------
Net cash provided by financing activities................... 123,722 22,556 21,046
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 11,951 (3,202) (2,573)
Cash and cash equivalents at the beginning of the year...... 1,415 4,617 7,190
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 13,366 $ 1,415 $ 4,617
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 438 $ 549 $ 632
======== ======== ========
Cash paid during the year for foreign income tax............ $ 1,000 $ -- $ --
======== ======== ========
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
======== ======== ========
Furniture and equipment acquired under capital lease
financing................................................. $ -- $ -- $ 1,968
======== ======== ========
Deferred compensation related to grant of certain stock
options................................................... $ -- $ 520 $ 1,776
======== ======== ========
</TABLE>
See Accompanying Notes
F-6
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRESENTATION
Abgenix, Inc., a Delaware corporation ("Abgenix" or the "Company"), 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, cardiovascular disease, infectious
diseases and cancer. The Company has developed a proprietary technology to
enable the quick generation of 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.
Effective December 31, 1999 the Company acquired Japan Tobacco Inc.'s,
("Japan Tobacco"), interest in the Xenotech joint venture, ("Xenotech"),
increasing the Company's ownership of the joint venture from 50% to 100%.
Accordingly, the accompanying financial statements include the accounts of
Xenotech on a consolidated basis as of December 31, 1999. Intercompany accounts
have been eliminated in consolidation. Prior to the acquisition, Xenotech was
accounted for under the equity method of accounting, accordingly, the Company's
operations include equity in income and losses from Xenotech for the years 1999,
1998 and 1997, (see Note 2).
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 50% ownership in the
equity in the losses of Xenotech of $11,250,000, (see Note 6).
CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM INVESTMENT
Cash equivalents--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Marketable securities--Marketable securities consist of highly liquid
investments with a maturity of greater than three months when purchased. The
Company's marketable securities have been classified as "available-for-sale,"
and carried at market value. Unrealized gains and losses are reported as
accumulated other comprehensive income/loss, which is a separate component of
stockholders' equity. These unrealized gains and losses are considered
temporary.
Long-term investment--In 1999, the Company purchased 418,995 shares of
CuraGen Corporation's common stock at $35.80 per share, for an aggregate
purchase price of $15 million. This investment has been classified as "available
for sale", and is carried at market value. Unrealized gains and losses are
reported as accumulated other comprehensive income, which is a separate
component of stockholders' equity. Unrealized gains and losses are considered
temporary. The Company intends to hold this investment for at least a year and
has, therefore, recorded it as a long-term investment.
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
F-7
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and amortization expense and is combined with accumulated depreciation and
amortization of the Company's owned assets.
INTANGIBLE ASSETS
The intangible assets consist primarily of patents and certain royalty
rights, which were acquired through the acquisition of the Xenotech joint
venture. Beginning in 2000, they will be amortized over their average estimated
useful life of 15 years. No amortization was recorded in 1999.
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 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,
non-creditable license fees, for which no future obligation to perform exists,
are recognized when invoiced.
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.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees and directors using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the
Company does not recognize compensation expense for stock options granted with
exercise prices equal to the fair market value of the underlying common stock.
NET LOSS PER SHARE
In 1997, the Company adopted Financial Accounting Standard No. 128,
"Earnings Per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic
earnings per share is calculated based on the weighted average number of shares
outstanding during the period. Potentially dilutive securities are 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.
F-8
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in calculation of basic and diluted and pro
forma net loss per share follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss..................................... $(20,499) $(16,827) $ (35,880)
======== ======== ==========
Basic and diluted:
Weighted-average shares of common stock
outstanding used in computing basic and
diluted net loss per share............... 58,147 22,412 139
======== ======== ==========
Basic and diluted net loss per share......... $ (0.35) $ (0.75) $ (258.17)
======== ======== ==========
Pro forma:
Shares used in computing basic and diluted
net loss per share (from above).......... 22,412 139
Adjusted to reflect the effect of the
assumed conversion of preferred stock
from the date of issuance................ 17,204 15,432
-------- ----------
Weighted-average shares used in computing
pro forma net loss per share............. 39,616 15,571
======== ==========
Pro forma net loss per share................. $ (0.42) $ (2.30)
======== ==========
</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 8,442,976, 6,947,416 and 6,520,372 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, 1999, 1998 and 1997, respectively.
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 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards 133, or FAS 133, "Accounting for
Derivative Instruments and Hedging Activities". In July 1999 the FASB announced
the delay of the effective date of FAS 133 for one year, to the first quarter of
2001. FAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires companies to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use of the
derivative and whether it
F-9
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
qualifies for hedge accounting under FAS 133. The impact of FAS 133 on our
financial position and results of operations is not expected to be material.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements.
The SAB spells out four basic criteria that must be met before registrants can
record revenue. In addition, the SAB also provides guidance on the disclosures
registrants should make about their revenue recognition policies and the impact
of events and trends on revenue. The SAB states that all registrants are
expected to apply the accounting and disclosures described in it no later than
the fourth fiscal quarter of the fiscal year beginning after December 15, 1999
effective at the beginning of that year. We are currently evaluating the impact
of the application of SAB No. 101 to our financial statements.
RECLASSIFICATIONS
All share and per share amounts have been restated to reflect two-for-one
common stock splits effected on April 6, 2000 and July 7, 2000. The authorized
common shares reflect the increase of common shares from 50,000,000 to
220,000,000, which was approved by shareholders in 2000. Certain prior-year
balances have been reclassified to conform to the current-year presentation.
2. ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO
ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO
On December 20, 1999, the Company executed several agreements with Japan
Tobacco that became effective December 31, 1999, under which the Company
acquired Japan Tobacco's interest in the XenoMouse, a technology for generating
fully human antibody drugs used in treating a wide range of diseases. Under the
agreements, Abgenix paid $47.0 million in cash to Japan Tobacco for its 50%
interest in Xenotech under which the XenoMouse technology was developed. This
acquisition brought the Company's ownership of Xenotech to 100% and was
accounted for under the purchase method of accounting. The purchase price of
$47.2 million, including acquisition costs, was allocated $0.6 million to cash
and $46.6 million to intangibles consisting primarily of the patents for the
XenoMouse technology and the rights to royalties under certain licenses. The
intangible assets will be amortized over 15 years, the estimated average life of
the patents and licenses, using the straight-line method. Because Xenotech was
acquired effective December 31, 1999, and prior to this date was owned 50% by
the Company, operations of Xenotech were recorded on the equity method of
accounting through December 31, 1999, and upon acquisition the Xenotech accounts
were consolidated with the Company.
Under the agreements, the Company made a non-recurring payment of
$10.0 million to Japan Tobacco to terminate rights to the current XenoMouse
technology. Additionally, Japan Tobacco paid $4.0 million to the Company for a
license to use the existing XenoMouse technology on a more limited basis than
previously, and to use future XenoMouse technology in development at Abgenix.
One third of the $4.0 million payment, or $1.3 million, was allocated to the
current XenoMouse technology and was offset against the $10.0 million payment.
The net of these two amounts, $8.7 million, was recorded as a non-recurring
termination fee to the consolidated statements of operations in 1999. The
remainder of the $4.0 million payment, or $2.7 million, was recorded as deferred
revenue and will be recognized as revenue when the future XenoMouse technologies
are delivered. Japan Tobacco will also make royalty payments on any future sales
of antibody products generated using XenoMouse.
F-10
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO (CONTINUED)
Lastly, under the December agreements, the Company granted to Japan Tobacco
a license for certain new technology related to the generation of mouse models
of certain human diseases. In return for this license, Japan Tobacco paid
Abgenix $6.0 million, which was recorded in contract revenue.
In June 1999 the Company entered into a collaboration agreement with Japan
Tobacco, Inc. relating to the clinical development of one of the Company's
products. Under the agreement, Japan Tobacco made payments totaling $2,280,000
to the Company, which was recorded as revenue in 1999.
XENOTECH PRIOR TO THE ACQUISITION
Prior to the acquisition, the Company and a subsidiary of Japan Tobacco
equally owned Xenotech. The Company obtained its interest when Cell Genesys
assigned its rights upon the creation of Abgenix. Research performed by
Xenotech, which was generally outsourced to the Company, was funded through
capital contributions from the partners. Revenues recognized by the Company for
performing the research for Xenotech were $1,344,000 and $1,343,000, for the
years ended December 31, 1998 and 1997, respectively, net of its cash
contributions of $304,000 and $897,000, respectively, to Xenotech related to
this revenue. No revenue was recognized in 1999. The Company acquired options
and product licenses for antigen targets developed from the XenoMouse technology
from Xenotech during these periods as well. The cost of such options and
licenses were expensed as research and development by the Company in the amounts
of $645,000, $453,000 and $172,500 for the years ended December 31, 1999, 1998
and 1997, respectively.
Prior to the acquisition, the Company accounted for its investment in
Xenotech under the equity method and therefore recorded 50% of Xenotech's net
income or losses, up to the Company's investment amount. Details are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Abgenix's share of Xenotech (income) losses......... $(546) $411 $ 12,347
Losses associated with cross-license and
settlement........................................ -- -- (11,250)
Difference due to timing and change in deferred
revenue........................................... -- -- (200)
----- ---- --------
Equity in (income) losses of Xenotech............... $(546) $411 $ 897
===== ==== ========
</TABLE>
PROFORMA UNAUDITED FINANCIAL INFORMATION
The following unaudited pro forma financial information presents the results
of operations of the Company and Xenotech for the years ended December 31, 1999
and 1998 as if the acquisition had been consummated as of the beginning of the
periods presented.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total revenues.......................................... $ 12,680 $ 2,723
Net loss................................................ $(23,047) $(20,344)
Net loss per share...................................... $ (0.40) $ (0.91)
</TABLE>
The pro forma financial information includes the effect of the amortization
of intangible assets acquired, using a 15 year life. The pro forma condensed
financial information is presented for
F-11
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION OF XENOTECH AND TRANSACTIONS WITH JAPAN TOBACCO (CONTINUED)
illustrative purposes only. This information is not necessarily indicative of
the Company's financial position or results of operations for future periods or
the results that actually would have been realized had the acquisition and
certain transactions occurred as of the beginning of the periods presented.
3. COLLABORATION AND LICENSE AGREEMENTS
As of December 31, 1999, the Company had agreements with 15 collaborative
partners covering at least 20 product candidates. These agreements typically
allow the collaborative partner to generate fully human antibodies to one or
more specific antigen targets provided by the collaborative partner. In most
cases, the Company provides the technology to the collaborative partner who then
carries out the research with their specific antigen target. In other cases, the
Company may perform the research with the collaborative partner's antigen
target, for additional compensation. In some cases, the Company has granted
multi-antigen research licenses allowing the partner to incorporate the
Company's technology into early stages of their antibody research. The financial
terms of these agreements may include license fees, milestone payments and
royalties on any future product sales. Contract revenue from two partners
represented 67.4% and 14.7%, respectively, of the Company's revenue in 1999.
As of December 31, 1999, agreements are as follows:
Amgen: In April 1999, the Company entered into a research collaboration,
option and license agreement with Amgen, Inc., to generate fully human
antibodies to an undisclosed antigen target. Under this agreement, Amgen is
paying the Company to perform the immunizations and certain research activities.
AVI BioPharma: In January 1999, the Company entered into a research license
and option agreement with AVI to generate fully human antibodies to an antigen
target for the treatment of various cancers.
BASF: In March 1999, the Company entered into a research collaboration
agreement with BASF Bioresearch Corporation to generate fully human antibodies
to an undisclosed antigen target.
Cell Genesys: In November 1997, the Company entered into the gene therapy
rights agreement with Cell Genesys. Cell Genesys received certain rights to
commercialize products based on antibodies generated with XenoMouse technology
in the field of gene therapy.
Centocor/Johnson and Johnson: In December 1998, the Company entered into a
research collaboration agreement with Centocor to generate fully human
antibodies to an undisclosed antigen target in the cardiovascular field.
Chiron: In December 1999, the Company entered into a research license and
option agreement with Chiron to generate fully human antibodies to an
undisclosed antigen in the field of autoimmune diseases. Under a separate
research collaboration agreement, Chiron may use XenoMouse to generate fully
human antibodies to up to four cancer targets.
CuraGen: In December 1999, the Company entered into a broad collaboration
with CuraGen Corporation to make fully human antibodies to genomics-based
antigen targets. Under the collaboration, CuraGen will supply a large number of
antigen targets to the Company, and the Company will be responsible for
generating fully human antibodies to them. The Company will share responsibility
for evaluation of the antibody product candidates generated. Both CuraGen and
the Company will be able to select antibody product candidates from the pool
generated in the course of the collaboration. The party selecting a product
candidate will pay to the other, for rights to develop
F-12
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COLLABORATION AND LICENSE AGREEMENTS (CONTINUED)
and commercialize such product, license fees, milestone payments and royalty
payments on any eventual product sales.
Genentech: In January 1999, the Company entered into a multi-antigen
research license and option agreement with Genentech. This agreement superceded
two agreements in 1998. Under the new 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,
(including the two from the 1998 superceded agreements), but not more than two
in any one year, over the agreement's six year term. Genentech can renew the
agreement for up to four additional targets over a subsequent three-year period.
Genentech acquired 1,981,424 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.
Human Genome Sciences: In December 1999, the Company entered into a broad
collaboration with Human Genome Sciences, Inc. ("HGS") to generate fully human
antibodies to genomics-based antigen targets. Under the collaboration, HGS has
the right to use XenoMouse technology for research purposes and to take out
options and/or licenses on a pre-set number of antigen targets. The Company also
may collaborate with HGS on a pre-set number of antigen targets to which the
Company will generate fully human antibodies. The companies will then jointly
develop and commercialize these products. The Company is also able to select
antigen targets from the Human Genome Sciences database to make antibodies
against and will have an option to license a pre-set number of such antigen
targets for its in-house development and commercialization. If the Company
enters into a license to Human Genome Science's antigen target the Company would
pay license fees, milestone payments and royalties equivalent to what they pay
the Company for licenses to XenoMouse technology.
