<PAGE>
PROSPECTUS
12,000,000 ORDINARY SHARES
[LOGO]
IN THE FORM OF AMERICAN DEPOSITARY SHARES
This is an initial public offering of ordinary shares of Gemini Genomics
plc, a public limited company organized under the laws of England and Wales, in
the form of American Depositary Shares. Our American Depositary Shares, which we
refer to as ADSs, each represent the right to receive two of our ordinary
shares.
At our request, the underwriters have reserved at the initial public
offering price up to 916,200 of our ordinary shares, in the form of ADSs, for
sale to Dr. Alejandro Zaffaroni through his affiliates, the Zaffaroni Revocable
Trust and the Zaffaroni Family Partnership, L.P., each of which is one of our
existing shareholders.
Prior to this offering, there has been no public market for our ordinary
shares or our ADSs. We have applied for trading and quotation of the ADSs on the
Nasdaq National Market under the symbol "GMNI."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER ADS TOTAL
-------- -----------
<S> <C> <C>
Public offering price....................................... $14.00 $84,000,000
Underwriting discounts and commissions...................... $ 0.98 $ 5,880,000
Proceeds, before expenses, to Gemini........................ $13.02 $78,120,000
</TABLE>
The underwriters may also purchase up to an additional 1,800,000 of our
ordinary shares, in the form of ADSs, at the public offering price, less
underwriting discounts and commissions, to cover over-allotments.
The underwriters expect to deliver the ADSs in New York, New York on July
31, 2000.
------------------------
SG COWEN CHASE H&Q
July 25, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Special Note Regarding Forward-Looking
Statements.......................... 16
Use Of Proceeds....................... 17
Dividend Policy....................... 17
Exchange Rate Information............. 18
Exchange Controls And Other
Limitations Affecting Security
Holders............................. 19
Capitalization........................ 20
Dilution.............................. 21
Unaudited Condensed Pro Forma
Consolidated Financial
Information......................... 22
Selected Consolidated Financial
Information......................... 25
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations....................... 26
Business.............................. 31
Management............................ 52
Principal Shareholders................ 59
Description Of Share Capital.......... 60
Description Of The American Depositary
Shares.............................. 65
Taxation.............................. 71
Shares Eligible For Future Sale....... 79
Underwriting.......................... 81
Legal Matters......................... 83
Experts............................... 83
Where You Can Find More Information... 84
Service Of Process And Enforcement Of
Foreign Judgments................... 85
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL AUGUST 19, 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY OUR ORDINARY SHARES, IN THE FORM
OF ADSS, ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF ADSS.
------------------------
THIS PROSPECTUS IS BEING DISTRIBUTED IN THE UNITED KINGDOM EXCLUSIVELY TO
PERSONS REASONABLY BELIEVED TO BE PERSONS OF A KIND DESCRIBED IN ARTICLE 11(3)
OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS)(EXEMPTIONS)
ORDER 1996, AS AMENDED, OR OF A KIND TO WHOM IT MAY OTHERWISE LAWFULLY BE ISSUED
AND IT MUST NOT BE DISTRIBUTED OR PASSED ON BY THE RECIPIENT TO ANY PERSON IN
THE UNITED KINGDOM OTHER THAN A PERSON OF SUCH KIND.
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES. AN INVESTMENT IN OUR BUSINESS INVOLVES SIGNIFICANT
RISKS. YOU SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING
"RISK FACTORS" BEGINNING ON PAGE 7. FOR PURPOSES OF INFORMATION CONTAINED IN
THIS PROSPECTUS, WE HAVE ASSUMED THAT THE UNDERWRITERS HAVE NOT EXERCISED THEIR
OVER-ALLOTMENT OPTION, UNLESS WE INDICATE TO YOU OTHERWISE.
GEMINI GENOMICS PLC
We are a clinical genomics company which means that we identify
relationships between human genes and human health and disease. We use clinical
and medical information as the starting point in our search for genes relevant
to diseases, or disease genes. We believe that the collection and analysis of
both detailed clinical and genetic data relating to the presence or risk of
disease is more effective in discovering these disease genes than analyzing
genetic data alone. We expect that discoveries arising from our research will
provide us with products which we can license to pharmaceutical, diagnostic,
genomics and biotechnology companies for drug discovery and/or gene-based
diagnostic applications. As current efforts by others to determine the identity
and location of all human genes (which we refer to as mapping the human genome)
nears completion, the objective of genomics is shifting from determining the
order, or sequence, of genes to understanding the role of genes in human health
and disease. We believe that we are well-positioned to take advantage of the
opportunities created by the mapping of the human genome due to our disease gene
discovery process and the clinical data and samples we have already collected,
as well as the additional resources provided by our technology collaborators.
Our technology collaborators include Celera Genomics (a division of PE
Corporation), Qiagen Genomics, Large Scale Proteomics, CuraGen and Sequenom.
We focus on identifying disease genes through a three-step process:
- our network of clinical collaborators collects extensive, high quality
clinical measurements and related genetic and other biological samples for
us from human volunteers from a number of different groups, comprising
twin populations, disease-affected populations, geographically isolated
populations and patients in clinical trials. Generally, we have the
exclusive right to use this clinical and biological data for commercial
purposes and have proprietary rights to any genetic and other information
derived from these resources. We also obtain genetic information from the
growing amount available in the public domain and from our technology
alliances;
- we integrate this data into our databases and other biological information
management and analysis, or bioinformatic, systems, as well as
technologies we access through alliances, in order to identify
relationships between clinical measurements that are used to define a
disease and genes or proteins; and
- we verify our findings by using clinical and genetic data from our
different clinical populations to efficiently confirm our discoveries.
We believe that the comprehensive and diverse nature of our clinical and
genetic resources gives us a significant competitive advantage. Our recent
acquisition of Eurona Medical AB (recently renamed Gemini Genomics AB), a
Swedish genomics company, has significantly expanded our access to clinical and
genetic resources. Because our clinical and genetic information would be time
consuming and expensive to replicate, we believe this resource makes us an
attractive collaborator for companies possessing complementary technologies
which enable us to discover disease genes more rapidly.
1
<PAGE>
OUR BUSINESS STRATEGY
Our goal is to become the leading clinical genomics company by using our
comprehensive clinical and genetic resources, together with our databases and
other bioinformatic systems, to discover disease genes and proteins and generate
revenues from licensing our discoveries to the pharmaceutical and diagnostics
industries for use in the development of drugs and diagnostics.
In order to achieve this goal, we intend to:
- concentrate on identifying disease genes and proteins applicable to the
treatment or diagnosis of common human diseases;
- expand our genetic and proprietary clinical and biological resources;
- enhance our information technology and bioinformatic systems;
- maximize our revenues from the commercialization of our discoveries by
retaining control over our gene discovery process and realizing greater
potential value offered from later-stage licensing opportunities; and
- pursue additional strategic investments, acquisitions and partnerships
that allow us to enhance revenues.
We are a development stage company. Since inception, we have incurred
significant losses and, as of March 31, 2000, we had an accumulated deficit of
$38.2 million. Since inception, we have received modest amounts of revenues,
comprising royalty receipts from the licensing of our first disease gene patent
for use in diagnostic applications and service fees from a gene validation
program. We expect that we will derive our future revenues primarily from the
licensing of disease gene and protein discoveries for drug discovery and
diagnostic applications and, to a lesser extent, from the provision of gene
validation services.
We are organized under the laws of England and Wales. Our address is 162
Science Park, Milton Road, Cambridge, CB4 0GH, England. Our telephone number is
(44) (1223) 435-300. Our web site is http://www.gemini-genomics.com. The
information found on our web site is not incorporated by reference into this
prospectus nor do we intend it to be, and you should not treat it as, forming a
part of this prospectus.
We have registered the trademark "Gemini Research" together with our Gemini
Research logo in the United States and the United Kingdom. The name "Eurona" is
registered as a Swedish trademark. We have filed trademark registrations for
"Gemini Genomics" and our Gemini Genomics logo in the United States, the United
Kingdom and the European Union. All other trademarks, service marks or trade
names referred to in this prospectus are the property of their respective
owners.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares we are offering................. A total of 12,000,000 ordinary shares, in the form of
6,000,000 ADSs (or 13,800,000 ordinary shares, in the form
of 6,900,000 ADSs, if the underwriters exercise their
over-allotment option in full).
Shares to be outstanding after this
offering............................. 62,895,220 ordinary shares (or 64,695,220 ordinary shares
if the underwriters exercise their over-allotment option
in full).
ADSs................................... Each ADS represents two ordinary shares. An ADS is an
American Depositary Share which represents two of our
ordinary shares, is quoted and pays dividends in U.S.
dollars and can trade freely on the Nasdaq National Market
using U.S. certificate, transfer and settlement practices.
The Bank of New York will be the depositary which will
issue the ADSs and will own the ordinary shares
represented by the ADSs. You will have the right to
surrender your ADSs and withdraw the ordinary shares they
represent.
Use of Proceeds........................ We expect to use the net proceeds from this offering for
working capital and other general corporate purposes,
which may include (1) funding our research and
development; (2) entering into new clinical
collaborations; (3) expanding our sales and marketing
effort to license our disease gene discoveries; and
(4) funding acquisitions, investments and partnerships.
While we regularly evaluate investment, acquisition and
partnership candidates, we have no present agreements or
commitments for any investments, acquisitions or
partnerships. We have not designated any of the proceeds
for any specific capital expenditures or for any other
specific purpose.
Nasdaq National Market symbol.......... "GMNI"
</TABLE>
The number of ordinary shares to be outstanding after the offering is based
on 50,895,220 ordinary shares outstanding as of March 31, 2000. It does not
include:
- 3,561,420 ordinary shares subject to share options outstanding as of
March 31, 2000, with a weighted average exercise price of L1.04 ($1.67)
per ordinary share;
- 40,000 ordinary shares subject to warrants outstanding as of March 31,
2000, with a weighted average exercise price of L0.05 ($0.08) per ordinary
share; and
- up to 2,360,000 ordinary shares subject to share options that we expect to
grant to our officers, directors and other employees before the closing of
this offering at an exercise price per ordinary share equal to the per
share offering price.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except share amounts)
The following table contains a summary of our consolidated statement of
operations information for the years ended March 31, 1998, 1999 and 2000. We
have derived our summary consolidated statement of operations information for
the years ended March 31, 1998, 1999 and 2000 from our audited consolidated
financial statements included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
CONSOLIDATED STATEMENT OF 1998 1999 2000
OPERATIONS INFORMATION: ---------- ----------- -----------
<S> <C> <C> <C>
Revenue................................................ $ -- $ 198 $ 164
---------- ----------- -----------
Costs and expenses:
Costs of revenue..................................... -- -- 25
Research and development............................. 6,297 9,421 9,932
Sales, general and administrative.................... 1,602 1,471 5,286
Amortization of goodwill and other intangible
assets............................................. -- -- 311
---------- ----------- -----------
Total costs and expenses............................. 7,899 10,892 15,554
---------- ----------- -----------
Loss from operations................................... (7,899) (10,694) (15,390)
Interest income........................................ 164 269 478
Interest expense....................................... (388) (320) (493)
---------- ----------- -----------
Net loss............................................... $ (8,123) $ (10,745) $ (15,405)
========== =========== ===========
Net loss per share--basic and diluted.................. $ (0.41) $ (0.54) $ (0.73)
Net loss per ADS--basic and diluted.................... $ (0.82) $ (1.08) $ (1.46)
Shares used in calculation of net loss per share and
per ADS.............................................. 20,000,000 20,000,000 21,182,195
Pro-forma net loss per share--basic and diluted
(unaudited).......................................... (0.35)
Pro-forma net loss per ADS--basic and diluted
(unaudited).......................................... (0.70)
Shares used in calculation of pro-forma net loss per
share and per ADS (unaudited)........................ 45,959,745
</TABLE>
4
<PAGE>
The following table contains a summary of our unaudited pro-forma
consolidated statement of operations information for the year ended March 31,
2000. We have derived our summary unaudited pro-forma consolidated statement of
operations information for the year ended March 31, 2000 from our unaudited
condensed pro-forma consolidated statements of operations information included
in this prospectus. Our unaudited condensed pro-forma consolidated statement of
operations information gives effect to our acquisition of Eurona (which occurred
on December 17, 1999) as if it occurred on April 1, 1999. We have provided our
summary unaudited pro-forma consolidated statement of operations information for
your information only and it is not meant to indicate the results we would have
achieved if our acquisition of Eurona occurred on April 1, 1999 or of results
that we may achieve in the future.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 2000
UNAUDITED PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION: --------------
(UNAUDITED)
<S> <C>
Revenue......................................................... $ 1,238
-----------
Costs and expenses:
Costs of revenue.............................................. 25
Research and development...................................... 15,129
Sales, general and administrative............................. 7,732
Amortization of goodwill and other intangible assets.......... 1,126
-----------
Total costs and expenses...................................... 24,012
-----------
Loss from operations............................................ (22,774)
Interest income................................................. 494
Interest expense................................................ (653)
-----------
Net loss........................................................ $ (22,933)
===========
Net loss per share--basic and diluted........................... $ (1.00)
Net loss per ADS--basic and diluted............................. $ (2.00)
Shares used in calculation of net loss per share and per ADS.... 22,932,560
</TABLE>
5
<PAGE>
The following table contains a summary of our consolidated balance sheet
information as of March 31, 2000:
- on an actual basis; and
- as adjusted to give effect to the sale of 12,000,000 ordinary shares, in
the form of ADSs, in this offering and the receipt of net proceeds of
$75.2 million, after deducting underwriting discounts and commissions,
stamp duty reserve tax and our estimated net offering expenses.
We have derived our summary consolidated balance sheet information as of
March 31, 2000 from our audited consolidated financial statements included in
this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
CONSOLIDATED BALANCE SHEET INFORMATION: -------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $13,414 $ 88,574
Working capital............................................. 6,985 82,145
Total assets................................................ 22,236 97,396
Long-term obligations, less current portion................. 2,987 2,987
Total shareholders' equity.................................. $11,888 $ 87,048
</TABLE>
We have prepared our consolidated financial statements in accordance with
U.S. generally accepted accounting principles. You should read our consolidated
financial statements, our unaudited condensed pro forma consolidated financial
statements and the audited financial statements of Eurona included in this
prospectus for a further explanation of the financial information summarized
above.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE INFORMATION IN "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," AND "BUSINESS" AS WELL AS OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS BEFORE DECIDING WHETHER
TO INVEST IN OUR ADSS.
RISKS RELATED TO OUR BUSINESS
WE HAVE GENERATED NO SIGNIFICANT REVENUES TO DATE AND EXPECT TO INCUR LOSSES FOR
THE FORESEEABLE FUTURE, WHICH COULD CAUSE THE VALUE OF OUR ADSS TO DECLINE.
Since our inception, we have generated no significant revenues. Our expenses
have exceeded our revenues in each of the years since our inception. If our gene
discovery program does not lead to the discovery of disease genes for use in
developing marketable drugs or diagnostics, we will not have licensable products
and will not generate significant revenues or become profitable. As of
March 31, 2000, our accumulated deficit was $38.2 million. We expect to continue
to experience significant operating losses in the future as we continue our
research and development efforts. Our future losses could cause the market value
of our ADSs to decline.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR GROWTH, AND IF WE DO
NOT HAVE AVAILABLE FINANCING WE COULD HAVE TO CURTAIL OUR OPERATIONS OR ENTER
INTO UNFAVORABLE AGREEMENTS.
We believe that the net proceeds from this offering, combined with our
current cash resources and funds available to us through existing financing
arrangements, will be sufficient to meet our requirements for at least 12
months. We are not currently generating sufficient revenues to fund our ongoing
operations and, even if we use all of our cash resources, we still might not be
able to fund our ongoing cash requirements. During the year ended March 31, 2000
we used $11.7 million in our operating activities and $0.7 million in our
investing activities. It is our intention to increase the growth in our
business, with an anticipated increase in our cash requirements. We have $3.0
million available under a line of credit, which we anticipate will adequately
cover our currently planned capital expenditure requirements for the next 12
months. Our current plans do not include any significant additional capital
expenditures. Changes in our research and development programs or other changes
affecting our operating expenses could, however, alter the timing and amount of
our expenditures and when we would require additional funding. If we require
additional funding, it might not be available to us on favorable terms or at
all. If we cannot obtain adequate funding, we could be required to:
- curtail our operations significantly; or
- obtain funds by entering into agreements (1) on less favorable terms than
we could have obtained if we had adequate funds and/or (2) which require
us to relinquish rights which we otherwise might have been able to retain.
In addition, if we decide to raise additional capital through the sale of equity
or convertible debt securities, your ownership interest in us could be diluted.
IF WE DO NOT FIND ANY GENES OF COMMERCIAL INTEREST, WE WILL NOT GENERATE
SIGNIFICANT ADDITIONAL REVENUES AND WILL NOT BECOME PROFITABLE.
We focus our gene discovery approach on the search for genes that affect
common human diseases, many of which are affected by several different genes and
other factors. Scientific understanding about which genes cause common diseases
is limited. To be successful, we must not only discover genes that are related
to these diseases, we must also discover genes that might be suitable candidates
for the development of drugs or diagnostics. Even if we successfully identify
disease genes, if we do not find genes with commercially viable uses we will not
generate significant additional revenues and will not become profitable.
7
<PAGE>
IF WE CANNOT SECURE AND MAINTAIN OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY NOT BE
ABLE TO REALIZE THE VALUE OF OUR GENE DISCOVERIES.
We intend to seek patent protection for our discoveries of specific links
between certain genes and diseases. The patentability of genetic information is,
however, uncertain, and involves complex legal and factual questions and has
recently been the subject of much controversy. We base our patent applications
on the discovery of a relationship between a gene and a disease (which we refer
to as functionality) rather than on the discovery of a gene alone. We have
received four U.S. patents and have applied for several others based on this
functionality approach. Patents on any of our pending or future patent
applications, however, might not be granted to us, and the scope of any of our
issued patents might not be broad enough to meaningfully protect us. If we are
unable to patent our gene discoveries, we will not be able to license our
discoveries and will not generate any revenues from them. Further, patents have
only been issued to us in certain countries and third parties can make, use and
sell products using our patented gene discoveries in any country where we do not
have patent protection.
Our ability to successfully license our gene discoveries will also partly
depend on whether third parties have pre-existing patent or other rights which
preclude or limit us from fully licensing and marketing these gene discoveries.
Our competitors may obtain patent protection or other intellectual property
rights that would limit our ability to license our gene discoveries for
commercialization in drugs or diagnostics.
We may become involved in disputes in the future about the ownership of
rights to any technology or intellectual property developed by us or based on
our gene discoveries. These and other possible disagreements could lead to
delays in or, if determined adversely to us, prevent the commercialization of
some of our gene discoveries or require or result in litigation or arbitration,
which could be time-consuming and expensive.
EVEN IF WE FIND GENES OF COMMERCIAL INTEREST, WE MUST LICENSE THEM ON
COMMERCIALLY FAVORABLE TERMS OR OUR FUTURE REVENUES COULD BE LOWER THAN WE
ANTICIPATE.
As part of our commercial strategy, we intend to enter into licensing
agreements with our customers for the development and commercialization of drugs
and diagnostics using our gene discoveries. Even if we:
- discover genes of commercial interest; and
- secure intellectual property protection for those discoveries;
we will still have to negotiate licensing agreements with pharmaceutical,
biotechnology or diagnostic companies. Our ability to negotiate commercially
favorable terms will depend on a wide variety of factors, many of which will not
be within our control. The prevailing level of competition and the value a
potential customer attaches to the prospects of our gene discovery, scientific
approach and technology compared to others are among the factors that will
influence the terms of our licensing agreements. Because our scientific approach
and technology are relatively new, the value that our customers will place on
our gene discoveries or that we will receive in any future licensing agreements
between us and our customers is uncertain. Accordingly, we might not be able to
license our gene discoveries on commercially favorable terms, which could cause
our future revenues to be lower than we anticipate.
IF OUR CUSTOMERS DO NOT SUCCESSFULLY DEVELOP OR COMMERCIALIZE DRUGS OR
DIAGNOSTICS USING OUR GENE DISCOVERIES, WE WILL NOT GENERATE ANY SIGNIFICANT
REVENUES FROM THOSE DISCOVERIES.
We intend to enter into license agreements with our customers for our gene
discoveries and expect that these license agreements will provide us with
milestone payments upon reaching specified product development stages and
royalty payments based on ultimate product sales. Accordingly, we need our
customers to successfully develop products based on our gene discoveries to
generate revenues. To successfully develop products, our customers will have to
conduct clinical trials, obtain required
8
<PAGE>
regulatory approvals and successfully manufacture, introduce and market those
products. There are a number of risks inherent in the development of drugs or
diagnostics based on our gene discoveries. These risks include:
- these products could be ineffective or toxic;
- these products, if safe and effective, could be difficult or uneconomical
to manufacture or to market; or
- others could market superior or equivalent products.
We expect that the licensing agreements we enter into will give our customers
significant discretion in deciding whether to pursue further development of any
products based on our gene discoveries. We will also not be able to control the
amount and timing of resources our customers will devote to their development
programs or potential products. In addition, we might not recognize revenues
from those milestone or royalty payments for a number of years, if ever. If our
customers do not successfully develop or commercialize products based on our
gene discoveries, we will not generate any significant revenues from our
discoveries.
IF OUR CUSTOMERS DO NOT SECURE AND MAINTAIN ALL NECESSARY REGULATORY APPROVALS
TO SELL DRUGS AND DIAGNOSTICS BASED ON OUR GENE DISCOVERIES, SALES OF THOSE
PRODUCTS WILL NOT BE POSSIBLE AND THEY WILL NOT PROVIDE US WITH ANY ROYALTY
REVENUES.
Our customers will require the necessary regulatory approvals from the U.S.
Food and Drug Administration and national health authorities in other countries
to manufacture and market any drugs and diagnostics they develop based on our
gene discoveries. These agencies impose substantial requirements, and obtaining
these approvals typically takes a number of years depending on the type,
complexity and novelty of the product. Since the drugs or diagnostics resulting
from our gene discoveries might involve the application of new technologies or a
new therapeutic or diagnostic approach, substantial additional review could be
required. This could cause significant delays or excessive costs for our
customers in their efforts to secure necessary approvals. Because of this, our
customers could decide not to pursue the required approvals or might not obtain
the required approvals in a timely manner or at all, even if they decide to
pursue them. Our customers' manufacturing and marketing activities will also be
subject to continuing regulatory review, even after they obtain all required
regulatory approvals. If previously unknown problems with a product,
manufacturer or facility are discovered, restrictions could be placed on the
product or manufacturer, including withdrawal of the product from the market. If
our customers fail to obtain or maintain the required regulatory approvals,
sales of the affected product based on our gene discovery would not be possible
and we would not generate any royalty revenues and could lose remaining
milestone payments.
IF WE DO NOT HAVE ACCESS TO THIRD PARTY TECHNOLOGIES, OUR GENE DISCOVERY PROCESS
COULD BE MORE EXPENSIVE AND TIME CONSUMING.
The cost and speed of our gene discovery process currently depends on our
technology alliances, which give us access to sophisticated gene sequence
information, technology and equipment. If we do not access these technologies
through our technology alliances, our disease gene discovery process could
become more expensive and time consuming. Although we have entered into a number
of agreements with our technology collaborators to gain access to these
technologies and equipment for our projects covered by those agreements, these
projects could be terminated prior to their successful completion. We also might
not be able to enter into additional technology alliances that we will require
in order to support our other gene discovery programs.
9
<PAGE>
WE DEPEND UPON THIRD PARTIES FOR CLINICAL DATA COLLECTION AND THE EXTRACTION AND
STORAGE OF GENETIC MATERIAL, AND IF WE DO NOT HAVE ADEQUATE ACCESS TO THOSE DATA
AND MATERIALS, WE MIGHT NOT HAVE THE RESOURCES WE NEED TO CONTINUE OUR GENE
DISCOVERY PROGRAM.
We depend on third parties for the collection of extensive and detailed
proprietary clinical data and the collection and storage of large quantities of
genetic material (including DNA) and other biological samples. We obtain all of
our clinical data and related genetic samples from our clinical collaborators.
Although we have entered into a number of agreements with our clinical
collaborators for the collection of this information, we might not continue to
have adequate access to the clinical data and the genetic material and other
biological samples we need to support our ongoing gene discovery programs. Our
agreements with our clinical collaborators typically are renewable, but
individual collaborators could decide not to renew their agreements. While these
agreements typically provide that data collected in the past will remain our
property, we might not be able to effectively enforce those terms in the
jurisdiction of the collaborator and enforcing those terms could be very
time-consuming and expensive.
In addition:
- OUR PLANNED JOINT VENTURE IN NEWFOUNDLAND, CANADA MAY NOT MATERIALIZE. In
February 2000, we signed a letter of intent with parties in Newfoundland,
Canada to establish a joint venture to study the population of
Newfoundland and Labrador. Under the agreement contemplated by the letter
of intent, we would fund the venture in part and gain access to data and
discoveries arising from the research performed by the venture. We intend
to finalize the agreement in the near future, but the agreement may be
delayed or never finalized and the venture may never be formed if we do
not agree on final terms.
- THE COST OF ENTERING NEW CLINICAL COLLABORATIONS IS INCREASING BECAUSE OF
THE INCREASED COMMERCIAL INTEREST IN GENOMICS. While we believe that the
group of collaborators that we have established over the last few years is
one of our competitive advantages, we also recognize that adding future
clinical collaborators may be more competitive and expensive.
If we are not able to continue to obtain clinical data and biological
samples, we might not have the resources we need to continue our gene discovery
program.
THE PERFORMANCE OF OUR COMPUTER SYSTEMS IS CRITICAL TO OUR BUSINESS, AND IF WE
EXPERIENCE SYSTEM FAILURES, OUR GENE DISCOVERY PROGRAM COULD BE HINDERED.
The performance of our computer systems is critical to our ability to
identify and determine the specific function of genes. We have proprietary
rights to the clinical data that we collect through our clinical collaborators
and to genetic information derived from that clinical data. We access other
genetic information from our technology collaborators. Increasing amounts of
genetic data (as opposed to clinical data) are available in the public domain.
Accordingly, our computer systems must effectively handle large amounts of
proprietary and non-proprietary information. The performance of our computer
systems may impact whether we discover a disease gene, or how quickly we make a
discovery.
We attain and store data using sophisticated computer software and systems,
which may contain undetected errors or failures. We may not succeed in upgrading
our databases or other technologies or integrating our current technology with
other new or existing technologies. To the degree we depend on third party
suppliers of technology, those suppliers might not provide useful services or
their technologies might not function as anticipated or be successfully
integrated with our own technology.
OUR COMPETITORS COULD MAKE FASTER OR MORE EFFECTIVE DISCOVERIES THAN WE DO WHICH
COULD PREVENT US FROM SUCCESSFULLY LICENSING OUR DISEASE GENE DISCOVERIES.
There is intense competition among organizations attempting to identify
genes related to human health and disease. We compete in these areas with
biotechnology and diagnostic companies, academic and research institutions and
public funded agencies. For example, deCode Genetics, Genset, Myriad
10
<PAGE>
Genetics, Millennium Pharmaceuticals and Oxagen all use an approach that is
similar to ours based on the study of human populations to discover disease
genes. Some of these companies collect data from families with a particular
disease or access historical medical records and match information in these
records with information obtained from DNA samples. A number of these companies
have already identified disease genes. In addition, numerous pharmaceutical
companies, including Glaxo Wellcome and SmithKline Beecham, have developed
genomic research programs to identify genes affecting specific diseases, either
alone or in partnership with some of our competitors. A number of companies
including Celera Genomics (a division of PE Corporation), CuraGen, Human Genome
Sciences and Incyte Pharmaceuticals are involved in identifying genes using gene
sequencing technologies and equipment and other technologies which also may be
complementary to our approach. Some of our technology collaborators, including
Celera Genomics and CuraGen, may also be potential competitors to us.
Competition among all of these entities attempting to identify genes related to
human health and disease is intense and is expected to increase. To compete in
our industry, we will need to demonstrate that our approach, technologies and
capabilities are superior to those of our competitors. Many of our competitors
have substantially greater capital resources, research and development budgets,
scientific and other facilities and human resources than we do. These
competitors may discover disease genes before us or which are more effective
than those discovered by us, either of which could prevent us from successfully
licensing a disease gene discovery. We also face competition from these and
other entities in gaining access to clinical collaborators.
CONSOLIDATION AND OTHER TRENDS WITHIN THE PHARMACEUTICAL AND DIAGNOSTIC
INDUSTRIES COULD LIMIT THE AMOUNT OUR CUSTOMERS WILL SPEND FOR OUR DISEASE GENE
DISCOVERIES, WHICH COULD CAUSE OUR FUTURE REVENUES TO BE LOWER THAN WE
ANTICIPATE.
We expect that our customers will primarily be from the pharmaceutical and
diagnostic industries and that reductions and delays in research and development
expenditures by companies in these industries will adversely affect us. In
addition, mergers and consolidation in the pharmaceutical and diagnostics
industries will reduce the potential number of our customers and could limit
competition among these customers for our disease gene discoveries and the
amount our customers are willing to pay for our disease gene discoveries. If any
of these events occurred, we could generate less revenues than we anticipate.
OUR RESEARCH, FINDINGS, PRODUCTS BASED ON OUR DISCOVERIES OR OUR TECHNOLOGIES
COULD BECOME OBSOLETE, WHICH COULD MAKE OUR GENE DISCOVERIES UNMARKETABLE.
The genomics field has changed rapidly and significantly. We expect that
this will continue. Our future success will depend in large part on our ability
to maintain a competitive position in the genomics field. Rapid technological
developments by us or others could make our research techniques, findings and
products based on our discoveries or our technologies obsolete. Less expensive
or more effective drug discoveries and drug discovery technologies, including
drugs and technologies that may be unrelated to genomics, could also make our
gene discoveries obsolete and unmarketable. We may not be able to make the
enhancements to our technology necessary to compete successfully with newly
emerging technologies.
IF THE VALIDITY OF THE CONSENTS FROM OUR CLINICAL COLLABORATORS' VOLUNTEERS IS
SUCCESSFULLY CHALLENGED, WE COULD BE FORCED TO STOP USING SOME OF OUR CLINICAL
OR GENETIC RESOURCES WHICH COULD HINDER OUR GENE DISCOVERY PROGRAMS.
We have attempted to ensure that all clinical data and genetic and other
biological samples we receive have been collected by our clinical collaborators
from volunteers and provided to us on an anonymous basis and with appropriate
consents for the data and samples to be used for purposes which extend to cover
our gene discovery program and other activities. We have also attempted to
ensure that the volunteers from whom our data and samples are collected do not
retain or have conferred on them
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<PAGE>
any proprietary or commercial rights to the data or samples or any discoveries
derived from them. Our clinical collaborators are based in a number of different
countries (the United Kingdom, Sweden, China and Australia). While we believe
that one of our advantages is the number of different ethnic groups we have
information about in our clinical database, the fact that our collaborators are
based in different countries results in complex legal questions regarding the
adequacy of consents and the status of genetic material under a large number of
different legal systems. The consents obtained in any particular country could
be challenged in the future and those consents may prove invalid, unlawful or
otherwise inadequate for our purposes. Any findings against us or our clinical
collaborators could deny us access to or force us to stop using some of our
clinical or genetic resources which could hinder our gene discovery programs.
Also, we could become involved in legal challenges which could consume a
substantial proportion of our management and financial resources.
IF HEWLETT PACKARD INTERNATIONAL BANK, ONE OF OUR CREDIT PROVIDERS, IS GRANTED
THE FURTHER WARRANTS THAT WE PLAN TO ISSUE, OR IF OUR DIRECTORS, OFFICERS OR
EMPLOYEES EXERCISE SHARE OPTIONS UNDER ONE OF OUR SHARE OPTION SCHEMES, WE MAY
BE REQUIRED TO RECORD CHARGES IN OUR STATEMENT OF OPERATIONS WHICH WOULD CAUSE A
DECREASE IN OUR FINANCIAL RESULTS AND COULD CAUSE THE MARKET VALUE OF THE ADSS
TO DECLINE.
As part of a line of credit with Hewlett Packard International Bank, we have
issued warrants to purchase a total of up to 40,000 ordinary shares and have
agreed to issue warrants to purchase an additional 80,000 ordinary shares, each
at an exercise price of L0.05 ($0.08) per ordinary share. If these warrants are
granted, any excess of the market value of the ordinary shares compared to the
exercise price of the warrants will result in a corresponding charge to our
statement of operations. If certain share options issued to U.K. directors,
officers and employees are exercised, we will be liable under current U.K.
legislation to pay a national insurance charge on the difference between the
market value of the ordinary shares on the date of exercise and the exercise
price of the share options exercised. Either of these events would cause a
decrease in our financial results and could cause the market value of the ADSs
to decline.
CURRENCY FLUCTUATIONS COULD CAUSE A DECREASE IN OUR FINANCIAL RESULTS.