Japan Tobacco: In December 1999, the Company entered into a collaboration
with Japan Tobacco allowing it to use XenoMouse for research purposes and to
obtain options and/or product licenses for a limited number of specific antigen
targets each year. This collaboration superceded our prior collaboration
agreement with Japan Tobacco. For each antigen target licensed, the Company
could receive license fees, milestone payments and royalty payments on any
eventual product sales. Japan Tobacco could also pay royalties on any future
product sales relating to several antigen targets it had previously licensed
under the former Xenotech structure.
Millennium: 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. In September 1998, the Company
entered into a second research collaboration agreement with Millennium covering
a second antigen target in the field of inflammation.
Pfizer: In December 1997, the Company 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 the Company to include a second antigen target in
the field of cancer. In November 1999, Pfizer exercised its option to expand its
research collaboration with the Company to include a third antigen target in the
field of cancer. Pfizer is paying the Company to perform the immunizations and
to undertake certain research activities. As
F-13
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COLLABORATION AND LICENSE AGREEMENTS (CONTINUED)
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 the Company on up to three antigen targets. These shares converted into
640,000 shares of common stock upon our initial public offering.
Research Corporation Technologies: In December 1998, the Company entered
into a binding memorandum of understanding for a research collaboration
agreement with RCT to generate fully human antibodies to certain antigen target.
Resultant antibody product candidates could potentially be used in treating
organ transplant rejection and autoimmune disorders.
Schering-Plough: In January 1998, the Company 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 the Company to perform the immunizations and certain
research activities. In September 1999, Schering-Plough exercised its option for
a product license.
U.S. Army: In July 1999, the Company entered into a collaboration with the
U.S. Army to generate fully human antibodies to filoviruses. In October 1999,
the U.S. Army expanded the collaboration to include poxviruses.
4. AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
AMORTIZED UNREALIZED ESTIMATED AMORTIZED UNREALIZED ESTIMATED
COST GAIN/(LOSS) FAIR VALUE COST GAIN/(LOSS) FAIR VALUE
--------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial obligations.......... $22,829 $ (73) $22,756 $ -- $ -- $ --
Commercial paper................ 15,358 10 15,368 5,106 -- 5,106
Obligations of the U.S.
government and its agencies... 17,822 (149) 17,673 11,575 -- 11,575
------- ----- ------- ------- ---------- -------
Total........................... $56,009 $(212) $55,797 $16,681 $ -- $16,681
======= ===== ======= ======= ========== =======
Classified as:
Cash equivalents.............. $11,151 $ 1,352
Marketable securities......... 44,646 15,329
------- -------
$55,797 $16,681
======= =======
</TABLE>
The Company's available for sale marketable securities have the following
maturities at December 31, 1999:
<TABLE>
<S> <C>
Due in one year or less..................................... $45,611
Due after one year but less than five years................. 10,186
-------
$55,797
=======
</TABLE>
There were no significant unrealized gains or losses as of December 31,
1998. The unrealized gains and losses as of December 31, 1999 were reported as
accumulated other comprehensive income, which is a separate component of
stockholders' equity.
F-14
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture, machinery and equipment........................ $ 4,163 $ 3,118
Leasehold improvements.................................... 4,333 4,270
------- -------
8,496 7,388
Less accumulated depreciation and amortization............ (3,196) (1,953)
------- -------
$ 5,300 $ 5,435
======= =======
</TABLE>
Property and equipment financed under capital leases was $1,956,000 at
December 31, 1999, 1998 and 1997. Accumulated amortization for such financed
assets are included in accumulated depreciation and amortization.
6. COMMITMENTS
LOAN AND CAPITAL LEASE
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, 1999 and 1998 was 9.50%
and 8.75% respectively. The loan is secured by substantially all tangible and
intangible assets of the Company.
On March 28, 1997, the Company entered into a lease agreement with a
financing company under which the Company financed approximately $2,000,000 of
its laboratory and office equipment. The lease term is 48 months and bears
interest at rates ranging from 12.5% to 13.0%. The last schedule matures in
September, 2001.
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,
2000............................................ $ 1,258 $ 595 $ 1,853
2001............................................ 105 332 437
------- ----- -------
Total............................................. 1,363 927 2,290
Less amount representing interest and tax......... -- (110) (110)
------- ----- -------
Present value of future payments.................. 1,363 817 2,180
Less current portion.............................. (1,258) (501) (1,759)
------- ----- -------
Noncurrent portion................................ $ 105 $ 316 $ 421
======= ===== =======
</TABLE>
F-15
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS (CONTINUED)
FACILITY LEASE
The Company has an operating lease 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, 1999 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Year ending December 31,
2000...................................................... $ 923
2001...................................................... 955
2002...................................................... 987
2003...................................................... 1,019
Thereafter................................................ 3,341
------
Total lease payments........................................ $7,225
======
</TABLE>
Rent expense, in thousands, was $1,043 and $862 for the years ended
December 31, 1999 and 1998, respectively.
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.
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, 1999 and 1998 the Company has committed approximately
$4,900,000 and $600,000, respectively, 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
In 1997, Cell Genesys, 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. As consideration
for the cross-license and settlement agreement, Cell Genesys issued a note to
GenPharm for $15,000,000 which was paid in full September 30, 1998. 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 in 1997 to satisfy the first milestone and
recorded a payable to GenPharm for the remaining $7,500,000. Xenotech recorded
the total of $15,000,000 as an expense in 1997. These payments satisfied all
obligations under the agreement.
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
F-16
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS (CONTINUED)
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 also recorded an expense of $11,250,000
representing 50% of the Xenotech expense.
As a result of the above, the Company recognized as a non-recurring charge
for cross-license and settlement, a total of $22,500,000 in 1997. The full
amount of the cross-license and settlement costs were expensed, because the
Company determined that the cross-license received by the Company from GenPharm
was non-exclusive and had no alternative future uses for the Company.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
Initial Public Offering--In July 1998, the Company completed an initial
public offering of 10,000,000 shares of its common stock to the public, at a
price of $2.00 per share. On July 27, 1998, the Company's underwriters exercised
an option to purchase 1,500,000 additional shares of common stock at a price of
$2.00 per share to cover over-allotments. The Company received net proceeds from
the offerings of approximately $20.1 million. 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.
Genentech--In January 1999, Genentech acquired 1,981,424 shares of our
common stock for an aggregate purchase price of $8.0 million.
Follow-on Public Offering--On March 4, 1999, the Company completed a
follow-on public offering of 12,000,000 shares of its common stock to the
public, at a price of $3.75 per share. On April 7, 1999 the Company's
underwriters exercised an option to purchase 832,000 additional shares of common
stock at a price of $3.75 per share to cover over-allotments. The Company
received net proceeds from the offerings of approximately $44.5 million.
Private Placement--On November 19, 1999, the Company completed a private
placement of 7,112,000 shares of its common stock to qualified institutional and
other accredited investors at a net price of $10.50 per share The Company
received net proceeds of $71.1 million.
Stockholder 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 approximately 19.6% of our
outstanding common stock as of December 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.
F-17
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
The Board of Directors is authorized to issue up to an aggregate of
5,000,000 shares of preferred stock, at $0.0001 par value per share. At
December 31, 1999, none were issued or outstanding.
WARRANTS
In connection with the loans it guaranteed in 1997, Cell Genesys received
warrants to purchase a total of 486,668 shares of the Company's common stock, at
an exercise price of $1.50 per share. The original terms were such that the
warrants were exercisable immediately and expired in three years. The fair value
of the above warrants was determined at the time to be insignificant for
accounting purposes. These warrants were exercised in January 2000.
8. STOCK OPTION AND BENEFIT PLANS
INCENTIVE STOCK PLANS
The Company has three stock option plans, which allow for the granting of
incentive and non-qualified stock options to employees, outside directors and
consultants of the Company. There are 18,165,000 shares of common stock
authorized for issuance under the plans. The Company grants shares of common
stock for issuance under the plans at no less than the fair value of the stock.
Options granted under the plans generally have a term of ten years and vest over
four years.
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>
Balances at December 31, 1996............ 1,719,608 4,675,624 $ 0.15
Authorized............................... 3,165,000 -- --
Options granted........................ (2,706,576) 2,706,576 $ 0.61
Options exercised...................... -- (929,400) $ 0.38
Options canceled....................... 419,096 (419,096) $ 0.28
---------- ---------- ------
Balances at December 31, 1997............ 2,597,128 6,033,704 $ 0.31
Authorized............................... 2,000,000 -- --
Options granted........................ (1,414,204) 1,414,204 $ 1.71
Options exercised...................... -- (613,072) $ 0.22
Options canceled....................... 266,088 (266,088) $ 0.53
---------- ---------- ------
Balances at December 31, 1998............ 3,449,012 6,568,748 $ 0.61
Authorized............................... 6,600,000 -- --
Options granted........................ (4,111,500) 4,111,500 $ 5.56
Options exercised...................... -- (2,058,388) $ 0.70
Options canceled....................... 665,552 (665,552) $ 1.64
---------- ---------- ------
Balances at December 31, 1999............ 6,603,064 7,956,308 $ 3.06
========== ========== ======
</TABLE>
F-18
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION AND BENEFIT PLANS (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING NUMBER
EXERCISE NUMBER CONTRACTUAL OF OPTIONS
PRICES OF OPTIONS LIFE, IN YEARS EXERCISABLE
------ ---------- ---------------- -----------
<S> <C> <C> <C>
$0.15................................... 2,112,920 6.58 1,520,568
$0.25--$2.13............................ 1,964,832 7.80 840,668
$2.25--$3.75............................ 2,253,844 9.05 557,564
$3.81--$11.00........................... 1,518,712 9.56 74,564
$22.13.................................. 106,000 9.94 0
--------- ------- ---------
7,956,308 8.20 2,993,364
========= ======= =========
</TABLE>
From inception to December 31, 1997, options to purchase a total of
7,446,976 shares of common stock were granted at prices ranging from $0.15 to
$1.25 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 $0.30
to $1.63 per share). In the first quarter of 1998, the Company granted options
to purchase 1,040,700 shares of common stock at $1.50 per share for which
deferred compensation of approximately $520,000 was recorded based on the deemed
fair value of common stock at $2.00 per share. During the second, third and
fourth quarters of 1998, the Company granted an additional 205,504 options to
employees to purchase shares of common stock at prices ranging from $1.25 to
$2.50 per share. No deferred compensation expense was recorded as the options
were granted at the then current market price of the stock on the date of the
grant. The Company amortized $500,000, $598,000 and $520,000 of the deferred
compensation balance during the years ended December 31, 1999, 1998 and 1997
respectively.
Additionally, the Company granted 6,000 and 168,000 options to purchase
shares of common stock in 1999 and 1998, respectively to independent
consultants. The prices of the options ranges from $2.13 to $3.73 per share with
vesting periods ranging from one to two years. Compensation expense of $666,000
and $15,000 was recorded in 1999 and 1998, respectively.
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 1999, 1998 and 1997,
respectively: risk-free interest rate of 6.39%, 4.67%, and 6.46%; no dividend
yield in 1999, 1998 or 1997; volatility factor of 1.03, 0.78, and 0.67; and an
expected life of the option of six years in 1999 and five years in 1998 and
1997. 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 3 to 5 years, the term of the consulting contracts, were 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
F-19
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION AND BENEFIT PLANS (CONTINUED)
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, 1999, 1998 and 1997 were $5.56, $1.71, and $0.75 per share. All
options granted in 1997 and 1996 were granted at exercise prices below the
deemed fair value of the underlying common stock. All options granted in 1999
and 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,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net loss:
As reported............................................... $(20,499) $(16,827)
======== ========
Pro forma................................................. $(24,064) $(17,160)
======== ========
Net loss per share:
As reported............................................... $ (0.35) $ (0.75)
======== ========
Pro forma................................................. $ (0.42) $ (0.77)
======== ========
</TABLE>
STOCK PURCHASE PLAN
The Company's employee stock purchase plan enables eligible employees to
purchase common stock at 85% of the average market price on the first or the
last day of each 24 month offering period, whichever is lower. Employees may
authorize periodic payroll deductions of up to 15% of eligible compensation for
common stock purchases, with certain limitations. The number of shares which may
be issued under the plan is 1,000,000, plus an annual increase equal to the
lesser of 1,000,000, 1% of the Company's outstanding capitalization or a lesser
amount determined by the Board. The maximum shares which can be issued over the
10 year term of the plan is 10,000,000. As of December 31, 1999, 1,345,468
shares have been authorized under the plan and 250,624 shares have been issued.
BENEFIT PLAN
The Company has available a 401(k) retirement plan. Eligible employees may
contribute up to 15% of their compensation. The Company does not match
contributions and therefore no expense has been recorded.
F-20
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS WITH CELL GENESYS
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 $383,000 and $825,000 in 1998
and 1997, respectively. No fees were incurred in 1999. 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.
10. INCOME TAXES
For the year ended December 31, 1999, the Company recorded a tax provision
of $1,000,000 which represents foreign withholding taxes on certain payments
received from Japan Tobacco during the year.
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $61,000,000. The Company also had federal
research and development tax credit carryforwards of approximately $2,500,000.
The net operating loss and credit carryforwards will expire in the years 2011
through 2019, 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, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 20,900 $ 12,900
Research credit carryforwards......................... 2,500 1,500
Capitalized research and development.................. 2,900 1,600
Capitalized license agreements........................ 6,300 6,000
Deferred partnership losses........................... -- 1,600
Other, net............................................ -- 100
-------- --------
Total deferred tax assets............................... 32,600 23,700
Valuation allowance..................................... (32,600) (23,700)
-------- --------
Net deferred tax assets............................. $ -- $ --
======== ========
</TABLE>
F-21
<PAGE>
ABGENIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The net valuation allowance increased by $9,300,000 and $7,000,000 during
the year ended December 31, 1998 and 1997, respectively. Deferred tax assets
relate primarily to net operating loss carryforwards and to the capitalization
of the GenPharm cross-licensing agreement.
11. SUBSEQUENT EVENTS (UNAUDITED)
COMMON STOCK
Follow-on Public Offering: On February 10, 2000, the Company completed a
follow-on public offering of 12,000,000 shares (8,640,000 new shares from the
Company and 3,360,000 existing shares owned by Cell Genesys) of its common stock
to the public, at a price of $52.50 per share. On February 29, 2000, the
Company's underwriters exercised an option to purchase 1,800,000 additional
shares (1,296,000 new shares from the Company and 504,000 existing shares owned
by Cell Genesys) of common stock at a price of $52.50 per share to cover
over-allotments. The Company received proceeds from the offerings of
$496.5 million after the underwriters' discount and estimated costs of offering.
NEW COLLABORATIONS AND LICENSES
Elan: In January 2000, we entered into a research license and option
agreement with Elan to generate fully human antibodies to an undisclosed antigen
in the field of neurological diseases.
Gliatech: In January 2000, we entered into a research collaboration, option
and license agreement with Gliatech to generate fully human antibodies for use
in the fields of cardiovascular and inflammatory diseases. Under this agreement,
Gliatech is paying the Company to perform the immunizations and certain research
activities.
Millennium: In March 2000, we entered into a collaboration agreement under
which Millennium has the right to generate fully human antigens for a pre-set
number of antigens. Upfront payments may be made in cash or common stock of
Millennium.
NEW FACILITY LEASE
In February 2000, the Company signed an operating lease for an additional
100,100 square foot facility, in Fremont, California, to be used primarily for
pilot scale manufacturing. This lease expires in the year 2018, with options to
extend the lease term. The lease requires a deposit or stand-by letter of credit
for $2,000,000 during the term of the lease.
Future minimum payments under this non-cancelable operating lease as of
signing are as follows (in thousands): 2000--$1,121; 2001--$1,961; 2002--$2,030;
2003--$2,101; 2004--$2,174; and thereafter $27,698.
F-22
<PAGE>
ABGENIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
UNAUDITED
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $107,516 $ 13,366
Marketable securities..................................... 437,825 43,543
Interest receivable....................................... 7,482 1,103
Accounts receivable....................................... 1,126 4,150
Prepaid expenses and other current assets................. 9,269 4,861
-------- --------
Total current assets.................................... 563,218 67,023
Property and equipment, net................................. 7,585 5,300
Long-term investments....................................... 71,639 29,225
Intangible assets, net...................................... 44,261 46,591
Deposits and other assets................................... 703 402
-------- --------
$687,406 $148,541
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,603 $ 1,705
Deferred revenue.......................................... 14,405 3,767
Accrued product development costs......................... 233 1,667
Accrued employee benefits................................. 1,524 1,287
Other accrued liabilities................................. 1,418 725
Current portion of long-term debt......................... 447 1,759
-------- --------
Total current liabilities............................... 23,630 10,910
Deferred rent............................................... 406 150
Long-term debt.............................................. -- 421
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value; 5,000,000 shares
authorized, none issued and outstanding
Common stock, $0.0001 par value; 220,000,000 shares
authorized, 81,607,172 and 68,669,092 shares issued and
outstanding at
September 30, 2000 and December 31, 1999, respectively,
at amount paid in....................................... 683,317 181,263
Additional paid-in capital................................ 32,849 32,254
Deferred compensation..................................... (325) (670)
Accumulated other comprehensive income.................... 41,627 14,013
Accumulated deficit....................................... (94,098) (89,800)
-------- --------
Total stockholders' equity.............................. 663,370 137,060
-------- --------
$687,406 $148,541
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE>
ABGENIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue..................................... $ 7,634 $ 3,670 $13,077 $ 5,390
Interest income...................................... 9,213 762 22,334 1,954
------- ------- ------- --------
Total revenues..................................... 16,847 4,432 35,411 7,344
Costs and expenses:
Research and development............................. 12,784 4,493 31,910 14,371
General and administrative........................... 1,762 1,134 5,152 3,428
Amortization of intangible assets.................... 777 -- 2,330 --
Equity in income from the Xenotech joint venture..... -- (18) -- (558)
Interest expense..................................... 17 102 317 347
------- ------- ------- --------
Total costs and expenses........................... 15,340 5,711 39,709 17,588
------- ------- ------- --------
Net income (loss)...................................... $ 1,507 $(1,279) $(4,298) $(10,244)
======= ======= ======= ========
Basic net income (loss) per share...................... $ 0.02 $ (0.02) $ (0.05) $ (0.18)
======= ======= ======= ========
Shares used in computing basic net income (loss) per
share................................................ 81,323 60,092 78,799 56,196
======= ======= ======= ========
Diluted net income (loss) per share.................... $ 0.02 $ (0.02) $ (0.05) $ (0.18)
======= ======= ======= ========
Shares used in computing diluted net income (loss) per
share................................................ 88,611 60,092 78,799 56,196
======= ======= ======= ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
ABGENIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
Operating activities:
Net loss.................................................... $ (4,298) $(10,244)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Equity in income of Xenotech.............................. -- (558)
Depreciation and amortization............................. 3,822 1,257
Stock-based compensation related to stock options issued
to consultants.......................................... 595 638
Changes for certain assets and liabilities:
Interest receivable..................................... (6,379) (430)
Accounts receivable..................................... 3,024 (642)
Prepaid expenses and other current assets............... (4,408) (2,802)
Deposits and other assets............................... (315) 100
Accounts payable........................................ 3,898 273
Deferred revenue........................................ 10,638 (300)
Accrued product development costs....................... (1,434) (299)
Other accrued liabilities............................... 930 445
Deferred rent........................................... 256 --
--------- --------
Net cash provided by (used in) operating activities......... 6,329 (12,562)
--------- --------
Investing activities:
Purchases of marketable securities........................ (803,708) (58,807)
Sales of marketable securities............................ 394,626 22,774
Capital expenditures...................................... (3,418) (424)
--------- --------
Net cash used in investing activities....................... (412,500) (36,457)
--------- --------
Financing activities:
Net proceeds from issuances of common stock............... 502,054 53,123
Payments on long-term debt................................ (1,733) (1,268)
--------- --------
Net cash provided by financing activities................... 500,321 51,855
--------- --------
Net increase in cash and cash equivalents................... 94,150 2,836
Cash and cash equivalents at the beginning of the period.... 13,366 1,415
--------- --------
Cash and cash equivalents at the end of the period.......... $ 107,516 $ 4,251
========= ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. These financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1999 and
accompanying notes included in the Company's Annual Report as filed on Form 10-K
with the Securities and Exchange Commission on March 28, 2000. The results of
operations for the quarter and nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the full year or for
any other future period.
REVENUE RECOGNITION--In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in
Financial Statements ("SAB 101"), which provides guidance on the accounting for
revenue recognition. The Company is currently evaluating the applicability of
SAB 101 to its existing agreements. Should the Company conclude that its
approach is different from the approach described in SAB 101, it will change its
method of accounting. As amended, SAB 101 is required to be implemented no later
than the fourth fiscal quarter of 2000, for companies with fiscal years
beginning between December 16, 1999 and March 15, 2000.
The Company receives payments from customers for licenses, options and
services. These payments are generally non-refundable but are reported as
deferred revenue until they are recognizable as revenue. The Company has
followed the following principles in recognizing revenue:
- Research license fees: Fees to license the use of XenoMouse in research
performed by the customer are generally recognized when both the inception
of the license period and delivery of the technology have occurred. If
Abgenix is obligated to provide significant assistance to enable the
customer to practice the license, then the revenue is recognized over the
period of such obligation.
- Product license fees: Fees to license the production, use and sale of an
antibody generated by XenoMouse are generally recognized when both the
inception of the license period and delivery of the technology have
occurred. If Abgenix is obligated to provide significant assistance to
enable the customer to practice the license, then the revenue is
recognized over the period of such obligation.
- Option fees: Fees for granting options to obtain product licenses are
recognized as revenue when the option is exercised or when the option
period expires, whichever occurs first.
- Payments for research services performed by Abgenix are recognized ratably
over the period during which these services are performed.
- Milestone payments are recognized as revenue when the milestone is
achieved.
F-26
<PAGE>
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
TWO-FOR-ONE STOCK SPLITS--The accompanying financial statements have been
restated to reflect both a two-for-one common stock split effective on April 6,
2000 and a two-for-one common stock split effective on July 7, 2000.
EARNINGS PER SHARE
A reconciliation of the shares used in the computation of the company's
basic and diluted earnings per common share is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding.................. 81,323 60,092 78,799 56,196
Dilutive effect of employee stock options................... 7,288 -- -- --
------ ------ ------ ------
Weighted average common shares outstanding, assuming
dilution.................................................. 88,611 60,092 78,799 56,196
====== ====== ====== ======
</TABLE>
Weighted average common shares outstanding, assuming dilution, includes the
incremental shares that would be issued upon the assumed exercise of stock
options. Certain of the company's stock options were excluded from the
calculation of diluted earnings per share because they were antidilutive, but
these options could be dilutive in the future.
2. MARKETABLE SECURITIES
The following is a summary of marketable securities at September 30, 2000
and December 31, 1999:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000 AS OF DECEMBER 31, 1999
------------------------------------ ------------------------------------
AMORTIZED UNREALIZED ESTIMATED AMORTIZED UNREALIZED ESTIMATED
COST GAIN/(LOSS) FAIR VALUE COST GAIN/(LOSS) FAIR VALUE
--------- ----------- ---------- --------- ----------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial obligations......... $ 32,039 $ (25) $ 32,014 $22,277 $ (73) $22,204
Commercial paper............... 505,760 39 505,799 15,358 10 15,368
Obligations of the U.S.
government and its
agencies..................... 5,999 (26) 5,973 17,271 (149) 17,122
Marketable equity securities... 30,000 41,639 71,639 15,000 14,225 29,225
-------- ------- -------- ------- ------- -------
Total.......................... $573,798 $41,627 $615,425 $69,906 $14,013 $83,919
======== ======= ======== ======= ======= =======
Classified as:
Cash equivalents............. $105,961 $11,151
Marketable securities........ 437,825 43,543
Long-term investments........ 71,639 29,225
-------- -------
$615,425 $83,919
======== =======
</TABLE>
F-27
<PAGE>
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
2. MARKETABLE SECURITIES (CONTINUED)
The Company's available-for-sale debt securities have the following
maturities at September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Due in one year or less..................................... $543,786
Due after one year but less than five years................. --
--------
$543,786
========
</TABLE>
3. COMPREHENSIVE INCOME
Other comprehensive gains/(losses) consist of unrealized gains or losses on
available-for-sale securities. The components of comprehensive income, net of
tax, were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)....................................... $ 1,507 $(1,279) $(4,298) $(10,244)
Increase (decrease) in net unrealized gains on
available-for-sale investments........................ 24,887 (180) 27,614 (180)
------- ------- ------- --------
Comprehensive income (loss)............................. $26,394 $(1,459) $23,316 $(10,424)
======= ======= ======= ========
</TABLE>
4. STOCKHOLDERS' EQUITY AND FOLLOW-ON PUBLIC OFFERING
On February 10, 2000 the Company completed a follow-on public offering in
which the Company sold 8,640,000 shares and Cell Genesys sold 3,360,000 shares
of the Company's common stock to the public at a price of $52.50 per share. On
February 29, 2000 the Company's underwriters exercised their overallotment
option to purchase 1,800,000 additional shares, of which 1,296,000 shares were
sold by the Company and 504,000 shares were sold by Cell Genesys at a price of
$52.50 per share. The Company received net proceeds from the offerings of
approximately $496.5 million after the underwriters' discount and costs of
offering.
In January 2000, Cell Genesys exercised its warrants to purchase 486,668
shares of the Company's stock at an exercise price of $1.50 per share.
On May 3, 2000 the Company's stockholders approved an increase to the
aggregate number of shares of common stock authorized for issuance under the
Company's 1996 Incentive Stock Plan by 1,200,000 shares.
On May 3, 2000 the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of common stock from 50,000,000 to 100,000,000.
On August 23, 2000 the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of common stock from 100,000,000 to 220,000,000.
F-28
<PAGE>
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
5. CUSTOMER AND LICENSE AGREEMENTS
Abbott: In May 2000, the Company entered into a collaboration agreement,
including an option and research license, with Abbott Laboratories to generate
fully human antibodies to disease targets. Under this agreement, Abbott is
required to pay the Company to perform the immunizations and certain research
activities.
Corixa: In March 2000, the Company entered into an agreement to discover and
develop fully human antibodies against selected targets from Corixa
Corporation's library of proprietary autoimmune disease, cancer and infectious
disease antigens.
Elan: In January 2000, the Company entered into a research license and
option agreement with Elan Pharmaceuticals Inc. to generate fully human
antibodies to an undisclosed antigen in the field of neurological diseases.
Gliatech: In January 2000, the Company entered into a research agreement,
option and license agreement with Gliatech Medical Inc. to generate fully human
antibodies for use in the fields of cardiovascular and inflammatory diseases.
Under this agreement, Gliatech is required to pay the Company to perform the
immunizations and certain research activities.
Immunex: In July 2000, the Company entered into a joint development and
commercialization agreement with Immunex Corporation, for ABX-EGF, a fully human
antibody created by the Company and currently in a Phase I clinical trial
involving several tumor types. Under the agreement, Immunex has agreed to make
an initial license fee payment to the Company, and a second license fee payment
upon commencement of Phase II clinical trials of ABX-EGF. Development costs will
be shared equally, as would any potential profits from sales of a targeted
product. Payments totaling $5 million were received in the third quarter of 2000
representing the initial license fee. The Company is recognizing this fee
ratably each month over the period ended December 31, 2001, which is the period
Abgenix is obligated to share in development costs. Accordingly, $0.6 million
was recognized as revenue in the quarter ended September 30, 2000. Additionally,
Abgenix recognized $0.5 million as revenue, which represents development costs
incurred in the third quarter by Abgenix, net of development costs incurred by
Immunex.
Lexicon: In July 2000, the Company entered into a collaborative agreement
with Lexicon Genetics Inc. Under the terms of the agreement, Lexicon agreed to
contribute antigen targets that derive from its proprietary portfolio of
full-length human genes whose functions are defined using Lexicon's knockout
mouse technology. The Company will use its XenoMouse technology to generate
fully human antibodies for each of the targets selected by a joint committee.