We are subject to risks of currency fluctuation. Substantially all of our
business is currently conducted in currencies other than the U.S. dollar,
principally the British pound and, to a lesser extent, the Swedish krona. We
prepare the financial statements of our operating subsidiaries using the
currency of the country in which the subsidiary is incorporated and then
translate them into British pounds, our functional currency, for the preparation
of our consolidated financial statements. We then translate our consolidated
financial statements into U.S. dollars, our reporting currency. We have
translated (1) our revenues and expenses into U.S. dollars at the average
exchange rate during the relevant period and (2) our assets and liabilities into
U.S. dollars at the exchange rate at the end of the relevant period. Our
translation of British pound amounts into U.S. dollars gives us foreign currency
translation gains or losses which we include as a component of our shareholders'
equity. Fluctuations in the rate of exchange of the British pound, as well as
the Swedish krona, relative to the U.S. dollar will affect period-to-period
comparisons of our reported results. Accordingly, our results will be subject to
exchange rate fluctuations which could lead to losses that cause a decrease in
our financial results in any year.
OUR GENE DISCOVERIES MAY TAKE A LONG TIME TO LICENSE, WHICH COULD CAUSE US TO
SPEND CONSIDERABLE RESOURCES ON UNSUCCESSFUL EFFORTS.
Our ability to license our gene discoveries will depend on our customers'
belief that we can help their drug discovery efforts proceed more rapidly. We
expect that licensing our gene discoveries will take a long time because we will
need to educate potential customers and convince these companies of the benefits
of our gene discoveries. In addition, each license agreement will involve the
negotiation of
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<PAGE>
unique terms. We may expend substantial funds and management effort and still
may not reach an agreement. In addition, the actual and proposed consolidations
of pharmaceutical companies have affected and may in the future affect the
timing and progress of our licensing efforts.
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR ACQUISITION AND INVESTMENT
STRATEGY, WHICH COULD LEAD TO OUR GROWTH BEING SLOWER THAN WE ANTICIPATE.
We expect to selectively make acquisitions of, or significant investments
in, complementary companies and technologies. To date, we have made one major
acquisition (Eurona in December 1999), which we believe we have successfully
integrated. Our acquisition strategy depends on the availability of suitable
acquisition candidates, financing on acceptable terms and our ability to comply
with the restrictions contained in our debt agreements, if any. In addition,
growth by acquisition involves risks, including integrating the operations,
disparate technologies and personnel of acquired companies, managing
geographically dispersed operations and the potential loss of key employees,
customers and strategic partners of acquired companies. We may not successfully
integrate any acquired businesses or technologies and may not achieve
anticipated revenue and cost benefits. We expect that pursuing our acquisition
strategy will be expensive, time consuming and may strain our resources. If we
cannot successfully implement this strategy, our growth could be slower than we
anticipate. In addition, we may be required to amortize significant amounts of
goodwill and other intangible assets in connection with future acquisitions,
which could cause a decrease in our financial results and the market price of
our ADSs.
ADVERSE ETHICAL OR SIMILAR CONCERNS RELATING TO THE USE OF GENETIC INFORMATION
COULD LEAD TO RESTRICTIONS OR REGULATIONS THAT HINDER OUR COLLECTION OF CLINICAL
DATA OR REDUCE THE POTENTIAL MARKET FOR OUR PRODUCTS.
The collection of genetic samples and genetic testing has already raised
concerns regarding confidentiality and the appropriate uses of the resulting
information. For these reasons, governmental authorities may decide to restrict
or regulate the use of genetic information or prohibit testing for a genetic
predisposition to certain conditions, particularly for those that have no known
cure. Any restriction or regulation could hinder our collection of clinical data
or reduce the potential markets for our products.
IF WE CANNOT ATTRACT AND RETAIN HIGHLY-SKILLED PERSONNEL, OUR GENE DISCOVERY
PROGRAM AND THE GROWTH OF OUR BUSINESS MIGHT NOT PROCEED AS RAPIDLY AS WE
INTEND.
We depend on our ability to identify, attract, hire, train, retain and
motivate highly-skilled personnel, in particular scientific, medical and
technical personnel, for our future success. Competition for highly skilled
personnel is intense, and we might not attract and retain these employees. If we
cannot attract and retain the personnel we require, we might not be able to
pursue our gene discovery program or expand our business as rapidly as we
intend.
IF WE LOSE ANY OF OUR DATA OR CLINICAL SAMPLES, OUR GENE DISCOVERY EFFORTS COULD
BE DELAYED OR PREVENTED.
Although we have taken steps to ensure the security of our data and clinical
genetic material and others samples by using multiple storage sites, that
security could be compromised by a natural or man-made disaster or deliberate
interference with storage sites. The loss of any of our data or clinical samples
could delay or even prevent one or more of our gene discovery programs.
RISKS RELATING TO THIS OFFERING
OUR SHARE PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO SELL YOUR ADSS AT OR
ABOVE THE INITIAL PUBLIC OFFERING PRICE.
The stock market in general, and the market for stocks of technology related
companies in particular, has experienced extreme price and volume fluctuations.
These broad market and industry
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<PAGE>
fluctuations may adversely affect the market price of our ADSs, irrespective of
our actual operating performance. Additional factors which could influence the
market price of our ADSs include statements and claims made by us and other
participants in our industry, academic and research institutions and public
officials. The initial public offering price for the ADSs will be agreed by
negotiation between us and the representatives of the underwriters and may not
be indicative of prices that will subsequently prevail in the market.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL SHAREHOLDERS COULD PREVENT A CHANGE OF OUR MANAGEMENT OR A BUSINESS
COMBINATION, EVEN IF IT WOULD BE BENEFICIAL TO OUR OTHER SHAREHOLDERS.
After this offering, our directors, entities affiliated with our directors
and our executive officers will beneficially own, in the aggregate approximately
41% of our outstanding ordinary shares. Accordingly, these persons, acting
together, will have the ability to substantially influence all matters submitted
to our shareholders for approval, including the election and removal of
directors and any merger, consolidation or sale of all or substantially all of
our assets. These persons will also have the ability to control our management
and affairs. Accordingly, the concentration of ownership may have the effect of
delaying, deferring or preventing a change in control, impeding a merger,
consolidation, takeover or other business combination involving us or
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of our business, even if that transaction would be
beneficial to other shareholders.
OUR MANAGEMENT HAS BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING, AND
YOU MAY DISAGREE WITH HOW THOSE PROCEEDS WILL BE USED.
We intend to use the proceeds of this offering for working capital and
general corporate purposes, which may include funding research and development,
entering new clinical collaborations, expanding our sales and marketing efforts
and for the acquisition of or investment in companies, technologies or assets
that complement our business. We have not determined the amounts or timing of
any of these expenditures, therefore our directors and management have
considerable discretion in utilizing the net proceeds of this offering. We may
use the proceeds in ways that are different from our current intentions and you
might not agree with the uses we choose.
IF YOU PURCHASE ADSS, YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION FROM THE
PRICE YOU PAY.
The initial offering price of our ADSs (and the ordinary shares they
represent) will be substantially higher than the pro forma net tangible book
value per share of our outstanding ordinary shares immediately after the
offering. If you purchase ADSs in this offering, you will incur immediate and
substantial dilution in the pro forma net tangible book value per ordinary share
from the price you pay. Based on the initial public offering price of $14.00 per
ADS, you will experience a pro forma net tangible book value dilution per
ordinary share of $5.70 ($11.40 per ADS). We also have a large number of
outstanding options and warrants to purchase our ordinary shares with exercise
prices per ordinary share significantly below the estimated initial public
offering price of the ADSs. Your ownership interest will be further diluted if
outstanding or future options or warrants to purchase our ordinary shares are
exercised or if we issue additional ordinary shares in connection with
acquisitions or for other purposes.
IF LARGE AMOUNTS OF OUR SHARES HELD BY EXISTING SHAREHOLDERS ARE SOLD IN THE
FUTURE, THE MARKET PRICE OF THE ADSS COULD DECLINE.
The market price of our ADSs could fall substantially if our existing
shareholders sell large amounts of our ordinary shares or ADSs in the public
market following this offering. These sales, or the possibility that these sales
may occur, could also make it more difficult for us to sell equity or
equity-related securities if we need to do so in the future to address
then-existing financing needs. U.S.
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<PAGE>
federal securities laws requiring the registration or exemption from
registration in connection with the sale of securities limit the number of
ordinary shares available for sale in the public market. In addition, lock-up
agreements that restrict us, our directors and officers and certain of our
existing shareholders from selling or otherwise disposing of any ordinary shares
for a period of 180 days after the date of this prospectus without the prior
written consent of SG Cowen Securities Corporation also restrict sales of our
ordinary shares. SG Cowen Securities Corporation may, however, in its sole
discretion and without notice, release all or any portion of the ordinary shares
from the restrictions in the lock-up agreements.
After this offering, we will have 62,895,220 outstanding ordinary shares.
These ordinary shares will become eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE ELIGIBLE FOR PUBLIC RESALE
---------------- ------------------------------------------------------------
<S> <C>
14,463,426 Date of this prospectus (includes 12,000,000 ordinary shares
(in the form of ADSs) to be sold in this offering)
18,318,214 180 days after the date of this prospectus
30,117,580 At various times later than 180 days from the date of this
prospectus.
</TABLE>
We intend to file one or more registration statements to register our
ordinary shares for the outstanding share options following the closing of this
offering. We expect these additional registration statements to become effective
immediately upon filing. We have granted or expect to grant to the holders of
approximately 37,265,540 ordinary shares the right to require us to register
their ordinary shares for sale to the public beginning six months after the date
of this prospectus. If these holders cause a large number of shares to be
registered and sold in the public market (in the form of ADSs or otherwise), the
price of our ADSs may fall.
WE HAVE NO INTENTION TO PAY DIVIDENDS ON OUR SHARES AND YOU MAY NEVER RECEIVE
ANY DIVIDENDS ON OUR SHARES.
We have never declared or paid any cash dividends on our shares. We
currently intend to retain our future earnings to finance the expansion of our
business, and you may never receive any dividends on our shares.
IF YOU HOLD SHARES THROUGH ADSS, YOU MAY HAVE LESS ACCESS TO INFORMATION ABOUT
OUR COMPANY AND LESS OPPORTUNITY TO EXERCISE YOUR RIGHTS AS A SHAREHOLDER.
There are risks associated with holding our shares through ADSs since we are
a public limited company organized under the laws of England and Wales. We are
subject to the Companies Act 1985 of England and Wales and to our charter
documents, which are known in the United Kingdom as our memorandum and articles
of association. The depositary will appear in our records as the owner of all of
our ordinary shares represented by the ADSs and your rights as a holder of ADSs
will be contained in the deposit agreement. Your rights as a holder of ADSs will
differ in various ways from a shareholder's rights, and you may be affected in
other ways, including:
- you may not be entitled to vote;
- you may not be able to participate in rights offerings or dividend
alternatives;
- you may not receive copies of reports and may have to go to the office of
the depositary to inspect any reports issued;
- the deposit agreement may be amended by us and the depositary, or may be
terminated by us or the depositary, without your consent in a manner that
could prejudice your rights; and
- the deposit agreement limits our obligations and liabilities and those of
the depositary.
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IT IS POSSIBLE THAT WE MAY BECOME A PASSIVE FOREIGN INVESTMENT COMPANY FOR U.S.
FEDERAL INCOME TAX PURPOSES, WHICH COULD RESULT IN NEGATIVE TAX CONSEQUENCES TO
YOU.
Based upon an analysis of our current assets and income and the way we
intend to operate our business in future years, we do not believe we will be
treated as a passive foreign investment company for U.S. federal income tax
purposes for the current or any future taxable year. Our belief that we are not
a PFIC and our expectation that we will not become a PFIC in the future are
based on our current and planned business activities, including our ability to
conclude certain contracts on terms that are agreeable to us. In the event that
we fail to conclude those contracts on a timely basis, or at all, it is likely
that we would be a PFIC for the taxable year ending March 31, 2001 and possibly
for future taxable years. This conclusion is a factual determination made
annually and could change. In addition, a number of the factors that will be
relevant to the determination as to whether we are a PFIC will depend on
circumstances that may not be within our control. Because the valuation and
composition of our (1) assets (including goodwill, the amount of which will
depend, in part, on the market value of our ordinary shares, which is subject to
change) and (2) income (including the proceeds of this offering), from time to
time, will determine whether we will be treated as a passive foreign investment
company, we cannot assure U.S. investors that we will not become a passive
foreign investment company in the current or any future taxable years. In
addition, under certain attribution rules, if we own 25% or more of any
corporation's value, we will be treated as owning our proportionate share of
that corporation's assets and earning our proportionate share of that
corporation's income. If we become a passive foreign investment company in any
taxable year, a U.S. investor would suffer adverse U.S federal income tax
consequences which we describe in more detail in "Taxation--Passive Foreign
Investment Company Considerations." We urge U.S. investors to consult their own
tax advisors about the application of the passive foreign investment company
rules in their particular circumstances.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements in this prospectus represent our expectations for Gemini and
its subsidiaries and the sector in which we operate, and involve risks and
uncertainties. These forward-looking statements are principally disclosed under
the captions "Prospectus Summary--Gemini Genomics plc," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
and can be identified by the use of words such as "believes," "expects," "may,"
"will," "should," "intends," "plans," "anticipates," "estimates" or other
similar words. We have based these forward-looking statements on our current
expectations and projections about future events. We believe that our
expectations and assumptions with respect to these forward-looking statements
are reasonable. However, our expectations and assumptions may prove to be
incorrect. Important factors that could cause our actual results to differ from
our expectations are discussed in more detail elsewhere in this prospectus,
including under the captions "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." When
considering these forward-looking statements, you should keep in mind the risk
factors and other cautionary statements in this prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Given these considerations, you should not place undue reliance on such
forward-looking statements.
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USE OF PROCEEDS
The net proceeds to us from the sale of 12,000,000 ordinary shares, in the
form of ADSs, in this offering, after deducting underwriting discounts and
commissions, stamp duty reserve tax and our estimated net offering expenses,
will be approximately $75.2 million ($86.7 million if the underwriters exercise
their over-allotment option in full).
We expect to use the net proceeds from the offering for working capital and
other general corporate expenses, which may include:
- funding our research and development program (which we estimate will
account for between 30% and 50% of the net proceeds);
- entering into new clinical collaborations (which we estimate will account
for between 10% and 30% of the net proceeds);
- expanding our sales and marketing efforts to license our gene discoveries
(which we estimate will account for between 5% and 20% of the net
proceeds); and
- funding acquisitions, investments and partnerships.
While we regularly evaluate investment, acquisition and partnership
candidates, we have no present agreements or commitments for any investments,
acquisitions or partnerships, and therefore none of the proceeds are
specifically allocated for these purposes. We anticipate that our planned
capital expenditures will be covered by the remaining undrawn amount of $3.0
million from a $5.0 million line of credit we have secured. We have not
designated any of the proceeds of the offering for any specific purpose and
expect to use those proceeds for working capital and general corporate expenses,
including those purposes described above, as we require. Accordingly, you should
be aware that we will have a significant amount of flexibility for the
application of the net proceeds which we receive from this offering.
Pending use of the net proceeds for these purposes, we intend to invest our
net proceeds in short-term, interest-bearing, investment-grade instruments. To
determine whether we are a passive foreign investment company, the obligations
will be considered "passive assets" and the interest we receive on them will be
considered "passive income."
DIVIDEND POLICY
We have never declared or paid any dividends on our ordinary shares and do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Our board of directors will have discretion to make
any future determination to pay cash dividends and this will depend on our
financial condition, results of operations, capital requirements and other
factors that our board of directors decides are relevant.
We would pay cash dividends, if any, in British pounds. Holders of ADSs
would receive dividends paid on the ordinary shares in U.S. dollars. Exchange
rate fluctuations would affect the U.S. dollar amount received by holders of
ADSs on conversion by the depositary of dividends paid in British pounds.
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<PAGE>
EXCHANGE RATE INFORMATION
For your convenience, this prospectus contains translations of British pound
amounts to U.S. dollars. We have made all translations at the noon buying rate
for cable transfers in British pounds as certified for customs purposes by the
Federal Reserve Bank of New York on March 31, 2000 of L1.00 = $1.592 unless we
indicate to you that we have used a different exchange rate. These translations
are not representations that the British pound amounts actually represent those
U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated. On March 31, 2000, the noon buying rate was L1.00 = $1.592.
We prepare the financial statements of our operating subsidiaries using the
currency of the country in which the subsidiary is incorporated and then
translate them into British pounds, our functional currency, for the preparation
of our consolidated financial statements. We then translate our consolidated
financial statements into U.S. dollars, our reporting currency. The table below
provides, for the periods indicated, the period-end, average, high and low
exchange rates between the British pound and the U.S. dollar (expressed in U.S.
dollars per British pound), based on the noon buying rate. The average rates for
each period reflect the average of the noon buying rates on the last business
day of each month during the relevant period. We have provided these rates for
your convenience and they are not the exchange rates we used to prepare our
consolidated financial statements included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, HIGH LOW AVERAGE RATE END OF PERIOD
-------------------- -------- -------- ------------ -------------
(U.S. DOLLARS PER BRITISH POUND)
<S> <C> <C> <C> <C>
2001 (through July 25, 2000)........................ 1.596 1.471 1.522 1.519
2000................................................ 1.677 1.552 1.608 1.592
1999................................................ 1.722 1.598 1.653 1.614
1998................................................ 1.704 1.578 1.647 1.677
1997................................................ 1.695 1.495 1.599 1.645
1996................................................ 1.620 1.504 1.562 1.524
</TABLE>
The effect of the translation of Swedish kronor into British pounds and then
into U.S. dollars made during the preparation of our consolidated financial
statements in our reporting currency, the U.S. dollar, is not significantly
different than the effect of the translation of Swedish kronor directly into
U.S. dollars. The table below provides, for the periods indicated, the
period-end, average, high and low exchange rates between the Swedish krona and
the U.S. dollar (expressed in Swedish kronor per U.S. dollar), based on the noon
buying rate for cable transfers in Swedish kronor as certified for customs
purposes by the Federal Reserve Bank of New York. The average rates for each
period reflect the average of the noon buying rates on the last business day of
each month during the relevant period. We have provided these rates for your
convenience and they are not the exchange rates we used to prepare our
consolidated financial statements included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE RATE END OF PERIOD
----------------------- -------- -------- ------------ -------------
(SWEDISH KRONOR PER U.S. DOLLAR)
<S> <C> <C> <C> <C>
2000 (through July 25, 2000)........................ 9.222 8.351 8.829 8.944
1999................................................ 8.345 7.580 7.942 8.213
1998................................................ 8.144 7.481 7.838 7.998
1997................................................ 7.700 6.596 6.868 7.540
1996................................................ 7.468 6.506 6.953 6.682
1995................................................ 7.997 7.064 7.545 7.395
</TABLE>
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EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no U.K. foreign exchange control restrictions on the
conduct of our operations or affecting the remittance of dividends. Any
dividends we pay to holders of the ADSs may be subject to U.K. or other
taxation. You should read the information in "Taxation" for a more detailed
discussion of the tax consequences of investing in the ADSs. There are no
restrictions under our memorandum and articles of association or under English
law that limit the right of non-resident or foreign holders to hold or vote our
ordinary shares.
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CAPITALIZATION
The following table shows our capitalization as of March 31, 2000:
- on an actual basis; and
- as adjusted to reflect our receipt of the estimated net proceeds of
$75.2 million from the sale of 12,000,000 ordinary shares, in the form of
ADSs, in this offering, after deducting underwriting discounts,
commissions, stamp duty reserve tax and our estimated net offering
expenses.
All information below:
- assumes that the underwriters do not exercise their over-allotment option;
- excludes ordinary shares that may be issued upon the exercise of the
warrants granted to Hewlett Packard International Bank to purchase 40,000
ordinary shares and the warrants that we expect to grant them to purchase
80,000 ordinary shares at an exercise price of L0.05 ($0.08) per ordinary
share ($0.16 per ADS);
- excludes 3,561,420 ordinary shares that have been reserved for issuance in
respect of outstanding share options with a weighted average exercise
price of L1.04 ($1.67) per ordinary share ($3.34 per ADS); and
- excludes 2,360,000 ordinary shares subject to share options that we expect
to grant to our officers, directors and other employees before the closing
of this offering at an exercise price per ordinary share equal to the per
share offering price.
You should read this capitalization table together with the information in
"Selected Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Management--Share Option Schemes and Related Information" and our consolidated
financial statements and the related notes included in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
($ IN THOUSANDS)
<S> <C> <C>
Short-term debt and capital lease obligations, including
current portion........................................... 1,248 1,248
Long-term debt and capital lease obligations, excluding
current portion........................................... 2,987 2,987
------- -------
Total debt................................................ 4,235 4,235
Shareholders' equity:
Ordinary shares, nominal value L0.05 per share, 120,000,000
shares authorized; 50,895,220 shares actual and 62,895,220
shares (as adjusted) issued and outstanding............... 4,192 5,152
Additional paid-in capital.................................. 48,954 123,154
Deferred share based compensation........................... (2,611) (2,611)
Note receivable from shareholders........................... (40) (40)
Accumulated other comprehensive loss........................ (414) (414)
Deficit accumulated during the development stage............ (38,193) (38,193)
------- -------
Total shareholders' equity................................ 11,888 87,048
------- -------
Total capitalization...................................... $16,123 $91,283
======= =======
</TABLE>
20
<PAGE>
DILUTION
As of March 31, 2000, our historical net tangible book value was
$6.6 million, or $0.13 per ordinary share ($0.26 per ADS). Net tangible book
value per ordinary share represents the amount of total tangible assets, less
total liabilities, divided by the number of ordinary shares outstanding. After
giving effect to the sale of 12,000,000 ordinary shares, in the form of ADSs, in
this offering and the receipt of gross proceeds of $84.0 million and after
deducting underwriting discounts and commissions, stamp duty reserve tax and our
estimated net offering expenses, our net tangible book value as of March 31,
2000 would have been $81.8 million, or $1.30 per ordinary share ($2.60 per ADS).
This represents an immediate increase in net tangible book value of $1.17 per
ordinary share ($2.34 per ADS) to existing shareholders and an immediate
dilution of $5.70 per ordinary share ($11.40 per ADS) to new investors. The
following table illustrates this dilution:
<TABLE>
<CAPTION>
PER ORDINARY SHARE PER ADS
------------------- -----------------
($) ($)
<S> <C> <C> <C> <C>
Public offering price................................... 7.00 14.00
Historical net tangible book value at March 31, 2000.... 0.13 0.26
Increase in net tangible book value attributable
to new investors...................................... 1.17 2.34
------- -------
Pro-forma net tangible book value after this offering... 1.30 2.60
------- -------
Dilution to new investors............................... 5.70 11.40
======= =======
</TABLE>
The following table shows, as of March 31, 2000, the differences in the
number of ordinary shares purchased from us, the total cash consideration paid
and the average price per ordinary share paid by our existing shareholders in
the last year, and by new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE PER ADS
---------- ---------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders... 50,895,220 80.9% 42,108,000 33.4% $0.83 $ 1.66
New investors........... 12,000,000 19.1% 84,000,000 66.6% $7.00 $14.00
---------- ----- ----------- -----
Total................... 62,895,220 100.0% 126,108,000 100.0%
========== ===== =========== =====
</TABLE>
These tables assume no exercise of any share options or warrants outstanding
as of March 31, 2000. As of March 31, 2000, there were options outstanding to
purchase a total of 3,561,420 ordinary shares for a weighted average exercise
price of L1.04 ($1.67) per ordinary share ($3.34 per ADS) with exercise prices
ranging from L0.43 to L1.62 ($0.69 to $2.59) per ordinary share ($1.38 to $5.18
per ADS). As of March 31, 2000, there were warrants outstanding to purchase a
total of 40,000 ordinary shares for an exercise price of L0.05 ($0.08) per
ordinary share ($0.16 per ADS). If any of these options or warrants are
exercised, there will be a further dilution to new investors.
21
<PAGE>
UNAUDITED CONDENSED PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION
You should read this unaudited condensed pro forma consolidated financial
information together with our consolidated financial statements and Eurona's
financial statements, which we have also included in this prospectus. This
unaudited condensed pro forma consolidated statements of operations information
gives effect to our acquisition of Eurona (which occurred on December 17, 1999)
as if it occurred on April 1, 1999. We assumed all of the assets and all of the
liabilities of Eurona and acquired all of its share capital in exchange for
1,820,180 preferred ordinary shares (valued at $4,720,000) and $19,000 in cash.
Costs of the acquisition totaled $186,000. The total purchase price was
$4,925,000 which was allocated to assets acquired of $1,587,000, liabilities
assumed of $2,284,000 and goodwill and other intangible assets of $5,622,000. We
have provided this unaudited condensed pro-forma consolidated statement of
operations information for your information only and it is not meant to indicate
the results we would have achieved if our acquisition of Eurona occurred on
April 1, 1999 or of results that we may achieve in the future.
We have prepared our consolidated financial statements in accordance with
U.S. generally accepted accounting principles. Eurona's financial statements are
prepared in accordance with Swedish generally accepted accounting principles and
have been reconciled to U.S. generally accepted accounting principles in order
to prepare this unaudited condensed pro-forma consolidated statement of
operations information. You should read the notes to this unaudited condensed
pro forma consolidated statements of operations information for:
- a description of the adjustments made to reconcile Eurona's financial
statements to U.S. generally accepted accounting principles; and
- a description of material differences between U.S. generally accepted
accounting principles and Swedish generally accepted accounting
principles.
22
<PAGE>
The following table contains unaudited condensed pro forma consolidated
statement of operations information for the year ended March 31, 2000, and has
been prepared based on:
- Our audited consolidated financial statements for the year ended March 31,
2000 included in this prospectus; and
- Eurona's unaudited financial statements for the period from April 1, 1999
to December 17, 1999 (the date of the acquisition) not included in this
prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------
EURONA
GEMINI (NOTE 1) ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue................................... $ 164 $ 1,074 $ -- $ 1,238
----------- ----------- ----------- -----------
Costs and expenses:
Costs of revenue........................ 25 -- -- 25
Research and development................ 9,932 5,197 -- 15,129
Sales, general and administrative....... 5,286 2,446 -- 7,732
Amortization of goodwill and other
intangible assets..................... 311 -- 815(a) 1,126
----------- ----------- ----------- -----------
Total costs and expenses............ 15,554 7,643 815 24,012
----------- ----------- ----------- -----------
Loss from operations...................... (15,390) (6,569) (815) (22,774)
Interest income........................... 478 16 -- 494
Interest expense.......................... (493) (160) -- (653)
----------- ----------- ----------- -----------
Net loss.................................. (15,405) (6,713) (815) (22,933)
=========== =========== =========== ===========
Net loss per share--basic and diluted..... (0.73) (1.00)
Shares used in calculation of net loss per
share................................... 21,182,195 22,932,560
</TABLE>
------------------------
(a) Gives effect to the amortization over five years of the goodwill and other
intangible assets of $5,622,000 arising on the acquisition of Eurona during
the year ended March 31, 2000.
23
<PAGE>
NOTE 1--EURONA STATEMENTS OF OPERATIONS
The historical financial statements of Eurona have been prepared in
accordance with Swedish GAAP, which differs from U.S. GAAP.
The following table sets out the adjustments necessary to show the
historical financial statements of Eurona in accordance with U.S. GAAP:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1999
TO
DECEMBER 17, 1999
------------------
(IN THOUSANDS)
<S> <C>
Net loss for the period under Swedish GAAP................ $(3,858)
Capitalized research and development(a)................... (1,354)
Share options and warrants(b)............................. (1,460)
Prepared samples and oligonucleotides(c).................. (41)
-------
Net loss for the period under U.S. GAAP................... $ 6,713
=======
</TABLE>
------------------------
(a) Under Swedish GAAP, research and development expenditure may be capitalized.
This is not permitted under U.S. GAAP.
(b) Under U.S. GAAP, compensation expense should be recorded for share options
and warrants issued to non-employees. Under Swedish GAAP, such expense is
recorded only if the options or warrants are issued at below the fair value
of the underlying shares.
(c) Under Swedish GAAP, samples prepared for a company's own use may be
capitalized. Such expenses would not qualify for capitalization under
U.S. GAAP.
Swedish kronor have been translated into U.S. dollars at an exchange rate of
SEK 7.9420 to $1.00.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
You should read the selected consolidated financial information in the
tables below together with our consolidated financial statements and the related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this prospectus.
The following table contains our selected consolidated statement of
operations information for the period from September 11, 1995 (our inception) to
March 31, 1996 and for the years ended March 31, 1997, 1998, 1999 and 2000. We
have derived our selected consolidated statement of operations information for
the years ended March 31, 1998, 1999 and 2000 from our audited consolidated
financial statements included in this prospectus. We have derived our selected
consolidated statement of operations information for the period from
September 11, 1995 (our inception) to March 31, 1996 and for the year ended
March 31, 1997 from our audited consolidated financial statements not included
in this prospectus. Our historical results are not necessarily indicative of our
future results.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SEPTEMBER 11, SEPTEMBER 11,
1995 1995
(INCEPTION) TO YEAR ENDED MARCH 31, (INCEPTION) TO
MARCH 31, -------------------------------------------------- MARCH 31,
CONSOLIDATED STATEMENT OF OPERATIONS 1996 1997 1998 1999 2000 2000
INFORMATION: -------------- ---------- ---------- ---------- ----------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................... $ -- $ -- $ -- $ 198 $ 164 $ 362
Total costs and expenses................... 452 3,296 7,899 10,892 15,554 38,093
---------- ---------- ---------- ---------- ----------- ------------
Loss from operations....................... (452) (3,296) (7,899) (10,694) (15,390) (37,731)
Interest income............................ -- 18 164 269 478 929
Interest expense........................... (5) (185) (388) (320) (493) (1,391)
---------- ---------- ---------- ---------- ----------- ------------
Net loss................................... $ (457) $ (3,463) $ (8,123) $ (10,745) $ (15,405) $ (38,193)
========== ========== ========== ========== =========== ============
Net loss per share--basic and diluted...... $ (0.23) $ (1.58) $ (0.41) $ (0.54) $ (0.73) $ (2.72)
Net loss per ADS--basic and diluted........ $ (0.46) $ (3.16) $ (0.82) $ (1.08) $ (1.46) $ (5.44)
Shares used in calculation of net loss per
share and per ADS........................ 2,000,000 2,197,260 20,000,000 20,000,000 21,182,195 14,042,595
</TABLE>
The following table contains our selected consolidated balance sheet
information as of March 31, 1996, 1997, 1998, 1999 and 2000. We have derived our
selected consolidated balance sheet information as of March 31, 1999 and 2000
from our audited consolidated financial statements included in this prospectus.
We have derived our selected consolidated balance sheet information as of
March 31, 1996, 1997 and 1998 from our audited consolidated financial statements
not included in this prospectus.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------------
1996 1997 1998 1999 2000
CONSOLIDATED BALANCE SHEET INFORMATION: ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......................... $ 73 $ 2,158 $ 724 $ 12,165 $ 13,414
Working capital.................................... (37) 387 (1,903) 7,343 6,985
Total assets....................................... 107 3,316 2,735 14,766 22,236
Long-term obligations, less current portion........ 442 765 1,281 636 2,987
Total shareholders' equity (deficit)............... $ (451) $ 740 $ (1,488) $ 8,806 $ 11,888
</TABLE>
We have prepared our consolidated financial statements in accordance with
U.S. generally accepted accounting principles.
Our selected consolidated financial information as of and for the year ended
March 31, 2000 reflect our acquisition of Eurona Medical AB in December 1999. We
accounted for this acquisition as a purchase. You should read Note 9 to our
consolidated financial statements for additional financial information about
this acquisition.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH
"SELECTED CONSOLIDATED FINANCIAL INFORMATION" AND OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS. THE DISCUSSION IN THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS
APPLYING TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE. YOU SHOULD
READ "RISK FACTORS" AND "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS".
OVERVIEW
We are a clinical genomics company that identifies relationships between
human genes and common human diseases. Since commencing operations in 1995, we
have focused on creating and developing our clinical information and genetic
sample resources together with our bioinformatics, information technology and
laboratory capabilities.
We are a development stage company. Since inception we have incurred
significant losses and, as of March 31, 2000, we had an accumulated deficit of
$38.2 million. As we continue to develop our business, we anticipate that we
will incur additional losses. We also expect that the cash required to support
our operating activities will increase as we expand our clinical resources and
acquire further complementary technologies.
Since inception, we have received modest amounts of revenues, comprising
royalty receipts from the licensing of our first disease gene patent for use in
diagnostic applications and service fees from a gene validation program. We
expect that we will derive our future revenues primarily from the licensing of
disease gene and protein discoveries for drug discovery and diagnostic
applications and, to a lesser extent, from the provision of gene validation
services. We expect to generate greater revenues from licensing our discoveries
to pharmaceutical companies for drug development programs than from licensing
for diagnostic applications. When licensing a gene or protein discovery, we
expect that we will receive milestone payments and product royalties. Milestone
payments are typically paid over five to seven years upon the occurrence of
specific events, or milestones, as our product is used in the drug discovery or
diagnostics process. These payments are dependent upon the success of the
development program. Accordingly, we intend to ensure that rights to development
revert to us if a development program does not proceed on the agreed timetable.