Each party will have the right to obtain exclusive commercialization rights,
including sublicensing rights, for an equal number of qualifying antibodies.
Each party will receive milestone payments and royalties on sales of antibody
drugs from the collaboration that are commercialized by the other party.
Millennium: In March 2000, the Company granted Millennium
BioTherapeutics, Inc. a license to use XenoMouse in research performed by
Millennium and several licenses to make, use and sell antibodies generated with
XenoMouse. Payments totaling $10 million were made in the first quarter of 2000
representing a research license fee, product license fees and service fees to
establish the technology at Millennium. The Company is recognizing these fees
ratably each month over the period ended December 31, 2000 during which Abgenix
is obligated to assist in establishing the technology at Millennium, which will
enable Millennium to practice the research license and product licenses.
F-29
<PAGE>
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
5. CUSTOMER AND LICENSE AGREEMENTS (CONTINUED)
Accordingly, $3.0 million was recognized as revenue in the quarter ended
September 30, 2000 and $7.0 million was recognized as revenue in the nine months
ended September 30, 2000. At September 30, 2000, $3.0 million remained in
deferred revenue. The $10 million payment was made in common stock of
Millennium, which was subsequently sold in May 2000 shortly after the shares
were registered. Millennium was obligated to make up the difference, if any,
between the fair value of such stock upon sale and $10 million, and the Company
was obligated to pay, and did pay, the excess of the fair value of such stock
upon sale and $10 million.
SangStat: In August 2000, the Company entered into a joint development and
commercialization agreement with SangStat Medical Corporation for ABX-CBL, an
antibody developed by the Company and currently in a Phase II/III clinical
trial. Under the agreement, SangStat will make an initial license fee payment
and additional milestone payments to Abgenix. Development costs will be shared
equally, as would any potential profits from sales of collaboration products.
Payments totaling $2 million were made in the third quarter of 2000 representing
the initial license fee and reimbursement of prior costs. The Company is
recognizing these fees ratably each month over the period ended January 31,
2001, which is the period Abgenix is obligated to share in development costs.
Accordingly, $0.7 million was recognized as revenue in the quarter ended
September 30, 2000. Additionally, Abgenix recognized $0.5 million as revenue,
which represents development costs incurred in the third quarter by Abgenix net
of development costs incurred by Sangstat, and required to be reimbursed to
Abgenix.
SmithKline Beecham: In May 2000, the Company entered into a collaboration
agreement, including an option and research license with SmithKline Beecham
Pharmaceuticals Inc. to generate fully human antibodies to an undisclosed
antigen.
6. OTHER CONTRACTUAL OBLIGATIONS
In May 2000, the Company entered into an agreement to produce commercial
quantities of its fully human antibody, ABX-IL8, using Genzyme Transgenics
Corporation's manufacturing system. Under the terms of the agreement, in
exchange for fees and milestone payments, Genzyme Transgenics agreed to develop
transgenic goats that express ABX-IL8 in their milk.
In May 2000, the Company entered into an agreement with a contract
manufacturer of its product candidates, to reserve manufacturing capacity by
acquiring an option to negotiate a supply agreement, the terms of which are
generally outlined in the option agreement. The total amount paid for this
agreement was approximately $3.8 million of which $2.3 million was recorded as
an expense in research and development and approximately $1.5 million was
recorded as a deposit because it is creditable to the supply agreement. If a
supply agreement is not entered into, the $3.8 million is generally non-
refundable, except under limited circumstances.
In September 2000, the Company entered into a collaboration with ImmunoGen
providing the Company with access to ImmunoGen's maytansinoid Tumor-Activated
Prodrug technology. ImmunoGen will receive $5.0 million in technology access fee
payments, as well as potential milestone payments, and royalties on net sales of
any resulting products. In addition, Abgenix purchased $15.0 million of
ImmunoGen common stock at $19.00 per share.
F-30
<PAGE>
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
7. FACILITY LEASES AND LETTER OF CREDIT
In February 2000, the Company signed an operating lease for an additional
100,100 square foot facility to be used primarily for offices. In May 2000, the
Company also signed an operating lease for an additional 100,000 square foot
facility to be built and used for pilot scale manufacturing. Both leases expire
in the year 2015, with options to extend the lease terms. The Company issued a
stand-by letter of credit for $2.0 million to the lessor for the lease term, as
a condition to the lease. Future minimum payments under these non-cancelable
operating leases are as follows (in thousands): 2000--$1,121; 2001--$3,986;
2002--$4,802; 2003--$4,969; 2004--$5,138; and thereafter --$65,509.
8. SUBSEQUENT EVENTS
ACQUISITIONS
In November 2000, the Company acquired ImmGenics Inc. in an all-stock
transaction. The transaction will be treated as a purchase and the total
estimated purchase price including estimated acquisition costs was $77.5
million.
In November 2000, the Company acquired Intraimmune Therapies, Inc in a cash
transaction. The transaction will be treated as a purchase and the total
estimated purchase price was $9.0 million.
PRIVATE PLACEMENT
In November 2000, the Company completed a private placement of 3,300,000
shares of its common stock to institutional investors at a price of $70.00 per
share for gross proceeds of $231.0 million. After commissions, the Company
received net proceeds of $221.0 million.
F-31
<PAGE>
AUDITORS' REPORT
To the Directors of
IMMGENICS PHARMACEUTICALS INC.
We have audited the balance sheets of IMMGENICS PHARMACEUTICALS INC. as at
August 31, 2000 and 1999 and the statements of loss and deficit and cash flows
for each of the years in the three year period ended August 31, 2000. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 2000 and 1999
and the results of its operations and its cash flows for each of the years in
the three year period ended August 31, 2000 in accordance with accounting
principles generally accepted in Canada. As required by the Company Act (British
Columbia), we report that, in our opinion, these principles have been applied on
a consistent basis.
/s/ ERNST & YOUNG LLP
Chartered Accountants
Vancouver, Canada,
October 6, 2000.
F-32
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
Incorporated under the laws of British Columbia
BALANCE SHEETS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
AS AT AUGUST 31
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents................................... $ 3,358,790 $ 486,699
Short-term investments...................................... 6,526,357 1,932,627
Accounts receivable......................................... 74,908 33,640
Investment tax credit receivable............................ 1,152,925 680,659
Prepaid expenses............................................ 21,515 16,653
----------- -----------
TOTAL CURRENT ASSETS........................................ 11,134,495 3,150,278
----------- -----------
Capital assets [NOTE 4]..................................... 774,422 682,483
Technology license [NOTE 5]................................. 10,357 26,177
----------- -----------
$11,919,274 $ 3,858,938
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities.................... 796,047 441,417
Convertible debenture, current portion [NOTE 6]............. 709,388 --
----------- -----------
TOTAL CURRENT LIABILITIES................................... 1,505,435 441,417
----------- -----------
Convertible debenture [NOTE 6].............................. -- 579,046
----------- -----------
TOTAL LIABILITIES........................................... 1,505,435 1,020,463
----------- -----------
Commitments [NOTE 9]
SHAREHOLDERS' EQUITY
Share capital [NOTE 7]
Common shares............................................. 2,906,680 1,333,346
Class A preferred shares.................................. 3,706,988 3,704,010
Class B preferred shares.................................. 3,616,353 --
Contributed surplus......................................... 5,442,229 313,264
Deficit..................................................... (5,258,411) (2,512,145)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY.................................. 10,413,839 2,838,475
----------- -----------
$11,919,274 $ 3,858,938
=========== ===========
</TABLE>
See accompanying notes
F-33
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
STATEMENTS OF LOSS AND DEFICIT
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Contract research income............................... $ 153,461 $ 101,366 $ --
Government grants...................................... 36,650 7,200 28,268
Interest income........................................ 256,843 81,135 8,961
----------- ----------- -----------
446,954 189,701 37,229
----------- ----------- -----------
EXPENSES
Research and development [NOTE 12]..................... 1,583,471 817,824 275,569
General and administrative [NOTE 13]................... 1,175,888 593,880 210,064
Other expenses [NOTE 8]................................ 277,369 -- --
Accretion of convertible debt [NOTE 6]................. 156,492 130,410 --
----------- ----------- -----------
3,193,220 1,542,114 485,633
----------- ----------- -----------
LOSS FOR THE YEAR...................................... (2,746,266) (1,352,413) (448,404)
Deficit, beginning of year............................. (2,512,145) (1,159,732) (711,328)
----------- ----------- -----------
DEFICIT, END OF YEAR................................... $(5,258,411) $(2,512,145) $(1,159,732)
=========== =========== ===========
</TABLE>
See accompanying notes
F-34
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
STATEMENTS OF CASH FLOWS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
-------------------------------------
2000 1999 1998
----------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the year....................................... $(2,746,266) $(1,352,413) $(448,404)
Items not involving cash:
Amortization.......................................... 238,764 121,140 11,223
Unrealized foreign exchange gain...................... (26,150) -- --
Accretion of convertible debt......................... 156,492 130,410 --
Net change in non-cash working capital items relating
to operations:
Accounts receivable................................... (41,268) (29,355) (4,285)
Investment tax credit receivable...................... (442,266) (479,538) (13,900)
Prepaid expenses...................................... (4,862) (10,373) 6,278
Accounts payable and accrued liabilities.............. 253,122 225,389 103,084
----------- ----------- ---------
CASH USED IN OPERATING ACTIVITIES....................... (2,612,434) (1,394,740) (346,004)
----------- ----------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets........................... (243,375) (842,032) (4,429)
Funds from (purchase of) short-term investments......... (4,593,730) (1,796,799) 392,913
Other................................................... -- -- (21,682)
----------- ----------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... (4,837,105) (2,638,831) 366,802
----------- ----------- ---------
FINANCING ACTIVITIES
Issuance of Common shares, net of issue costs........... 1,573,334 -- --
Issuance of preferred shares, net of issue costs........ 8,748,296 3,704,010 --
Issuance of convertible debenture....................... -- 761,900 --
----------- ----------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES................... 10,321,630 4,465,910 --
----------- ----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS FOR THE
YEAR.................................................. 2,872,091 432,339 20,798
Cash and cash equivalents, beginning of year............ 486,699 54,360 33,562
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 3,358,790 $ 486,699 $ 54,360
=========== =========== =========
</TABLE>
See accompanying notes
F-35
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
1. DESCRIPTION OF BUSINESS
ImmGenics Pharmaceuticals Inc. (the "Company") was incorporated on June 10,
1993 under the laws of the Province of British Columbia. The Company conducts
research and development relating to methods for the generation of monoclonal
antibodies or proteins.
The Company has devoted a substantial part of its efforts towards raising
capital, research and development of the Company's products. To date the Company
has not earned significant revenue and is considered to be in the development
stage. Accordingly, the Company will require for the foreseeable future, ongoing
capital infusions in order to continue its operations, fund its research and
development activities, and ensure orderly realization of its assets at their
carrying values.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. A reconciliation of amounts presented
in accordance with United States accounting principles is detailed in note 15.
Because a precise determination of many assets and liabilities depends on
future events, the preparation of financial statements necessarily involves the
use of management's estimates and approximations. Actual results could differ
from those estimates. A summary of significant accounting policies are as
follows:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with
an original maturity of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value. Included in
cash and cash equivalents are amounts denominated in U.S. dollars totalling
$1,856,553.
SHORT-TERM INVESTMENTS
Short-term investments, which comprise of U.S. and Canadian money market
funds, corporate bonds and treasury bills with maturities to May 24, 2001 and
average interest rates of 6.2% [1999 - 4.94%] are recorded at the lower of
amortized cost and market. The carrying value of these instruments approximates
their market value. Included in short term investments are investments
denominated in U.S. dollars totalling $3,923,111.
RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed in the year incurred. Development costs are
expensed in the year incurred unless the Company believes a development project
meets generally accepted accounting criteria for deferral and amortization. No
development costs have been deferred to date.
TECHNOLOGY LICENSE
The costs of acquiring technology are capitalized at cost and amortized on a
straight line basis over a period of five years.
F-36
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management reviews the intellectual property for impairment whenever events
or changes in circumstances indicate that full recoverability is questionable.
Management measures any potential impairment by comparing the carrying value to
the undiscounted amounts of expected future cash flows.
CAPITAL ASSETS
Capital assets are recorded at acquisition cost less accumulated
amortization and related investment tax credits. Amortization has been provided
over the estimated useful lives of the assets using the following methods:
<TABLE>
<S> <C>
Computer equipment................... 30% declining balance
Computer software.................... 2 years straight line
Research equipment................... 5 years straight line
Furniture and equipment.............. 20%-30% declining balance
Leasehold improvements............... Term of lease
</TABLE>
FINANCIAL INSTRUMENTS
The fair values of the financial instruments, including cash and cash
equivalents, accounts receivable, investment tax credit receivable, and accounts
payable and accrued liabilities, approximate their carrying values due to their
short term nature. Short-term investments are carried at cost plus accrued
interest, which approximates market values. The fair value of the convertible
debenture has been determined using the discounted cash flows model [note 6].
INVESTMENT TAX CREDITS
The benefits of investment tax credits for scientific research and
development expenditures are recognized in the year the qualifying expenditure
is made providing there is reasonable assurance of recoverability. The
investment tax credit reduces the carrying cost of expenditures and capital
assets related to research and development. As a Canadian controlled private
corporation the Company has been eligible for refundable investment tax credits.
In the event the Company is no longer a Canadian controlled private corporation,
it will qualify for investment tax credits as a reduction of taxes payable.
DEBT AND EQUITY
The Company has chosen to present debt and equity in accordance with their
legal form, in accordance with the provisions for private companies permitted in
CICA Section 3860 "FINANCIAL INSTRUMENTS--DISCLOSURE AND PRESENTATION."
REVENUE RECOGNITION
Contract research income and research related government grants are
non-refundable and recorded as revenue in the year the related research
expenditures are incurred pursuant to the terms of the agreements.
F-37
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Cash and other monetary assets and liabilities representing amounts owing to
or by the Company have been translated into Canadian dollars at the rate of
exchange prevailing at year end. Other assets and liabilities and revenues and
expenses are translated at the rate prevailing when they were acquired or
incurred.