Product royalties would typically give us a percent of the revenues derived from
the sales of products using our discoveries and often specify minimum annual
payments. We do not anticipate significant future revenues from the provision of
gene validation services.
We have entered into a number of clinical collaborations with academic and
other institutions to acquire the commercial rights to gene discoveries arising
from the clinical data and samples they collect. We have also sought to
capitalize on our expanding data resources and bioinformatics and other
technological capabilities by entering into collaborations with providers of
complementary technologies in order to discover disease genes more rapidly. For
example, in September 1999, we entered into a collaboration with Celera Genomics
(a division of PE Corporation) to seek genes and variations within DNA sequences
associated with common human diseases and to jointly commercialize such
discoveries by licensing them to third parties. We have also established
technology alliances with Qiagen Genomics, Large Scale Proteomics, CuraGen and
Sequenom.
On December 17, 1999, we acquired Eurona Medical AB, a Swedish genomics
company. We paid $4.9 million for Eurona, in the form of 1,820,180 newly issued
preferred ordinary shares, $19,000 in cash, and $186,000 in direct costs
relating to the acquisition. We have successfully restructured Eurona to focus
on gene discovery and have fully integrated it with our operations. As a result
of this
26
<PAGE>
acquisition, we have significantly expanded our access to clinical and genetic
resources which enables us to conduct our gene discovery process more rapidly.
In addition we have streamlined our combined operations and reduced our total
number of employees from 114 to 80. This has significantly reduced our overall
operating expenses, and therefore, our cash requirements.
Following the Eurona acquisition, our existing shareholders provided us with
$11.1 million in cash by subscribing for new preferred ordinary shares in a
rights offering. These funds allowed us to:
- finance our short-term operations;
- expand our clinical and genetic resources;
- establish an office in Boston, Massachussetts, in order to serve as our
principal business development office and support our activities in North
America; and
- pursue technology collaborations in an effort to increase the speed of our
gene discovery process.
Since inception we have raised $42.1 million of equity from our shareholders.
We expect our costs to increase as we continue to grow. A significant
portion of our historical cost has been related to our clinical collaborators,
and we expect this to continue. We pay our clinical collaborators for
recruitment of volunteers, performance of clinical measurements, collection and
storage of clinical samples and certain analysis of the clinical data. We record
the costs of our clinical collaborations as research and development costs. We
expect that an increasing proportion of our costs will reflect our investment in
new technologies to analyze our growing data resources and to increase the speed
of our gene discovery process. We also expect to incur charges relating to the
future exercise of warrants and share options, which we are currently unable to
quantify. In the year ended March 31, 2000, we incurred $0.5 million of share
option based compensation charges and as of March 31, 2000 had a deferred
compensation balance of $2.6 million. Amortization of this balance will be
approximately $1.5 million and $1.1 million for the years ending March 31, 2001
and 2002, respectively.
We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including the timing and extent to which we secure further commercial
relationships and the timing and extent of our research and development efforts.
Our limited operating history and the fast pace of developments in the genomics
sector make it difficult for us to accurately predict our future operations.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 2000 COMPARED TO THE YEAR ENDED MARCH 31, 1999
REVENUES
Revenues decreased by $34,000 to $164,000 in the year ended March 31, 2000
from $198,000 in the year ended March 31, 1999. This decrease related both to
the completion of a gene validation program during the year and reflects the
fact that revenues were received for a lesser amount of work than in the
previous year.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $0.5 million to $9.9 million
in the year ended March 31, 2000 from $9.4 million in the year ended March 31,
1999. These expenses primarily relate to our clinical collaborators and, to a
lesser extent, salaries for research and development personnel, external
scientific advisors and laboratory costs. The increase reflected costs of
$0.5 million incurred in order to streamline the analysis of genetic samples
taken from volunteers in China by establishing a gene analysis center at the
Anhui Meizhong Institute of Biomedical Sciences and Environmental Health.
27
<PAGE>
SALES, GENERAL AND ADMINISTRATIVE EXPENSES
Sales, general and administrative expenses increased by $3.8 million to
$5.3 million in the year ended March 31, 2000 from $1.5 million in the year
ended March 31, 1999. These expenses consisted primarily of employment and
facilities costs and other expenses incurred by our business development,
information technology, finance and various support functions. This increase
included $2.2 million of additional costs relating to our increased sales and
marketing activities, which primarily consisted of additional personnel, travel
and material costs incurred in business development and administrative
functions. Also included in the increase is a $1.3 million charge relating to
the issuance of 500,000 preferred ordinary shares under agreements reached in
the period with a number of ex-employees and approximately $0.3 million related
to share option compensation.
INTEREST EXPENSE (NET)
Net interest expense decreased by $37,000 to $15,000 in the year ended
March 31, 2000 from $52,000 in the year ended March 31, 1999. Interest income
increased by $210,000 to $478,000 in the year ended March 31, 2000 from $268,000
in the year ended March 31, 1999 due to higher balances of interest bearing cash
deposits. Interest payable increased by $173,000 to $493,000 in the year ended
March 31, 2000 from $320,000 in the year ended March 31, 1999 due to increased
capital lease obligations and the inclusion of a charge relating to the issuance
of warrants to a debt provider.
YEAR ENDED MARCH 31, 1999 COMPARED TO THE YEAR ENDED MARCH 31, 1998
REVENUES
Revenues were $198,000 in the year ended March 31, 1999 and there were no
revenues in the year ended March 31, 1998. Our revenues in the year ended
March 31, 1999 arose from the first licensing of our osteoporosis gene
association patent and the commencement of a gene validation program.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $3.1 million to $9.4 million
in the year ended March 31, 1999 from $6.3 million in the year ended March 31,
1998. This increase related to a significant increase in internal research and
development activity, amounting to $2.5 million, and the commencement of a
number of new clinical collaborations, amounting to $0.6 million.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES
Sales, general and administrative expenses decreased by $0.1 million to
$1.5 million in the year ended March 31, 1999 from $1.6 million in the year
ended March 31, 1998. This decrease was the result of a reduction in the number
of our senior management personnel.
INTEREST EXPENSE (NET).
Net interest expense decreased by $172,000 to $52,000 in the year ended
March 31, 1999 from $224,000 in the year ended March 31, 1998. Interest income
increased by $104,000 to $268,000 in the year ended March 31, 1999 from $164,000
in the year ended March 31, 1998 due to the higher balances of interest being
cash deposits. Interest payable decreased by $68,000 to $320,000 in the year
ended March 31, 1999 from $388,000 in the year ended March 31, 1998 due to the
lower interest elements within capital lease repayments.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the
private placement of equity securities. Since inception we have raised
$42.1 million of equity from our shareholders. In addition, we have entered into
a number of capital lease agreements totaling $8.0 million to finance the
acquisition
28
<PAGE>
of our scientific and computer equipment. As of March 31, 2000, we have made
capital repayments on these leases totaling $3.9 million.
As of March 31, 2000 we had cash and cash equivalents of $13.4 million
compared to cash and cash equivalents of $12.2 million at March 31, 1999. This
increase reflects receipt of the proceeds from our equity financings completed
in March 1999 and December 1999. As at March 31, 1999 we had cash and cash
equivalents of $12.2 million compared to cash and cash equivalents of
$0.7 million at March 31, 1998. This increase was principally due to the receipt
of the proceeds from an equity financing completed in March 1999. Our funds are
invested in British pound term deposits with HSBC.
We expect our cash and cash equivalents, together with the proceeds from
this offering, our operations and interest income earned, to be sufficient to
fund our operations for at least the next 12 months. The adequacy of our
available funds will depend on many factors, including scientific progress in
our research and development programs, the magnitude of those programs, our
commitments to existing and new clinical collaborators, our ability to establish
commercial and licensing arrangements, our capital expenditures, market
developments and any future acquisitions. Accordingly, we may require additional
funds and may attempt to raise additional funds through equity or debt
financings, collaborative agreements with commercial partners or from other
sources.
In February 2000, we established a $5.0 million line of credit for capital
equipment financings with Hewlett Packard International Bank. We have drawn a
total of $2.0 million against this line of credit. Interest is repayable
quarterly at 10.7% per annum over the four year period of the lease, which has a
capital repayment holiday for the first 18 month period. We have no commitments
for any additional financings. In connection with entering into this line of
credit, we have granted Hewlett Packard International Bank warrants to purchase
40,000 ordinary shares and have agreed to grant them additional warrants to
purchase up to 80,000 additional ordinary shares. Hewlett Packard International
Bank has until February 21, 2003 to exercise its outstanding warrants and may do
so by providing us with notice of its intention to exercise the warrants as well
as by paying an exercise price of L0.05 ($0.08) per ordinary share. Any excess
of the market value over the exercise price of the ordinary shares will have an
adverse impact on our statement of operations.
Our capital expenditures totaled $1.0 million, $1.1 million and
$0.7 million in the years ended March 31, 1998, 1999 and 2000, respectively. In
each period these expenditures consisted principally of the purchase of
laboratory equipment and information technology.
IMPACT OF INFLATION
The impact of inflation and changing prices on our operations was not
significant during the periods presented.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve capital
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. We currently maintain our portfolio of
cash and cash equivalents by investing in term deposits of varying lengths,
between one day and one year. In the future, some of the securities that we
invest in may have market risk. This means that a change in prevailing interest
rates may cause the fair value of the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the fair value of the principal amount of our investment will probably
decline. To minimize this risk in the future, we intend to maintain our
investment portfolio in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities. Due to the
short term nature of these and our current investments, we believe we have no
material exposure to interest rate risk arising from our investments.
29
<PAGE>
FOREIGN CURRENCY RATE FLUCTUATIONS
The functional currency of our operating subsidiaries are British pounds and
Swedish kronor. In accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION we
translate Swedish kronor to British pounds for balance sheet accounts using the
exchange rate in effect at the balance sheet date and for revenues and expense
accounts at the average exchange rate during the period. The effects of
translation are recorded as a separate component of shareholders' equity. We
translate our consolidated financial statements from British pounds, our
functional currency, to U.S. dollars, for reporting purposes. Fluctuations in
the rate of exchange of the British pound relative to the U.S. dollar will
affect period-to-period comparisons of our reported results.
We have not taken any action to reduce our exposure to changes in foreign
currency exchange rates, such as options or futures contracts, with respect to
any transactions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS. This statement changes the previous
definition of derivative, which focused on freestanding contracts such as
options and forwards, including futures and swaps, expanding it to include
embedded derivatives and many commodity contracts. Under the statement, every
derivative is recorded in the balance sheet as either an asset or a liability
measured at its fair value. The statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. We do not anticipate that the adoption of SFAS
No. 133 will have a material impact on our financial position or results of
operations.
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BUSINESS
OVERVIEW
We are a clinical genomics company that uses clinical and medical
information as a starting point to identify relationships between genes and
human health and disease. We expect that our discoveries will provide us with
licensable products which pharmaceutical and diagnostic companies will use in
drug discovery and/or gene-based diagnostic applications. We already have
comprehensive and diverse clinical and genetic resources collected for us by our
clinical collaborators from human volunteers and databases and other biological
information management and analysis (or bioinformatic) systems as well as the
additional resources provided by our technology collaborators, which include
Celera Genomics (a division of PE Corporation), Qiagen Genomics, Large Scale
Proteomics, CuraGen and Sequenom.
OUR BUSINESS STRATEGY
Our goal is to become the leading clinical genomics company by using our
comprehensive clinical and genetic resources, together with our databases and
bioinformatic systems, to discover disease genes and proteins and generate
revenues from licensing our discoveries to the pharmaceutical and diagnostics
industries for use in the development of drugs and diagnostics.
In order to achieve this goal we intend to:
- CONCENTRATE ON IDENTIFYING DISEASE GENES AND PROTEINS APPLICABLE TO THE
TREATMENT OR DIAGNOSIS OF COMMON HUMAN DISEASES. Our primary objective is
to identify genes and proteins that can lead to the development of drugs
or diagnostics for common human diseases such as cardiovascular disease,
diabetes, osteoporosis and central nervous system disorders. This
objective ensures that our products are targeted at the largest potential
drug and diagnostics markets. We have already licensed an osteoporosis
disease gene patent to both Affymetrix and Axis-Shield for the development
of their respective gene-based diagnostic tools.
- EXPAND OUR GENETIC AND PROPRIETARY CLINICAL AND BIOLOGICAL RESOURCES. We
have developed one of the most comprehensive and diverse collections of
clinical information and biological samples in the world. We already have
clinical information and biological samples from a number of different
groups, comprising twin populations, disease affected populations and
patients in clinical trials, from countries including the United Kingdom,
Sweden, China and Australia, and have recently strengthened our resources
by entering into a letter of intent to establish a joint venture that
would give us access to a geographically isolated population in
Newfoundland, Canada. We intend to continue to expand our clinical
resources. Our planned expansion will increase the number of ethnic groups
represented in our data resources and the number of diseases about which
we can extract information. We believe these expanded resources will
enable us to maintain a significant competitive advantage by ensuring that
we are a preferred partner of pharmaceutical, biotechnology and diagnostic
companies for the discovery of drug targets and gene-based diagnostics. We
expect that we will use some of the proceeds from this offering to pursue
additional clinical collaborations.
- ENHANCE OUR INFORMATION TECHNOLOGY AND BIOINFORMATIC SYSTEMS. In addition
to the information we collect from our clinical collaborators and our
technology alliances, we access the rapidly growing amount of genetic data
available in the public domain through the Internet. As a result, our
ability to collect, manage, screen, integrate and analyze these growing
information resources is becoming increasingly important. Accordingly, we
expect to use some of the proceeds from this offering to continue to
enhance our information technology and bioinformatic systems to better
capture and use these resources.
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- MAXIMIZE OUR REVENUES FROM THE COMMERCIALIZATION OF OUR DISCOVERIES BY
RETAINING CONTROL OVER OUR GENE DISCOVERY PROCESS. Our sophisticated
databases and other bioinformatic systems help us to maximize our revenues
by enabling us to analyze our own data and retain and refine our disease
gene discoveries for later-stage licensing rather than entering into early
stage collaborations with pharmaceutical companies. Typically,
pharmaceutical companies enter early stage collaborations by funding
initial research in exchange for a significant share of future revenues
and often exclusive use of the discovered gene for a particular disease
and restrictions on other uses of the discovered gene. Retaining control
over our disease gene discovery process maximizes our ability to
eventually generate multiple and higher value revenue streams from
licensing one or more disease genes for use in multiple disease and/or
product areas. In addition, this control allows us to use our biological
samples and clinical data to enter into alliances with pharmaceutical and
biotechnology companies for other discovery processes such as novel
protein discovery.
- PURSUE ADDITIONAL STRATEGIC INVESTMENTS, ACQUISITIONS AND PARTNERSHIPS
THAT ALLOW US TO ENHANCE REVENUES. We intend to pursue additional
strategic investments and acquisitions. We will target opportunities to
acquire complementary technologies in order to broaden and enhance our
product offerings and increase our revenues. While we regularly evaluate
strategic investment, acquisition and partnership candidates, we do not
have any present agreements or commitments for any of them. Any of these
agreements or commitments could require us to expend considerable
financial resources. We also intend to pursue strategic partnerships and
alliances with other genomics and biotechnology companies with
technologies that will enable us to conduct our gene discovery process
more rapidly. We have entered into technology alliances with Celera
Genomics, Qiagen Genomics, Large Scale Proteomics, CuraGen and Sequenom
for this purpose.
INDUSTRY BACKGROUND
DRUG DISCOVERY AND DEVELOPMENT
Diseases are the result of disturbances or abnormalities in the systems
(which are also known as pathways) that regulate human cells. The activities of
all of these pathways throughout the body are referred to as human physiology.
These pathways are partially comprised of proteins, which are produced by genes
within each cell. Drugs generally exert their effects by interacting with some
of these proteins (proteins in this context are called drug targets) to restore
the normal functioning of the disease-affected pathways. Historically, drug
discovery was a trial and error process. In response to increasing competitive
pressures to discover and develop new and more innovative drugs in a more rapid
and cost effective manner, pharmaceutical and biotechnology companies have
recently made significant advances in technologies which enable the rapid
testing of large numbers of chemical compounds against many proteins and other
potential drug targets.
The current drug discovery process still remains time consuming and costly,
in part because of the difficulty and complexity of identifying and
understanding the physiological functions of drug targets using traditional
methods. Recent advances in the study and sequencing of the human genome could
lead to a better understanding of human physiology at the genetic level and the
physiological function of drug targets, allowing a more focused drug discovery
effort.
THE HUMAN GENOME, DNA, DISEASE AND HUMAN GENOMICS
The human genome is all of the genetic information which comprises an
individual. Much of the human genome determines the functioning of all of an
individual's cells, which, in turn, determines all human physiology, such as
metabolism, susceptibility to disease and reactions to certain drugs.
- The human genome is organized into 23 pairs of chromosomes.
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- Each chromosome is a continuous double-stranded molecule of
deoxyribonucleic acid, which is called DNA.
- DNA consists of four different types of chemical building blocks, which
are called nucleotides.
- The order of these nucleotides is called the DNA sequence, and this
sequence and its variations determine the inherited characteristics of
each living organism.
- A variation from one individual to another in a single nucleotide of the
DNA sequence is referred to as a single nucleotide polymorphism, or a SNP.
An individual's DNA consists of approximately 3 billion nucleotide pairs,
which are organized into approximately 100,000 genes located throughout the
chromosomes. All cells contain a full copy of an individual's DNA, but each type
of cell uses only those genes necessary for its specific function. When a gene
is used, a copy of its DNA sequence functions as a blueprint to make a protein.
DNA sequences also help to determine where a protein is made and in what
quantities. DNA variations can change the properties of a protein, or where,
when or how much of a protein is produced. Since proteins direct the functioning
of cells and ultimately determine the growth and health of the individual, DNA
variations can change the properties of a protein, and this can cause disease or
contribute to an individual's susceptibility to disease.
Human genomics is the study of genetic information and its relationship to
disease. Its use in identifying drug targets for use in drug development is a
relatively new and evolving field. Industry analysts expect that the more
complete understanding of human physiology that genomics engenders will enable
the more rapid development of drugs and other products to treat and diagnose
diseases. We expect that the completion of an initial map of the human genome,
which will reveal the entire sequence of the human genome and the identity and
organization of all the human genes, will facilitate these advances. Efforts
began to determine the sequence of the human genome in the mid-1980s. The Human
Genome Project, coordinated by the international scientific and academic Human
Genome Organization, and Celera Genomics have recently announced that they have
produced a rough draft of the human genome. The Human Genome Project has stated
that it expects to produce a complete draft in several years. Celera Genomics
has announced that it will produce a complete sequence of the human genome ahead
of the Human Genome Project.
THE USE OF GENOMICS IN GENE AND DRUG DISCOVERY
Identifying genes is only the first step in using genomics to understand
human health and to treat diseases. The next step is to analyze this raw genetic
data together with clinical data in order to understand the specific functions
of individual genes and how these genes interact with the rest of the genome to
cause, or predispose an individual to, a particular disease. In part, this
understanding is achieved by analyzing the proteins produced by the relevant
genes, the interactions between those proteins and the influence of
environmental factors. Although the Human Genome Project, Celera Genomics and
others have identified the sequence of many thousands of genes, relatively few
have had their function or relationship to diseases identified. By identifying
links between certain genes and diseases, genomics offers pharmaceutical and
diagnostic companies the potential of a greater number of more specific drug and
diagnostic targets.
THE LIMITATIONS OF CURRENT GENOMIC GENE DISCOVERY SYSTEMS
To date, genomics-based research has only led to a few diagnostic tools and
no drugs for common human diseases. Common diseases, such as cardiovascular
disease, diabetes and central nervous system disorders, are generally not caused
by a single gene but by multiple genes and are further influenced by
environmental factors. In addition, some genes can affect more than one disease.
For example, a gene that could cause high blood pressure could also cause
osteoporosis. Many gene discovery approaches
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analyze populations of disease-affected individuals. In general, these
approaches determine the links between certain genes and a particular disease.
This limits the ability to identify the involvement of the gene in other
diseases in which it may have an important role. Moreover, genomics companies
traditionally use this approach in partnership with pharmaceutical companies,
which have funded discovery programs in exchange for a significant share of
future revenues and often exclusive use of the discovered gene for a particular
disease and restrictions on other uses of the discovered gene. This limits the
ability of some genomics companies to maximize revenues.
THE GEMINI APPROACH
OUR SCIENTIFIC STRATEGY
As a clinical genomics company we focus on clinical and medical information
as the starting point in our search for disease relevant genes. We believe that
collecting and analyzing detailed clinical and genetic data relating to the
presence or risk of disease is more effective in discovering disease relevant
genes than focusing on genetic data alone. This is because clinical data also
allows us to identify individuals who are, or show risk traits of becoming,
affected by disease and their relevant clinical measurements. This information
allows us to conduct a more focussed search of genetic data by looking for genes
and SNPs that are shared by individuals affected by some disease or with risk
traits in common. Our scientific goal is to identify the specific function of
genes and SNPs that relate to common human diseases. We do this by analyzing
extensive, high quality clinical measurements and genetic samples of volunteers.
Our clinical collaborators collect and provide to us on an anonymous basis
clinical measurements and genetic samples from different groups of volunteers:
twins, disease-affected individuals, geographically isolated populations and
participants in drug trials.
We integrate the clinical measurements and genetic information derived from
these samples into our databases. Our in-house software engineers and scientists
have customized these databases using computer-aided software engineering
systems. We then use these databases and our biological information management
and analysis (which is also known as bioinformatic) systems to:
- analyze our clinical and genetic data;
- find associations between genes and common diseases; and
- verify our findings using data from a separate volunteer group.
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The graphic below illustrates our scientific strategy.
[CHART]
An example of this process was our collaboration with Kyowa Hakko Kogyo. In
this collaboration we analyzed a gene Kyowa Hakko Kogyo had identified in an
animal model as related to a number of age-related diseases, such as
osteoporosis, emphysema and skin aging. We were able to identify common SNPs in
the human form of the gene and found that one end of the gene is associated with
diabetes and obesity risk factors while the other end of the gene is associated
with osteoporosis. Kyowa Hakko Kogyo was then able to file a patent application
covering the use of the gene for the diagnosis, treatment and prediction of
response to treatment of these two diseases.
OUR CLINICAL RESOURCES AND OUR TECHNOLOGY PLATFORM
OUR CLINICAL RESOURCES
We have access to clinical data and genetic samples from several million
people recruited by our clinical collaborators in various parts of the world,
including the United Kingdom, Sweden, Australia and China. These resources
include information from long-term studies which, in some instances, have been
collected over a 20 year period. For our current research programs, we have
selected and are presently analyzing DNA samples and clinical data on almost
30,000 twins and disease-affected
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individuals. This analysis has yielded approximately four and one-half million
clinical and genetic measurements, which we expect to increase rapidly as we
continue analyzing our existing data and as our clinical resources expand. We
believe the size, diversity and quality of our clinical collaborations and
resources would be both very expensive and time consuming to replicate.
Our clinical collaborators collect clinical measurements and genetic samples
from volunteers and provide us with them on an anonymous basis. Together with
our clinical collaborators, we select the clinical parameters (which are also
called phenotypes) to measure from volunteers and agree upon the use of standard
protocols and other procedures. For example, twins undergo testing on hundreds
of phenotypes through a comprehensive medical examination involving several
hours of biochemical, physical and physiological tests, including X-rays,
magnetic resonance imaging (MRI) scans and a test yielding precise data on bone
density and fat mass. The extent of clinical measurements taken from
disease-affected individuals depends upon the disease concerned. Blood, urine
and DNA samples are collected, analyzed and stored for all volunteers. Serum is
extracted from the blood and analyzed to provide information on a wide spectrum
of hormones and proteins. We maintain these biological samples in cold storage
in the event that we or our technology collaborators or customers require
additional data on phenotypes we do not already track. By managing a program of
repeat visits of volunteers with our clinical collaborators, we also have access
to studies that evaluate the same clinical measurements throughout a range of
ages in the same individuals.
Although our agreements with our clinical collaborators are each
individually negotiated, in general we provide funding for the collection of
clinical measurements and genetic and other biological samples, the transfer of
these resources to us and in some cases further analysis of these measurements
and samples by our collaborators. Our funding is provided either on a per sample
or per volunteer basis or is provided on a total project basis with a pre-agreed
budget. In all cases, our funding is directed towards the delivery to us of
agreed information and samples. In general, we retain exclusive commercial
rights to the clinical data and samples obtained for us by our clinical
collaborators. Our agreements with our clinical collaborators also specify the
research program that will be performed.
We significantly increased our collection of clinical samples and our
ability to access further clinical data through our recent acquisition of
Eurona. Based in Sweden, Eurona has entered into clinical collaborations with
university and medical institutions that provide access to several million
tissue samples and genetic materials from volunteers affected by a range of
diseases.
We focus on taking clinical measurements relevant to common human diseases
in which pharmaceutical companies are looking for drug targets. These disease
groups are summarized below:
- Bone: OSTEOPOROSIS, OSTEOMALACIA
- Cardiovascular: HYPERTENSION, DYSLIPIDAEMIA, CARDIAC FUNCTION,
ATHEROSCLEROSIS
- Central Nervous System Disorders: ANXIETY AND DEPRESSION, COGNITION,
ALZHEIMER'S DISEASE, SCHIZOPHRENIA
- Dermatology: PSORIASIS, NAEVI AND MELANOMA
- Haematology: THROMBOSIS, COAGULATION, HAEMOGLOBINOPATHY
- Immune: AUTOIMMUNE DISEASES, ECZEMA
- Metabolic: DIABETES, OBESITY, LIVER DISEASE, THYROID DISEASE
- Oncology: FAMILIAL CANCERS
- Respiratory: ALLERGY, ASTHMA, PULMONARY DYSFUNCTION, CHRONIC OBSTRUCTIVE
PULMONARY DISEASE
- Rheumatology: OSTEOARTHRITIS, RHEUMATOID ARTHRITIS, RAYNAUD'S DISEASE
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OUR DIVERSE POPULATIONS
We have gathered data on a number of different population groups, including
twins, disease-affected individuals and patients in drug trials. We have
recently strengthened our resources by entering into a letter of intent to
establish a joint venture that will give us access to a geographically isolated
population in Newfoundland, Canada. We are continually expanding our access to
populations to increase the number of ethnic groups represented in our data
resources and the number of diseases about which we can extract information in
order to broaden the applications and markets for our products.
OUR TWIN POPULATIONS
Twins, whether identical or non-identical, are valuable for studying human
disease because they are siblings of the same age who share, to a considerable
extent, the same environmental influences. Analyzing twins allows us to
eliminate age as a potential factor when evaluating clinical differences between
two siblings. For example, in considering two sisters with a five year age
difference, the older sister might have a higher cholesterol measurement than
the younger sister. However, unless a follow-up study on the younger sister is
conducted five years later, age cannot be eliminated as a factor when evaluating
whether the difference in cholesterol level is genetic or age-related. Using
twins reduces the complicating effects of age and provides a very useful method
of looking for the genetic contribution to the clinical differences in measuring
the risk of disease.
Identical twins share the same genes whereas non-identical twins share on
average half their genes. A comparison of the similarities and differences
existing between identical and non-identical twins allows us to measure the
contribution of the genetic influence on a clinical measurement and also how the
environment may modify this genetic effect. Because identical twins share the
same genes, any difference in clinical measurements must be due to environmental
differences. For example, we have used this approach to identify and quantify
important environmental effects on fat distribution, including the effects of
smoking, alcohol consumption and estrogen replacement. Because the genetic
differences between pairs of non-identical twins are comparable to those between
other sibling pairs but without the age difference, we can study the
relationship between these genetic differences and various clinical
measurements. We use this approach to identify the gene or genes involved in
determining a clinical measurement and confirming a disease gene association.
The twins selected for study are representative of the general population
and are not selected for any particular disease. With these twins, we analyze a
large number of clinical measurements that relate to the risk of disease. By
analyzing genes and clinical measurements related to the risk of a broad range
of diseases in thousands of twins, we are able to look for genes that play a
role in different common diseases, including cardiovascular disease, diabetes
and central nervous system disorders.
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The table below summarizes our principal clinical collaborations which
provide us with data and samples on twins.
<TABLE>
<CAPTION>
CLINICAL COLLABORATOR DESCRIPTION
--------------------------------------------- ---------------------------------------------
<S> <C>
Twin Research Unit, St. Thomas' Hospital, Twins undergo a four to six hour assessment
London, England. and in some cases have a follow-up assessment
two to four years later.
Institute of Bone and Joint Research, Royal This collaborator performs a very similar
North Shore Hospital, Sydney, Australia assessment to St. Thomas' Hospital, but also
includes heart scan measurements.
Program for Population Genetics, School of This collaborator collects clinical data
Public Health, Harvard University, United similar to St. Thomas' Hospital on 5,000
States (conducted through First Anqing identical and non- identical Chinese twin
Hospital, Anhui Province, China) pairs.
</TABLE>
In general, we retain exclusive commercial rights to the clinical data and
samples obtained for us by our clinical collaborators conducting research on our
twin populations.
OUR DISEASE-AFFECTED POPULATIONS
Our clinical collaborators collect data on disease-affected individuals,
including siblings, families and unrelated populations that suffer from the same
disease, including participants in drug trials. We can analyze this data to
identify genetic variations that occur frequently within the group. This
approach is particularly useful for us to explore further discoveries made in
our twin populations and for diseases for which there are no known measurable
risk factors, such as schizophrenia and dementia, and are not amenable to
analysis using our twin approach.
The table below summarizes our principal clinical collaborations which
provide us with data on disease-affected individuals.
<TABLE>
<CAPTION>
CLINICAL COLLABORATOR DISEASE GROUP
------------------------------------------------------------ ------------------------------
<S> <C>
Twin Research Unit, St. Thomas' Hospital, London, England Osteoporosis
Queensland Institute of Medical Research, Brisbane, Depression and Anxiety
Australia
Professor Hans Lithell, Department of Geriatrics, University Cardiac and Metabolic Disease
of Uppsala, Sweden
Department of Neuroscience and Psychiatry, University of Depression and Schizophrenia
Uppsala, Sweden
Division of Molecular Toxicology, Karolinska Institute and Drug Metabolism
Huddinge Hospital, Stockholm, Sweden
Department of Pathology and Cytology, Central Hospital, Oncology
Falun, Sweden.
</TABLE>
In general, we retain exclusive commercial rights to the clinical data and
samples obtained for us by our clinical collaborators conducting research on our
populations of disease-affected individuals, even after termination of the
agreements we have with them.
GEOGRAPHICALLY ISOLATED POPULATIONS
Isolated populations, sometimes due to geographical isolation, are
populations which have grown out of an initially small number of people who
settled together. Over time these populations tend to
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have higher incidences of certain diseases. The higher incidences of these
diseases and the lower level of other background genetic variations make these
populations particularly useful in discovering the genes affecting such
diseases. We can confirm our discoveries in isolated populations, which may not
be representative of wider populations, by using data and samples from our twin
and disease-affected populations.
We have entered into a letter of intent for the establishment of a joint
venture that will give us access to clinical and genetic information on a
geographically isolated population in Newfoundland, Canada, where there tends to
be very large families with well defined family origins and with higher than
normal incidences of a number of diseases. We will continue to explore
opportunities to gain access to other isolated populations.
CLINICAL DATA COLLECTION
We collect our clinical measurements and genetic and other biological
samples through a number of relationships with clinical collaborators. Each
relationship is governed by an agreement that generally provides for the
collection and delivery of DNA, blood and urine samples and clinical
measurements. We have attempted to ensure that all clinical data and genetic and
other biological samples we receive have been collected by our clinical
collaborators from volunteers on an anonymous basis and with appropriate
consents for purposes which extend to cover our gene discovery programs and
other activities. We have also sought to ensure that the volunteers from whom
our data and samples are collected do not retain or have conferred upon them any
proprietary or commercial rights to the data or samples or any discoveries
derived from them. The collection of measurements and samples from our
volunteers, and their consents, occur as part of a study that is reviewed by the
institutional review board or ethics committee that supervises the hospital or
clinic where the collections are taken. In certain studies, an independent
review board is consulted.
Each clinical collaborator assesses volunteers according to standard
protocols and procedures which we have approved. We ensure high standards of
compliance with these procedures by regularly conducting audits at randomly
selected locations. Our clinical data management staff oversees the integrity
and accuracy of data collected. Duplicate copies of all data are maintained at
one or more additional sites. We believe that our careful attention to
maintaining high standards of compliance with our standard operating procedures
is a valuable aid in ensuring the quality of our clinical data and genetic
samples.
In all instances, our clinical collaborators are permitted and encouraged to
undertake their own research on data collected and (subject to obtaining our
consent) publish such research. In general, all commercial rights arising from
any such research belong to us, or we have the first option to commercialize
such research.
OUR INFORMATION TECHNOLOGY AND DATA AND SAMPLE MANAGEMENT
All aspects of our biological sample and clinical data management and our
statistical analysis of these samples and data are performed through our:
- databases, which store our clinical and genetic information; and
- other biological information management and analysis (or bioinformatic)
systems, which allow us to analyze and interpret our clinical and genetic
data through the use of sophisticated algorithms.
These integrated systems are critical to our gene discovery programs and
enable us to perform rapid statistical analysis on large volumes of clinical and
genetic data. We have a team of nine bioinformatics specialists and seven
software engineers to further develop these systems.
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ANALYSIS AND STORAGE OF BIOLOGICAL SAMPLES
We check and log all biological samples supplied to us by our clinical
collaborators into a database which is integrated into our sample management
system. Once samples have been labeled with individual bar-code identifiers,
they are stored for genetic screening. We randomly check our DNA samples in
storage for purity and remove any contaminated samples from the system. Genetic
screening consists of analyzing standard genetic markers on the DNA obtained
from each human subject. These markers consist of DNA sequences at known
locations in the human genome that vary between individuals. We enter the
variant DNA sequence data for each individual into the database which integrates
it with clinical measurements taken on the same subject. We analyze samples
using robotic systems and use bar-coding to enable the database to track the
sample through the automated analysis process and to ensure continued access to
biological samples in case we also need to analyze proteins and other
non-genetic markers that may relate to diseases.
BIOINFORMATICS AND STATISTICAL ANALYSIS
Bioinformatics is the use of computers and sophisticated algorithms to
store, analyze and interpret large volumes of biological data. This is an
essential tool that helps us effectively utilize our pool of clinical and
genetic data, including gene sequence, protein and other genetic information
accessed from both public and private databases. We have developed an in-house
bioinformatics capability that enables us to exploit the data on the rapidly
growing databases within our gene discovery programs. This in-house capability
allows us to minimize the extent to which we need to rely upon other companies
for analytical technologies.
Statistical analysis is an important component of our gene discovery
approach. We use several complementary statistical tools to quantify the effect
of genetic variation on human physiology and disease. We test common SNPs in
genes of interest for associations with diseases, phenotypes or drug responses.
We take any associations we find as evidence that the polymorphism is either:
- related to the relevant disease, phenotype or drug response; or
- located closely on the same gene to a polymorphism that is related to the
relevant disease, phenotype or drug response.
We attempt to replicate our findings in our other populations to confirm any
associations that we identify.
OUR PRODUCT OFFERINGS
We analyze human clinical and genetic information from a number of human
populations in order to identify the role of genes, SNPs and proteins in common
human diseases. We have identified over 100 chromosomal regions which, based on
our analysis, we believe harbor disease genes. We believe that identifying
disease genes in-house is preferable to entering early stage collaborations with
pharmaceutical companies, which typically are secured by genomics or other
biotechnology companies to fund early stage research in return for giving the
pharmaceutical company a significant share of future revenues and often
exclusive use of the discovered gene for a particular disease and restrictions
on other uses of the discovered gene. We retain control over our disease gene
discovery process to maximize our ability to generate multiple revenue streams
from licensing one or more disease genes for use in multiple disease and/or
product areas.
LICENSING OF NOVEL GENE DISCOVERIES AND ASSOCIATIONS
Our principal product offering is the discovery of a disease gene (which we
call a novel gene discovery), which can form the basis of a drug discovery
program undertaken by a pharmaceutical
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company in a specified disease area or the development of a diagnostic tool. A
novel gene association is the discovery of a disease gene as well as factors
which imply that a gene-based drug or diagnostic could be developed to interfere
with the pathway affected by the disease gene. Our patent applications are based
on the association of a particular gene with a clinical risk trait for a common
disease. We have already successfully licensed our patent for the osteoporosis
disease gene, COL1A1, as the first major osteoporosis genetic diagnostic, to
both Affymetrix and Axis-Shield.
For each disease gene patent we receive, we anticipate granting licenses to
develop drugs and diagnostics in a particular disease area. By doing this, we
will retain control over the disease gene and the right to license it for
applications in other disease areas. In addition we may restrict the use of
those products, such as the format of a diagnostic kit, as in our agreements
with Affymetrix and Axis-Shield, or, in the case of a drug, the drug target
which the drug may use.
LICENSING OF NOVEL PROTEIN DISCOVERIES
We can also use our large repository of clinical samples to discover
proteins that genes produce (which we call a novel protein discovery) which are
also of therapeutic and diagnostic value. We intend to use our clinical
population data to discover proteins that are associated with common diseases
and can be used as drug targets in drug development. We have already entered
into an agreement with Large Scale Biology, a company with protein discovery and
identification technology, to identify proteins that are susceptible to
environmental influences and are associated with particular disease risk
factors. While we have not yet licensed any novel protein discoveries, we expect
that a number of these proteins will be suitable drug targets which can be
licensed in the same way as disease genes, with broadly similar patent rights.
When licensing a gene or protein discovery, we expect to receive up-front
fees, milestone payments and product royalties. Milestone payments typically are
paid over five to seven years upon the occurrence of specific events, or
milestones, as a product based on a licensed discovery advances through the drug
or diagnostic discovery and development process. These payments depend on the
success of the development program. Accordingly, we will seek to ensure that
development rights revert to us if a development program does not proceed on the
agreed timetable. Product royalties typically are a percentage of the revenues
derived from the sales of products using a licensed discovery and often specify
minimum annual payments.
GENE VALIDATION SERVICE
Although not our prime focus, when we are approached by another company
seeking access to our clinical resources and expertise, we may perform candidate
gene and polymorphism testing and validation services. Under this service model,
we verify associations between disease states and the candidate target genes
provided by our customers. In this field, any resulting intellectual property
rights remain with the customer.
COMMERCIAL RELATIONSHIPS
In connection with the development and licensing of our products, we have
entered into a number of commercial relationships with other genomics,
pharmaceutical, diagnostic and biotechnology companies. These relationships
encompass:
- TECHNOLOGY ALLIANCES WITH OTHER GENOMICS AND BIOTECHNOLOGY COMPANIES TO
HELP US DISCOVER NOVEL GENES, GENE ASSOCIATIONS OR PROTEINS MORE RAPIDLY.
Through these alliances, we contribute clinical data and gain access to
sophisticated technologies in order to co-discover with our technology
collaborator a novel gene, gene association or protein. The goal of these
alliances is to jointly discover a product more rapidly than either of us
could alone for patenting and then licensing to
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pharmaceutical or diagnostic companies for the further development of
drugs or diagnostics. We have already entered into technology alliances
with Celera Genomics, Qiagen Genomics, Large Scale Proteomics, CuraGen and
Sequenom. Although each of our technology alliances has been individually
negotiated, we and our technology collaborator typically each are
responsible for a portion of the costs of the research involved and each
receives a percentage of the revenues generated by the licensing of our
discoveries.
- GENE LICENSING OF OUR PATENTS ON DISEASE GENES TO PHARMACEUTICAL AND
DIAGNOSTIC COMPANIES. When licensing a gene or secreted protein discovery,
we expect to typically receive up-front fees, milestone payments and
product royalties. In some circumstances our clinical collaborators may
receive a portion of these royalties. We have already successfully
licensed the patent for our osteoporosis disease gene, COL1A1, as the
first major osteoporosis genetic diagnostic to both Affymetrix and
Axis-Shield. Although these two licenses were each granted on individually
negotiated terms, in general they provide for up-front fees and milestone
payments as well as product royalties payable to us based on a percentage
of total sales of products using our patents, with minimum annual payments
specified. With respect to our COL1A1 patent, we share our net revenues
with the University of Aberdeen.
- GENE VALIDATION SERVICES. We have performed gene validation services for
Kyowa Hakko Kogyo, which has filed a patent application with respect to
the genetic region we were retained to analyze. We performed these
services in exchange for a fee. We have no rights to the patent they
filed.
The table below summarizes our current commercial relationships.
<TABLE>
<CAPTION>
COMPANY PRODUCT AREA DESCRIPTION
------------------------------- ----------------------- ----------------------------------------------
<S> <C> <C>
Celera Genomics Novel gene discoveries Celera provides gene sequence, SNP and gene
identification technologies for gene
discoveries within regions chosen by us.
Qiagen Genomics Novel gene associations We provide our integrated clinical genetic
technology platform and Qiagen Genomics
provides DNA analysis using its proprietary
mass spectrometry technology to identify novel
gene associations in obesity.
Large Scale Proteomics Novel protein We provide our sample resources and associated
discoveries clinical data and Large Scale Proteomics
provides proprietary gene discovery technology
to identify the link between novel proteins
and diseases.
CuraGen Novel gene associations We provide our sample resources and associated
and drug target clinical data and CuraGen provides its
identification technology including thousands of SNPs in
protein-coding regions that may have
associations with disease.
Sequenom Novel gene associations We provide our sample resources, associated
clinical data and bioinformatics expertise.
Sequenom provides automated assay design and
validation of these samples, including up to
240,000 SNPs from the public domain. We work
together to identify particular SNPs
associated with specific diseases.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
COMPANY PRODUCT AREA DESCRIPTION
------------------------------- ----------------------- ----------------------------------------------
<S> <C> <C>
Affymetrix Gene licensing We have granted Affymetrix a worldwide license
under the COL1A1 patent to develop a
diagnostic assay based upon their proprietary
technology.
Axis-Shield Gene licensing We have granted Axis-Shield a worldwide
license under the COL1A1 patent to develop a
diagnostic assay based upon their proprietary
technology.
</TABLE>
AGREEMENTS WITH THIRD PARTIES
TECHNOLOGY ALLIANCES
We enter into technology alliances with third parties to jointly discover
disease genes or novel gene associations more rapidly. Although we have not
generated any revenues directly from the agreements with our technology
collaborators, we expect that our technology alliances will assist us in
discovering disease genes, novel gene associations and novel proteins that can
be licensed and thereby generate future revenues. Under each of these
agreements, there are provisions which govern how we and our technology
collaborators will share those revenues.
CELERA GENOMICS. On September 1, 1999, we entered into a research
collaboration agreement with Celera Genomics to jointly discover genes and SNPs
and other genetic variations in specially selected regions of the human genome.
Under the non-exclusive agreement, we provide clinical data and samples and
Celera Genomics provides information about the DNA sequence and SNPs relevant to
the selected regions. We will jointly own with Celera Genomics any intellectual
property rights to any disease genes or disease related SNPs discovered and will
share with Celera Genomics revenues received from licensing discoveries to third
parties, after the reimbursement of some agreed costs. The agreement has a term
of two years and may be terminated by either of us if there is a material breach
by the other that is not cured.
QIAGEN GENOMICS. On September 28, 1998, we entered into a research
collaboration agreement with Qiagen Genomics (formerly Rapigene) to identify
genes and genetic variations related to obesity. Under the non-exclusive
agreement, each of us is responsible for our own costs, although we will
reimburse Qiagen Genomics for some agreed out-of-pocket costs. We will jointly
own with Qiagen Genomics any intellectual property rights to any discoveries and
will grant various licenses to each other governing the terms on which those
discoveries will be commercialized. The agreement had an initial term of 12
months, which could be and has been extended by mutual agreement, and may be
terminated by either of us if there is a material breach by the other that is
not cured.
LARGE SCALE PROTEOMICS. On February 12, 1999, we entered into a
collaboration agreement with Large Scale Proteomics (formerly Large Scale
Biology) to identify drug targets by analyzing proteins and their relationship
to indicators of diseases. Under the agreement, we provide samples and use our
clinical data from selected identical twin pairs and Large Scale Proteomics
conducts protein analysis. The agreement is exclusive with respect to the use of
Large Scale Proteomics' technology on identical twins only, and non-exclusive
with respect to our use of other proteomics technologies. We are each
responsible for our own costs. Large Scale Proteomics has the initial right to
file and maintain patent applications relating to discovered drug targets; if
Large Scale Proteomics does not file and maintain such applications, those
rights revert to us. Each of us is required to make payments to the other
following the commercialization of our patents and patent rights under the
agreement. The agreement terminates when no further payments are required to be
made to either of us. Large Scale Proteomics may terminate the agreement
following notice to us given within 120 days of the conclusion of the joint
research program of its decision not to proceed, or either of us may terminate
the agreement if there is a material breach by the other that is not cured or in
the event the other is insolvent or in liquidation.
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CURAGEN. On March 23, 2000, we entered into a research collaboration
agreement with CuraGen to discover relationships between SNPs and human disease.
Under this non-exclusive agreement, we provide clinical data and DNA samples and
CuraGen provides SNPs and the genetic analysis of our clinical samples. We will
jointly own with CuraGen any intellectual property rights arising from any
discoveries, and will grant various licenses to each other which govern the
terms on which those discoveries will be commercialized. We are each responsible
for our own costs, however we have agreed to reimburse CuraGen a portion of the
costs incurred in the genetic analysis of our clinical samples and we will share
with CuraGen any costs of using third parties. We will share with CuraGen
revenues arising from licenses granted under the agreement. The agreement has an
initial term of two years and continues indefinitely unless CuraGen fails to
deliver a sufficient quantity of SNPs and we terminate it. Either of us may
terminate the agreement if there is a material breach by the other that is not
cured.
SEQUENOM. On March 31, 2000, we entered into a collaboration with Sequenom
to discover relationships between SNPs and human diseases, including disease
risk traits. Under the non-exclusive agreement, we provide clinical data and DNA
samples and Sequenom provides SNPs and the genetic analysis of our clinical
samples. We will jointly own with Sequenom any intellectual property rights
arising from any discoveries and will share with Sequenom revenues from the
licensing of those discoveries after the reimbursement of some agreed costs. The
agreement has an initial term of two years and either of us may terminate the
agreement if there is a material breach by the other that is not cured.
LICENSE AGREEMENTS
We have granted two licenses to use our osteoporosis disease gene COL1A1.
AFFYMETRIX. On June 16, 1999, we granted a license to Affymetrix to use our
patents and patent applications relating to the COL1A1 disease gene for use in
probe array diagnostics in exchange for license fees and royalty payments. We
have generated revenues of $100,000 to date pursuant to the grant of this
license and may receive further license fees of up to $750,000 with potential
additional royalty payments. Affymetrix is required to use reasonable efforts to
commercialize licensed products; if it does not we may make the license
non-exclusive. The license terminates upon the expiration of all of our relevant
patents unless we terminate it earlier because of a material breach by
Affymetrix that has not been cured.
AXIS-SHIELD. On March 4, 1999, we granted a license to Axis-Shield
(formerly Shield Diagnostics) to use our patents and patent applications
relating to the COL1A1 disease gene for use in commercial assay diagnostics in
exchange for a license fee and royalty payments. We have generated revenues of
$78,000 to date pursuant to the grant of this license and may receive an
additional milestone payment of L50,000 ($79,600) with potential additional
royalty payments. The license terminates upon the expiration of all our relevant
patents unless either of us terminates it earlier because of a material breach
by the other that has not been cured, the other is insolvent or in liquidation.
We may terminate the license if Axis-Shield has not paid any royalties within 90
days of their being due.
SERVICES AGREEMENTS
We have performed gene validation services pursuant to a services agreement
we entered into with Kyowa Hakko Kogyo on December 7, 1998 and completed during
the year ended March 31, 2000. Under the services agreement, we performed
research on a gene provided by Kyowa Hakko Kogyo and have generated aggregate
revenues of $184,000 pursuant to this agreement.
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CLINICAL COLLABORATIONS
We have entered into clinical collaborations with a number of medical,
educational, research and scientific institutions in order to collect the
clinical data and genetic and other biological samples we use in our gene
discovery program. Although our agreements with our clinical collaborators are
each individually negotiated, in general we provide funding for the collection
of clinical measurements and genetic and other biological samples, the transfer
of these resources to us and in some cases further analysis of these
measurements and samples by our collaborators. Our funding is provided either on
a per sample or per volunteer basis or is provided on a total project basis with
a pre-agreed budget. In all cases, our funding is directed towards the delivery
to us of agreed information and samples. For the year ended March 31, 2000, the
aggregate cost of our clinical collaborations amounted to approximately $4.0
million. We expect that the expense of our current clinical collaborations will
remain relatively stable, but that we will incur additional expenses by entering
into further clinical collaborations. In general, we retain exclusive commercial
rights to the clinical data and samples obtained for us by our clinical
collaborators. Our agreements with our clinical collaborators also specify the
research program that will be performed.
QUEENSLAND INSTITUTE OF MEDICAL RESEARCH. On March 31, 1998, we entered
into a joint venture agreement with the Council of the Queensland Institute of
Medical Research. Under the agreement, the Queensland Institute grants us an
exclusive license to use clinical measurements on approximately 10,000 twin and
sibling pairs of human volunteers and genetic and other biological samples and
we must make agreed payments and give the results of our genetic analysis of
biological samples to the Queensland Institute. We have the right to all
intellectual property rights arising from the research, although the Queensland
Institute has retained some non-commercial rights and is entitled to specified
royalty payments relating to any resulting intellectual property. Either of us
may terminate the agreement if there is a material breach by the other that is
not cured or in the event the other is insolvent or being liquidated.
PROGRAM FOR POPULATION STUDIES, SCHOOL OF PUBLIC HEALTH, HARVARD
UNIVERSITY. On December 19, 1997, we entered into a sponsored research
agreement with the President and Fellows of Harvard College. Under the
agreement, Harvard College grants us a non-exclusive license to use clinical
samples and measurements from 5,000 sets of twins and we make scheduled payments
to Harvard College. Harvard College retains all intellectual property rights
arising from its research and we retain all intellectual property rights arising
from our research using the data and samples collected (but not using further
research on them by Harvard College employees). We also have an exclusive one
year option to negotiate an exclusive worldwide license agreement for any patent
obtained by Harvard College from the research. The initial term of the agreement
is until December 31, 2001, and either of us may terminate the agreement with
notice or if there is a material breach by the other that is not cured or
circumstances beyond either of our control preclude the research.
DIVISION OF MOLECULAR TOXICOLOGY, THE KAROLINSKA INSTITUTE AND HUDDINGE
UNIVERSITY HOSPITAL. On June 30, 1999, we entered into a research collaboration
agreement with Prof. Leif Bertilsson, Division of Clinical Pharmacology at
Karolinska Institutet - Huddinge University Hospital, and Prof. Magnus
Ingelman-Sundberg, Division of Molecular Toxicology at Karolinska Institutet.
Under the agreement, Karolinska Institutet provides us with clinical data and
genetic and other biological samples and we provide funding, the genetic
analysis of samples and return of identifiable DNA samples, and the storage and
updating of information from human volunteers. Karolinska Institutet retains the
right to use the data and samples it provides us for its own research studies.
Any intellectual property arising from the research belongs to the party that
discovers it. If Karolinska Institutet discovers any intellectual property, we
have a right of first offer and a right of first refusal to acquire an exclusive
license to the rights from the discovery, although we must successfully
negotiate a license agreement within four months of exercising that right or
negotiations may be terminated. The initial term of this
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agreement is for three years, and we may extend this term by two years. Either
of us may terminate the agreement if there is a material breach by the other
that is not cured.
DEPARTMENT OF PATHOLOGY AND CYTOLOGY, CENTRAL HOSPITAL. On December 12,
1998, we entered into an agreement with the Department of Pathology and
Cytology, Central Hospital in Falun, Sweden. Under the agreement, Central
Hospital provides us with clinical data and genetic and other biological samples
and we provide the genetic analysis of samples and return of identifiable DNA
samples, and the storage and updating of information from human volunteers.
Central Hospital retains the right to use the data and samples it provides us
for its own research studies. In addition, we train the staff of the Central
Hospital in conducting the research and reimburse the Central Hospital for
reasonable costs incurred under the agreement. The agreement is for a term of
five years.
DEPARTMENT OF NEUROSCIENCE AND PSYCHIATRY, UNIVERSITY OF UPPSALA. On
February 2, 1999, we entered into a research collaboration agreement with the
Department of Neuroscience and Psychiatry, University of Uppsala. Under the
agreement, the Department of Neuroscience and Psychiatry provides us with
clinical data and genetic and other biological samples and we provide funding,
the genetic analysis of samples and return of identifiable DNA samples, and the
storage and updating of information from human volunteers. The Department of
Neuroscience and Psychiatry retains the right to use the data and samples it
provides for its own research. We have the right to all intellectual property
arising from the research program. We also have the right of first refusal to
license any intellectual property arising from the Department of Neuroscience
and Psychiatry's internal research on identifiable DNA samples returned by us,
although we must successfully negotiate a license agreement within six months of
exercising that right or negotiations may be terminated. The agreement has a
term of three years which we may extend for an additional two years. Either of
us may terminate the agreement if there is a material breach by the other that
is not cured and the agreement will terminate immediately if a court declares us
bankrupt.
DEPARTMENT OF GERIATRICS, UNIVERSITY OF UPPSALA. On December 12, 1996, we
entered into a research collaboration agreement with the Uppsala Hypertension
Genomic Research Program under the supervision of Dr. Hans Lithell. Under the
agreement, the Uppsala Hypertension Genomic Research Program grants us a
non-exclusive license to use specified clinical data and genetic and other
biological samples and we provide funding, the genetic analysis of samples and
the storage and updating of information from human volunteers. We have the right
of first refusal to license all intellectual property rights arising from the
research program, although we must successfully negotiate a license agreement
within six months of exercising that right or negotiations may be terminated.
The agreement has a term of five years.
TWIN RESEARCH UNIT, ST. THOMAS' HOSPITAL. On March 14, 1996, we entered
into a license agreement with Dr. Timothy Spector, Twin Research Unit, St.
Thomas' Hospital. Under the agreement, Dr. Spector has granted us an exclusive
worldwide license to use specified clinical data and genetic and other
biological samples that Dr. Spector has obtained from twin volunteers for
commercial purposes in exchange for agreed payments. We may utilize clinical and
other information and data collected by Dr. Spector that was funded by grants
from the Wellcome Trust to the extent they have been published or are lawfully
in the public domain even though this data and information is excluded from the
license between Dr. Spector and Gemini. Dr. Spector has rights to use any
materials licensed to us for non-commercial purposes incidental to medical
practice and science. We have the right to undertake research on the samples and
data collected and to retain and commercialize this research. The agreement
continues unless terminated by either of us if there is a material breach by the
other that is not cured. From January 15, 1998, we entered into sequential
annual collaborative agreements with the Twin Research Unit, St. Thomas'
Hospital under which the Twin Research Unit provides us with clinical data and
genetic and other biological samples from human volunteers and we must make
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agreed payments of a fee for each human volunteer. The current annual agreement
expires on March 31, 2001.
INSTITUTE OF BONE AND JOINT RESEARCH, ROYAL NORTH SHORE HOSPITAL. We
extended an initial agreement of December 1997, on January 1, 2000, when we
entered into a collaboration and license agreement with the Institute of Bone
and Joint Research and a related service level agreement with Prof. Philip
Sambrook. Under the agreements, the Institute of Bone and Joint Research has
granted us an exclusive worldwide license to use clinical data and genetic and
other biological samples it has collected from twin volunteers in return for our
payment of agreed fees and provision of advice and information. We acquire all
intellectual property rights in any inventions and information arising from the
study, although Prof. Sambrook has retained some rights to use any materials
licensed to us for non-commercial research. The collaboration and license
agreement has an initial term of two years, which we may extend annually by
prior notice, unless either of us terminates it if there is a material breach by
the other that is not cured or in the event the other is insolvent or stops
paying its debts.
COMPETITION
The genomics industry is relatively new and the potential rewards it offers
have generated substantial interest. To capture these potential rewards, many
entities have entered the genomics industry. Although we believe that our
clinical resources are among the most comprehensive across the broadest range of
disease areas, we currently compete with a number of companies performing
similar activities in more targeted areas.
A number of companies are involved in discovering genes using human
populations, which is similar to our approach. These companies include deCode
Genetics, Genset, Myriad Genetics, Millennium Pharmaceuticals and Oxagen. Some
of these companies collect data from siblings or large families affected with
disease, including families affected with rare forms of genetic disease or
families from geographically isolated populations, which typically require
replication in general population samples. A number of companies, such as Celera
Genomics, CuraGen, Human Genome Sciences, Incyte Pharmaceuticals and Millennium
Pharmaceuticals, are involved in discovering genes using gene sequencing
technologies and equipment and other technologies. We believe our clinical focus
and clinical resources will enable us to effectively compete in our market and
that many of our competitors' approaches are complementary to our own.
Accordingly, we view many of our competitors also as potential collaborators and
customers.
GOVERNMENT REGULATION
Government regulation in the United States, the European Union and other
countries significantly affects the collection and use of the DNA samples used
in our research programs as well as in the development and commercialization by
our customers of drugs and diagnostics based on our gene discoveries.
Although we do not conduct clinical research programs, we obtain DNA samples
through our clinical collaborators. The collection of genetic samples and
genetic testing has already raised concerns regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may decide to restrict or regulate the use of genetic information or
prohibit testing for a genetic predisposition to certain conditions,
particularly for those that have no known cure. The programs of our clinical
collaborators are subject to the review of procedures by the ethics committees
of the institutions associated with these collaborators. These ethics committees
are typically subject to national or local regulations. In general, these
regulations follow International
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Committee on Harmonization guidelines for good clinical practice regarding the
conduct of clinical research programs and require:
- informing the volunteers in those programs of the risks of the procedures
to be performed as part of the program; and
- obtaining consent to participate in the program from all volunteers.
The relevant ethics committees approve the protocols and other operating
procedures to be followed in the programs and require the volunteers' consent to
the intended use of the samples and the protection of the individual identities
of the volunteers. Our ability to continue to collect samples and data,
therefore, depends on our clinical collaborators' ability to continue obtaining
ethics committee approvals.
Our ultimate commercial success will depend on the ability of our customers
to successfully develop and market products based on our discoveries. Our
customers will require the approval of the U.S. Food and Drug Administration and
similar regulatory authorities in other countries to manufacture and market in
those countries any drugs and diagnostics they develop based on our discoveries.
The United States, most European countries and other countries impose high
standards of review by their regulatory authorities before drugs or diagnostics
are approved for use. The regulatory authorities typically require evidence of
the product's safety and usefulness from pre-clinical and clinical studies
showing the effects and side effects of the product before they will grant
approval. This process typically takes a number of years depending on the type,
complexity and novelty of the product. These authorities also typically demand
ongoing oversight of the product for safety and usefulness after it has been
approved and is marketed. In addition, the United States and most European
countries have strict regulations which control the:
- testing;
- manufacturing;
- labeling;
- marketing;
- supplying; and
- selling;
of drugs and diagnostics.
INTELLECTUAL PROPERTY
We regard our intellectual property as vital to the success of our business.
To protect our rights in this area, we rely on a combination of patents,
confidentiality agreements with our employees, collaborators and others, and
restricted physical access to our clinical data and technology platforms.
A growing number of companies, research and academic institutions,
government and government-sponsored entities and other organizations are
attempting to identify and patent genes and gene fragments. Patent applications
filed in respect of such discoveries must provide sufficient information
relating to the uses of the gene or gene fragment sequences in order to satisfy
the utility or industrial applicability requirements established in respect of
patentable discoveries in the jurisdictions in which the patent applications are
pending.
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With respect to discoveries of associations between genes and clinical
measurements that relate to disease risk or the disease itself, we have filed
and will file patents for the following claims:
- the treatment of a disease by administration of a drug;
- the identification of chemical compounds that affect the gene and would be
useful as drugs;
- the diagnosis of predisposition to disease through testing for the
presence of a gene; and
- the diagnosis of a disease through testing for the presence of one or more
SNPs at specified positions within a gene.
Also, where there is evidence to support a patent claim, we will also patent
the diagnosis of a response to, or the side effects from, a drug used to treat
the disease by identifying the gene affected.
We have currently filed patent applications based on 12 of our discoveries.
For each discovery, we are often able to file patent applications in a number of
different countries and for a number of different uses. Our patent applications
have resulted in four granted patents in the United States, and we have patents
and applications pending in the United States and elsewhere. Generally, U.S.
patents have a term of 17 years from the date of issue for patents issued from
applications submitted on or after June 8, 1995. Patents in most other countries
have a term of 20 years from the date of filing the patent application. Our four
issued U.S. patents will all expire in 2017. Our patents are:
- Diagnosis of predisposition to osteoporosis (U.S. Patent No. 5,922,542):
patent on the use of a particular variation in the Type 1 collagen to
diagnose osteoporosis. The University of Aberdeen conducted the research
on which this patent is based and is entitled to 50% of the net profits on
commercialization of this patent. We are also awaiting patent grants in
other countries.
- Diagnosis by detecting polymorphisms in the TGF-b1 promoter (U.S. Patent
No. 5,998,137): patent on a method for diagnosing and identifying a number
of variations in a gene which control blood levels of a protein and
predict increased disposition or susceptibility to osteoporosis,
arteriosclerosis, cancer and immune disorders. This patent also covers the
use of the particular gene variation and selection of drugs that have
their effect through acting on that gene. We are awaiting patent grants in
other countries.
- Vitamin D receptor gene polymorphisms and osteoarthritis (U.S. Patent
No. 5,939,260): patent on the use of a particular variation in the vitamin
D receptor gene as a predictor of osteoarthritis with diagnostic potential
in selecting "at risk" groups for therapy. We are awaiting patent grants
in other countries.
- Diagnostic method and apparatus based on polymorphism in an IL-6 gene
(U.S. Patent No. 6,066,450): patent on variations in the Interleukin-6
(IL-6) gene and their relationship to bone mineral density, the main risk
factor for osteoporotic fracture. In particular, the patent describes a
clinical relationship between a reduction in bone mineral density, and a
subsequent increased risk of osteoporosis, in those women that possess a
particular genetic variation. This patent was based on research from the
University of Aberdeen who are entitled to 50% of the net profits on
commercialization. The patent covers diagnostic and therapeutic
applications of the invention. We are awaiting patent grants in other
countries.
We have other patent applications pending in the United States, Europe, and
elsewhere that cover:
- associations between other genes and common diseases;
- a method of determining one or more variations in a gene that encodes a
protein and how this may effect a drug treatment;
- a method of clinical and genetic data integration and the methods for
adding to the data; and
- methods for the determination of gene variations.
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We also rely upon trade secret protection for our confidential and
proprietary information. We believe we have developed proprietary technology for
use in gene discovery, including proprietary software for the capture, storage
and analysis of DNA, protein and clinical information and integrated
bioinformatic systems. In addition, we have developed databases of proprietary
clinical and biological information that are updated on an ongoing basis. We
have taken measures to secure and protect this data. Although we require
employees, academic and clinical collaborators and consultants to enter into
confidentiality agreements, our proprietary information could be disclosed or
others could develop substantially equivalent proprietary information and
techniques and we might not be able to meaningfully protect our trade secrets.
Our academic and clinical collaborators have certain rights to publish data
and information in which we have rights. We believe that the limitations on
publication of data developed by our clinical collaborators contained in our
agreements with them will be sufficient to permit us to apply for patent
protection.
EMPLOYEES
As of March 31, 2000, we employed 80 persons. University degrees are held by
35 employees, and, of these, 21 have additional advanced qualifications
(including 16 doctorate degrees). We have 37 employees engaged in gene discovery
and research and development, 12 in clinical-related functions, 15 in
bioinformatics and information technology, four in business development and 12
in intellectual property, finance and other administrative functions. Our
success will depend in large part on our ability to attract and retain
employees. We face competition for employees from other companies, research and
academic institutions, government entities and other organizations. We believe
we maintain good relations with our employees.
FACILITIES
We currently lease a facility of approximately 9,400 square feet at the
Cambridge Science Park for our headquarters as well as the base of our business
development, clinical analysis, research and development and support activities.
The lease expires in June 2010. We also lease approximately 20,300 square feet
of mixed laboratory and office space in Uppsala, Sweden, primarily to support
our gene research and gene validation activities. The space is held under four
leases which expire in September 2002. We believe that our facilities are
adequate for our current operations. We are currently establishing an office in
Boston, Massachussetts, where we intend to base our global business development
operations and support our other North American activities.
LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings.
SCIENTIFIC ADVISORY PANEL
We have assembled a group of scientific advisors who are leaders in fields
related to human clinical genetics and gene discovery. Our Scientific Advisory
Panel meets as required with one or more members having particular expertise in
providing advice on specific aspects of our scientific strategy. Members of our
Scientific Advisory Panel receive cash compensation for their services and are
reimbursed for their reasonable expenses of attending meetings. In addition,
some of the members of the Scientific Advisory Panel may also receive options to
purchase our ordinary shares. These advisors assist in formulating our research,
development and commercialization strategy and include:
- PROFESSOR JASPER RINE PH.D., (CHAIRMAN). PROFESSOR OF GENETICS AT THE
UNIVERSITY OF CALIFORNIA, BERKELEY, UNITED STATES. Dr. Rine serves as the
Richard and Rhoda Goldman Distinguished Professor of Biology and Professor
of Genetics in the Department of Molecular and Cell Biology at the
University of California, Berkeley. He previously served as Director of
the Human
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Genome Center at Lawrence Berkeley Laboratories and as a member of the
national DOE-HIH Human Genome Coordinating Committee. Dr. Rine was a
founder of Acacia Biosciences (acquired by Rosetta Impharmatics in 1999).
- LEIF BERTILSSON, M.D., PH.D., DEPARTMENT OF CLINICAL PHARMACOLOGY,
HUDDINGE HOSPITAL, STOCKHOLM, SWEDEN. Professor Bertilsson's research
currently focuses on the differences of the rates of metabolism of drugs.