Exchange gains and losses resulting from the translation of foreign currency
transactions are included in the determination of loss for the year, except for
long-term monetary items which are deferred and amortized into income.
FUTURE INCOME TAXES
Future income taxes are recognized for the future income tax consequences
attributable to differences between the carrying values of assets and
liabilities and their respective income tax bases. Future income tax assets and
liabilities are measured using enacted income tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be
recovered or settled. The effect on future income tax assets and liabilities of
a change in rates is included in earnings in the period that includes the
enactment date. Future income tax assets are recorded in the financial
statements if realization is considered more likely than not.
STOCK BASED COMPENSATION
The Company grants stock options to executive officers and directors,
employees and consultants pursuant to a stock option plan described in
note 7(d). No compensation expense is recognized for these plans when Common
shares or stock options are issued. Any consideration received on exercise of
stock options is credited to share capital.
3. CHANGE IN ACCOUNTING PRINCIPLE
Effective September 1, 1999, the Company adopted the new recommendations of
The Canadian Institute of Chartered Accountants with respect to accounting for
income taxes under the liability method. The change has been applied
retroactively and, as permitted the comparative financial statements have not
been restated. The change in accounting policy did not result in any adjustment
in the current year or to opening deficit. Before the adoption of the new
recommendations, income tax expense was determined using the deferral method of
tax allocation.
F-38
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---------- ------------ --------
<S> <C> <C> <C>
AUGUST 31, 2000
Computer equipment......................... $ 90,271 $ 27,086 $ 63,185
Computer software.......................... 8,076 4,170 3,906
Research equipment......................... 756,221 187,544 568,677
Furniture and equipment.................... 181,919 51,700 130,219
Leasehold improvements..................... 70,151 61,716 8,435
---------- -------- --------
$1,106,638 $332,216 $774,422
========== ======== ========
AUGUST 31, 1999
Computer equipment......................... 50,016 8,632 41,384
Computer software.......................... 4,302 1,076 3,226
Research equipment......................... 558,270 55,827 502,443
Furniture and equipment.................... 138,656 17,096 121,560
Leasehold improvements..................... 40,511 26,641 13,870
---------- -------- --------
$ 791,755 $109,272 $682,483
========== ======== ========
</TABLE>
Capital assets are recorded net of investment tax credits recorded during
the year ended August 31, 2000 of $30,000 [1999--$76,387].
5. TECHNOLOGY LICENSE
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Technology license, cost................................ $ 79,098 $ 79,098
Accumulated amortization................................ (68,741) (52,921)
-------- --------
$ 10,357 $ 26,177
======== ========
</TABLE>
6. CONVERTIBLE DEBENTURE
Pursuant to an investment agreement, during the year ended August 31, 1999,
the Company issued a US $500,000 interest free convertible debenture together
with 200,000 warrants entitling the holder to purchase 200,000 Class A preferred
shares at an exercise price of US $0.01 per share. During the year ended
August 31, 2000, the repayment terms of the debenture were amended by the
inclusion of an additional event requiring repayment [see (iii) below]. The
debenture is repayable at the earliest of (i) November 4, 2000 (ii) the date the
Company completes an Initial Public Offering of its Common shares or (iii) the
date the Company completes a merger, amalgamation, arrangement, compromise, or
takeover bid, (the "Expiry Date"). The debenture is convertible at the option of
the holder into either Class A preferred shares or Class A preferred share
purchase warrants at a conversion rate of US
F-39
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
6. CONVERTIBLE DEBENTURE (CONTINUED)
$1.4552 per share or warrant, subject to adjustments from time to time to
reflect the capital reorganizations and share issuances, up until the Expiry
Date. Each Class A preferred share purchase warrant entitles the holder to
purchase until the Expiry Date one Class A preferred share at a price of US
$0.01 per share. At August 31, 2000 the fair market value of the convertible
debenture is approximately $725,000 [August 31, 1999--$690,000].
Accordingly, for accounting purposes the Company has segregated the
convertible debenture into two component parts; a liability component of
$448,636 and an equity component reflected in contributed surplus representing
the share purchase warrants of $313,264. The issue discount on the liability
component is amortized to income over the term of the convertible debenture.
During the year ended August 31, 2000, the 200,000 share purchase warrants
were exercised for gross proceeds of $2,978 (US $2,000). Concurrently with the
issuance of the convertible debenture, the convertible debenture holder was
issued a right to acquire an additional 200,000 warrants in the event the
Company failed to complete an equity financing of a certain dollar amount, or
additional warrants to acquire up to 30% of the outstanding share capital in the
event certain milestones were not achieved. Pursuant to the issuance of the
Class B preferred shares the Company amended the investment agreement to
terminate this requirement to issue an additional 200,000 warrants.
7. SHARE CAPITAL
[A] AUTHORIZED
100,000,000 Common shares without par value
100,000,000 Class A preferred shares without par value
100,000,000 Class B preferred shares with a par value of $1 each
During the year ended August 31, 2000, the authorized capital was increased
by the creation of 100,000,000 Class B preferred shares with a par value of $1
each.
[B] RIGHTS
CLASS A PREFERRED SHARES
The Class A preferred shares are voting and entitled to non-cumulative
dividends of US $0.14552 per share after payment of dividends on the Class B
preferred shares. The Class A preferred shares are convertible into Common
shares at the holder's option on a one-for-one basis, subject to an adjustment
to reflect capital reorganizations and share issuances. Mandatory conversion on
the same basis as above, of the Class A preferred shares will occur at the time
the Company completes an underwritten public offering of Common shares raising
net proceeds to the Company of at least $15,000,000 at a minimum share price of
$7.00 per Common share on a specified stock exchange or upon completion of a
merger, amalgamation, arrangement, compromise, or takeover bid or any other
transaction resulting in the sale or liquidation of substantially all of the
assets of the Company.
F-40
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
7. SHARE CAPITAL (CONTINUED)
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class A preferred shares will be entitled to receive, after the
payment of US $1.65913 per Class B preferred share plus any declared and unpaid
dividends on the Class B preferred shares, but in preference to holders of
Common shares, their paid-in amount plus any declared and unpaid dividends.
During the year ended August 31, 2000, in conjuction with the issuance of
the Class B preferred shares, the Company amended certain terms of the rights
and restrictions of the Class A preferred shares to remove the right by the
shareholders to require the Company to redeem all or any part of such Class A
Preferred shares.
CLASS B PREFERRED SHARES
The Class B preferred shares are voting and entitled to non-cumulative
dividends of US $0.165913 per share in preference and priority to any payment of
dividends on the Class A preferred shares and Common shares. The Class B
preferred shares are convertible into Common shares at the holder's option on a
one-for-one basis, subject to an adjustment from time to time to reflect capital
reorganizations and share issuance. Mandatory conversion of the Class B
preferred shares will occur at the time the Company completes an underwritten
public offering of Common shares raising net proceeds to the Company of at least
$15,000,000 at a minimum share price of $7.00 per Common share on a specified
stock exchange, or upon completion of a merger, amalgamation, arrangement,
compromise, or takeover bid resulting in the sale or liquidation of
substantially all of the assets of the Company.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Class B preferred shares will be entitled to receive, in
preference to the Class A preferred and holders of Common shares, their paid-in
amount plus any declared and unpaid dividends.
F-41
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
7. SHARE CAPITAL (CONTINUED)
[C] ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER AMOUNT
--------- ----------
<S> <C> <C>
COMMON SHARES
BALANCE, AUGUST 31, 1997 AND 1998........................... 6,807,566 $1,287,113
Issued for technology license [NOTE 7(E)]................... 18,654 46,233
Issued pursuant to anti-dilution agreements [NOTE 7(F)]..... 122,696 --
Issued pursuant to an amending agreement [NOTE 7(F)]........ 10,000 --
--------- ----------
BALANCE, AUGUST 31, 1999.................................... 6,958,916 1,333,346
Issued for cash pursuant to private placements.............. 506,794 1,608,300
Issued for cash on exercise of stock options [NOTE 7(D)].... 226,600 3,575
Issued pursuant to anti-dilution agreements [NOTE 7(F)]..... 144,227 --
Share issue costs........................................... -- (38,541)
--------- ----------
Balance, August 31, 2000.................................... 7,836,537 $2,906,680
========= ==========
</TABLE>
<TABLE>
<CAPTION>
NUMBER AMOUNT
--------- ----------
<S> <C> <C>
CLASS A PREFERRED SHARES
BALANCE, AUGUST 31, 1998.................................... -- $ --
Issued for cash pursuant to private placement............... 1,718,000 3,764,010
Share issue costs........................................... -- (60,000)
--------- ----------
BALANCE, AUGUST 31, 1999.................................... 1,718,000 3,704,010
Issued for cash on exercise of warrants [NOTE 6]............ 200,000 2,978
--------- ----------
BALANCE, AUGUST 31, 2000.................................... 1,918,000 $3,706,988
========= ==========
</TABLE>
<TABLE>
<CAPTION>
NUMBER AMOUNT
--------- ----------
<S> <C> <C>
CLASS B PREFERRED SHARES
BALANCE, AUGUST 31, 1999.................................... -- $ --
Issued for cash pursuant to private placement............... 3,616,353 3,616,353
--------- ----------
BALANCE, AUGUST 31, 2000.................................... 3,616,353 $3,616,353
========= ==========
</TABLE>
The excess of the net proceeds over par value from the issuance of the
Class B preferred shares during the year ended August 31, 2000 of $5,128,965 has
been credited to contributed surplus. Share issue costs amounting to $188,682
have been charged to contributed surplus.
F-42
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
7. SHARE CAPITAL (CONTINUED)
[D] STOCK OPTIONS
Options are granted to executive officers and directors, employees and
consultants by way of discretionary grants approved by the board of directors,
and are allocated pursuant to a Stock Option Plan (1996), for which 1,900,000
common shares have been reserved for issuance.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONED AVERAGE
COMMON SHARES EXERCISE PRICE
------------- --------------
<S> <C> <C>
BALANCE, AUGUST 31, 1997 AND 1998................. 659,000 $1.05
Options granted................................... 361,700 2.22
--------- -----
BALANCE, AUGUST 31, 1999.......................... 1,020,700 1.46
Options granted................................... 559,900 2.47
Options exercised................................. (1,600) 2.22
Options forfeited................................. (26,000) 2.22
--------- -----
BALANCE, AUGUST 31, 2000.......................... 1,553,000 $1.81
========= =====
</TABLE>
At August 31, 2000 there are 1,553,000 [1999 - 1,020,700] stock options
outstanding pursuant to the Stock Option Plan (1996) as follows:
<TABLE>
<CAPTION>
NUMBER NUMBER
OUTSTANDING EXERCISABLE
EXERCISE AUGUST 31, AUGUST 31,
EXPIRY DATE PRICE 2000 2000
----------- -------- ----------- -----------
<S> <C> <C> <C>
March 27, 2006................................ $1.05 609,000 609,000
January 7, 2009............................... 2.22 25,600 25,600
February 25, 2009............................. 2.22 100,000 100,000
March 29, 2009................................ 2.22 200,000 200,000
June 9, 2009.................................. 1.05 50,000 50,000
June 9, 2009.................................. 2.22 8,500 8,500
September 17, 2009............................ 2.22 3,600 3,600
February 24, 2010............................. 2.55 2,600 2,600
July 13, 2010................................. 2.47 553,700 71,000
--------- ---------
1,553,000 1,070,300
========= =========
</TABLE>
During the year ended August 31, 2000, the Company extended the expiry date
for 500,300 stock options with exercise prices ranging from $1.05 to $2.55 and
expiry dates from March 27, 2001 to March 27, 2006, by an additional 5 years.
The revised expiry dates are reflected in the above table.
In addition, during the year ended August 31, 2000 the Company granted
600,000 stock options to purchase Common shares to an officer of the Company
with an exercise price of $0.0001 and expiry date of November 1, 2004, outside
of the Stock Option Plan (1996). 150,000 options vested upon granting of the
stock options and 9,375 options vest monthly thereafter. As at August 31, 2000,
375,000 options remain outstanding of which 9,375 are exercisable.
F-43
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
7. SHARE CAPITAL (CONTINUED)
At the time a director, officer or employee ceases to be a director, officer
or employee of the Company, any unexercised share purchase options held by them
will expire within 30 days.
[E] COMMITMENT TO ISSUE SHARES
Pursuant to a license agreement dated May 9, 1994 the Company was obligated
to issue to the licensor Common shares equal to 1.5% of shares issued until the
aggregate value of the consideration received from share issuances reached
$3 million. At August 31, 1998 the Company was obligated to issue 6,805 Common
shares at a deemed value of $19,928. During the year ended August 31, 1999 the
Company issued the 6,805 Common shares and a further 11,849 Common shares at a
deemed value of $26,305 in respect of its obligation under the license
agreement, which have been capitalized as costs of the technology license
[note 5]. No further shares are required to be issued pursuant to the agreement.
[F] DILUTION
In October 1998, the Company entered into anti-dilution and amending
agreements with holders of 116,666 and 100,000 common shares, such that in the
event the Company issues common or Class A preferred shares of the Company for
less than $3.00 and $4.00 per share respectively, prior to an initial public
offering, the shareholders would receive additional common shares equal to the
original issuance proceeds divided by the subsequent issue price less the
original number of common shares issued. Pursuant to the issuance of Class A
preferred shares during the year ended August 31, 1999, the Company issued
122,696 common shares to fulfill its obligation under these agreements. As a
result of the issuance of these anti-dilution shares, the effective share price
for the shares mentioned above is $2.21 per share. Also, the holder of 6,666 of
the total 116,666 common shares lost any further anti-dilution rights after the
issuance of the dilutive Class A shares.
Pursuant to a private placement agreement dated April 1997, the Company
issued a further 10,000 Common shares during the year ended August 31, 1999, to
fulfill its obligation under this agreement. The agreement provided that the
Company would issue these shares to the subscriber if within eighteen months of
closing of the offering the Company could not obtain a receipt for a preliminary
prospectus. No further shares are issuable under this agreement.