Observed differences can commonly be related to both ethnic and genetic
variations.
- THOMAS HEDNER, M.D., PH.D., DEPARTMENT OF CLINICAL PHARMACOLOGY AT
SAHLGRENSKA UNIVERSITY HOSPITAL, GOTHENBURG, SWEDEN. Dr. Hedner is very
experienced in cardiovascular research within areas such as hypertension
and heart failure and has been involved in several key mortality trials.
He acts as a consultant on Cardiovascular Diseases.
- MAGNUS INGELMAN-SUNDBERG, PH.D., UNIT FOR MOLECULAR TOXICOLOGY, DEPARTMENT
FOR ENVIRONMENTAL MEDICINE, KAROLINSKA INSTITUTE, STOCKHOLM,
SWEDEN. Professor Ingelman-Sundberg has extensive research experience in
the field of molecular and genetic basis for the way the body interacts
with drugs. He also has extensive experience in the field of functional
genomics.
- LEONID KRUGLYAK PH.D., FRED HUTCHINSON CANCER RESEARCH CENTER, SEATTLE,
UNITED STATES. Dr. Kruglyak specializes in the development of new
mathematical and computational methods for genetic analysis of complex
traits with polygenic inheritance and has published widely in this area.
- EVA LINDSTROM, M.D., PH.D., DEPARTMENT OF PSYCHIATRY, THE AKADEMISKA
UNIVERSITY HOSPITAL, UPPSALA, SWEDEN. Dr. Lindstrom is a practicing
psychiatrist. Dr. Lindstrom is also involved in research with a main focus
on schizophrenia and the development of classification scales. She is
currently drawing up the Swedish recommendations on the diagnosis of
schizophrenia. She is a consultant on disorders of the central nervous
system.
- PROFESSOR HANS LITHELL, M.D., PH.D., PROFESSOR IN THE DEPARTMENT OF PUBLIC
HEALTH AND CARING SCIENCES AT THE UNIVERSITY OF UPPSALA, UPPSALA,
SWEDEN. Dr. Lithell has been working extensively on research into
elucidating the different components behind the metabolic syndrome and
hypertension and their relation in causing the diseases. He has been
involved in running longitudinal studies in the outcome of common
age-related diseases in a local population group in Sweden. He also acts
as a consultant on Cardiovascular and Metabolic Diseases.
- PROFESSOR NICHOLAS MARTIN, PH.D. PROFESSOR OF GENETIC EPIDEMIOLOGY AT THE
QUEENSLAND INSTITUTE OF MEDICAL RESEARCH, BRISBANE, AUSTRALIA. Professor
Martin has been working in the area of twin research and genetic
epidemiology for over 25 years and was a founder of the Australian Twin
Registry. He has published landmark research on the genetics of
alcoholism, neuropsychiatric diseases and skin cancer and is regarded as
one of the world's leading experts in the identification of disease genes
from human data and analytical instruments for the statistical analysis of
twin data.
- LARS-ERIK RUTQVIST, M.D., PH.D., DIRECTOR OF THE ONCOLOGY CENTER OF THE
STOCKHOLM-GOTLAND-REGION, KAROLINSKA INSTITUTE, STOCKHOLM,
SWEDEN. Dr. Rutqvist is focusing a large part of his work of the
development of breast cancer and the improvement of the treatment of the
disease.
- TIM SPECTOR M.D. M.SC. FRCP, PHYSICIAN AND EPIDEMIOLOGIST AND DIRECTOR OF
THE TWIN RESEARCH UNIT BASED AT ST. THOMAS' HOSPITAL, LONDON,
ENGLAND. Dr. Spector has published over 100 papers and is the inventor of
patents for (1) a diagnostic marker for osteoporosis, (2) the
physiological role of TGF-b alleles and (3) Vitamin D receptor alleles and
osteoarthritis.
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding our directors and
executive officers as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ------------------------------------------
<S> <C> <C>
Michael Fitzgerald........................ 41 Non-Executive Chairman of the Board of
Directors(1)
Paul Kelly................................ 40 Executive Director, President and Chief
Executive Officer
Sir Walter Bodmer......................... 64 Non-Executive Director(2)
Jeremy Ingall............................. 39 Non-Executive Director(1)(2)
Roberto Rosenkranz........................ 49 Non-Executive Director(1)(2)
Howard Christley.......................... 42 Chief Medical Officer
Roger Dickinson........................... 47 Chief Corporate Officer
Patrick Kleyn............................. 34 Chief Scientific Officer
Tony Ratcliffe............................ 36 Chief Financial Officer
Zahed Subhan.............................. 42 Chief Business Officer
</TABLE>
------------------------
(1) Member of the remuneration committee.
(2) Member of the audit committee.
MICHAEL FITZGERALD, L.L.B., L.L.M., CO-FOUNDER AND NON-EXECUTIVE
CHAIRMAN. Mr. Fitzgerald, qualified as a barrister in England in 1979 and since
then has specialized in the provision of international banking and corporate
legal services to clients in Australia, the United States and the United
Kingdom. He spent seven years acting as an in-house banking counsel, including a
four-year period as special projects counsel, with the HongkongBank of Australia
Limited in Sydney, Australia. Since 1987, he has acted as a consultant to and
director of a number of public and private companies. He is admitted as a
barrister and solicitor in Victoria and a solicitor in New South Wales.
PAUL KELLY, M.B.B.S., M.D., FRACP, CO-FOUNDER, EXECUTIVE DIRECTOR, PRESIDENT
AND CHIEF EXECUTIVE OFFICER. Dr. Kelly is one of our co-founders and has served
as our Chief Executive Officer since January 1997. He originally trained in
medicine at the University of New South Wales, Sydney, Australia, where he
received his M.B.B.S. in 1983. He then trained as a physician, specializing in
endocrinology, at St. Vincent's Hospital, Sydney, and received his Fellowship of
the Royal Australasian College of Physicians in 1990. He was awarded a Doctor of
Medicine Degree from the University of New South Wales in 1990, with his thesis
on the genetics of osteoporosis. He has held academic positions at the Faculty
of Medicine of the University of New South Wales and has published over 80
scientific papers and has contributed to a number of books and other
publications, particularly in the genetic epidemiology of osteoporosis, obesity
and insulin resistance syndrome. He is the co-inventor of a patent relating to
vitamin-D receptor alleles and osteoporosis susceptibility.
SIR WALTER BODMER, PH.D, FRCPATH, FRS, NON-EXECUTIVE DIRECTOR. Sir Walter
Bodmer currently serves as the Principal of Hertford College, Oxford. He has
served as Director General of the Imperial Cancer Research Fund, President of
the Human Genome organization and President of the British Association for the
Advancement of Science and of the Royal Statistical Society.
JEREMY INGALL, NON-EXECUTIVE DIRECTOR. Mr. Ingall studied finance,
accounting and economics at the University of New South Wales. He is the
Managing Director of Flinders Capital Limited, a private investment banking firm
based in Australia engaged in investing in and advising emerging growth
companies. He has 16 years experience as an investment banker and venture
capitalist and is currently a director of a number of private and public
companies.
52
<PAGE>
ROBERTO ROSENKRANZ, A.B., PH.D., M.B.A., NON-EXECUTIVE
DIRECTOR. Dr. Rosenkranz, who has 18 years of experience in the pharmaceutical
sector, is currently the President and Chief Executive Officer of Roxro Ventures
LLC, Menlo Park, California, a pharmaceutical and biopharmaceutical consulting
group. Dr. Rosenkranz had a dual career at Syntex Corporation in science and
business, holding positions in pharmacology, new product development, sales,
marketing and business development. Following the acquisition of Syntex by
Hoffman La Roche, he was Director of Business Operations for Roche laboratories.
Most recently he was President and Chief Operating Officer of Scios Inc.
Dr. Rosenkranz holds a Ph.D. in Pharmacology and Toxicology, has extensive
experience in academic research and has held a number of special scientific and
business appointments. He has published over 70 scientific papers and holds six
patents.
HOWARD CHRISTLEY, M.A., M.B.B.S., FFPM(RCP(UK)), DIP. PHARM. MED., CHIEF
MEDICAL OFFICER. Dr. Christley trained in medicine at Cambridge University and
at Guy's Hospital, London. Following an internship in pathology he moved into
the pharmaceutical industry and has held positions in clinical research in
Europe and in the United States, at Marion Merrell Dow, Warner Lambert,
Syntex/Roche and Novartis. Whilst at Novartis Pharma, Switzerland, he had
overall worldwide responsibility for clinical research operations and the
management of internal and external clinical monitoring staff. He was
instrumental in establishing clinical trial set up and monitoring processes that
maximized clinical data quality, maximized recruitment speed and optimized study
costs within the newly merged Novartis company.
ROGER DICKINSON, L.L.B., M.B.L., CHIEF CORPORATE OFFICER. Mr. Dickinson is
a lawyer with 20 years experience in commercial and intellectual property law,
starting his career with the British Technology Group. As Group Company
Secretary of Domino Printing Sciences and Anglian Water he has also had
responsibility for various general management functions. He was involved in
taking Domino through an initial public offering and its subsequent expansion
around the world.
PATRICK KLEYN, PH.D., CHIEF SCIENTIFIC OFFICER. Dr. Kleyn joined Gemini
from Millennium Pharmaceuticals. Dr. Kleyn spent five years at Millennium,
initially as the first positional cloning scientist and Project Leader
responsible for the positional cloning of the obesity gene, "Tubby".
Dr. Kleyn's subsequent roles at Millennium included Director of Positional
Cloning and Technology Development and later Director of Genomics at Millennium
Predictive Medicine, Millennium's diagnostics and pharmacogenomics subsidiary.
Dr. Kleyn's 13 years of experience in the fields of human genetics and genomics
includes a Ph.D. in Human Genetics from the University College London and
postdoctoral work in Dr. Conrad Gilliam's laboratory at Columbia University, New
York. Dr. Kleyn received his B.A. and M.A. from Cambridge University, England.
TONY RATCLIFFE, B.SC., A.C.A., M.B.A., CHIEF FINANCIAL OFFICER. After
qualifying as a Chartered Accountant with KPMG, Mr. Ratcliffe held various
senior financial management positions within the biotechnology sector. With the
Agricultural Genetics Company, then Celsis International and most recently
working directly with Dr. Chris Evans OBE, a European biotechnology
entrepreneur, he has gained significant experience within rapidly growing global
companies, both private and public. He has an M.B.A. from Heriot-Watt
University, Edinburgh.
ZAHED SUBHAN, PH.D., L.L.B., M.B.A., CHIEF BUSINESS OFFICER. Dr. Subhan has
previously held senior research, marketing and business development positions at
Sanofi, Glaxo Wellcome and DuPont Merck. At DuPont Merck, Dr. Subhan was
Director of Marketing and Business Development. His biopharmaceutical company
experience includes the publicly traded U.S. drug delivery specialist company,
Penwest Pharmaceuticals. Dr. Subhan holds a Ph.D. in Neuropharmacology and
postgraduate degrees in Business Administration and Law. In his various business
development and licensing related positions, Dr. Subhan has been responsible for
entering into cooperative agreements with several major pharmaceutical and
biopharmaceutical companies, including SmithKline Beecham, Lundbeck, Biovail,
Merck and Zeneca.
53
<PAGE>
KEY INVESTOR
DR. ALEJANDRO C. ZAFFARONI, PH.D. Dr. Zaffaroni is a co-founder of Syntex
Laboratories and the founder of Alza Corporation, Affymax, Affymetrix, Symyx and
Maxygen.
BOARD OF DIRECTORS
Under our articles of association, we may have no fewer than two directors
but have no limit to the maximum number of directors. Our board of directors
currently consists of five directors, including three independent non-executive
directors and one affiliated non-executive director. We expect that all of our
current directors will continue to serve after the offering.
COMMITTEES OF THE BOARD OF DIRECTORS
THE AUDIT COMMITTEE meets at least twice a year. It has the responsibility
of, among other things, reviewing our annual and interim financial statements
and our accounting policies and financial controls. The independent auditors
attend meetings of the audit committee and report on matters arising from their
audit work. The audit committee consists of three independent non-executive
directors.
THE REMUNERATION COMMITTEE meets at least once a year. It makes
recommendations to the board of directors on our framework of executive
compensation and its cost and it determines, on behalf of the board of
directors, specific remuneration packages for each of the executive directors
(directors who are executive officers) and executive officers, including pension
rights and any compensation payments. Also, the remuneration committee makes
recommendations to the board of directors in connection with our share option
plans. The remuneration committee consists of three non-executive directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The aggregate compensation we paid (including benefits in kind) to all of
our directors and executive officers (ten persons), as a group, for services in
all capacities for the year ended March 31, 2000 totaled L640,666 ($1,059,928).
EMPLOYMENT AND SERVICES AGREEMENTS
We have entered into employment agreements with our executive director and
each of our executive officers and service agreements with each of our
non-executive directors.
The employment agreements with our executive director and officers provide,
among other things, that they will provide their services to us on a full time
basis. These employment agreements contain non-compete provisions which restrict
them from being involved in, for the period of their employment and for twelve
months after, any business which competes against us. Each of these employment
agreements also contains an express obligation to maintain confidentiality in
respect of our technological and commercial secrets. We may terminate these
employment agreements, as may our executive director and executive officers, by
providing the specified notice which ranges from three to six months. Unless we
terminate the employment of our executive director or executive officers without
providing the specified notice, none of our employment agreements provide for
compensation payable upon early termination. Our service agreements with our
non-executive directors contain confidentiality provisions. Our service
agreement with Michael Fitzgerald has a fixed term until November 2001 and may
be terminated with six months notice thereafter. Our service agreement with our
other non-executive directors have notice periods of between 30 days and three
months. We have no other employment agreements with any of our directors.
54
<PAGE>
SHARE OPTION SCHEMES AND RELATED INFORMATION
We have adopted three share option schemes and have issued a number of
individual share options. Our share option schemes include (1) our share option
plan, (2) our savings related share option scheme and (3) our international
executive share option plan. As of March 31, 2000, we had granted options that
may be exercised for up to 3,561,420 ordinary shares (adjusted to reflect the
20-for-one ordinary share split which occurred on March 17, 2000) in total, at a
weighted average exercise price of L1.04 ($1.67) per ordinary share with
exercise prices ranging from L0.43 to L1.62 ($0.69 to $2.59) per ordinary share.
The following table provides summary information for each of our directors
and executive officers who hold options to purchase our outstanding ordinary
shares as of March 31, 2000. We granted each option without monetary
consideration. Each option is to purchase our ordinary shares. All our existing
directors and executive officers as a group held options to purchase 2,171,300
ordinary shares as of March 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING EXERCISE PRICE OPTION
DATE OF GRANT OPTIONS HELD PER SHARE EXPIRATION DATE
----------------- ----------------- -------------- -----------------
(L)
<S> <C> <C> <C> <C>
Sir Walter Bodmer......... June 1, 1997 200,000 0.43 June 1, 2004
Jeremy Ingall............. July 1, 1997 172,000 0.58 July 1, 2004
Roberto Rosenkranz........ June 1, 1999 172,000 1.11 December 31, 2004
Roger Dickinson........... November 19, 1999 190,280 1.34 November 19, 2009
February 24, 2000 90,180 1.61 February 24, 2010
Tony Ratcliffe............ November 19, 1999 190,280 1.34 November 19, 2009
February 24, 2000 90,180 1.61 February 24, 2010
Howard Christley.......... November 19, 1999 200,000 1.34 November 19, 2009
February 24, 2000 82,080 1.61 February 24, 2010
Zahed Subhan.............. November 19, 1999 212,680 1.34 November 19, 2009
February 24, 2000 133,700 1.61 February 24, 2010
Patrick Kleyn............. November 19, 1999 417,920 1.34 November 19, 2009
February 24, 2000 20,000 1.61 February 24, 2010
</TABLE>
In addition, we expect to grant options to directors, officers and employees
to purchase up to 2,360,000 ordinary shares at an exercise price equal to the
offering price before the closing of this offering.
OUR SHARE OPTION PLAN
Our share option plan has two parts. Part A is approved by the U.K. Inland
Revenue. Part B has not and will not be submitted to the U.K. Inland Revenue for
approval. The terms of part A and part B of our share option plan are the same
unless we indicate to you otherwise.
Under our share option plan, our board has discretion to grant options to
purchase our ordinary shares and ADSs to any of our full time or part time
employees who is not within 2 years of retirement, including any executive
director who is required to devote at least 25 hours a week working for us. Our
board typically only grants options within 42 days of the announcement of our
annual or interim results, although they may grant options at other times in
exceptional circumstances.
On any date, the total number of ordinary shares over which options may be
granted to purchase under the plan, together with the number of ordinary shares
over which options were granted (1) under the plan in the previous 10 years or
(2) under any other employee share scheme (other than savings related schemes),
may not exceed 10% of the number of our issued ordinary shares on that date.
Lapsed options and options granted under our share option plan before our Nasdaq
National Market quotation are not counted.
55
<PAGE>
The exercise price of the options may not be less than either (1) if new
ordinary shares will be issued, the nominal value of the ordinary shares to be
purchased at the time the options are granted (or, for options over ADSs, the
ordinary shares represented by those ADSs) or (2) whether new ordinary shares
will be issued or existing ordinary shares will be sold, the market value of the
ordinary shares or ADSs to be purchased at the time the options are granted.
Under part A, the U.K. Inland Revenue must agree with the market value. Under
part B, the market value of an ADS equals the average of the high and low
reported sales prices of an ADS on the Nasdaq National Market on the business
day before the date the option was granted. The options may also be issued
subject to performance conditions. Under part A, any performance conditions must
be approved by the U.K. Inland Revenue.
In general, the options may be exercised at any time between three and ten
years from the date they were granted or, under Part B, any other date our board
has specified, as long as any performance conditions have been fulfilled. The
options become exercisable immediately if the option holder is no longer an
eligible employee because of injury, sickness, disability or redundancy (even if
a performance condition has not been satisfied) or retirement or if we sell the
company or business that employs the option holder (only if all performance
conditions have been satisfied). The options also become exercisable if we
experience a change of control, even if all performance conditions have not been
satisfied. The options lapse if they are not exercised within 10 years from
being granted or if the option holder ceases to be our employee for reasons
other than those described above unless our board decides otherwise. The options
may not be transferred.
Our board may not issue any options to any person if either: (1) under part
A, that person would hold options to purchase ordinary shares (granted under
Part A or other share scheme approved by the U.K. Inland Revenue except savings
related share option schemes) with an aggregate purchase price in excess of
L30,000; or (2) under part B, that person would hold options or other rights to
purchase ordinary shares (granted during the prior ten years except under
savings related share option schemes) and the market value of the ordinary
shares subject to those options, determined at the time of each grant, exceeds
eight times that person's annual earnings (excluding benefits).
OUR SAVINGS RELATED SHARE OPTION SCHEME
Our savings related share option scheme has been submitted to the U.K.
Inland Revenue for formal approval, which we expect will be received. We have
assumed that the U.K. Inland Revenue has approved this scheme in the following
discussion.
Any full time or part time employees of, or directors who are required to
devote at least 25 hours a week working for, us or our U.K. subsidiaries are
eligible to receive options under our savings related share option scheme, and
employees having worked for us for a period established by our board of up to
five years must be allowed to participate on similar terms. Our board can invite
eligible employees to apply for options to purchase either ordinary shares or
ADSs at the option price during a six week period following the announcement of
our annual or interim results or outside these periods in exceptional
circumstances. An eligible employee participating in our savings related option
scheme must enter into a savings contract under which he agrees to save a
regular monthly sum of between L5 and L250 for a three or five year period, and
in return is granted an option to purchase the number of ordinary shares or ADSs
with a total exercise price as nearly equal to, but not exceeding, the amount
saved under the savings contract (subject to our board of directors' right to
reduce applications to comply with limits to the number of ordinary shares
available and also subject potentially to being allowed to take account of the
bonus). The bonus is paid at the end of the three or five years and an
additional bonus may be available after seven years. The exercise price of the
options is determined by our board but may not be less than the higher of (1)
80% of the market value of the ordinary shares or ADSs agreed in writing between
us and the U.K. Inland Revenue or (2) if new shares will be issued, nominal
value of the ordinary shares (or, for options over ADSs, the ordinary shares
represented by those ADSs), both calculated immediately before the invitation
date.
56
<PAGE>
An option may generally be exercised for a six month period following the
third, fifth or seventh anniversary of the starting date elected by the option
holder when applying for a savings contract. After that period the option
lapses. Options may only be exercised by an option holder while he is one of our
directors or employees, except in cases of death, injury, disability,
redundancy, retirement or if we sell the company or business that employs the
option holder, when the option holder may be permitted to exercise the options
earlier using savings accumulated up to the date of death or cessation of
employment. The options are not transferable and may only be exercised by the
persons to whom they were granted or their personal representatives. The options
may be exercised within certain limits in the event we are subject to a
takeover, reconstruction, amalgamation or winding-up.
The number of ordinary shares which may be issued on the exercise of options
granted under our savings related share option scheme, or any other share option
scheme we adopt in any ten year period, may not exceed 10% of our issued share
capital on the date of grant of the options (excluding options we grant before
we are quoted on the Nasdaq National Market).
OUR INTERNATIONAL EXECUTIVE SHARE OPTION PLAN
We have adopted an international executive share option plan. Under this
plan we grant options to subscribe for newly issued or purchase existing
ordinary shares (which may be in the form of ADSs) to our directors and
employees who devote almost all of their working time to us.
Our board of directors determines the type of an option as well as the
option price, which may not be less than:
- for options to purchase existing ordinary shares, (1) for our ADSs, the
average of the high and the low sales price of our ADSs on the day prior
to the grant and (2) for our ordinary shares, the same price as adjusted
for the number of our ordinary shares underlying each ADS; and
- for options to subscribe for newly issued ordinary shares, (1) for our
ordinary shares, the nominal value of our ordinary shares, and (2) for our
ADSs, the nominal value of our ordinary shares underlying each ADS.
Our board may only grant options under the international executive share
option plan within six weeks of the announcement of our financial results for
any period, although they may grant options at other times in exceptional
circumstances.
Under our international executive share option plan, we may not grant any
options which would cause (1) the number of our ordinary shares which may be
acquired pursuant to options granted under the plan to exceed 6,000,000 and
(2) the number of our ordinary shares which may be issued pursuant to options
granted under the plan when combined with options granted under other of our
employee share option schemes, to exceed 10% of our ordinary share capital in
issue at that time and (3) the market value of the ordinary shares which may be
issued pursuant to all options granted under our international executive share
option plan and other executive share option schemes determined at the time of
each grant to exceed eight times the annual compensation (excluding benefits) of
the person to whom our board of directors granted the options.
When the options are granted, our board will determine when they are
exercisable, but they have to be exercised within ten years of being granted.
Options can be exercised early if an option holder ceases to be employed by
reason of death, injury, disability, redundancy, retirement or if we sell the
company or business that employs the option holder. There are also special
provisions to enable exercise if we are subject to a take-over, reconstruction,
amalgamation or winding up.
Our board may elect to pay cash to the option holder on the exercise of an
option instead of arranging for the transfer of ordinary shares. The amount of
cash will be equal to the difference between the option price and the market
value of the ordinary shares on the day before the options are exercised.
57
<PAGE>
Our directors may, at any time, amend our international executive share
option plan. The prior approval of our shareholders at a general meeting must be
obtained, however, for amendments to the provisions limiting the number of
ordinary shares over which options can be granted. Any amendment that is to the
disadvantage of option holders requires the consent of the majority of them.
LIMITATION ON LIABILITY AND OTHER INDEMNIFICATION MATTERS
Section 310(1) of the Companies Act 1985 prohibits a company from exempting
or indemnifying its officers (including directors) and auditors against
liability for acts of negligence, default, breach of duty or breach of trust in
relation to the company of which by virtue of the rule of law they may be
guilty. However, as permitted under English law, our articles of association
provide that we shall indemnify every director or other officer and the auditors
out of our assets against any liability incurred by him in defending any
proceedings (civil or criminal) in which the court or other deciding body:
- grants judgment in his favor;
- acquits him;
- disposes of the proceedings without any finding or admission of any
material guilt or breach of duty or breach of trust on his part; or
- grants him relief.
We also have a policy of directors' and officers' liability insurance that
insures directors and officers against the cost of defense, settlement or
payment of a judgment under certain circumstances.
58
<PAGE>
PRINCIPAL SHAREHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of our ordinary shares and vested share options as of March 31, 2000,
and after giving effect to the sale of 12,000,000 ordinary shares, in the form
of ADSs, in this offering for (1) each person known by us to own more than 5% of
our shares, (2) by each of our directors and executive officers and (3) by all
of our directors and executive officers named in the table under
"Management--Directors and Executive Officers" as a group. In presenting this
information, we have assumed:
(1) that the underwriters will not exercise their over-allotment option; and
(2) that the principal shareholders (other than Dr. Alejandro Zaffaroni through
his affiliates, the Zaffaroni Revocable Trust and the Zaffaroni Family
Partnership, L.P.) do not purchase any shares at the offering;
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
------------------------------- -------------------------------
NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) OWNED OWNED(1) OWNED
------------------------------------------------- ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Michael Fitzgerald(2)............................ 20,623,500 40.5% 20,623,500 32.8%
Dr. Alejandro Zaffaroni(3)....................... 3,904,540 7.7% 4,820,740(4) 7.7%(4)
Rahn & Bodmer Banquiers Zurich................... 4,748,420 9.3% 4,748,420 7.5%
Dr. Paul Kelly(5)................................ 2,545,140 5.0% 2,545,140 4.0%
Jeremy Ingall.................................... 1,395,020 2.7% 1,395,020 2.2%
Dr. Roberto Rosenkranz........................... 249,380 0.5% 249,380 0.4%
Sir Walter Bodmer................................ 200,000 0.4% 200,000 0.4%
Howard Christley................................. 86,566 0.2% 86,566 0.1%
Roger Dickinson.................................. 86,060 0.2% 86,060 0.1%
Patrick Kleyn.................................... 271,260 0.5% 271,260 0.4%
Tony Ratcliffe................................... 86,060 0.2% 86,060 0.1%
Zahed Subhan..................................... 212,886 0.4% 212,886 0.3%
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(10 PERSONS)................................... 25,755,872 50.6% 25,755,872 40.8%
</TABLE>
--------------------------
(1) Includes vested share options.
(2) Includes 17,454,860 shares beneficially owned by Michael Fitzgerald through
one of his affiliates, Genelink Holdings Ltd., and 3,151,000 shares
beneficially owned by Michael Fitzgerald through one of his affiliates,
Raddison Trustee Ltd.
(3) Includes 3,020,480 ordinary shares beneficially owned by Dr. Zaffaroni
through one of his affiliates, the Zaffaroni Revocable Trust, and 884,060
ordinary shares beneficially owned by Dr. Zaffaroni through one of his
affiliates, the Zaffaroni Family Partnership, L.P.
(4) Includes 916,200 ordinary shares which the underwriters have reserved for
sale to Dr. Zaffaroni through his affiliates, the Zaffaroni Revocable
Trust and the Zaffaroni Family Partnership, L.P., which Dr. Zaffaroni may
beneficially own after the offering.
(5) Includes 2,545,140 shares beneficially owned by Paul Kelly through one of
his affiliates, R&H Trust Co. (Jersey) Limited.
59
<PAGE>
DESCRIPTION OF SHARE CAPITAL
THE FOLLOWING SUMMARIZES ALL MATERIAL INFORMATION ABOUT OUR SHARE CAPITAL
AND RELATED SUMMARY INFORMATION ABOUT PROVISIONS OF OUR MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION AND APPLICABLE ENGLISH LAW, AND THE
RIGHTS OF HOLDERS OF OUR ORDINARY SHARES. THIS SUMMARY INFORMATION IS NOT
COMPLETE, AND WE QUALIFY THIS SUMMARY INFORMATION BY REFERENCE TO OUR MEMORANDUM
OF ASSOCIATION AND ARTICLES OF ASSOCIATION, COPIES OF WHICH WE HAVE FILED AS
EXHIBITS TO THE REGISTRATION STATEMENT WHICH INCLUDES THIS PROSPECTUS AND WHICH
ARE AVAILABLE FOR INSPECTION AS PART OF THAT REGISTRATION STATEMENT.
GENERAL
Following the extraordinary general meeting held on March 17, 2000, we
reorganized our authorized share capital and increased it to 120,000,000
ordinary shares with a nominal value of L0.05 per ordinary share. In addition,
our shareholders, by special resolution, authorized our board of directors to
issue up to 69,276,780 ordinary shares at any time up to the fifth anniversary
of the resolution, unless the resolution is revoked or varied at a general
meeting of shareholders. The shareholders' special resolution also authorized
our board of directors, under Section 95(1) of the Companies Act 1985, to issue
those ordinary shares at any time within that five year period without regard to
statutory pre-emption rights.
SHARES
As of March 31, 2000, 50,895,220 of our ordinary shares are issued and fully
paid or credited as fully paid. Upon completion of this offering, 62,895,220
ordinary shares will be issued and fully paid (64,695,220 ordinary shares if the
underwriters exercise their over-allotment option in full). Holders of our
ordinary shares are not required to make any additional contributions of capital
for our ordinary shares in the future.
VOTING RIGHTS AND SHAREHOLDERS' MEETINGS
Under English law, there are two types of general meetings of shareholders,
annual general meetings and extraordinary general meetings. We must hold an
annual general meeting in each calendar year not later than 15 months from the
previous annual general meeting. At an annual general meeting, shareholders vote
on matters including the election of directors, appointment of auditors, fixing
of directors' remuneration, approval of the annual accounts and the board of
directors' report and declaration of dividends. Any other general meeting is an
extraordinary general meeting.
Our board of directors may convene an extraordinary general meeting and must
convene one if demanded by the holders of at least 10% of our paid-up shares. An
annual general meeting and an extraordinary general meeting called to pass a
special resolution must be called upon at least 21 days' notice specifying the
place, day and time of the meeting and the general nature of the business of the
meeting. Shareholders may not transact any business at any general meeting
unless a quorum of shareholders representing one-third of our shares entitled to
vote on the matter is present in person or by proxy.
An ordinary resolution requires a simple majority of the votes cast at a
general meeting. A special resolution, necessary for matters such as amending
our articles of association, requires at least 75% of the votes of attending
shareholders who are entitled to vote on the resolution in question. An
extraordinary resolution, necessary for a small number of matters relating to
variation of the rights of different classes of shares and proceedings in a
winding-up, requires the same voting percentage as a special resolution.
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Subject to the restrictions referred to in the following paragraph, at a
meeting of shareholders, every holder of shares who is present in person or by
proxy shall have one vote on a show of hands or one vote for every share held on
a poll. The following persons may demand a poll:
- the chairman of the meeting;
- at least five shareholders, present in person or by proxy, having the
right to vote at the meeting;
- a holder or holders of shares representing at least 10% of the total
voting rights of all shareholders having the right to vote at the meeting;
or
- a holder or holders of shares on which an aggregate sum has been paid up
equal to at least 10% of the total sum paid up on all shares with the
right to attend and vote at the meeting.
A holder of shares may not, unless that holder is acting as a proxy for
another member, be present or vote any of his shares at any general meeting if:
- the holder or any other person appearing to have an interest in those
shares has been served with a notice under Section 212 of the Companies
Act 1985, which requires him to provide information specified in that
section and contains a statement that upon failure to supply that
information before the expiration period specified in the notice, which
may not be less than 28 days, the registered holder of the shares is not
entitled to vote any of those shares, and the person on whom that notice
was served fails to supply the information within the specified period; or
- the holder has not paid in full all amounts due on his shares.
ISSUE OF SHARES
Subject to compliance with English law and without prejudice to the rights
of existing shareholders, we may issue shares with any preferred, deferred or
other special rights and subject to any restrictions on dividends, return of
capital, voting or otherwise. We may also issue redeemable shares provided that
there are non-redeemable shares in issue at the time.
Our current authorized but unissued ordinary shares are at the disposal of
our board of directors, who may issue, grant options over or otherwise dispose
of those ordinary shares to any persons and on any terms they deem appropriate,
provided the issuance does not violate the English Companies Act 1985 or our
articles of association.
Under Section 80 of the Companies Act 1985, and subject to limited
exceptions for employee share option schemes, our board of directors may not
issue shares (or grant any right to subscribe for or convert other securities
into shares) without the authorization of an ordinary resolution of the
shareholders. The ordinary resolution must state the maximum amount of shares
which the board of directors may issue under it and the date it will expire,
which must be within five years.
If we issue shares for cash, Section 89 of the Companies Act 1985, requires
us, subject to limited exceptions for employee share option schemes, to first
offer these shares to existing shareholders on the same terms and in proportion
to their holdings. However, Section 95 of the Companies Act 1985 provides that a
special resolution of the shareholders may give the board of directors the power
to issue shares without first offering them to existing shareholders.
In addition, our articles of association require an ordinary resolution of
the shareholders before:
- we can create share ownership or share option schemes for the benefit of
our directors and/or our officers (with exceptions for schemes which
benefit employees generally, schemes used to attract prospective employees
or where the number of options to be granted is small);
- we can issue shares which would result in a change of control over us;
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- we can issue shares in consideration for the acquisition of another
company (or its assets) where:
- both any of our directors, officers or shareholders are individually or
collectively interested in 5% or 10% (respectively) of the shares of
the target company, and the shares to be issued would increase our
share capital by 5% or more; or
- we propose to issue shares (other than through a public offering) which
would increase our issued share capital by 20% or more;
- we can propose to issue shares (other than through a public offering)
which would increase our issued share capital by 20% or more for a price
of less than the greater of book or market value of those shares.
ALTERATIONS OF SHARE CAPITAL
We may from time to time by ordinary resolution of our shareholders:
- increase our share capital by the amount, to be divided into shares of the
amounts, that the resolution prescribes;
- consolidate and divide all or any of our share capital into shares of a
larger amount than our existing shares;
- cancel any shares which, at the date of the passing of the resolution,
have not been taken, or agreed to be taken, by any person and diminish the
amount of our capital by the amount of the shares canceled; and
- subject to English law, subdivide any of our shares into shares of a
smaller amount than that fixed by our memorandum of association, provided
that the proportion between the amount paid and the amount, if any, unpaid
on each reduced share must be the same as on the share from which the
reduced share is derived, and the resolution may determine that any of the
shares resulting from the sub-division may have any preference or
advantage or have qualified or deferred rights or be subject to any
restrictions.
Subject to English law, we may purchase or enter into a contract to purchase
any of our own shares of any class (including any redeemable shares, if any
exist) provided that we obtain the approval of either more than 50% (in the case
of open market purchases) or 75% (in the case of private purchases) of attending
shareholders present at a general meeting of shareholders. However, we may only
repurchase shares out of our distributable profits or the proceeds of a fresh
issue of shares made for the purpose, and, if we pay any premium, we must pay
the premium out of our distributable profits.
We may, by special resolution of our shareholders, reduce our share capital
or any capital redemption reserve, share premium account, or other
undistributable reserve, subject in each case to confirmation by the English
courts.
DIVIDEND RIGHTS
Subject to English law, our shareholders may declare a dividend at a general
meeting upon the recommendation of our board of directors. The shareholders may
declare a smaller dividend than recommended by our board of directors, but they
may not declare a larger dividend. Our board of directors may pay interim
dividends if it appears to them that they are justified by our financial
position.
Either our board of directors or our shareholders may fix a date as the
record date by reference to which a dividend on the shares will be declared or
paid, whether or not it is before the date on which the shareholders make the
declaration. Any dividend on the shares unclaimed for a period of 12 years
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from the date of payment shall be forfeited and shall revert to us. No dividend
on a share will bear interest, unless provided by the rights attaching to the
share.
RIGHTS IN LIQUIDATION
Subject to the rights attached to any shares issued on special terms and
conditions, upon our liquidation or winding up, after all our debts and
liabilities and the expenses of the liquidation have been discharged, with the
approval of a special resolution of shareholders and in compliance with English
law, any of our surplus assets may be divided among the holders of shares in
proportion to their holdings after deducting any amounts remaining unpaid in
respect of such shares.
NOTIFICATION OF INTEREST IN SHARES
Section 198 of the Companies Act of 1985 requires any person, subject to
limited exceptions, who acquires an interest of 3% or more or, in the case of
certain interests, 10% or more of our shares to notify us of his interest within
two business days following the day on which the obligation to notify arises.
After the shareholder exceeds that level of share ownership, that person must
make a similar notification for each following whole percentage figure increase
or decrease, rounded down to the next whole number. For the purposes of the
notification obligation, the interest of a person in the shares means any kind
of interest in shares, subject to certain exceptions, including any share:
- in which such person's spouse or child or stepchild is interested; or
- in which a corporate body is interested where either:
- that corporate body or its directors act under that person's directions
or instructions; or
- that person is entitled to exercise or controls one-third or more of
the voting power of that corporate body; or
- in which another party is interested where the person and that other party
are parties to a "concert party" agreement under Section 204 of the
Companies Act 1985 and any interest in shares is in fact acquired by any
one of the parties pursuant to the agreement.
A "concert party" agreement is an agreement under which one or more parties
acquire interests in shares of a particular company and impose obligations or
restrictions on any one or more of the parties as to the use, retention or
disposal of such interests.
In addition, Section 212 of the Companies Act 1985 enables us, by notice in
writing, to require a person whom we know or have reasonable cause to believe to
be, or to have been at any time during the three years immediately preceding the
date on which we issue the notice, held an interest in our shares to confirm
that fact, and where such person holds or has during this relevant time held an
interest in our shares, to give such further information as may be required
relating to his or her interest and any other interest in our shares of which
that person is aware.
The Companies Act 1985 restricts the rights attaching to our shares for
non-compliance with Section 212 of that Act. In addition, our articles of
association provide for disenfranchisement, loss of entitlement to dividends and
other payments and restrictions on transfer and other alienability.
TRANSFER OF SHARES
The instruments of transfer of a share may be in any usual form or in any
form which our board of directors approves. All transfers of shares in
uncertificated form shall comply with the U.K. Uncertificated Securities
Regulations 1995, the facilities and requirements of the relevant system (as
therein defined) and our articles of association.
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Our board of directors may, in its absolute discretion and without giving
any reason, decline to register any transfer of any share which is not a fully
paid share provided that, where any of those shares or securities representing
those shares are quoted for trading on the Nasdaq National Market, our board of
directors may only utilize that power to the extent that it does not prevent
dealings in those shares from taking place on an open and proper basis and, for
shares in uncertificated form, to the extent permitted by applicable
regulations. Our board of directors may also decline to register a transfer of
shares in certificated form unless the duly stamped instrument of transfer
lodged with us is:
- accompanied by the relevant share certificate and other evidence of the
right to transfer as our board of directors may reasonably require;
- in respect of only one class of share;
- in favor of not more than four transferees jointly; and
- not in favor of a minor, bankrupt or person of mental ill health.
A person becoming entitled to a share as a consequence of the death or
bankruptcy of a shareholder may, upon producing the necessary evidence, elect
either to become the holder of the share or to nominate another person to be
registered as the transferee, in which case an instrument of transfer must be
executed in favor of that person, but our board of directors shall in either
case have the same right to decline or suspend registration as it would have had
in the case of a transfer by that shareholder before his death or bankruptcy, as
the case may be.
VARIATION OF RIGHTS
Subject to certain provisions of English law, the rights attached to shares
may be varied with the consent in writing of the holders of at least 75% in
nominal value of the issued shares of that class or with the sanction of an
extraordinary resolution passed at a separate meeting of the holders of the
shares of that class.
REGISTRAR
The registrar for our ordinary shares is Lloyds TSB Registrars (reference
2130), The Causeway, Worthing, West Sussex BN99 6DA, England.
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DESCRIPTION OF THE AMERICAN DEPOSITARY SHARES
AMERICAN DEPOSITARY RECEIPTS
The Bank of New York will issue the ADSs. Each ADS will represent the
ownership interest in two of our ordinary shares. We will deposit our ordinary
shares represented by the ADSs (or the right to receive these ordinary shares)
with the custodian, which is currently the London office of The Bank of New
York. Each ADS will also represent securities, cash or other property deposited
with The Bank of New York but not distributed to ADS holders. The Bank of New
York's Corporate Trust Office is located at 101 Barclay Street, New York, NY
10286, its principal executive office is located at One Wall Street, New York,
NY 10286 and the custodian's office is located at One Canada Square, London
E14 5AL, England.
You may hold ADSs either directly or indirectly through your broker or other
financial institution. If you hold ADSs directly, you are an ADS holder. This
description assumes you hold your ADSs directly. If you hold the ADSs
indirectly, you must rely on the procedures of your broker or other financial
institution to assert the rights of ADS holders described in this section. You
should consult with your broker or financial institution to find out what those
procedures are.
Because The Bank of New York will actually hold the ordinary shares, you
must rely on it to exercise the rights of a shareholder. The obligations of The
Bank of New York are set out in a deposit agreement among us, The Bank of New
York and you, as an ADS holder. New York law generally governs the deposit
agreement and the ADSs.
The following is a summary of the material terms of the deposit agreement.
Because it is a summary, it does not contain all the information that may be
important to you. For more complete information, you should read the entire
agreement and the form of the ADS. For directions on how to obtain copies of
these you should read the information in "Where You Can Find More Information".
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of shares your ADSs represent.
CASH. The Bank of New York will, as promptly as practicable, convert any
cash dividend or other cash distribution we pay on the ordinary shares into U.S.
dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars
to the United States. If that is not possible or if any approval from the U.K.
government is needed and cannot be obtained, the deposit agreement allows The
Bank of New York to distribute the foreign currency only to those ADS holders to
whom it is possible to do so. It will hold the foreign currency it cannot
convert for the account of the ADS holders who have not been paid. It will not
invest the foreign currency, and it will not be liable for the interest.
Before making a distribution, any withholding taxes that must be paid under
any applicable law will be deducted. You should read the information in
"Taxation--Taxation of Dividends". The Bank of New York will distribute only
whole U.S. dollars and cents and will round fractional cents to the nearest
whole cent. If the exchange rates fluctuate during a time when The Bank of New
York cannot convert the foreign currency, you may lose some or all of the value
of the distribution.
SHARES. The Bank of New York may with our consent, and will if we request,
distribute new ADSs representing any shares we may distribute as a dividend or
free distribution, if we furnish it promptly with satisfactory evidence that it
is legal to do so. The Bank of New York will only distribute whole ADSs. It will
sell shares which would require it to use a fractional ADS and distribute the
net proceeds in the same way as it does with cash. If The Bank of New York does
not distribute additional ADSs, each ADS will also represent the new shares.
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RIGHTS TO RECEIVE ADDITIONAL SHARES. If we offer holders of our ordinary
shares any rights to subscribe for additional shares or any other rights, The
Bank of New York may, after consultation with us, make these rights available to
you. We must first instruct The Bank of New York to do so and furnish it with
satisfactory evidence that it is legal to do so. If we do not furnish this
evidence and/or give these instructions, and The Bank of New York decides it is
practical to sell the rights, The Bank of New York will sell the rights and
distribute the proceeds in the same way as it does with cash. The Bank of New
York may allow rights that are not distributed or sold to lapse. In that case,
you will receive no value for them.
After consultation with us, if The Bank of New York makes rights available
to you, upon instruction from you, it will exercise the rights and purchase the
shares on your behalf. The Bank of New York will then deposit the shares and
issue ADSs to you. It will only exercise rights if you pay it the exercise price
and any other charges the rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancelation and
transfer of the ADSs issued after exercise of rights. For example, you may not
be able to trade the ADSs freely in the United States. In this case, The Bank of
New York may issue the ADSs under a separate restricted deposit agreement which
will contain the same provisions as the deposit agreement, except for the
changes needed to put the restrictions in place.
OTHER DISTRIBUTIONS. The Bank of New York will, after consultation with us,
send to you anything else we distribute on deposited securities by any means it
thinks is legal, fair and practical. If it cannot make the distribution in that
way, The Bank of New York may, after consultation with us, decide to sell what
we distributed and distribute the net proceeds in the same way as it does with
cash or it may decide to hold what we distributed, in which case the ADSs will
also represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADS holders. We have no
obligation to register ADSs, shares, rights or other securities under the
Securities Act. We also have no obligation to take any other action to permit
the distribution of ADSs, shares, rights or anything else to ADS holders. This
means that you may not receive the distribution we make on our ordinary shares
or any value for them if it is illegal or impractical for us to make them
available to you.
DEPOSIT, WITHDRAWAL AND CANCELATION
The Bank of New York will issue ADSs if you or your broker deposit shares or
evidence of rights to receive shares with the custodian. Upon payment of its
fees and expenses and of any taxes or charges, such as stamp taxes or stock
transfer taxes or fees, The Bank of New York will register the appropriate
number of ADSs in the names you request and will deliver the ADSs at its
Corporate Trust Office to the persons you request.
You may turn in your ADSs at The Bank of New York's Corporate Trust Office.
Upon payment of its fees and expenses and of any taxes or charges, such as stamp
taxes or stock transfer taxes or fees, The Bank of New York will deliver
(1) the underlying ordinary shares to an account designated by you and (2) any
other deposited securities underlying the ADS at the office of the custodian.
Or, at your request, risk and expense, The Bank of New York will deliver the
deposited securities at its Corporate Trust Office.
VOTING RIGHTS
You may instruct The Bank of New York to vote the shares underlying your
ADSs but only if we ask The Bank of New York to ask for your instructions.
Otherwise, you will not be able to exercise your right to vote unless you
withdraw the underlying ordinary shares. However, you may not know about the
meeting enough in advance to withdraw the underlying ordinary shares.
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We will ask The Bank of New York to notify you of the upcoming vote and to
arrange to deliver our voting materials to you. The materials will (1) describe
the matters to be voted on and (2) explain how you, on a certain date, may
instruct The Bank of New York to vote the underlying ordinary shares or other
deposited securities underlying your ADSs as you direct. For instructions to be
valid, The Bank of New York must receive them on or before the date specified.
The Bank of New York will try, as far as practical, subject to English law and
the provisions of our memorandum and articles of association, to vote or to have
its agents vote the underlying ordinary shares or other deposited securities as
you instruct. The Bank of New York will only vote or attempt to vote as you
instruct.
We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct The Bank of New York to vote your underlying
ordinary shares. In addition, The Bank of New York and its agents are not
responsible for failing to carry out voting instructions or for the manner of
carrying out voting instructions. This means that you may be unable to exercise
your right to vote, and there may be nothing you can do if your shares are not
voted as you requested.
FEES AND EXPENSES
<TABLE>
ADS HOLDERS MUST PAY: FOR:
<S> <C>
$5.00 (or less) per 100 ADSs - Each issuance of an ADS, including as a
result of a distribution of shares or rights
or other property
- Each cancelation of an ADS, including if
the
agreement terminates
$0.02 (or less) per ADS - Any cash payment
Registration or Transfer Fees - Transfer and registration of shares on our
share register or the share register of the
foreign registrar from your name to the
name of The Bank of New York or its agent
when you deposit or withdraw our ordinary
shares
Expenses of The Bank of New York - Conversion of foreign currency to U.S.
dollars
- Cable, telex and facsimile transmission
expenses
Taxes and other governmental charges The Bank - As necessary
of New York or the Custodian have to pay on
any ADS or ordinary share underlying an ADS,
for example, stock transfer taxes, stamp duty
or withholding taxes
</TABLE>
PAYMENT OF TAXES
You will be responsible for any taxes or other governmental charges payable
on your ADSs or on the deposited securities underlying your ADSs. The Bank of
New York may refuse to transfer your ADSs or allow you to withdraw the deposited
securities underlying your ADSs until these taxes or other charges are paid. It
may apply payments owed to you or sell deposited securities underlying your ADSs
to pay any taxes owed by you and you will remain liable for any deficiency. If
it sells deposited securities, it will, if appropriate, reduce the number of
ADSs to reflect the sale and pay to you any proceeds, or send to you any
property, remaining after it has paid the taxes.
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RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
<TABLE>
IF WE: THEN:
<S> <C>
Change the nominal or par value of our shares The cash, shares or other securities received
Reclassify, split up or consolidate any of by The Bank of New York will become deposited
the deposited securities securities.
Distribute securities on the shares that are Each ADS will automatically represent its
not distributed to you equal share of the new deposited securities.
Recapitalize, reorganize, merge, liquidate, The Bank of New York may, and will if we ask
sell all or substantially all of our assets, it to, distribute some or all of the cash,
or take any similar action shares or other securities it received. It
may also issue new ADSs or ask you to
surrender your outstanding ADSs in exchange
for new ADSs, identifying the new deposited
securities.
</TABLE>
AMENDMENT AND TERMINATION
We may agree with The Bank of New York to amend the deposit agreement and
the ADSs without your consent for any reason. If the amendment adds or increases
fees or charges, except for taxes and other governmental charges or registration
fees, cable, telex or facsimile transmission costs, delivery costs or other such
expenses, or prejudices an important right of ADS holders, it will only become
effective 30 days after The Bank of New York notifies you of the amendment. At
the time an amendment becomes effective, you are considered, by continuing to
hold your ADS, to agree to the amendment and to be bound by the ADSs and the
deposit agreement as amended.
The Bank of New York will terminate the deposit agreement if we ask it to do
so. The Bank of New York may also terminate the deposit agreement if The Bank of
New York has told us that it would like to resign and we have not appointed a
new depositary bank within 90 days. In both cases, The Bank of New York must
notify you at least 90 days before termination.
After termination, the deposit agreement requires The Bank of New York and
its agents to do only the following under the deposit agreement: collect
distributions on the deposited securities and deliver shares and other deposited
securities upon cancelation of ADSs. One year after the date of termination, The
Bank of New York may sell any remaining deposited securities by public or
private sale. After that, The Bank of New York will hold the proceeds of the
sale, as well as any other cash it is holding under the deposit agreement for
the pro rata benefit of the ADS holders that have not surrendered their ADSs. It
will not invest the money and will have no liability for interest. The Bank of
New York's only obligations will be to account for the proceeds of the sale and
other cash. After termination our only obligations will be with respect to
indemnification and to pay certain amounts to The Bank of New York.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADS HOLDERS
The deposit agreement expressly limits our obligations and the obligations
of The Bank of New York, and it limits our liability and the liability of The
Bank of New York. We and The Bank of New York:
- are only obligated to take the actions specifically set forth in the
deposit agreement without negligence or bad faith;
- are not liable if either is prevented or delayed by law or circumstances
beyond their control from performing their obligations under the deposit
agreement;
- are not liable if either exercises discretion permitted under the deposit
agreement;
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- have no obligation to become involved in a lawsuit or other proceeding
related to the ADSs or the agreement on your behalf or on behalf of any
other party; and
- may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
The Bank of New York will not be liable for any failure to carry out any
instructions to vote any of the deposited securities, or for the manner any vote
is cast, or the effect of any such vote, provided that any action or non-action
is in good faith.
In the deposit agreement, we and The Bank of New York agree to indemnify
each other under certain circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register transfer of an ADS, make
a distribution on an ADS, or withdraw the underlying ordinary shares, The Bank
of New York may require:
- payment of stock transfer or other taxes or other governmental charges and
transfer or registration fees charged by third parties for the transfer of
any underlying ordinary shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
- compliance with regulations it may establish, from time to time,
consistent with the deposit agreement, including presentation of transfer
documents.
The Bank of New York may refuse to deliver, transfer, or register transfers
of ADSs generally when our books or the books of The Bank of New York are
closed, or at any time that we or The Bank of New York think it advisable to do
so.
You have the right to cancel your ADSs and withdraw the underlying ordinary
shares at any time except:
- when temporary delays arise because: (1) we or The Bank of New York have
closed our or its transfer books; (2) the transfer of shares is blocked to
permit voting at a shareholders' meeting; or (3) we are paying a dividend
on the shares;
- when you or other ADS holders seeking to withdraw the underlying ordinary
shares owe money to pay fees, taxes and similar charges; or
- when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to ADSs or to the withdrawal
of the underlying ordinary shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
deposit agreement.
PRE-RELEASE OF ADSS
In certain circumstances, subject to the provisions of the deposit
agreement, The Bank of New York may issue ADSs before deposit of the underlying
ordinary shares. This is called a pre-release of ADSs. The Bank of New York may
also deliver shares upon cancelation of pre-released ADSs (even if the ADSs are
canceled before the pre-release transaction has been closed out). A pre-release
is closed out as soon as the underlying shares are delivered to The Bank of New
York. The Bank of New York may receive ADSs instead of shares to close out a
pre-release. The Bank of New York may pre-release ADSs only under the following
conditions: (1) before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in writing that
it or its customer (i) owns the ordinary shares or ADSs to be deposited; (ii)
assigns all beneficial rights, title and interest in such shares or ADSs to The
Bank of New York in its capacity as depositary and for the benefit of ADR
holders; and (iii) will not take any action with respect to the shares or ADSs
that is
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inconsistent with the transfer of beneficial ownership other than in
satisfaction of such pre-release; (2) the pre-release must be fully
collateralized with cash or other collateral that The Bank of New York considers
appropriate; and (3) The Bank of New York must be able to close out the
pre-release on not more than five business days' notice. In addition, The Bank
of New York will limit the number of ADSs that may be outstanding at any time as
a result of pre-release, although The Bank of New York may disregard the limit
from time to time, if it thinks it is appropriate to do so.
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TAXATION
The following discussion describes the material U.S. federal income tax and
U.K. tax consequences of the purchase, ownership and disposition of shares or
ADSs (evidenced by ADRs) to beneficial owners:
- who are residents of the United States for purposes of the current United
Kingdom/United States Income Tax Convention (the "Income Tax Convention")
and the United Kingdom/United States Estate and Gift Tax Convention (the
"Estate and Gift Tax Convention" and, together with the Income Tax
Convention, the "Conventions");
- whose shares or ADSs are not, for the purposes of the Conventions,
effectively connected with a permanent establishment in the United
Kingdom;
- who otherwise qualify for the full benefits of the Conventions; and
- who are U.S. holders (as defined below).
The discussion of U.S. tax consequences is the opinion of Clifford Chance
Rogers & Wells LLP.
The discussion of U.K. tax consequences is based on the opinion of CMS
Cameron McKenna.
The statements of U.S. federal income tax and U.K. tax laws set out below:
- are based on the laws in force and as interpreted by the relevant taxation
authorities as of the date of this prospectus;
- are subject to any changes in U.S. or English law, in the interpretation
thereof by the relevant taxation authorities, or in the Conventions,
occurring after such date; and
- are based, in part, on representations of the Depositary, and assume that
each obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms.
No assurance can be given that taxing authorities or the courts will agree
with this analysis.
This discussion does not address all aspects of U.S. and U.K. taxation that
may be relevant to you and is not intended to reflect the individual tax
position of any beneficial owner, including tax considerations that arise from
rules of general application to all taxpayers or to certain classes of investors
or that are generally assumed to be known by investors. The portions of this
summary relating to U.S. federal taxation are based upon the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, existing
and proposed U.S. Treasury regulations promulgated thereunder, published rulings
by the U.S. Internal Revenue Service ("IRS"), and court decisions, all in effect
as of the date hereof, all of which authorities are subject to change or
differing interpretations, which changes or differing interpretations could
apply retroactively. The portions of this summary relating to U.S. federal
taxation are limited to investors who hold the shares or ADSs as capital assets
within the meaning of Section 1221 of the Code generally, property held for
investment, and does not purport to deal with investors in special tax
situations, such as dealers in securities or currencies, persons whose
functional currency is not the U.S. dollar and certain persons, including but
not limited to life insurance companies, tax exempt entities, financial
institutions, traders in securities that elect to use a "mark-to-market" method
of accounting for their securities holdings, regulated investment companies,
persons holding shares or ADSs as part of a hedging, integrated, conversion or
constructive sale transaction or straddle or persons subject to the alternative
minimum tax, who may be subject to special rules not discussed below. In
particular, the following summary does not address the adverse tax treatment to
you if you own, directly or by attribution, 10% or more of our outstanding
voting share capital and we are classified as a "controlled foreign corporation"
for U.S. federal tax purposes.
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As used herein, the term "U.S. holder" means a beneficial owner of shares or
ADSs who or which is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust (1) that is subject to the supervision of a court within the
United States and the control of one or more U.S. holders as described in
section 7701(a)(30) of the Code or (2) that has a valid election in effect
under applicable U.S. Treasury regulations to be treated as a U.S. holder.
If a partnership holds our shares or ADSs, the tax treatment of a partner
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our shares or ADSs,
you should consult your tax advisors.
THE SUMMARY DOES NOT INCLUDE ANY DESCRIPTION OF THE TAX LAWS OF ANY STATE,
LOCAL OR FOREIGN GOVERNMENTS THAT MAY BE APPLICABLE TO THE SHARES OR ADSS. YOU
ARE URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, AND
LOCAL TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF SHARES OR ADSS, AS WELL AS THE
TAX CONSEQUENCES TO YOU IN THE UNITED KINGDOM AND ANY OTHER JURISDICTIONS.
For the purposes of the Conventions and the Code, you will be treated as the
owner of the shares represented by ADSs evidenced by the ADRs. Deposits or
withdrawals of shares by U.S. holders for ADRs will not be subject to U.S.
federal income tax.
TAXATION OF DIVIDENDS
UNITED KINGDOM
A U.K. resident individual shareholder will generally be entitled to a tax
credit in respect of any dividend received. The amount of the tax credit is
equal to one-ninth of the cash dividend or 10% of the aggregate of the cash
dividend and the associated tax credit.
Under the terms of the Income Tax Convention, you may be entitled to receive
from the U.K. Inland Revenue, in respect of a cash dividend, a payment equal to
the amount of the tax credit to which an individual resident in the U.K. for tax
purposes would have been entitled had such resident received the dividend,
reduced by an amount to be withheld from such payment not to exceed 15% of the
sum of the dividend and the tax credit amount. At the current levels of the tax
credit, however, and as a result of the amount so withheld, which withholding
shall not exceed the amount of the tax credit, you would not be entitled to
receive any payment in respect of the tax credit for dividends paid by us. For
example, if you receive a dividend (solely for illustrative purposes) of L90,
you would be entitled to a tax credit of L10, or one-ninth of L90. However,
since the amount withheld (here limited to 10%) equals the amount of the tax
credit, no actual treaty payment would be made and you would receive only the
cash dividend, which in this case would be L90. For U.S. federal income tax
purposes, if you elect the application of the Income Tax Convention with respect
to dividends (as discussed below) you would take into account an amount equal to
the dividend plus the tax credit, which under our illustration would be L100,
and you would be treated as having paid U.K. tax equal to the amount of the tax
credit, which in this case would be L10 (the "U.K. Withholding Tax").
Certain U.S. corporations which either alone or together with one or more
associated corporations control, directly or indirectly, at least 10% of our
voting stock may be entitled to a treaty payment under the terms of the Income
Tax Convention. The position of such U.S. holders is not generally dealt with in
this summary and such U.S. holders should consult their own tax advisors with
respect to the
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detailed application of the Income Tax Convention to their own particular
circumstances and on the procedure for obtaining any payment to which they may
be entitled.
You should consult your own tax advisors as to whether you will be
considered to have received any income with respect to the tax amount and
whether we will be considered to have paid U.K. Withholding Tax.
UNITED STATES
Subject to the PFIC discussion below, if you are eligible for benefits
under, and elect the application of, the Income Tax Convention to distributions
you receive from U.S. corporations, the gross amount of a dividend plus the U.K.
tax credit amount considered received and unreduced by the U.K. Withholding Tax
(1) will be included in your gross income on the day actually or constructively
received by you, in the case of shares, or by the Depositary, in the case of the
ADSs, and (2) the dividend will be treated as foreign source dividend income to
the extent paid out of our current or accumulated earnings and profits as
determined for U.S. federal income tax purposes. You elect the application of
the Income Tax Convention by filing a timely and duly completed Form 8833 with
your income tax return for the relevant year. Distributions you receive from us
will constitute dividends for these purposes to the extent paid out of our
current and accumulated earnings and profits. Distributions in excess of our
current and accumulated earnings and profits will first be treated, for U.S.
federal income tax purposes, as a nontaxable return on capital to the extent of
the U.S. investor's basis in the ADSs and then as gain from the sale or exchange
of a capital asset. Dividends paid by us will not be eligible for the corporate
dividends received deduction that is applicable in certain cases to U.S.
corporations. U.S. holders of shares or ADSs are urged to consult their own tax
advisors as to their eligibility for benefits, if any, under the Income Tax
Convention.
The amount of any dividend paid in British pounds will equal the U.S. dollar
value of the British pounds received calculated by reference to the exchange
rate in effect on the date the dividend is received by you, in the case of
shares, or by the depository, in the case of ADSs, regardless of whether the
British pounds are converted into U.S. dollars. If you do not convert the
British pounds received as a dividend into U.S. dollars on the date of receipt,
you will have a basis in the British pounds equal to their U.S. dollar value on
the date of receipt. Generally, any gain or loss realized on your subsequent
conversion or other disposition of the British pounds will be treated as
ordinary income or loss.
Subject to certain conditions and limitations, the U.K. Withholding Tax
withheld from dividends will be treated as a foreign income tax that may be
deducted from taxable income or credited against the U.S. holder's U.S. federal
income tax liability. However, the U.K. tax may be deducted only if the U.S.
holder does not claim a credit for any foreign taxes paid or accrued in that
year. In addition, a U.S. holder will not be entitled to a deduction or foreign
tax credit with respect to U.K. tax that may be refunded to a U.S. holder
pursuant to the Income Tax Convention or U.K. law. Accordingly, a U.S. holder
who is eligible for, but does not apply to receive, a refund pursuant to the
Income Tax Convention will not be able to claim a deduction or foreign tax
credit for that portion of U.K. taxes withheld in excess of 15% of the dividend.
Further, in certain circumstances, a U.S. holder that (i) has held shares or
ADSs for less than a specified minimum period during which it is not protected
from risk of loss, (ii) is obligated to make payments related to the dividends
or (iii) holds the shares or ADSs in arrangements in which the U.S. holder's
expected economic profit, after non-U.S. taxes, is insubstantial will not be
allowed a foreign tax credit for foreign taxes imposed on dividends paid on
shares or ADSs. For the purposes of computing the foreign tax credit, dividends
paid on the shares or ADSs will be treated as income from sources outside the
United States, but generally will be grouped separately, together with other
items of "passive" or "financial services" income. The rules governing the
foreign tax credit are complex. U.S. holders are urged to consult their tax
advisors regarding the availability of the foreign tax credit in their
particular circumstances.
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TAXATION OF CAPITAL GAINS
UNITED KINGDOM
If you are not resident or ordinarily resident in the United Kingdom for
U.K. tax purposes, you will not be liable for U.K. tax on capital gains realized
or accrued on the sale or other disposition of shares or ADSs unless the shares
or ADSs are held in connection with your trade or business (which for this
purpose includes a profession or a vocation) in the United Kingdom through a
branch or agency and the shares or ADSs are or have been used, held or acquired
for the purposes of such trade or business of such branch or agency.
A U.S. holder who is an individual who has on or after March 17, 1998 ceased
to be resident or ordinarily resident in the United Kingdom for a period of five
years and who disposes of shares or ADSs during that period may also be liable
for U.K. tax on capital gains notwithstanding that the person may not be
resident in the United Kingdom at the time of the disposal.
UNITED STATES
Subject to the PFIC discussion below, gain or loss realized by a U.S. holder
on the sale or other disposition of the shares or ADSs will be subject to U.S.
federal income tax as capital gain or loss in an amount equal to the difference
between the U.S. holder's basis in the shares or ADSs and the amount realized on
the disposition. The capital gain or loss will be long-term capital gain or loss
if the U.S. holder has held the shares or ADSs for more than one year at the
time of the sale or exchange. Gain or loss realized by a U.S. holder generally
will be treated as U.S. source gain or loss for U.S. foreign tax credit
purposes.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
Based upon our current operations and assets, we do not believe that we are
a passive foreign investment company, or PFIC, and we do not expect to become a
passive foreign investment company in the future for U.S. federal income tax
purposes. Our belief that we are not a PFIC and our expectation that we will not
become a PFIC in the future are based on our current and planned business
activities, including our ability to conclude certain contracts on terms that
are agreeable to us. In the event that we fail to conclude those contracts on a
timely basis, or at all, it is likely that we would be a PFIC for the taxable
year ending March 31, 2001 and possibly for future taxable years. This
conclusion is a factual determination made annually and could change. In
addition, a number of the factors that will be relevant to the determination as
to whether we are a PFIC will depend on circumstances that may not be within our
control. In reaching the conclusion that we are not a passive foreign investment
company, we valued our assets based on the anticipated price of our shares. For
purposes of applying the PFIC rules, that valuation method gives substantial
value to intangible assets, including goodwill, that are not considered to
produce or to be held for the production of passive income for purposes of the
PFIC rules. The IRS has not approved or disapproved of this valuation method,
although we believe this is a reasonable method of valuing our non-passive
assets.
In general, we will be a passive foreign investment company for any taxable
year if either:
- 75% or more of our gross income for the taxable year is passive income; or
- 50% or more of the value, determined on the basis of a quarterly average,
of our assets is attributable to assets that produce or are held for the
production of passive income.
Passive income generally includes dividends, interest, royalties, rents
(other than rents and royalties derived in the active conduct or a trade or
business and not derived from a related person), annuities and gains from assets
that produce passive income.
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The determination of whether we are a passive foreign investment company is
made annually. Accordingly, it may be possible that we will become a passive
foreign investment company in the current or any future year due to changes in
our asset or income composition or if our projections are not accurate. Because
the goodwill is valued based on the anticipated market value of the common stock
immediately following the offering, a decrease in the price of our shares could
result in us becoming a PFIC.
If we are classified as a PFIC in any year that a U.S. holder is a
shareholder, we generally will continue to be treated as a PFIC for that U.S.
holder in all succeeding years, regardless of whether we continue to meet the
income or asset test described above, although shareholder elections may apply
in certain circumstances. For purposes of the PFIC tests, we will be treated as
owning our proportionate share of the assets, and as receiving directly our
proportionate share of the income, of any foreign corporation of which we own at
least 25% of the stock value.