In November 1999, the Company entered into an anti-dilution agreement with
individuals who acquired 457,069 Common shares, through private placements in
1999 such that in the event the Company issues any class of common shares of the
Company for less than $3.25 per share, the shareholders would receive additional
Common shares equal to the original issuance proceeds divided by the subsequent
issue price less the original number of Common shares issued. Pursuant to the
issuance of Class B preferred shares during the year ended August 31, 2000, the
Company issued 144,227 Common shares to fulfill its obligation under this
agreement. No further shares are issuable under this agreement.
8. OTHER EXPENSES
Direct and incremental costs incurred in respect of the proposed sale of the
Company [note 16] have been expensed as other expenses.
F-44
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
9. COMMITMENTS
[i] The Company has entered into rental agreements for laboratory and office
space which extend to June 30, 2001. The future minimum payments under these
leases are $202,087.
[ii] The Company entered into an agreement related to the sale of the Company
[see note 16] in August 2000. Pursuant to the agreement the Company paid a
fee of US $50,000 and is required to pay additional fees of US $350,000,
plus a transaction fee equal to a percentage of the consideration for the
sale of the business subject to a minimum of US $1 million. The agreement
expires in August 2001.
[iii] The Company entered into a purchase agreement with a supplier for research
equipment in October 2000. Pursuant to the agreement the Company is
committed to pay approximately $440,000 (US $300,000).
10. RELATED PARTY TRANSACTIONS
During the year ended August 31, 2000, the Company paid consulting fees of
$5,518 [1999--$nil; 1998--$24,500] to directors of the Company.
11. INCOME TAXES
As at August 31, 2000 the Company has non-capital loss carryforwards
available to reduce taxable income that expire as follows:
<TABLE>
<S> <C>
2002........................................................ $ 42,000
2003........................................................ 27,000
2004........................................................ 122,000
2005........................................................ 200,000
2006........................................................ 395,000
2007........................................................ 1,276,000
----------
$2,062,000
==========
</TABLE>
In addition, the Company has scientific research and experimental
development expenditures of approximately $3,688,000 available for carryforward
indefinitely and unclaimed investment tax credits of $167,000 which may be used
to reduce future taxable income and income taxes, respectively, otherwise
payable. However, as a result of the potential acquisition of the Company
subsequent to year end [note 16(a)], the non-capital losses, any unclaimed
investment tax credits and scientific research and experimental development
expenditures noted above will be restricted by Canadian tax law and may not be
available for use in future years.
The potential income tax benefits relating to these loss carryforwards,
temporary differences and tax credits have not been recognized in the accounts
as their realization did not meet the requirements of "more likely than not"
under the liability method of tax allocation. In prior periods the Company had
concluded the realization of the loss carryforwards and tax credits under the
deferral method of tax allocation did not meet the virtual certainty and
reasonable assurance test. Accordingly, no future tax assets have been
recognized as at August 31, 2000 and September 1, 1999.
F-45
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
12. RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ---------
<S> <C> <C> <C>
Salaries and benefits..................... $ 991,062 $ 502,894 $ --
Contract research agreements.............. -- 283,939 384,651
Laboratory supplies....................... 835,770 294,201 --
Consulting................................ 90,465 125,561 --
Patent costs.............................. 88,008 10,792 5,093
Amortization.............................. 145,166 79,975 10,559
---------- ---------- ---------
2,150,471 1,297,362 400,303
Less: investment tax credits.............. (567,000) (479,538) (124,734)
---------- ---------- ---------
$1,583,471 $ 817,824 $ 275,569
========== ========== =========
</TABLE>
13. GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
2000 1999 1998
---------- -------- --------
<S> <C> <C> <C>
Salaries and benefits....................... $ 286,832 $126,667 $ --
Rent........................................ 187,135 135,577 85,899
Professional fees........................... 68,908 69,309 66,000
Legal fees.................................. 90,443 74,675 29,185
Office and miscellaneous.................... 190,139 94,764 23,175
Foreign exchange loss....................... 91,463 -- --
Travel and meetings......................... 167,370 51,723 5,141
Amortization................................ 93,598 41,165 664
---------- -------- --------
$1,175,888 $593,880 $210,064
========== ======== ========
</TABLE>
14. SEGMENT DISCLOSURES AND MAJOR CUSTOMERS
The Company operates in one business segment with all of its assets and
operations located in Canada. All of the Company's revenues are generated in
Canada. During the years ended August 31, 2000 and 1999 all contract research
income was earned from one customer in the United States. As a result of this
contract, 59% [19%--1999] of total receivables is due from this one customer.
15. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company prepares its financial statements in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"), which, as applied in
these financial statements, conform in
F-46
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
15. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
all material respects to those accounting principles generally accepted in the
United States ("US GAAP"), except as follows:
[A] STOCK-BASED COMPENSATION
For reconciliation purposes to US GAAP, the Company has elected to follow
the intrinsic value approach of Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) in accounting for its employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. During the year ended August 31,
2000, $578,883 [1999 and 1998--$nil] in compensation expense would be recognized
for employee stock options granted below the fair price of the underlying stock
on the date of grant. The Company would recognize additional compensation
expense over future vesting periods of $903,057.
On July 13, 2000, the expiry dates for certain fully vested stock options
were extended by an additional five years. Under FASB Interpretation No. 44 to
APB 25, compensation expense equal to the excess intrinsic value of the award on
the date of the modification over the original intrinsic value of the award is
recognized at the date of modification. During the year ended August 31, 2000
$305,167 in compensation expense would be recognized.
Under US GAAP, stock based compensation to non-employees must be recorded at
the fair value of options granted. This compensation, determined using an option
pricing model, is expensed over the vesting periods of each option grant. For
purposes of reconciliation to US GAAP, all options are vested as at year end,
thus the total compensation expense in the current year is $172,000 [1999 and
1998--nil].
[B] TECHNOLOGY LICENSE
Under US GAAP, amounts paid for a technology license used solely in research
and development activities and with no alternative future use, would be
expensed.
[C] FINANCIAL INSTRUMENTS
[i] Under US GAAP, the Company's Class A retractable preferred shares would be
considered mezzanine equity in 1999 and accordingly would be shown outside
of shareholders' equity. With the amendment to the rights and restrictions
of these shares in 2000, they would be reclassified into shareholders'
equity under US GAAP.
[D] RECENT PRONOUNCEMENTS
[i] The United States Securities and Exchange Commission has issued Staff
Accounting Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
(SAB101). This pronouncement is effective for the Company's year ending
August 31, 2001. The Company has not yet determined the impact of SAB101 on
its financial statements and its current revenue recognition policies.
[ii] The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES (SFAS 133), as
F-47
<PAGE>
IMMGENICS PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
(IN CANADIAN DOLLARS)
15. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
amended by SFAS 138. SFAS 133 will be effective for the Company's
August 31, 2001 year end. The Company has not determined the impact, if any,
of this pronouncement on its financial statements.
[E] SUMMARY OF EFFECT ON FINANCIAL STATEMENTS
The impact of significant US GAAP variations on the Balance Sheets are as
follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Technology license.......................................... $ -- $ --
Total assets................................................ 11,908,917 3,832,761
Mezzanine equity, Class A preferred shares.................. -- 3,704,010
Share capital............................................... 16,728,300 1,646,610
Deficit..................................................... (6,324,818) (2,538,322)
</TABLE>
The impact of significant US GAAP variations on the Statements of Loss are
as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- ---------
<S> <C> <C> <C>
Loss for the year, Canadian GAAP......................... $ 2,746,266 $(1,352,413) $(448,404)
Adjustment for stock based compensation
--non-employees........................................ (172,000) -- --
--employees intrinsic value............................ (578,883) -- --
--employees extension of expiry date................... (305,167) -- --
Adjustment for technology license expense................ 15,820 (13,774) 10,559
----------- ----------- ---------
Loss and comprehensive loss for the year, US GAAP........ $(3,786,496) $(1,366,187) $(437,845)
=========== =========== =========
</TABLE>
16. SUBSEQUENT EVENTS
The following events occurred subsequent to August 31, 2000:
[a] The Company has entered into an Acquisition Agreement with Abgenix, Inc.
dated September 25, 2000 (the "Acquisition"). The Acquisition will be
carried out under a Plan of Arrangement whereby Abgenix, Inc. will
effectively exchange approximately US $77 million of Abgenix common stock
for all outstanding Common shares and securities convertible into Common
shares of the Company. The Plan of Arrangement is subject to the approval of
the Company's shareholders and court approval.
[b] On September 19, 2000, the Company granted options to acquire 59,000 Common
shares with an exercise price of $2.47 per share and an expiry date of
September 19, 2010.
F-48
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF ABGENIX AND
IMMGENICS
The merger of Abgenix and ImmGenics closed on November 6, 2000. The
following unaudited pro forma condensed combined financial statements give
effect to the merger using the purchase method of accounting and include the pro
forma adjustments described in the accompanying notes.
The following Unaudited Pro Forma Condensed Combined Statement of Operations
of Abgenix and ImmGenics for the year ended December 31, 1999 and the nine-month
period ended September 30, 2000 are based on the historical financial statements
of Abgenix and ImmGenics after giving effect to the merger with ImmGenics under
the purchase method of accounting and the assumptions and adjustments described
in the accompanying Notes to the Unaudited Pro Forma Condensed Combined
Financial Statements of Abgenix and ImmGenics.
The Unaudited Pro Forma Condensed Combined Financial Statements of Abgenix
and ImmGenics should be read in conjunction with the historical financial
statements of Abgenix and ImmGenics, included elsewhere in this prospectus.
The Unaudited Pro Forma Condensed Combined Statements of Operations of
Abgenix and ImmGenics are presented as if the combination had taken place on
January 1, 1999. The Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999 combines the year ended
December 31, 1999 for Abgenix and the twelve months ended November 30, 1999 for
ImmGenics. The Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended September 30, 2000 combines the nine months ended
September 30, 2000 for Abgenix and the nine months ended August 31, 2000 for
ImmGenics. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented
to give effect to the proposed merger as if it occurred on September 30, 2000
and combines the balance sheet of Abgenix as of September 30, 2000 and ImmGenics
as August 31, 2000. The pro forma information does not purport to be indicative
of the results that would have been reported if the above transactions had been
in effect for the period presented or which may result in the future.
In October 2000, Abgenix acquired Intraimmune Therapies, Inc. The Unaudited
Pro Forma Condensed Combined Financial Statements of Abgenix and ImmGenics do
not include this acquisition since it is not significant to Abgenix.
F-49
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ABGENIX IMMGENICS ADJUSTMENTS COMBINED
------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $107,516 $ 2,283 $ (585) $109,214
Marketable securities............................ 437,825 4,435 -- 442,260
Interest and other receivables................... 7,482 784 -- 8,266
Accounts receivable.............................. 1,126 -- -- 1,126
Prepaid expenses and other current assets........ 9,269 66 -- 9,335
-------- ------- ------- --------
TOTAL CURRENT ASSETS........................... 563,218 7,568 (585) 570,201
Property and equipment, net........................ 7,585 526 -- 8,111
Long-term investment............................... 71,639 -- -- 71,639
Intangible assets, net............................. 44,261 -- 64,333 108,594
Deposits and other assets.......................... 703 -- -- 703
-------- ------- ------- --------
$687,406 $ 8,094 $63,748 $759,248
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 5,603 $ 541 $ -- $ 6,144
Deferred revenue................................. 14,405 -- -- 14,405
Accrued product development costs................ 233 -- -- 233
Accrued employee benefits........................ 1,524 -- -- 1,524
Other accrued liabilities........................ 1,418 -- -- 1,418
Current portion of long-term debt................ 447 483 (483) 447
-------- ------- ------- --------
TOTAL CURRENT LIABILITIES...................... 23,630 1,024 (483) 24,171
Deferred rent...................................... 406 -- -- 406
STOCKHOLDERS' EQUITY:
Preferred stock.................................. -- 4,862 (4,862) --
77,488
483
(585)
Common stock..................................... 683,317 2,747 (2,747) 760,703
Additional paid-in capital....................... 32,849 3,650 (3,650) 32,849
Deferred compensation............................ (325) -- (1,267) (1,592)
Accumulated other comprehensive income........... 41,627 134 (134) 41,627
(4,818)
Accumulated deficit.............................. (94,098) (4,323) 4,323 (98,916)
-------- ------- ------- --------
TOTAL STOCKHOLDERS' EQUITY..................... 663,370 7,070 64,231 734,671
-------- ------- ------- --------
$687,406 $ 8,094 $63,748 $759,248
======== ======= ======= ========
</TABLE>
F-50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ABGENIX IMMGENICS ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Contract revenue................................. $ 12,285 $ 86 $ -- $ 12,371
Interest income.................................. 3,045 66 -- 3,111
-------- ------- ------- --------
Total revenues................................. 15,330 152 -- 15,482
Costs and expenses:
Research and development......................... 21,106 619 633 22,358
General and administrative....................... 5,164 707 -- 5,871
Equity in income from the Xenotech joint
venture........................................ (546) -- -- (546)
Non-recurring termination fee.................... 8,667 -- -- 8,667
Amortization of intangible assets................ -- -- 4,338 4,338
Interest expense and other....................... 438 103 -- 541
-------- ------- ------- --------
Total costs and expenses....................... 34,829 1,429 4,971 41,229
-------- ------- ------- --------
Loss before income taxes........................... (19,499) (1,277) (4,971) (25,747)
Foreign income tax expense....................... 1,000 -- -- 1,000
-------- ------- ------- --------
Net loss........................................... $(20,499) $(1,277) $(4,971) $(26,747)
======== ======= ======= ========
Net loss per share................................. $ (0.35) $ (0.45)
======== ========
Shares used in computing net loss per share........ 58,148 802 58,950
</TABLE>
F-51
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ABGENIX IMMGENICS ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Contract revenue.................................. $13,077 $ 116 $ -- $13,193
Interest income................................... 22,334 156 -- 22,490
------- ------- ------- -------
Total revenues.................................. 35,411 272 -- 35,683
Costs and expenses:
Research and development.......................... 31,910 1,224 317 33,451
General and administrative........................ 5,152 999 -- 6,151
Amortization of intangible assets................. 2,330 -- 3,254 5,584
Interest expense and other........................ 317 77 -- 394
------- ------- ------- -------
Total costs and expenses........................ 39,709 2,300 3,571 45,580
------- ------- ------- -------
Net loss............................................ $(4,298) $(2,028) $(3,571) $(9,897)
======= ======= ======= =======
Net loss per share.................................. $ (0.05) $ (0.12)
======= =======
Shares used in computing net loss per share......... 78,799 802 79,601
</TABLE>
F-52
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF ABGENIX, INC. AND IMMGENICS
1. BASIS OF PRO FORMA PRESENTATION
In November 2000, the Company acquired ImmGenics Pharmaceuticals Inc. in an
all-stock transaction, to be treated as a purchase. As part of the acquisition,
ImmGenics special shares were issued to former shareholders of common and
preferred shares and debenture holders of ImmGenics. The ImmGenics special
shares are convertible into common shares of Abgenix. The Pro Forma Condensed
Combined Financial Statements assumes the effective registration, prior to
February 11, 2001, of the Abgenix common stock to be issued in exchange for the
ImmGenics special shares. Should the registration statement not be declared
effective by that time, the holders of the ImmGenics special shares may have the
right to put those shares to Abgenix for cash. Abgenix will issue approximately
$76.9 million of its common stock and stock options for all of ImmGenics' voting
securities and stock options. This value includes the value of the common stock
and an estimate of the fair value of the stock options to be issued. Estimated
costs and expenses of the acquisition are $0.6 million.
The Company will be required to exchange common stock in a ratio determined
based on the average closing market price of the Company's common stock for the
five trading days prior to the date the registration statement becomes
effective. Assuming an average market value of $85.00, the exchange ratio will
approximate one share of the Company's share for seventeen shares of ImmGenic's
shares. Accordingly the number of the Company's common shares issued will
approximate 802,000 shares and the number of the Company's stock options to be
issued in exchange for ImmGenic's stock options will be approximately 120,000.
The actual number of common stock and stock options issued will depend on the
date the registration statement becomes effective and the final calculation of
the average closing market price.
An independent valuation specialist performed a preliminary allocation of
the total purchase price of ImmGenics among the acquired assets. The income
approach was used to develop the value for the existing technology and the
in-process research and development. The income approach incorporates the
calculation of the present value of future economic benefits such as cash
earnings, cost savings, and tax deductions. The cost approach was utilized to
value the assembled workforce. The cost approach measures the benefits related
to an asset by the cost to reconstruct or replace it with another of like
utility. The purchase price allocation, which is preliminary and therefore
subject to change is as follows (in thousands):
<TABLE>
<CAPTION>
ANNUAL USEFUL
AMOUNT AMORTIZATION LIVES
-------- ------------ --------
<S> <C> <C> <C>
Purchase Price Allocation:
Tangible net assets....................................... $ 7,070 n/a n/a
Intangible assets acquired:
Existing technology..................................... 33,264 2,217 15 years
Assembled workforce..................................... 185 62 3 years
Goodwill................................................ 30,884 2,059 15 years
Deferred compensation..................................... 1,267 633 2 years
In-process research and development....................... 4,818 n/a n/a
------- ------
Total estimated purchase price allocation............... $77,488 $4,971
======= ======
</TABLE>
F-53
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF ABGENIX, INC. AND IMMGENICS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
INTANGIBLE ASSETS
The estimated value of the above intangible assets acquired is included in
the pro forma adjustments in the combined balance sheet as of September 30,
2000. The related amortization, on a straight-line basis over the useful lives
as indicated above, is included in the pro forma adjustments in the pro forma
condensed combined statements of operations. The intangible assets acquired
consist of the following:
Existing Technology and Assembled Workforce--The technology is comprised of
ImmGenics' proprietary technology, the Selected Lymphocyte Antibody Method
(SLAM) technology, patented in the United States with applications
outstanding in Canada and Europe. This technology is technologically
feasible and has been licensed to customers. The assembled workforce is
comprised of 27 employees, primarily scientists, with specific experience
and knowledge of the ImmGenics' SLAM technology and other technologies in
process. The combined allocated value of these two intangible assets is
$33.4 million.
Deferred compensation--This represents a portion of the estimated intrinsic
value of unvested ImmGenics stock options assumed by Abgenix in the merger
agreement to the extent that service is required after the closing date of
the merger in order to vest. Abgenix expects to amortize the value assigned
to deferred compensation of approximately $1.3 million over the remaining
vesting period of approximately 2 years.
Goodwill--This represents the excess of the purchase price of an investment
in an acquired business over the fair value of the underlying net
identifiable assets. Approximately $30.9 million will be amortized on a
straight-line basis over its estimated remaining useful life of 15 years.
IN-PROCESS RESEARCH AND DEVELOPMENT
Due to their non-recurring nature, the in-process research and development
attributed to the ImmGenics transaction has been excluded from the pro forma
statements of operations.
ImmGenics' primary in-process research and development activities focus on
two efforts as follows:
<TABLE>
<CAPTION>
PERCENT EXPECTED
PROJECT COMPLETED TECHNOLOGY LIFE
------- --------- ---------------
<S> <C> <C>
Death inducing antibodies............................ 57% 15 years
Agonist antibodies................................... 31% 15 years
</TABLE>
The income approach was utilized to value this technology which incorporates
the present value of future economic benefits such as cash earnings, cost
savings, and tax deductions. The rate utilized to discount the net cash flows to
their present value was 40% and was based on several studies which examine the
rates of return venture capitalists require on their investments.
The estimates used in valuing in-process research and development were based
upon assumptions believed to be reasonable but which are inherently uncertain
and unpredictable. Assumptions may be incomplete or inaccurate, and no assurance
can be given that unanticipated events and circumstances will not occur.
Accordingly, actual results may vary from the projected results. Any such
variance may result in a material adverse effect on ImmGenic's financial
condition and results of operations.
F-54
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF ABGENIX, INC. AND IMMGENICS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
The value assigned to each acquired in-process research and development
project as of the date of this proxy statement-prospectus were as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Death inducing antibodies................................... $3,036
Agonist antibodies.......................................... 1,782
------
Total acquired in-process research and development.......... $4,818
======
</TABLE>
2. PRO FORMA ADJUSTMENTS
The Unaudited Pro Forma Condensed Combined Statement of Operations give
effect to the allocation of the total purchase cost to the assets and
liabilities of ImmGenics based on their respective fair values and to
amortization over the respective useful lives of amounts allocated to intangible
assets. The pro forma adjustments on the Unaudited Pro Forma Condensed Combined
Balance Sheet reflect:
- the use of cash associated with the estimated direct costs of the
acquisition,
- the assumed conversion of ImmGenics debt and preferred stock to common
stock,
- deferred compensation arising from the intrisic value of ImmGenics
employee stock options assumed in the acquisition, and
- expense associated with the estimated acquired in-process research and
development charge.
The pro forma combined provision for income taxes does not reflect the
amounts that would have resulted had the Company and ImmGenics filed
consolidated income tax returns during the periods presented.
3. PRO FORMA NET LOSS PER SHARE
The pro forma basic and dilutive net loss per share are based on the
weighted average number of shares of the Company's common stock outstanding
during each period adjusted to give effect to shares assumed to be issued had
the acquisition taken place at the beginning of the period presented. Dilutive
securities including the replacement ImmGenics options are not included in the
computation of pro forma diluted net loss per share as their effect would be
anti-dilutive.
F-55
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by us in
connection with the registration of the securities being registered by this
prospectus. All amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 86,905
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 50,000
Accounting fees and expenses................................ 50,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous fees and expenses............................. 103,095
--------
Total................................................. $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. 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 us 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 on 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 us, including Cell Genesys' interest in its joint
venture with Japan Tobacco.
(3) On July 15, 1996, we, 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 Incentive Stock Plan at exercise prices ranging from $0.60 to $10.00
per share.
II-1
<PAGE>
(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 contractual 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 us and Genentech.
(9) On November 19, 1999, we issued 1,778,000 shares of common stock in a
private placement to certain individuals and entities at a per share purchase
price of $42.00.
(10) to come
(11) On November 6, 2000, we issued 3,300,000 shares of common stock in a
private placement to certain individuals and entities at a per share purchase
price of $70.
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 us, to
information about us.
(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>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<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 Form of Legal Opinion of O'Melveny & Myers LLP.
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(24) 1999 Nonstatutory Stock Option Plan and form of agreement
thereunder.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.6(1) Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.
10.7(1) Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.
10.8(3) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.
10.8A(6) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.
10.8B(9) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.
10.9(3) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.9A(5) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.
10.9B(13) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.
10.9C(7) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.
10.9D(9) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.
10.9E(2) Amendment No. 5 dated November 1997 to Collaboration
Agreement.
10.10(3) Limited Partnership Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.10A(6) Amendment No. 2 dated January 1, 1994 to Limited Partnership
Agreement.
10.10B(8) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.
10.10C(10) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.
10.11(4) Field License dated June 12, 1991 among Cell Genesys, JT
Immunotech USA Inc. and Xenotech, L.P.
10.11A(10) Amendment No. 1 dated March 22, 1996 to Field License.
10.11B(10) Amendment No. 2 dated June 28, 1996 to Field License.
10.12(3) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.
10.12A(10) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.
10.13(2) Amended and Restated Anti-IL-8 License Agreement dated
March 19, 1996 among Xenotech, L.P., Cell Genesys and
Japan Tobacco Inc.
10.14(9) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech,
L.P.
10.14A(2) Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.
10.15(2) Stock Purchase and Transfer Agreement dated July 15, 1996 by
and between Cell Genesys and Abgenix.
10.16(1) Governance Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.16A(1) Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.
10.16B(1) Amendment No. 2 dated December 22, 1997 to the Governance
Agreement.
10.17(1) Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.18(2) Gene Therapy Rights Agreement effective as of November 1,
1997 between Abgenix and Cell Genesys.
10.19(2) Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of Abgenix.
10.20(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.
10.21(1) Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and Abgenix.
10.22(1) Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and Abgenix.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.23(2) License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and Abgenix.
10.24(12) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco Inc.
and GenPharm International, Inc.
10.25(12) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, Abgenix, Xenotech, L.P., Japan
Tobacco Inc. and GenPharm International, Inc.
10.26(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.
10.27(2) Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, Abgenix, Japan Tobacco Inc.
and JT Immunotech USA Inc.
10.28(2) Contractual Research Agreement dated December 22, 1997
between Pfizer, Inc. and Abgenix.
+10.28A(22) Amendment No. 1 dated May 26, 1998 to Contractual Research
Agreement between Abgenix and Pfizer, Inc.
+10.28B(22) Amendment No. 2 dated October 22, 1998 to Contractual
Research Agreement between Abgenix and Pfizer, Inc.
10.29(1) Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among Abgenix and certain holders of
Abgenix's capital stock.
10.30(2) Contractual Research Agreement effective as of January 28,
1998 between Schering-Plough Research Institute and
Abgenix.
10.30A(16) Amendment No. 2 effective January 28, 1999 to Contractual
Research Agreement between Schering-Plough Research
Institute and Abgenix.
10.30B(16) Amendment No. 3 effective February 12, 1999 to the
Contractual Research Agreement between Schering-Plough
Research Institute and Abgenix.
10.31(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 23, 1996.
10.32(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 22, 1997.
10.33(2) Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and Abgenix.
10.34(2) Research License and Option Agreement effective as of
April 6, 1998 between Abgenix and Genentech, Inc.
10.34A(2) Amendment No. 1 effective as of June 18, 1998 to Research
License and Option Agreement between Abgenix and
Genentech, Inc.
10.35(14) Research Collaboration Agreement dated July 15, 1998 between
Millennium BioTherapeutics, Inc. and Abgenix.
+10.36(22) Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.36A(22) Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.
+10.37(22) Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.38(16) Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.
+10.39(22) Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.
10.40(15) Registration Rights Agreement dated November 18, 1998
between the selling stockholders and Abgenix.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
+10.41(22) Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix.
10.42(17) Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.
10.43(16) Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.
10.44(18) Preferred Shares 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.
+10.45(21) Multi-Antigen Research License and Option Agreement by and
between Abgenix, Inc. and Japan Tobacco Inc. effective
December 31, 1999.
+10.46(21) Amended and Restated Field License by and among
Abgenix, Inc., JT America Inc. and Xenotech L.P.
effective December 31, 1999.
10.47(21) Agreement to Terminate the Collaboration Agreement by and
among Abgenix, Inc., JT America Inc., and Xenotech L.P.
effective December 31, 1999.
+10.48(21) Agreement to Terminate the Interest of Japan Tobacco Inc. in
the Master Research License and Option Agreement by and
among Abgenix, Inc., Japan Tobacco Inc. and Xenotech L.P.
effective December 31, 1999.
+10.49(21) Amendment of the Expanded Field License by and among
Abgenix, Inc., JT America Inc. and Xenotech L.P. effective
December 31, 1999.
10.50(21) Limited Partnership Interest and Stock Purchase Agreement
between Abgenix, Inc. and JT America Inc. made
December 20, 1999.
+10.51(21) License Agreement by and between Abgenix, Inc. and Japan
Tobacco Inc. effective December 31, 1999.
10.52(18) Amended Preferred Shares Rights Agreement, dated as of
November 19, 1999, between Abgenix, Inc. and Chase Mellon
Shareholder Services, L.L.C., including the Certificate of
Determination, the form of Rights Certificate and the
Summary of Rights attached thereto as Exhibits A, B and C,
respectively.
10.53(19) 1999 Nonstatutory Stock Option Plan and form of agreement
thereunder.
10.54(20) Registration Rights Agreement dated November 19, 1999 by and
among Abgenix and the selling stockholders.
10.55(23) Lease Agreement dated February 24, 2000 between Ardenwood
Corporate Park Associates, a California Limited
Partnership and Abgenix, Inc.
10.56(23) Lease Agreement dated May 19, 2000 between Ardenwood
Corporate Park Associates, a California Limited
Partnership and Abgenix, Inc.
10.57(23) Amendments to 1996 Incentive Stock Option Plan and 1999
Nonstatutory Stock Option Plan to eliminate the Company's
ability to reprice issued and outstanding options.
10.58(25) Acquisition Agreement dated as of September 25, 2000 among
Abgenix, Inc., Abgenix Canada Corporation and ImmGenics
Pharmaceuticals Inc.