If we become a PFIC you will be subject to special tax rules for:
- any "excess distribution" by us, which is generally any distribution that
is greater than 125% of the average annual distributions received by you
in the three preceding taxable years, or your holding period for the
shares or ADSs, if shorter; and
- any gain realized on the sale or other disposition, including a pledge, of
shares of ADSs.
Under these special tax rules:
- the excess distribution or gain would be allocated ratably over the
holding period for the shares or ADSs;
- the amount allocated to the current taxable year, and any taxable year
prior to the first taxable year in which we were a PFIC would be treated
as ordinary income; and
- the amount allocated to each other year would be subject to tax at the
highest tax rate in effect for that year and the interest charge generally
applicable to underpayments of tax would be imposed with respect to the
resulting tax attributable to each such prior year.
As an alternative to these special rules, the U.S. holder may make an
election to have us treated as a qualified electing fund in the first taxable
year in which the U.S. holder owns the shares or ADSs and we comply with certain
reporting requirements. A U.S. holder that makes a qualified electing fund
election will be currently taxable on its pro rata share of our ordinary
earnings and net capital gain (at ordinary income and capital gains rates,
respectively) for each taxable year in which we are a PFIC, regardless of
whether or not dividend distributions are actually distributed. Therefore, a
U.S. holder could have a tax liability with respect to those earnings or gain
without a corresponding receipt of cash. The U.S. holder's basis in the shares
or ADSs will be increased to reflect the amount of the taxed but undistributed
income. Distributions of income that had previously been taxed will result in a
corresponding reduction of basis in the shares or ADSs and will not be taxed
again as a distribution to the U.S. holder. Each U.S. holder who desires
qualified electing fund treatment must individually make a qualified electing
fund election. We intend to comply with all reporting requirements necessary for
a U.S. holder to make a qualified electing fund election, will timely notify
U.S. holders of each year that we are a passive foreign investment company and
will provide to U.S. holders such annual information as may be required to make
such a qualified electing fund election elective. A qualified electing fund
election is, however, subject to a number of specific rules and requirements,
and U.S. holders are strongly urged to consult their tax advisors concerning the
benefits of making the qualified electing fund election.
Alternatively, it may be possible for you to make a "mark-to-market"
election with respect to the shares or ADSs. If you make a "mark-to-market"
election you would be required to recognize ordinary income in an amount equal
to the excess of the fair market value of your shares or ADSs over your
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adjusted basis of those shares or ADSs, calculated as of the close of that
taxable year, provided that the shares or ADSs are regularly traded on a
qualified exchange. If the adjusted basis of those shares or ADSs exceeds their
fair market value, you may deduct the amount of such excess, but only to the
extent of amounts included in your ordinary income in prior taxable years under
the election. Under current law, the "mark-to-market" election may be available
to U.S. holders of shares or ADSs because the ADSs will be traded on the Nasdaq
National Market which constitutes a qualified exchange as designated in the
Code, although the ADSs might not be "regularly traded" for purposes of the
"mark-to-market" election, and you should be note that we anticipate that only
the ADSs and not the shares will be traded on the Nasdaq National Market. U.S.
holders should consult their tax advisors about the availability of the
"mark-to-market" election, and whether making the election would be advisable in
the U.S. holder's particular circumstances.
The consequences of the elections under the provisions described above are
complex and you are urged to consult your tax advisor with respect to the
availability and effect of those elections in your particular circumstances.
If you own shares or ADSs during any year that we are a PFIC, you must file
U.S. Internal Revenue Service Form 8621. You should consult your tax advisor
concerning the U.S. federal income tax consequences of holding shares or ADSs if
we are considered a passive foreign investment company.
U.K. INHERITANCE AND GIFT TAX
If you are an individual domiciled in the United States and are not a
national of the United Kingdom for the purposes of the Estate and Gift Tax
Convention, any share or ADS beneficially owned by you will not be subject to
U.K. inheritance tax on your death or on a gift made by you during your
lifetime, provided that any applicable U.S. federal gift or estate tax liability
is paid, except where the share or ADS is part of the business property of your
U.K. permanent establishment or pertains to your U.K. fixed base used for the
performance of independent personal services. The Estate and Gift Tax Convention
generally provides for tax paid in the United Kingdom to be credited against tax
payable in the United States, based on priority rules set forth in that
Convention, in the exceptional case where a share or ADS is subject to both U.K.
inheritance tax and U.S. federal gift or estate tax. Where the shares or ADSs
have been placed in trust by a settler who, at the time of the settlement, was a
U.S. holder, the shares or ADSs will generally not be subject to U.K.
inheritance tax if the settler, at the time of the settlement, was domiciled in
the United States for the purposes of the Estate and Gift Tax Convention and was
not a U.K. national.
U.S. GIFT AND ESTATES TAXES
If you are an individual, you will be subject to U.S. gift and estate taxes
with respect to the shares or ADSs in the same manner and to the same extent as
with respect to other types of personal property.
U.K. STAMP DUTY AND STAMP DUTY RESERVE TAX
Subject to certain exemptions, stamp duty will be charged at the rate of
1.5% rounded up to the nearest L5, or there will be a charge to the stamp duty
reserve tax at the rate of 1.5% on the amount or value of the consideration
paid, or in some circumstances the issue price or open market value, on a
transfer or issue of shares (1) to, or to a nominee for, a person whose business
is or includes the provision of clearance services, or (2) to, or to a nominee
for, a person whose business is or includes the issuing of depositary receipts.
It is understood that the U.K. Inland Revenue Stamp Office considers the
depositary to fall within one or the other of the above two categories. The
stamp duty reserve tax on the initial deposit of the shares represented by the
ADSs offered hereunder will be paid
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by us. On the deposit of further shares with the depositary, stamp duty reserve
tax will be payable by the person depositing those shares. Where stamp duty
reserve tax is charged on a transfer of shares and ad valorem stamp duty is
chargeable on the instrument effecting the transfer, the amount of the stamp
duty reserve tax charged is an amount equal to the excess, if any, of the stamp
duty reserve tax charge due on the transfer after the deduction of the stamp
duty paid.
You will not be entitled to a foreign tax credit with respect to any U.K.
stamp duty or stamp duty reserve tax, but may be entitled to a deduction subject
to applicable limitations under the Code. You are urged to consult your own tax
advisors regarding the availability of a deduction under their particular
circumstances.
TRANSFERS OF ADRS AND ADSS
No U.K. stamp duty will be payable on an instrument transferring an ADR or
on a written agreement to transfer an ADR provided that the instrument of
transfer or the agreement to transfer is executed and remains at all times
outside the United Kingdom. Where these conditions are not met, the transfer of,
or agreement to transfer an ADR could, depending on the circumstances, attract a
charge to ad valorem stamp duty.
No stamp duty reserve tax will be payable in respect of an agreement to
transfer an ADR, whether made in or outside the United Kingdom.
Where no sale is involved and no transfer of beneficial ownership has
occurred, a transfer of shares by the custodian or the depositary or its nominee
to the holder of an ADR upon cancelation of the ADR is subject to U.K. stamp
duty of L5.00 per instrument of transfer.
ISSUE AND TRANSFER OF ORDINARY SHARES IN REGISTERED FORM
Except in relation to persons whose business is or includes the issue of
depositary receipts or the provision of clearance services or their nominees,
the allotment and issue of shares by us will not normally give rise to a charge
to U.K. stamp duty or stamp duty reserve tax.
Transfers of shares, as opposed to ADSs, will attract ad valorem stamp duty
normally at the rate of 0.5% of the value of the consideration (rounded up to
the nearest L5.00). A charge to stamp duty reserve tax, normally at the rate of
0.5% of the consideration, arises, in the case of an unconditional agreement to
transfer shares, on the date of the agreement, and in the case of a conditional
agreement the date on which the agreement becomes unconditional. In the case of
transfers effected through the CREST system, the stamp duty reserve tax is
collected through the system. In other cases, the stamp duty reserve tax is
payable on the seventh day of the month following the month in which the charge
arises. Where an instrument of transfer is executed and duly stamped before the
expiry of a period of six years beginning with the date of that agreement, the
stamp duty reserve tax has not been paid and, if any of the stamp duty reserve
tax has been paid, a claim may be made for its repayment.
TRANSFER REPORTING REQUIREMENTS.
Under recently promulgated Treasury regulations, a U.S. holder, including a
tax exempt entity, that purchases any shares or ADS for cash will be required to
file an IRS Form 926 or similar form with the IRS, if the purchase occurs during
a taxable year of the U.S. holder beginning after February 5, 1999 and (1) the
U.S. holder owned, directly or by attribution, immediately after the transfer at
least 10% by vote or value of us or (2) the purchase, when aggregated with all
purchases made by the U.S. holder, or any related person thereto, within the
preceding 12 month period, exceeds $100,000. If a U.S. holder fails to file the
required form, the U.S. holder could be required to pay a penalty equal to 10%
of the gross amount paid for the shares or ADSs, subject to a maximum penalty of
$100,000, except in cases involving intentional disregard. U.S. holders should
consult their tax advisors for advice
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regarding this or any other reporting requirement which may apply to their
acquisition of the shares or ADSs.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The U.S. Treasury Department issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards. These new
regulations generally will be effective on payments made after December 31,
2000. Except as provided below, this section describes rules applicable to
payments made on or before December 31, 2000.
Payments that relate to the shares or ADSs that are made in the United
States or by a U.S.-related financial intermediary will be subject to
information reporting. Information reporting generally will require each paying
agent making payments, which relate to a share or ADS, to provide the IRS with
information, including the beneficial owner's name, address, taxpayer
identification number, and the aggregate amount of dividends paid to such
beneficial owner during the calendar year. These reporting requirements,
however, do not apply to all beneficial owners. Specifically, corporations,
securities broker-dealers, other financial institutions, tax-exempt
organizations, qualified pension and profit sharing trusts and individual
retirement accounts are all excluded from reporting requirements.
The depositary participant or indirect participant holding shares or ADSs on
behalf of a beneficial owner, or paying agent making payments for a share or
ADS, may be required to backup withhold a tax equal to 31% of each payment of
dividends on the shares or ADSs in the event that a beneficial owner of a share
or ADS:
- fails to establish its exemption from the information reporting
requirements;
- is subject to the reporting requirements described above and fails to
supply its correct taxpayer identification number in the manner required
by applicable law; or
- underreports its tax liability.
This backup withholding tax is not an additional tax and may be credited against
the beneficial owner's U.S. federal income tax liability if the required
information is furnished to the IRS. Non-U.S. holders generally are not subject
to information reporting or backup withholding, but may be required to provide
certification of their non-U.S. status in connection with payments received
within the United States or through U.S.-related financial intermediaries.
Prospective investors are advised to consult their own tax advisors as to the
effect, if any, of the regulations on their acquisition, ownership and
disposition of the shares or ADSs.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, if the underwriters exercise their
over-allotment option, 64,695,220 of our ordinary shares will be issued and
outstanding and 3,601,420 of our ordinary shares will be issuable upon exercise
of outstanding options and warrants. We may issue additional ordinary shares
following grants pursuant to our share option plans and warrants. Of these
ordinary shares issued and outstanding, 16,263,426 ordinary shares, in the form
of ADSs, will be freely transferable and tradable in the U.S. public market,
other than by one of our "affiliates," as defined in the Securities Act, without
restrictions or further registration under the Securities Act. A number of the
remaining outstanding ordinary shares will be subject to the lock-up agreements
summarized below.
Subject to certain exceptions, we and our directors and executive officers
and other shareholders holding approximately 48,063,134 of our ordinary shares
have agreed in the underwriting agreement and in separate lock-up agreements not
to offer, sell, contract to sell or otherwise dispose of any our securities that
are substantially similar to our ordinary shares or ADSs, including, but not
limited to, any securities that are convertible into or exercisable or
exchangeable for, any substantially similar securities, for a period of
180 days after the date of this prospectus without the prior written consent of
SG Cowen Securities Corporation.
After the expiration of the lock-up agreement described above, the ordinary
shares subject to those agreements will be freely transferable and tradable in
the U.S. public market (other than by one of our affiliates or a shareholder who
holds restricted securities) without restrictions or further registration under
the Securities Act. Our ordinary shares held by one of our affiliates and
restricted securities held by certain of our shareholders will be subject to
certain restrictions on resale in the U.S. public market and may be resold in
the United States only (1) pursuant to an effective registration statement under
the Securities Act or (2) pursuant to an exemption from the registration
requirements of the Securities Act, including Rule 144 under the Securities Act
(which would permit resales in the United States subject to volume limitations)
and Regulation S under the Securities Act (which would permit resales outside
the United States).
In connection with the offering, we and shareholders who following the
offering will hold 1% or more of our ordinary shares will enter into
registration rights agreements pursuant to which we will grant them certain
rights to require us to register ordinary shares held by them under the
Securities Act. We have agreed that, upon request from any of those holders,
which request may not be made until the expiration of 180 days after the date of
this prospectus (and subject to one successful request for each holder) we will
file a registration statement under the Securities Act to register ordinary
shares held by those holders as long as the total value of the securities being
registered exceeds L10,000,000 ($15,920,000) and the securities being registered
could not otherwise be sold in the U.S. public market pursuant to an exemption
from the registration requirements of the Securities Act. Subject to various
conditions, we will also grant each of these holders the right to include their
ordinary shares in some registration statements covering offerings of ordinary
shares by us or any other holder.
In general, under Rule 144 under the Securities Act as currently in effect:
- any of our affiliates; or
- any person who is not one of our affiliates
who has beneficially owned restricted securities (as defined in Rule 144) for at
least one year from the date such restricted securities were acquired from us or
from one of our affiliates may sell under Rule 144 within any three-month
period, a number of ordinary shares not exceeding the greater of:
- one percent of the then outstanding number of ordinary shares; or
79
<PAGE>
- the average weekly trading volume of the ADSs on the Nasdaq National
Market during the four calendar weeks preceding the date notice of the
sale is filed with the SEC under Rule 144.
Sales under Rule 144 are also subject to certain provisions as to the manner
of sale, notice requirements and the availability of current public information
about us.
In addition, a person who has not been one of our affiliates for at least
three months and who has beneficially owned ordinary shares for at least two
years from the date those shares were acquired from us or from one of our
affiliates may sell ordinary shares in the public market under Rule 144 without
regard to the public information requirements, notice requirements, manner of
sale limitations and volume limitations under Rule 144. Our affiliates will
continue to be subject to those limitations.
As defined under Rule 144, an affiliate of a company is a person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with, such company. Rule 144 does not
require the same person to have held the securities for the applicable periods.
Prior to the offering, there has been no public market in the United States,
the United Kingdom or elsewhere for our ordinary shares or ADSs and no
prediction can be made as to the effect, if any, that sales of our ordinary
shares or ADSs or the availability of our ordinary shares or ADSs for sale will
have on the market prices of our ordinary shares or ADSs prevailing from time to
time. Sales of substantial amounts of our ordinary shares or ADSs pursuant to a
registration statement, Rule 144, Regulation S or otherwise, or the perception
that such sales may occur, may have an adverse impact on such market price. For
a discussion of that risk, you should read the information in "Risk Factors--If
large amounts of our shares held by existing shareholders are sold in the
future, the market price of the ADSs could decline."
80
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below with respect to the ADSs being offered. Subject to certain conditions,
each underwriter has severally agreed to purchase the number of ADSs indicated
in the following table at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. SG
Cowen Securities Corporation and Chase Securities Inc. are the representatives
of the underwriters.
<TABLE>
<CAPTION>
NAME NUMBER OF ADSS
---- --------------
<S> <C>
SG Cowen Securities Corporation............................. 2,820,000
Chase Securities Inc........................................ 1,880,000
CIBC World Markets Corp..................................... 100,000
Deutsche Bank Securities Inc................................ 100,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 100,000
ING Barings LLC............................................. 100,000
Invemed Associates LLC...................................... 100,000
Lehman Brothers Inc......................................... 100,000
J.P. Morgan Securities Inc.................................. 100,000
Prudential Securities Incorporated.......................... 100,000
UBS Warburg LLC............................................. 100,000
Davenport & Co. of Virginia, Inc............................ 50,000
Dominick & Dominick LLC..................................... 50,000
Gerard Klauer Mattison & Co., LLC........................... 50,000
C.L. King & Associates, Inc................................. 50,000
Needham & Company, Inc...................................... 50,000
Pacific Growth Equities, Inc................................ 50,000
Raymond James & Associates, Inc............................. 50,000
Tucker Anthony Incorporated................................. 50,000
---------
Total..................................................... 6,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditional and may be terminated at their discretion based on their
assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of the other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the ADSs offered by us if any ADSs are purchased,
other than those covered by the over-allotment option described below.
The underwriters, at our request, have reserved for sale to our employees
and friends and family members of our employees, at the initial public offering
price, up to 883,800 ordinary shares, in the form of ADSs, to be sold in this
offering. The number of ADSs available for sale to the general public will be
reduced to the extent that any reserved ADSs are purchased. Any reserved ADSs
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the ADSs sold hereby.
At our request, the underwriters will reserve up to 916,200 of our ordinary
shares, in the form of ADSs, at the initial public offering price for sale to
Dr. Alejandro Zaffaroni through his affiliates, the Zaffaroni Revocable Trust
and the Zaffaroni Family Partnership, L.P. The number of ADSs reserved for sale
to the Zaffaroni Revocable Trust and the Zaffaroni Family Partnership, L.P. will
reduce the number of ADSs available to the general public. We cannot assure you
that any of these reserved ADSs will be purchased by the Zaffaroni Revocable
Trust and the Zaffaroni Family Partnership, L.P. Each of the Zaffaroni Revocable
Trust and the Zaffaroni Family Partnership, L.P., will agree that, if it
purchases any of our ADSs, it will not sell or otherwise dispose of such ADSs
for a period of 180 days
81
<PAGE>
following the date of this prospectus. Any reserved ADSs not so purchased by the
Zaffaroni Revocable Trust and the Zaffaroni Family Partnership, L.P., will be
offered by the underwriters to the general public on the same basis as the ADSs
offered hereby.
The underwriters propose to offer the ADSs directly to the public at the
public offering price set forth on the cover page of this prospectus. The
underwriters may offer the ADSs to securities dealers at that price less a
concession not in excess of $0.58 per ADS. Securities dealers may reallow a
concession not in excess of $0.10 per ADS to other dealers. After the ADSs are
released for sale to the public, the underwriters may vary the offering price
and other selling terms from time to time.
We have granted to the underwriters an option to purchase up to 1,800,000
additional ordinary shares, in the form of ADSs, at the public offering price
set forth on the cover of this prospectus to cover over-allotments, if any. The
option is exercisable for a period of 30 days. If the underwriters exercise
their over-allotment option, the underwriters have severally agreed to purchase
ADSs in approximately the same proportion as shown in the table above.
The following table shows the per ADS and total public offering price,
underwriting discounts and commissions we are to pay to the underwriters and the
proceeds from the sale of the ADSs to the underwriters before our expenses. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
PER ADS WITHOUT OPTION WITH OPTION
-------- -------------- -----------
<S> <C> <C> <C>
Public offering price.................................... $14.00 $84,000,000 $96,600,000
Underwriting discounts and commissions................... $ 0.98 $ 5,880,000 $ 6,762,000
Our proceeds, before expenses............................ $13.02 $78,120,000 $89,838,000
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect of those liabilities.
We, our directors and executive officers, all principal shareholders and
other existing shareholders who hold an aggregate of 48,063,134 ordinary shares,
together with the holders of options to purchase 2,742,760 ordinary shares, have
agreed with the underwriters that for a period of 180 days following the date of
this prospectus, without the prior written consent of SG Cowen Securities
Corporation, not to directly or indirectly, offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of, other than by operation of
law, any ordinary shares or ADSs or any securities convertible into or
exercisable or exchangable for ordinary shares or ADSs, including, without
limitation, ordinary shares and ADSs which may be deemed to be benefically owned
in accordance with rules and regulations promulgated under the Securities Act.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the ADSs
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives to reclaim a
selling concession from a syndicate member when the ADSs originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. In passive market making, market makers in the ADSs
who are underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the ADSs until the time, if any, at
which a stabilizing bid is made. These stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the ADSs to be
higher than it would otherwise be in the absence of these transactions.
82
<PAGE>
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales in
excess of 5% of the ADSs offered hereby to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for the ordinary
shares or the ADSs. Consequently, the initial public offering price range was
determined by negotiations between us and the underwriters. Among the factors
considered in these negotiations were prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and the
underwriters believe to be comparable to us, estimates of our business
potential, our results of operation in recent periods, the present state of our
development and other factors deemed relevant.
Some of the underwriters have, directly or indirectly, performed investment
banking or financial advisory services to us, for which they have received
customary fees and commissions, and they expect to provide these services to us
and our affiliates in the future, for which they also expect to receive
customary fees and commissions. SG Cowen Securities Corporation served as
financial advisor to Eurona in connection with our acquisition of Eurona. SG
Cowen Securities Corporation received 368,660 of our ordinary shares (after
giving effect to our recent share split and conversion of preferred ordinary
shares into ordinary shares) as compensation for serving as financial advisor to
Eurona. SG Cowen Securities Corporation has agreed not to, directly or
indirectly, offer, sell, assign, transfer, pledge, contract to sell, or
otherwise dispose of, other than by operation of law, any ordinary shares or
ADSs or any securities convertible into or exercisable or exchangable for
ordinary shares or ADSs for a period of 90 days following the date of this
prospectus.
We estimate that our out of pocket expenses for this offering, not including
underwriting discounts, commissions and stamp duty reserve tax, will be
approximately $1.7 million.
LEGAL MATTERS
The validity of the issuance of the ADSs will be passed upon by Clifford
Chance Limited Liability Partnership, our U.S. counsel. The validity of the
ordinary shares will be passed upon by CMS Cameron McKenna, our English legal
counsel. Certain legal matters under U.S. law will be passed upon for the
underwriters by Simpson Thacher & Bartlett, the underwriters' U.S. counsel.
EXPERTS
Ernst & Young, independent auditors, have audited our financial statements
at March 31, 1999 and 2000, and for each of the three years in the period ended
March 31, 2000, as set forth in their report. We have included our financial
statements in the prospectus in reliance on Ernst & Young's report, given on
their authority as experts in accounting and auditing.
Ernst & Young, independent auditors, have audited the financial statements
of Eurona at December 31, 1997 and 1998 and for each of the two years in the
period ended December 31, 1998, as set forth in their report. We have included
Eurona's financial statements in the prospectus in reliance on Ernst & Young's
report, given on their authority as experts in accounting and auditing.
83
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 (together
with amendments, exhibits and schedules) under the Securities Act, concerning
the securities we are offering.
As is permitted by the rules and regulations of the SEC, this prospectus,
which is part of the registration statement, omits certain information,
exhibits, schedules and undertakings included in the registration statement. For
further information about us and the securities we are offering, you should
refer to the registration statement. Statements we make in this prospectus about
the contents of any contract or other document are not necessarily complete and,
in each instance, you should refer to the copy of that contract or other
document filed as an exhibit to the registration statement.
We will be subject to the reporting requirements of the Exchange Act, as
applicable to foreign private issuers. In accordance with those requirements, we
will file an annual report on Form 20-F and other information under cover of
Form 6-K with the SEC. We have agreed to furnish copies of these reports to the
depositary promptly after they have been filed with the SEC. Our consolidated
financial statements included in these reports will be prepared in accordance
with generally accepted accounting principles in the United States. These
consolidated financial statements will express all amounts in U.S. dollars.
These reports and other information may be inspected and copied at the following
public reference facilities maintained by the SEC:
- 450 Fifth Street, N.W., Washington, D.C. 20549
- Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661
- 7 World Trade Center, Room 1400, 13th Floor, New York, New York 10048.
You can obtain copies of these materials from the Public Reference Room of
the SEC at 450 Fifth Street, N.W. Washington, D.C. 20549 at prescribed rates.
You can obtain information about the operation of the Public Reference Room by
calling the SEC at (800) 732-0330.
If we request in writing, The Bank of New York, as depositary in respect of
the ADSs, will send to the holder of ADSs our annual and interim reports. Our
consolidated financial statements included in the annual report will be examined
by our independent public accountants and will include their audit opinion. We
are exempt from the rules under the Exchange Act prescribing the furnishing and
content of proxy statements, and our officers, directors and principal
shareholders are exempt from reporting and short-swing profit recovery
provisions contained in the Exchange Act.
84
<PAGE>
SERVICE OF PROCESS AND ENFORCEMENT OF FOREIGN JUDGMENTS
We are a public limited company organized under the laws of England and
Wales. Most of our directors and executive officers and certain of the experts
named in this prospectus are not residents of the United States. Substantially
all of the assets of such persons and a significant portion of our assets are
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon any of
those persons or our company or to enforce against any of them or our company
judgments of U.S. courts predicted upon the civil liability provisions of the
U.S. federal or state securities laws. Our English counsel, CMS Cameron McKenna,
has advised us that there is no system of reciprocal enforcement in the United
Kingdom of judgments obtained in the United States courts. Accordingly, a final
and conclusive judgment against any of those persons or us obtained in a United
States court may only be enforced in England by the commencement of a fresh
action before an English court based on the judgment of the United States court.
Summary judgment against any of those persons or us, as the case may be, may be
granted by the English court without requiring the issues in the United States
litigation to be reopened on the basis that those matters have already been
decided by the United States court provided that the English court is satisfied:
- that the United States court had jurisdiction (as a matter of English
law);
- that the United States judgment is not impeachable for fraud and is not
contrary to English rules of natural justice;
- that the enforcement of such judgment will not be contrary to public
policy or statute in the United Kingdom;
- that each judgment is for a liquidated sum;
- that the English proceedings were commenced within the relevant limitation
period;
- that the judgment is not directly or indirectly for the payment of taxes
or other charges of a like nature or a fine or other penalty;
- that the judgment remains valid and enforceable in the court in which it
was obtained unless and until it is set aside; and
- that, before the date on which the U.S. court gave judgment, the issues in
question had not been the subject of a final judgment of an English court
or of a court of another jurisdiction whose judgment is enforceable in
England.
Our individual shareholders, including our U.S. shareholders, have the right
under English law to bring lawsuits on behalf of our company, and on their own
behalf against our company, in certain limited circumstances. Our shareholders,
including our U.S. shareholders, may only bring actions in England and Wales to
enforce liabilities based on U.S. federal securities laws against us or any of
our directors and executive officers or any of the underwriters or other experts
named in this prospectus that are resident in England and Wales in very limited
circumstances if the shareholder can characterize the obligations in question as
contractual or tortious obligations which would be recognized under English law.
Except in limited circumstances, English law does not permit class action
lawsuits by shareholders.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GEMINI GENOMICS PLC
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at March 31, 1999 and 2000...... F-3
Consolidated Statements of Operations for the years ended
March 31, 1998, 1999 and 2000 and the period from
September 11, 1995 (inception) to March 31, 2000.......... F-4
Consolidated Statement of Shareholders' Equity (Deficit) for
the period from September 11, 1995 (inception) to
March 31, 2000............................................ F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1999 and 2000 and the period from
September 11, 1995 (inception) to March 31, 2000.......... F-7
Notes to Consolidated Financial Statements.................. F-8
EURONA MEDICAL AB
Report of Independent Auditors.............................. F-24
Statements of Operations for the years ended December 31,
1997 and 1998 and nine months ended September 30, 1998
(Unaudited) and 1999 (Unaudited).......................... F-25
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and nine months ended September 30, 1998
(Unaudited) and 1999 (Unaudited).......................... F-26
Notes to the Financial Statements........................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Gemini Genomics plc
We have audited the accompanying consolidated balance sheets of Gemini
Genomics plc (a development stage company) as of March 31, 1999 and 2000 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended March 31, 2000 and the
period from September 11, 1995 (inception) to March 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 United Kingdom Auditing Standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gemini Genomics plc (a
development stage company) at March 31, 1999 and 2000 and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended March 31, 2000 and the period from September 11, 1995
(inception) to March 31, 2000, in conformity with United States generally
accepted accounting principles.