10.59(25) Voting, Exchange and Cash Put Trust Agreement dated as of
November 3, 2000 among Abgenix, Inc., ImmGenics
Pharmaceuticals Inc. and CIBC Mellon Trust Company.
10.60(25) Support Agreement dated as of November 3, 2000 among
Abgenix, Inc., Abgenix Canada Corporation and ImmGenics
Pharmaceuticals Inc.
10.61(25) Form of Stock Purchase Agreement between Abgenix, Inc. and
the purchasers in the private placement in November 2000.
21.1 List of subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors
(Abgenix).
23.2 Consent of Ernst & Young LLP, Independent Auditors
(ImmGenics).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
23.3 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1 to
this Registration Statement).
24.1 Power of Attorney (reference is made to page II-9 of this
Registration Statement).
99.1(25) Plan of Arrangement under Section 252 of the Company Act
(British Columbia), including provisions attaching to the
ImmGenics special shares, approved by the Supreme Court of
British Columbia.
</TABLE>
------------------------
+ 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.
II-6
<PAGE>
(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).
(19) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-8 (File No. 333-90707).
(20) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-3 (File No. 333-91699).
(21) Incorporated by reference to the same exhibits filed with Abgenix's Current
Report on Form 8-K filed with the Commission on January 27, 2000.
(22) Incorporated by reference to the same exhibits filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631).
(23) Incorporated by reference to the same exhibits filed with Abgenix's
Quarterly report on Form 10-Q for the quarter ended June 30, 2000.
(24) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-8 (File No. 333-45426).
(25) Incorporated by reference to the same exhibits filed with Abgenix's
Quarterly report on Form 10-Q for the quarter ended September 30, 2000.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
II-7
<PAGE>
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fremont, State of
California on November 13, 2000.
<TABLE>
<S> <C> <C>
ABGENIX, INC.
By: /s/ R. SCOTT GREER
-----------------------------------------
R. Scott Greer
Chairman, President and Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, R. Scott Greer and
Kurt W. Leutzinger, and each of them, as his or her attorney-in-fact, with full
power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this registration statement (including post-effective
amendments), and any and all registration statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this registration statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by such attorney
to any and all amendments to such registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ R. SCOTT GREER Chairman, President and Chief
--------------------------------- Executive Officer (Principal November 13, 2000
R. Scott Greer Executive Officer)
/s/ KURT W. LEUTZINGER
--------------------------------- Chief Financial Officer (Principal November 13, 2000
Kurt W. Leutzinger Accounting Officer)
/s/ STEPHEN A. SHERWIN, M.D.
--------------------------------- Director November 13, 2000
Stephen A. Sherwin, M.D.
/s/ M. KATHLEEN BEHRENS, PH.D.
--------------------------------- Director November 13, 2000
M. Kathleen Behrens, Ph.D.
/s/ RAJU S. KUCHERLAPATI, PH.D.
--------------------------------- Director November 13, 2000
Raju S. Kucherlapati, Ph.D.
/s/ MARK B. LOGAN
--------------------------------- Director November 13, 2000
Mark B. Logan
/s/ JOSEPH E. MAROUN
--------------------------------- Director November 13, 2000
Joseph E. Maroun
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<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 Form of Legal Opinion of O'Melveny & Myers LLP.
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(24) 1999 Nonstatutory Stock Option Plan and form of agreement
thereunder.
10.6(1) Warrant dated January 23, 1997 exercisable for shares of
Series A Preferred Stock.
10.7(1) Warrant dated March 27, 1997 exercisable for shares of
Series A Preferred Stock.
10.8(3) Joint Venture Agreement dated June 12, 1991 between Cell
Genesys and JT Immunotech USA Inc.
10.8A(6) Amendment No. 1 dated January 1, 1994 to Joint Venture
Agreement.
10.8B(9) Amendment No. 2 dated June 28, 1996 to Joint Venture
Agreement.
10.9(3) Collaboration Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.9A(5) Amendment No. 1 dated June 30, 1993 to Collaboration
Agreement.
10.9B(13) Amendment No. 2 dated January 1, 1994 to Collaboration
Agreement.
10.9C(7) Amendment No. 3 dated July 1, 1995 to Collaboration
Agreement.
10.9D(9) Amendment No. 4 dated June 28, 1996 to Collaboration
Agreement.
10.9E(2) Amendment No. 5 dated November 1997 to Collaboration
Agreement.
10.10(3) Limited Partnership Agreement dated June 12, 1991 among Cell
Genesys, Xenotech, Inc. and JT Immunotech USA Inc.
10.10A(6) Amendment No. 2 dated January 1, 1994 to Limited Partnership
Agreement.
10.10B(8) Amendment No. 3 dated July 1, 1995 to Limited Partnership
Agreement.
10.10C(10) Amendment No. 4 dated June 28, 1996 to Limited Partnership
Agreement.
10.11(4) Field License dated June 12, 1991 among Cell Genesys, JT
Immunotech USA Inc. and Xenotech, L.P.
10.11A(10) Amendment No. 1 dated March 22, 1996 to Field License.
10.11B(10) Amendment No. 2 dated June 28, 1996 to Field License.
10.12(3) Expanded Field License dated June 12, 1991 among Cell
Genesys, JT Immunotech USA Inc. and Xenotech, L.P.
10.12A(10) Amendment No. 1 dated June 28, 1996 to Expanded Field
License.
10.13(2) Amended and Restated Anti-IL-8 License Agreement dated
March 19, 1996 among Xenotech, L.P., Cell Genesys and
Japan Tobacco Inc.
10.14(9) Master Research License and Option Agreement dated June 28,
1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech,
L.P.
10.14A(2) Amendment No. 1 dated November 1997 to the Master Research
License and Option Agreement.
10.15(2) Stock Purchase and Transfer Agreement dated July 15, 1996 by
and between Cell Genesys and Abgenix.
10.16(1) Governance Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.16A(1) Amendment No. 1 dated October 13, 1997 to the Governance
Agreement.
10.16B(1) Amendment No. 2 dated December 22, 1997 to the Governance
Agreement.
10.17(1) Tax Sharing Agreement dated July 15, 1996 between Cell
Genesys and Abgenix.
10.18(2) Gene Therapy Rights Agreement effective as of November 1,
1997 between Abgenix and Cell Genesys.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.19(2) Patent Assignment Agreement dated July 15, 1996 by Cell
Genesys in favor of Abgenix.
10.20(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.
10.21(1) Loan and Security Agreement dated January 23, 1997 between
Silicon Valley Bank and Abgenix.
10.22(1) Master Lease Agreement dated March 27, 1997 between
Transamerica Business Credit Corporation and Abgenix.
10.23(2) License Agreement dated February 1, 1997 between Ronald J.
Billing, Ph.D. and Abgenix.
10.24(12) Release and Settlement Agreement dated March 26, 1997 among
Cell Genesys, Abgenix, Xenotech, L.P., Japan Tobacco Inc.
and GenPharm International, Inc.
10.25(12) Cross License Agreement effective as of March 26, 1997,
among Cell Genesys, Abgenix, Xenotech, L.P., Japan
Tobacco Inc. and GenPharm International, Inc.
10.26(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.
10.27(2) Agreement dated March 26, 1997 among Xenotech, L.P.,
Xenotech, Inc., Cell Genesys, Abgenix, Japan Tobacco Inc.
and JT Immunotech USA Inc.
10.28(2) Contractual Research Agreement dated December 22, 1997
between Pfizer, Inc. and Abgenix.
+10.28A(22) Amendment No. 1 dated May 26, 1998 to Contractual Research
Agreement between Abgenix and Pfizer, Inc.
+10.28B(22) Amendment No. 2 dated October 22, 1998 to Contractual
Research Agreement between Abgenix and Pfizer, Inc.
10.29(1) Amended and Restated Stockholder Rights Agreement dated
January 12, 1998 among Abgenix and certain holders of
Abgenix's capital stock.
10.30(2) Contractual Research Agreement effective as of January 28,
1998 between Schering-Plough Research Institute and
Abgenix.
10.30A(16) Amendment No. 2 effective January 28, 1999 to Contractual
Research Agreement between Schering-Plough Research
Institute and Abgenix.
10.30B(16) Amendment No. 3 effective February 12, 1999 to the
Contractual Research Agreement between Schering-Plough
Research Institute and Abgenix.
10.31(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 23, 1996.
10.32(1) Excerpts from the Minutes of a Meeting of the Board of
Directors of Abgenix, dated October 22, 1997.
10.33(2) Exclusive Worldwide Product License dated November 1997
between Xenotech, L.P. and Abgenix.
10.34(2) Research License and Option Agreement effective as of
April 6, 1998 between Abgenix and Genentech, Inc.
10.34A(2) Amendment No. 1 effective as of June 18, 1998 to Research
License and Option Agreement between Abgenix and
Genentech, Inc.
10.35(14) Research Collaboration Agreement dated July 15, 1998 between
Millennium BioTherapeutics, Inc. and Abgenix.
+10.36(22) Research Collaboration Agreement dated September 29, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
10.36A(22) Amendment No. 1 effective as of November 29, 1998 to the
Research Collaboration Agreement between Millennium
BioTherapeutics, Inc. and Abgenix.
+10.37(22) Research License and Option Agreement dated October 30, 1998
between Millennium BioTherapeutics, Inc. and Abgenix.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.38(16) Research Collaboration Agreement dated December 22, 1998
between Centocor, Inc. and Abgenix.
+10.39(22) Memorandum of Understanding between Research Corporation
Technologies, Inc. and Abgenix.
10.40(15) Registration Rights Agreement dated November 18, 1998
between the selling stockholders and Abgenix.
+10.41(22) Research License and Option Agreement dated January 4, 1999
between AVI BioPharma, Inc. and Abgenix.
10.42(17) Registration Rights Agreement dated January 27, 1999 between
Genentech and Abgenix.
10.43(16) Multi-Antigen Research License and Option Agreement dated
January 27, 1999 between Genentech and Abgenix.
10.44(18) Preferred Shares 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.
+10.45(21) Multi-Antigen Research License and Option Agreement by and
between Abgenix, Inc. and Japan Tobacco Inc. effective
December 31, 1999.
+10.46(21) Amended and Restated Field License by and among
Abgenix, Inc., JT America Inc. and Xenotech L.P.
effective December 31, 1999.
10.47(21) Agreement to Terminate the Collaboration Agreement by and
among Abgenix, Inc., JT America Inc., and Xenotech L.P.
effective December 31, 1999.
+10.48(21) Agreement to Terminate the Interest of Japan Tobacco Inc. in
the Master Research License and Option Agreement by and
among Abgenix, Inc., Japan Tobacco Inc. and Xenotech L.P.
effective December 31, 1999.
+10.49(21) Amendment of the Expanded Field License by and among
Abgenix, Inc., JT America Inc. and Xenotech L.P. effective
December 31, 1999.
10.50(21) Limited Partnership Interest and Stock Purchase Agreement
between Abgenix, Inc. and JT America Inc. made
December 20, 1999.
+10.51(21) License Agreement by and between Abgenix, Inc. and Japan
Tobacco Inc. effective December 31, 1999.
10.52(18) Amended Preferred Shares Rights Agreement, dated as of
November 19, 1999, between Abgenix, Inc. and Chase Mellon
Shareholder Services, L.L.C., including the Certificate of
Determination, the form of Rights Certificate and the
Summary of Rights attached thereto as Exhibits A, B and C,
respectively.
10.53(19) 1999 Nonstatutory Stock Option Plan and form of agreement
thereunder.
10.54(20) Registration Rights Agreement dated November 19, 1999 by and
among Abgenix and the selling stockholders.
10.55(23) Lease Agreement dated February 24, 2000 between Ardenwood
Corporate Park Associates, a California Limited
Partnership and Abgenix, Inc.
10.56(23) Lease Agreement dated May 19, 2000 between Ardenwood
Corporate Park Associates, a California Limited
Partnership and Abgenix, Inc.
10.57(23) Amendments to 1996 Incentive Stock Option Plan and 1999
Nonstatutory Stock Option Plan to eliminate the Company's
ability to reprice issued and outstanding options.
10.58(25) Acquisition Agreement dated as of September 25, 2000 among
Abgenix, Inc., Abgenix Canada Corporation and ImmGenics
Pharmaceuticals Inc.
10.59(25) Voting, Exchange and Cash Put Trust Agreement dated as of
November 3, 2000 among Abgenix, Inc., ImmGenics
Pharmaceuticals Inc. and CIBC Mellon Trust Company.
10.60(25) Support Agreement dated as of November 3, 2000 among
Abgenix, Inc., Abgenix Canada Corporation and ImmGenics
Pharmaceuticals Inc.
10.61(25) Form of Stock Purchase Agreement between Abgenix, Inc. and
the purchasers in the private placement in November 2000.
21.1 List of subsidiaries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP, Independent Auditors
(Abgenix).
23.2 Consent of Ernst & Young LLP, Independent Auditors
(ImmGenics).
23.3 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1 to
this Registration Statement).
24.1 Power of Attorney (reference is made to page II-9 of this
Registration Statement).
99.1(25) Plan of Arrangement under Section 252 of the Company Act
(British Columbia), including provisions attaching to the
ImmGenics special shares, approved by the Supreme Court of
British Columbia.
</TABLE>
------------------------
+ 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.
<PAGE>
(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).
(19) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-8 (File No. 333-90707).
(20) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-3 (File No. 333-91699).
(21) Incorporated by reference to the same exhibits filed with Abgenix's Current
Report on Form 8-K filed with the Commission on January 27, 2000.
(22) Incorporated by reference to the same exhibits filed with Abgenix's
Registration Statement on Form S-1 (File No. 333-70631).
(23) Incorporated by reference to the same exhibits filed with Abgenix's
Quarterly report on Form 10-Q for the quarter ended June 30, 2000.
(24) Incorporated by reference to the same exhibit filed with Abgenix's
Registration Statement on Form S-8 (File No. 333-45426).
(25) Incorporated by reference to the same exhibits filed with Abgenix's
Quarterly report on Form 10-Q for the quarter ended September 30, 2000.