ERNST & YOUNG
Cambridge, England
May 17, 2000
F-2
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,165 $ 13,414
Accounts receivable....................................... 99 88
Inventories............................................... 49 179
Prepaid expenses and other................................ 354 665
-------- --------
Total current assets.................................... 12,667 14,346
Property, plant and equipment, net.......................... 2,099 2,641
Goodwill and other intangible assets, net................... -- 5,249
-------- --------
Total assets............................................ $ 14,766 $ 22,236
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans................................................ $ -- $ 243
Accounts payable.......................................... 1,071 2,487
Accrued liabilities....................................... 2,818 3,626
Current portion of capital lease obligations.............. 1,435 1,005
-------- --------
Total current liabilities............................... 5,324 7,361
Capital lease obligations................................... 636 2,912
Other noncurrent liabilities................................ -- 75
-------- --------
Total liabilities....................................... 5,960 10,348
-------- --------
Commitments and contingencies:
Shareholders' equity:
Convertible preferred ordinary shares, L0.05 par value,
issuable in series 41,275,560 shares authorized at March
31, 1999, 0 shares issued and outstanding at March 31,
2000, 24,070,040 shares issued and outstanding at March
31, 1999, 0 shares issued and outstanding at March 31,
2000, aggregate liquidation preference of $31,650 at
March 31, 1999, aggregate liquidation preference of $0
at March 31, 2000....................................... 1,995 --
Ordinary shares, L0.05 par value 38,724,440 shares
authorized at March 31, 1999, 120,000 authorized at
March 31, 2000, 20,000,000 shares issued and outstanding
at March 31, 1999 and 50,895,220 issued and outstanding
at March 31, 2000....................................... 1,646 4,192
Additional paid-in capital................................ 28,994 48,954
Deferred compensation..................................... (155) (2,611)
Notes receivable from shareholders........................ (664) (40)
Accumulated other comprehensive loss...................... (222) (414)
Deficit accumulated during the development stage.......... (22,788) (38,193)
-------- --------
Total shareholders' equity.............................. 8,806 11,888
======== ========
Total liabilities and shareholders' equity.............. $ 14,766 $ 22,236
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 11,
1995
YEAR ENDED MARCH 31, (INCEPTION) TO
--------------------------------------- MARCH 31,
1998 1999 2000 2000
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue..................................................... $ -- $ 198 $ 164 $ 362
----------- ----------- ----------- -----------
Costs and expenses:
Costs of revenue.......................................... -- -- 25 25
Research and development.................................. 6,297 9,421 9,932 26,976
Sales, general and administrative......................... 1,602 1,471 5,286 10,781
Amortization of goodwill and other intangible assets...... -- -- 311 311
----------- ----------- ----------- -----------
Total costs and expenses................................ 7,899 10,892 15,554 38,093
----------- ----------- ----------- -----------
Loss from operations........................................ (7,899) (10,694) (15,390) (37,731)
Interest income............................................. 164 269 478 929
Interest expense............................................ (388) (320) (493) (1,391)
----------- ----------- ----------- -----------
Net loss.................................................... $ (8,123) $ (10,745) $ (15,405) $ (38,193)
=========== =========== =========== ===========
Net loss per share--basic and diluted....................... $ (0.41) $ (0.54) $ (0.73) $ (2.72)
Net loss per ADS--basic and diluted......................... $ (0.82) $ (1.08) $ (1.46) $ (5.44)
Shares used in calculation of net loss per share and per
ADS....................................................... 20,000,000 20,000,000 21,182,195 14,042,595
Pro-forma net loss per share--basic and diluted
(unaudited)............................................... (0.35)
Pro-forma net loss per ADS--basic and diluted (unaudited)... (0.70)
Shares used in calculation of pro-forma net loss per share
and per ADS (unaudited)................................... 45,959,745
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
PERIOD FROM SEPTEMBER 11, 1995 (INCEPTION) TO MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
GEMINI INTERNATIONAL HOLDINGS PLC GEMINI GENOMICS PLC
---------------------------------------------------- --------------------------------------
REDEEMABLE CONVERTIBLE
CONVERTIBLE PREFERRED
ORDINARY SHARES PREFERRED SHARES ADDITIONAL ORDINARY SHARES ORDINARY SHARES
------------------- ------------------- PAID IN ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------ ---------- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Ordinary Shares
for $0.08 per share in
September 1995.............. 4,000 $ -- -- $ -- $ -- -- $ -- -- $ --
Issuance of Ordinary Shares
for $0.08 per share in March
1996........................ 1,996,000 2 -- -- -- -- -- -- --
Net loss and comprehensive net
loss from inception through
March 31, 1996.............. -- -- -- -- -- -- -- -- --
----------- ---- ----------- ---- ------ ---------- ------ ---------- -----
Balances at March 31, 1996.... 2,000,000 2 -- -- -- -- -- -- --
Issuance of redeemable
convertible preferred shares
for $0.08 per share in March
1997........................ -- -- 5,840,000 5 4,635 -- -- -- --
Issuance of ordinary shares
for $0.08 per share in March
1997........................ 18,000,000 14 -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- -- --
Total comprehensive loss...... -- -- -- -- -- -- -- -- --
----------- ---- ----------- ---- ------ ---------- ------ ---------- -----
Balances at March 31,1997..... 20,000,000 16 5,840,000 5 4,635 -- -- -- --
Issuance of of redeemable
convertible preferred shares
for $0.96 per share in
April, July and September
1997........................ -- -- 5,349,560 4 5,210 -- -- -- --
Exchange of shares to effect
reorganization on
December 5, 1997............ (20,000,000) (16) (11,189,560) (9) (9,845) 20,000,000 1,646 11,275,560 937
Issuance of Series C
convertible preferred
ordinary shares for $1.21
per share in March 1998..... -- -- -- -- -- -- -- 545,360 45
Deferred share compensation... -- -- -- -- -- -- -- -- --
Amortization of deferred share
compensation................ -- -- -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- -- --
Total comprehensive loss...... -- -- -- -- -- -- -- -- --
----------- ---- ----------- ---- ------ ---------- ------ ---------- -----
Balances at March 31, 1998.... -- $ -- -- $ -- $ -- 20,000,000 $1,646 11,820,920 $ 982
<CAPTION>
GEMINI GENOMICS PLC
---------------------------------------------------------------------------------
DEFICIT
DEFERRED NOTES ACCUMULATED ACCUMULATED TOTAL
ADDITIONAL SHARE RECEIVABLE DURING THE OTHER SHAREHOLDER'S
PAID IN BASED FROM DEVELOPMENT COMPREHENSICE EQUITY
CAPITAL COMPENSATION SHAREHOLDERS STAGE INCOME (DEFICIT)
---------- ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Ordinary Shares
for $0.08 per share in
September 1995.............. $ -- $ -- $ -- $ -- $ -- $ --
Issuance of Ordinary Shares
for $0.08 per share in March
1996........................ -- -- -- -- -- 2
Net loss and comprehensive net
loss from inception through
March 31, 1996.............. -- -- -- (457) -- (457)
------ ----- ------- -------- ---- -------
Balances at March 31, 1996.... -- -- -- (457) -- (455)
Issuance of redeemable
convertible preferred shares
for $0.08 per share in March
1997........................ -- -- -- -- -- 4,640
Issuance of ordinary shares
for $0.08 per share in March
1997........................ -- -- -- -- -- 14
Translation adjustment........ -- -- -- -- 4 4
Net loss...................... -- -- -- (3,463) -- (3,463)
-------
Total comprehensive loss...... -- -- -- -- -- (3,459)
------ ----- ------- -------- ---- -------
Balances at March 31,1997..... -- -- -- (3,920) 4 740
Issuance of of redeemable
convertible preferred shares
for $0.96 per share in
April, July and September
1997........................ -- -- -- -- 5,214
Exchange of shares to effect
reorganization on
December 5, 1997............ 7,287 -- -- -- --
Issuance of Series C
convertible preferred
ordinary shares for $1.21
per share in March 1998..... 619 -- -- -- 664
Deferred share compensation... 384 (384) -- -- --
Amortization of deferred share
compensation................ -- 52 -- -- 52
Translation adjustment........ -- -- -- -- (35) (35)
Net loss...................... -- -- -- (8,123) -- (8,123)
-------
Total comprehensive loss...... -- -- -- -- -- (8,158)
------ ----- ------- -------- ---- -------
Balances at March 31, 1998.... $8,290 $(332) $ -- $(12,043) $(31) $(1,488)
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
PERIOD FROM SEPTEMBER 11, 1995 (INCEPTION) TO MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
GEMINI INTERNATIONAL HOLDINGS PLC GEMINI GENOMICS PLC
--------------------------------------------- ------------------------------------------
REDEEMABLE CONVERTIBLE
CONVERTIBLE PREFERRED
ORDINARY SHARES PREFERRED SHARES ADDITIONAL ORDINARY SHARES ORDINARY SHARES
--------------- ---------------- PAID IN ------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT SHARES AMOUNT
------- ------ ------- ------- ---------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series C
convertible preferred
ordinary shares for $1.22
per share in May, 1998...... -- $ -- -- $ -- $ -- -- $ -- 5,472,460 $ 453
Issuance of Series C
convertible preferred
ordinary shares for $2.21
per share in March, 1999.... -- -- -- -- -- -- -- 6,776,660 560
Deferred share compensation... -- -- -- -- -- -- -- -- --
Amortization of deferred share
compensation................ -- -- -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- -- --
Total comprehensive loss...... -- -- -- -- -- -- -- -- --
------- ---- ------- ---- ------ ---------- ------- ----------- --------
Balances at March 31, 1999.... -- -- -- -- -- 20,000,000 1,646 24,070,040 1,995
Payment of notes receivable
from shareholders........... -- -- -- -- -- -- -- -- --
Issuance of Series C
convertible preferred
ordinary shares for $2.59
per share in exchange for
all the outstanding ordinary
and preferred shares of
Eurona on December 17,
1999........................ -- -- -- -- -- -- -- 1,820,180 147
Issuance of Series C
convertible preferred
ordinary shares for $2.59
per share in December,
1999........................ -- -- -- -- -- -- -- 4,281,360 345
Issuance of Series C
convertible preferred
ordinary shares for $2.59
per share for services and
cash on December 31, 1999... -- -- -- -- -- -- -- 500,000 40
Issuance of Series C
convertible preferred shares
for services................ -- -- -- -- -- -- -- 51,640 5
Deferred share compensation... -- -- -- -- -- -- -- -- --
Amortization of deferred share
compensation................ -- -- -- -- -- -- -- -- --
Issuance of warrants for
40,000 Series C convertible
preferred ordinary shares in
connection with capital
lease financing in February
2000 at $0.08............... -- -- -- -- -- -- -- -- --
Exercise of share options in
March 2000.................. -- -- -- -- -- 172,000 14 -- --
Conversions of all convertible
preferred ordinary shares at
a one-for-one rate.......... -- -- -- -- -- 30,723,220 2,532 (30,723,220) (2,532)
Translation adjustment........ -- -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- -- --
Total comprehensive loss...... -- -- -- -- -- -- -- -- --
------- ---- ------- ---- ------ ---------- ------- ----------- --------
Balances at March 31, 2000.... -- $ -- -- $ -- $ -- 50,895,220 $4,192 -- --
======= ==== ======= ==== ====== ========== ======= =========== ========
<CAPTION>
GEMINI GENOMICS PLC
---------------------------------------------------------------------------------
DEFICIT
NOTES ACCUMULATED ACCUMULATED TOTAL
ADDITIONAL DEFERRED RECEIVABLE DURING THE OTHER SHAREHOLDER'S
PAID IN SHARE BASED FROM DEVELOPMENT COMPREHENSIVE EQUITY
CAPITAL COMPENSATION SHAREHOLDERS STAGE LOSS (DEFICIT)
---------- ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series C
convertible preferred
ordinary shares for $1.22
per share in May, 1998...... $ 6,240 $ -- $ -- $ -- $ -- $ 6,693
Issuance of Series C
convertible preferred
ordinary shares for $2.21
per share in March, 1999.... 14,447 -- (664) -- -- 14,343
Deferred share compensation... 17 (17) -- -- -- --
Amortization of deferred share
compensation................ -- 194 -- -- -- 194
Translation adjustment........ -- -- -- -- (191) (191)
Net loss...................... -- -- -- (10,745) -- (10,745)
-------
Total comprehensive loss...... -- -- -- -- -- (10,936)
------- -------- ------- -------- -------- -------
Balances at March 31, 1999.... 28,994 (155) (664) (22,788) (222) 8,806
Payment of notes receivable
from shareholders........... -- -- 664 -- -- 664
Issuance of Series C
convertible preferred
ordinary shares for $2.59
per share in exchange for
all the outstanding ordinary
and preferred shares of
Eurona on December 17,
1999........................ 4,573 -- -- -- -- 4,720
Issuance of Series C
convertible preferred
ordinary shares for $2.59
per share in December,
1999........................ 10,756 -- -- -- -- 11,101
Issuance of Series C
convertible preferred
ordinary shares for $2.59
per share for services and
cash on December 31, 1999... 1,256 -- (40) -- -- 1,256
Issuance of Series C
convertible preferred shares
for services................ 129 -- -- -- -- 134
Deferred share compensation... 2,923 (2,923) -- -- -- --
Amortization of deferred share
compensation................ -- 467 -- -- -- 467
Issuance of warrants for
40,000 Series C convertible
preferred ordinary shares in
connection with capital
lease financing in February
2000 at $0.08............... 218 -- -- -- -- 218
Exercise of share options in
March 2000.................. 105 -- -- -- -- 119
Conversions of all convertible
preferred ordinary shares at
a one-for-one rate.......... -- -- -- -- -- --
Translation adjustment........ -- -- -- -- (192) (192)
Net loss...................... -- -- -- (15,405) -- (15,405)
-------
Total comprehensive loss...... -- -- -- -- -- (15,597)
------- -------- ------- -------- -------- -------
Balances at March 31, 2000.... $48,954 $ (2,611) $ (40) $(38,193) $ (414) $11,888
======= ======== ======= ======== ======== =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER
11, 1995
YEAR ENDED MARCH 31, (INCEPTION) TO
------------------------------ MARCH 31,
1998 1999 2000 2000
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(8,123) $(10,745) $(15,405) $(38,193)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred compensation and non-cash
interest charge....................................... 52 194 473 719
Amortization of goodwill and other intangible assets.... -- -- 311 311
Depreciation and amortization........................... 422 598 928 1,993
Non-cash consideration.................................. 672 648 1,360 2,736
Changes in operating assets and liabilities................. 182 1,082 612 3,306
------- -------- -------- --------
Net cash used in operating activities....................... (6,795) (8,223) (11,721) (29,128)
------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of plant, property and equipment.................. (974) (1,068) (700) (3,943)
Acquisition of Eurona....................................... -- -- (19) (19)
------- -------- -------- --------
Net cash used in investing activities....................... (974) (1,068) (719) (3,962)
------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds of capital lease obligations....................... 1,479 1,392 3,991 8,005
Payments of capital lease obligations....................... (514) (1,293) (1,993) (3,936)
Proceeds from issuance of ordinary and preferred ordinary
shares,
net of issuance costs..................................... 5,265 20,560 11,695 42,108
Loans (repaid) received..................................... 169 (163) 243 243
------- -------- -------- --------
Net cash provided by financing activities................... 6,399 20,496 13,936 46,420
------- -------- -------- --------
Effects of exchange rate changes on cash.................... (64) 236 (247) 84
Net increase (decrease) in cash and cash equivalents........ (1,434) 11,441 1,249 13,414
------- -------- -------- --------
Cash and cash equivalents, beginning of period.............. 2,158 724 12,165 --
------- -------- -------- --------
Cash and cash equivalents, end of period.................... $ 724 $ 12,165 $ 13,414 $ 13,414
======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................... $ 388 $ 320 $ 487 $ 1,216
SCHEDULE OF NON-CASH TRANSACTIONS:
Fixed assets financed through capital lease obligations..... 1,479 1,392 3,991 8,005
Issuance of preferred ordinary shares in connection with
acquisition of Eurona..................................... $ -- $ -- $ 4,720 $ 4,720
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Gemini International Holdings Limited ("GIHL"), was incorporated on
September 11, 1995 and, until its acquisition by Gemini Genomics plc (the
"Company", formerly Gemini Holdings plc), was the holding company of Gemini
Research Limited, Genos Limited and Gemini Gene Data Limited. The Company was
capitalized by the issue of 50,000 Class B preferred ordinary shares of L1 each
which were issued to Raddison Trustee Limited. Raddison Trustee Limited was the
majority shareholder of both GIHL and the Company, thus resulting in the
companies being under common control. The Company acquired all of the issued
shares in GIHL in consideration of an issue of shares in the same number and
class to the same shareholders as then held shares in GIHL. The class rights of
shares in GIHL and the Company were essentially identical. By reason of the fact
that it acquired 50,000 Class B preferred ordinary shares, Raddison Trustee
Limited waived its entitlement of 45,700 Class B preferred ordinary shares to
which it would otherwise have been entitled. The shareholders in GIHL and the
Company were accordingly the same. The acquisition has been accounted for as a
combination of entities under common control at historical costs and
consequently consolidated financial information is presented as if Gemini
International Holdings Limited had been owned by the Company since inception.
The Company is a clinical genomics company that identifies relationships
between human genes and common human diseases. It has not yet generated
substantial revenues from its commercial operations. Accordingly, through the
date of these financial statements, the Company is considered to be in the
development stage.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has sustained operating
losses since inception and expects such losses to continue as it furthers its
research and development programs.
Since inception, the Company has incurred significant losses and, as of
March 31, 2000, has an accumulated deficit of $38.2 million. The Company will
need to obtain additional funds from outside sources to continue its research
and development activities and fund future operating expenses. Management
believes sufficient funds will be available to support operations through at
least March 31, 2001. The Company may seek to fund its operations thereafter
through collaborative arrangements and through public and private financings. If
the Company is unable to obtain the necessary capital, it may be required to
severely curtail planned operational activities which could have a material
adverse effect on the Company's business, results of operations and prospects.
The financial statements do not include any adjustments to reflect the possible
future effects in the recoverability and classification of assets or the amounts
and classifications of liabilities that might result from the possible inability
of the Company to continue as a going concern.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
F-8
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY AND CURRENCY TRANSLATION
The functional currency of the Company is the British pound. The Company's
Swedish subsidiary, Eurona Medical AB ("Eurona"), uses the Swedish kronor as its
functional currency and translates from Swedish kronor to British pounds in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
FOREIGN CURRENCY TRANSLATION. Foreign exchange differences are recorded as a
component of "other comprehensive income".
The financial statements herein are presented in U.S. dollars for the
convenience of the user. Translation of balance sheet data from British pounds
to the U.S. dollar is made at the exchange rate ruling at the balance sheet
date. Translation of income statement balances is made at the average exchange
rate for the period.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All inter-company accounts
and transactions are eliminated on consolidation.
The results and cash flows of Eurona have been consolidated from
December 17, 1999, its date of acquisition.
SHARE-BASED COMPENSATION
The Company accounts for employee share options in accordance with
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB 25") using the intrinsic value method and thus recognizes no
compensation expense for options granted with exercise prices equal to or
greater than the fair value of the Company's ordinary shares on the date of
grant. Share compensation expense for options granted to non-employees has been
determined in accordance with SFAS 123 and EITF96-18 as the fair value of the
consideration received.
REVENUE RECOGNITION
Revenues are earned from services pursuant to customer licensing agreements.
Non-refundable license fees and advance royalties are recognized as revenues
when no further performance obligations exist. Where license fees and other
non-refundable payments are received in connection with research collaboration
agreements, the payments are deferred and recognized on a straight line basis
over the relevant period specified in the agreement. Milestone fees are
recognized on completion of specified milestones according to contract terms and
when no further performance obligations exist.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed in the period incurred.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. There were no
advertising costs in the years ended March 31, 1998, 1999 and advertising costs
in the year ended March 31, 2000 were $23,000.
F-9
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PATENT COSTS
Costs related to patent prosecution are expensed as incurred as
recoverability of such expenditure is uncertain.
INCOME TAXES
In accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. The Company
provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely that the deferred tax assets will
be realized.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid term deposits with original
maturities of less than three months.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, and accrued liabilities, are carried at cost,
which management believes approximates fair value because of the short-term
maturity of these instruments. The carrying value of long-term debt approximates
fair value based on the market interest rates available to the Company for debt
of similar risk and maturities.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is provided using
the straight-line method over the estimated useful life of the related assets,
generally four to five years, or over the lease term if it is shorter.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over the fair value of
identifiable tangible and intangible assets acquired and is amortized using the
straight-line method over its estimated useful life.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated,
the Company will measure the amount of such impairment by comparing the carrying
value of the asset to the present value of the expected future cash flows
associated with the use of the asset. To date, no such indicators of impairment
have been identified.
F-10
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of actual cost or market value. Cost is
determined by the first-in, first-out method. At March 31, 1999 and 2000,
inventories consisted entirely of research supplies.
SOFTWARE COSTS
The Company expenses purchased and internally developed software costs,
except those costs required to be capitalized under Statement of Position 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE. To date, the amount of software capitalized is insignificant.
LOSS PER SHARE AND PRO FORMA LOSS PER SHARE
Basic net loss per share is calculated based on the weighted-average number
of ordinary shares outstanding during the period. Diluted earnings per share
would give effect to the dilutive effect of ordinary share equivalents
consisting of share options and warrants (calculated using the treasury stock
method). Potentially dilutive securities have been excluded from the diluted net
loss per share calculation as they have an anti-dilutive effect due to the
Company's net loss.
The computation of pro forma net loss per share includes ordinary shares
issuable on the conversion of outstanding shares of convertible preferred
ordinary shares (using the as-if converted method from the original date of
issuance).
OTHER COMPREHENSIVE INCOME
On June 1997, the FASB issued SFAS No.130, REPORTING COMPREHENSIVE INCOME,
which establishes standards for the reporting and disclosing of comprehensive
income and its components in the financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is foreign
currency translation adjustments, which to date has been immaterial.
SHORT-TERM INVESTMENTS AND CONCENTRATION OF CREDIT RISK
The company has no investment securities that would be subject to
classification in accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. The Company invests its surplus cash
in bank term deposits, having a maturity period of between one day and one year.
These deposits can be terminated early at a nominal cost. Accordingly, all cash
resources have been disclosed under cash and cash equivalents.
SEGMENT REPORTING
Effective January 1998, the Company adopted SFAS No. 131, DISCLOSURE ABOUT
THE SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The Company has
determined it operates in only one segment for the following reasons; the
Company's principle product offering is the discovery of disease genes, and all
other product offerings are ancillary to this; the Company's chief operating
decision maker reviews the Company's results as a single entity; to date,
essentially all of the Company's efforts have been directed towards discovery of
disease genes and this is expected to remain the Company's focus for the
foreseeable future.
F-11
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
The Company expects to adopt SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, effective April 1, 2001. SFAS No. 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. As the Company to date has not used derivatives, it does not anticipate
that the adoption of the SFAS No. 133 will have a significant effect on its
results of operations or financial position.
2 SIGNIFICANT CONTRACTS
TECHNOLOGY ALLIANCES
In September 1999, the Company entered into a collaboration agreement with
Celera to jointly search for novel gene discoveries. Under this agreement, the
Company provides fine-mapped regions and Celera performs high-throughput
sequencing of these regions. Each company is responsible for their own research
costs. The Company will jointly own with Celera Genomics any gene discoveries
from this collaboration and will share equally with Celera Genomics revenues
received from licensing of such gene discoveries. All costs of exploitation of
gene discoveries will be shared equally by the Company and Celera Genomics. The
agreement terminates in September 2001.
In February 1999, the Company entered into a collaboration agreement with
Large Scale Proteomics, Inc. Under this agreement, the Company provides samples
and clinical data from selected identical twin pairs and Large Scale Proteomics,
Inc. conducts protein analysis. Each company is responsible for its own costs
under the project. When, and if, discoveries made under the collaboration are
commercialized, each company is required to make payments to the other according
to the nature of the product and its commercialization. The agreement terminates
when neither party is required to make further payments thereunder. Large Scale
Proteomics, Inc. may terminate the agreement if it provides notice within
120 days of the parties' decision not to proceed with the project. Either party
may terminate the collaboration agreement if there is a material breach by the
other that is not cured. No payments have been received or made to date.
In March 2000, the Company entered into separate collaboration agreements
with CuraGen, Inc. and Sequenom, Inc. Under these agreements, the Company
provides clinical data and DNA samples and CuraGen, Inc. and Sequenom, Inc.
provide genetic analysis of the samples. Each company is responsible for its own
costs, although the Company will reimburse CuraGen, Inc. and Sequenom, Inc. for
a portion of their costs. No costs have been incurred under the agreements
through March 31, 2000, and cost reimbursement by the Company is not expected to
be material in future years. No minimum funding commitments are defined in the
agreements. Revenues arising from the agreements will be shared between the
Company and CuraGen, Inc. or Sequenom Inc. The agreements with both CuraGen,
Inc. and Sequenom, Inc. are each for an initial term of two years.
LICENSE AGREEMENTS
The Company has entered into license agreements for the use of the Company's
patents and patent applications relating to the COL1A1 disease gene with
Affymetrix, Inc. and Axis-Shield plc. Under these agreements, the Company
receives license fees and will potentially receive royalties. Through March 31,
2000, the Company has received license fees of $100,000 under the agreement with
Affymetrix, Inc. and $78,000 under the agreement with Axis-Shield plc. The
license agreements
F-12
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 SIGNIFICANT CONTRACTS (CONTINUED)
terminate upon the expiration of the patents relating to the COL1A1 disease
gene. In addition, the Company may terminate the Affymetrix, Inc. license
agreement for an uncured material breach and may terminate the Axis-Shield plc
agreement for an uncured material breach or if Axis-Shield plc does not pay
royalties within 90 days of their being due.
SERVICES AGREEMENT
The Company has performed gene validation services for Kyowa Hakko Kogyo,
Inc. The services were successfully concluded in March 2000, and aggregate
revenues of $184,000 have been received.
CLINICAL COLLABORATIONS
The Company has entered into a number of agreements with clinical
collaborators, based at various universities and hospitals. Under these
agreements, the Company pays either an amount per item of clinical data
provided, or an annual fee. The maximum annual amount payable on any of the
existing contracts is approximately $800,000 and the annual aggregate cost is
approximately $4.0 million. The contracts vary in length with the last to expire
in December 2003.
3 CASH AND CASH EQUIVALENTS
The following is a summary of cash and cash equivalents at March 31, 1999
and 2000:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash...................................................... $ (950) $ 678
Cash on interest bearing term deposits.................... 13,115 12,736
------- -------
$12,165 $13,414
======= =======
</TABLE>
The cash of $678,000 at March 31, 2000 includes $31,000 held in a bank
account with restrictions of access, in support of a number of capital lease
obligations.
F-13
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
USEFUL LIVES IN -----------------------
YEARS 1999 2000
--------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements............................. Life of lease $ 305 $ 367
Laboratory equipment............................... 4 to 5 years 2,709 3,758
Office equipment................................... 4 to 5 years 155 435
------- -------
3,169 4,560
Less accumulated depreciation and amortization...................... (1,070) (1,919)
------- -------
$ 2,099 $ 2,641
======= =======
</TABLE>
The depreciation and amortization expense on property, plant and equipment
amounted to $598,000 and $928,000 for the years ended March 31, 1999 and 2000
respectively. Depreciation and amortization expense for the period from
inception (September 11, 1995) through March 31, 2000 was $1,993,000. Included
in property, plant and equipment are assets under capital lease obligations with
an original cost of approximately $2,260,000 and $3,535,000, as of March 31,
1999 and 2000 respectively. Accumulated depreciation on assets under capital
leases was $958,000 and $1,969,000 respectively.
5 COMMITMENTS AND CONTINGENCIES
DEBT FACILITY
In February 2000, the Company secured a $5.0 million line of credit with
Hewlett Packard International Bank Limited ("HPIB Limited"), to utilize against
capital equipment financings over the following 18 month period. In exchange for
favorable interest terms and a capital repayment holiday over the initial 18
month period, the Company has committed to issue warrants of 120,000 ordinary
shares, at an exercise price of L0.05 per share. In February 2000, the Company
drew $2.0 million against this line of credit as a capital lease to support
capital expenditure. Interest is repayable quarterly at 10.7% per annum over the
four year period of the lease, which has a capital repayment holiday for the
first 18 month period.
The Company issued warrants to HPIB Limited for 40,000 ordinary shares at an
exercise price of L0.05 per share ($0.08 per share). The fair value of each
warrant was estimated at approximately $5.53. The fair value of the warrants is
approximately $218,000 and has been recorded in additional paid-in capital and
treated as a discount to the capital lease obligation. The discount is being
accreted on a straight-line basis (which materially approximates to the
actuarial method) to interest expense over the four year period of the lease. A
charge of approximately $6,000 in additional interest expense was recorded in
the year ended March 31, 2000.
LEASES
As of March 31, 2000, the Company had $3.5 million of property, plant and
equipment financed through long-term obligations. The obligations under the
equipment leases are secured by the equipment financed, bear interest at a
weighted-average rate of between 5.3% and 10.7% and are due
F-14
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 COMMITMENTS AND CONTINGENCIES (CONTINUED)
in monthly and quarterly installments through September 2003. Under the terms of
the agreements, the financed equipment may be purchased by the Company at a
nominal value at the end of the financing term.
As of March 31, 2000, future minimum lease payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Years ending March 31,
2001.................................................... $ 531 $ 1,500
2002.................................................... 308 1,914
2003.................................................... 144 1,129
2004.................................................... -- 505
------ -------
Total minimum lease and principal payments.......... $ 983 5,048
======
Less amount representing interest......................... (1,131)
-------
Present value of minimum capital lease obligation......... 3,917
Less current portion of future payments................... (1,005)
-------
Capital lease obligation, less current portion............ $ 2,912
=======
</TABLE>
Rent expense relating to operating leases was approximately $177,000,
$178,000 and $242,000 in the years ended March 31, 1998, 1999 and 2000,
respectively.
EMPLOYER TAX ON EXERCISE OF OPTIONS BY EMPLOYEES
Under U.K. income tax legislation, the Company is required to pay employer's
tax (National Insurance) of 12.2% of the gain realized by employees on the
exercise of share options. The Company is accruing this liability over the
vesting period of the options. The liability is calculated based on the
difference between the exercise price of the option and the fair value of
ordinary shares at the balance sheet date. As of March 31, 2000 approximately
$130,000 had been accrued ($0 at March 31, 1999).
CONTINGENCIES
In the ordinary course of business the Company may be subject to legal
proceedings and claims. The Company is not currently subject to any material
legal proceedings.
F-15
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 LONG-TERM DEBT
Of the total bank loans, the non-current amounts outstanding are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans, repayable by quarterly installments to December 31,
2001. The interest rate is 4.85%.......................... $ -- $ 75
===== =====
</TABLE>
In accordance with the above bank loans, of which a further $243,000 is
classified within current liabilities, the bank has a floating charge over the
assets of Eurona up to a value of $318,000. There are no covenants attached to
the loans.
7 SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
In January 2000, the Board of Directors authorized management to file a
registration statement with the U.S. Securities and Exchange Commission to
permit the Company to offer its ordinary shares to the public, subject to
completing a number of matters requiring shareholder approval at an
Extraordinary General Meeting, which took place on March 17, 2000.
ORDINARY SHARES
On March 17, 2000, the Company effected a conversion of all their
outstanding convertible preferred ordinary shares into ordinary shares and a
20-for-one ordinary share split. All shares and per share amounts have been
retroactively restated to effect the share split.
Each ordinary share entitles the holder to one vote on all matters submitted
to a vote of the Company's shareholders. Ordinary shareholders are entitled to
receive dividends, if any, as may be declared by the Board of Directors. At
March 31, 2000, the Company had 120,000,000 ordinary shares authorized and
50,895,220 shares issued and outstanding.
ISSUANCE OF SHARES TO EX-EMPLOYEES
In December 1999, the Company issued 500,000 shares at par ($0.08) to
ex-employees of Gemini Research Limited. The fair value of the shares was
determined as $1,296,000 and a sales, general and administrative expense of
$1,256,000 was recorded in the year, reflecting the difference between the fair
value of the shares and the amount payable. At March 31, 2000 an amount of
$40,000 receivable for the shares remained outstanding. This amount is presented
in the balance sheet as a deduction from shareholders' equity.
SHARE OPTION PLANS
Under the terms of the Gemini Genomics plc Company Share Option Plan Part A
("Plan A"), the Board of Directors may grant U.K. Inland Revenue approved share
options to employees, directors and consultants of the Company at an exercise
price approved by the U.K. Inland Revenue. Share options
F-16
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 SHAREHOLDERS' EQUITY (CONTINUED)
granted under plan A generally vest and become exercisable on the third
anniversary of the grant. Options expire 10 years from the date of grant.
Under the terms of the Gemini Genomics plc Company Share Options Plan
Part B ("Plan B"), the Board of Directors may grant unapproved share options to
employees or executive directors of the Company. Options granted under Plan B
generally vest over a two-year period; one-third vest on date of grant,
one-third vest one year from date of grant, and one-third vest two years from
date of grant. Options become exercisable as soon as they have vested and expire
ten years from the date of grant, except options granted on December 19, 1997,
which expire seven years from the date of grant.
Under both Plan A and Plan B ("the Plans"), share option grants are
generally made at an exercise price equal to the fair value of the ordinary
shares on the date of grant, as determined by the Company's Board of Directors
and (in the case of Plan A) agreed with the Inland Revenue. The Company may also
issue share options outside the plans. There are 3,561,420 ordinary shares
reserved for issuance upon the exercising of share options.
Plan A and Plan B were adopted by the board on December 19, 1997
SHARE OPTION ACTIVITY
At March 31, 1999 and March 31, 2000, options to purchase 964,560 and
2,037,060 ordinary shares were exercisable at a weighted average exercise price
of $0.80 and $1.67. The weighted average fair value of options granted in the
years ended March 31, 1998, 1999 and 2000 was $0.09, $0.11 and $1.16,
respectively.
F-17
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 SHAREHOLDERS' EQUITY (CONTINUED)
A summary of share option activity under the Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT OPTIONS PRICE
------------- --------- --------
<S> <C> <C> <C>
Inception of the plans (December 19, 1997)
Initial authorized........................................ 2,203,500 -- --
Granted................................................... (1,861,400) 1,861,400 $ 0.81
Canceled.................................................. 480,140 (480,140) $ 0.94
---------- ---------
Balance at March 31, 1998................................... 822,240 1,381,260 $ 0.77
Granted................................................... (158,620) 158,620 $ 1.55
Canceled.................................................. 27,440 (27,440) $ 1.20
---------- ---------
Balance at March 31, 1999................................... 691,060 1,512,440 $ 0.84
Additional authorized..................................... 5,089,522 -- --
Granted................................................... (2,420,980) 2,420,980 $ 2.15
Canceled.................................................. 200,000 (200,000) $ 1.98
Exercised................................................. -- (172,000) $ 0.69
---------- ---------
Balance at March 31, 2000................................... 3,559,602 3,561,420 $ 1.67
========== =========
</TABLE>
The following table summarizes information concerning current outstanding
and exercisable options at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------
WEIGHTED-
AVERAGE OPTIONS EXERCISABLE
REMAINING -------------------
EXERCISE NUMBER CONTRACTUAL NUMBER
PRICES OUTSTANDING LIFE EXERCISABLE
--------------------- ------------- ----------- -------------------
<S> <C> <C> <C>
$0.69 804,220 4.72 804,220
0.94....$..... 505,040 5.01 438,380
1.20....$..... 173,040 8.80 82,020
1.79....$..... 172,000 9.42 57,340
2.16....$..... 1,338,100 9.56 465,420
2.59....$..... 569,020 9.91 189,680
--------- ----------
3,561,420 7.69 2,037,060
========= ==========
</TABLE>
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its share options issued to employees. Compensation expense is
determined using the intrinsic value method based on the difference between the
exercise price and the deemed fair value of the Company's ordinary shares on the
date the share options were granted.
F-18
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 SHAREHOLDERS' EQUITY (CONTINUED)
Share options granted to non-employees are valued using the Black-Scholes
option valuation method and the following assumptions for the years ended
March 31, 1998, 1999 and 2000: risk-free interest rate of 5.8%, 5.5% and 6.2%,
respectively, volatility of 0.01, zero dividend yield and an expected life of
four years. The value of the options is recorded as deferred compensation and
amortized using the straight-line method over the vesting period.
The fair value of the Company's ordinary shares on the date the share
options are granted is determined by the board of directors with regard to the
pricing of recent, or proposed, share issuances by the Company. The deemed fair
value of ordinary shares was as follows:
<TABLE>
<CAPTION>
FAIR VALUE OF
PERIOD ORDINARY SHARES
------ ---------------
<S> <C>
April 1997-December 1997.................................... $0.97
January 1998-December 1998.................................. $1.22
January 1999-October 1999................................... $2.21
November 1999-December 1999................................. $2.59
February 2000............................................... $5.53
</TABLE>
Share option compensation expense was recorded as follows:
<TABLE>
<CAPTION>
NON-
EMPLOYEE EMPLOYEE
RELATED RELATED
PERIOD ENDING EXPENSES EXPENSES TOTAL EXPENSE
------------- -------- -------- -------------
<S> <C> <C> <C>
March 31, 1997.............................................. $ -- $ -- $ --
March 31, 1998.............................................. 1,000 51,000 52,000
March 31, 1999.............................................. 3,000 191,000 194,000
March 31, 2000.............................................. 281,000 192,000 473,000
Since Inception (September 11, 1995)........................ $285,000 $434,000 $719,000
</TABLE>
Amortization of the deferred compensation balance of $2,611,000 at
March 31, 2000 will be approximately $1,532,000 and $1,079,000 for the fiscal
years ending March 31, 2001 and 2002, respectively.
PRO-FORMA DISCLOSURE UNDER SFAS NO. 123
Pro-forma information regarding employee stock options is required by SFAS
No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of these
options was estimated at the date of grant using the Black-Scholes option
valuation method and the following assumptions for the years ended 1998, 1999
and 2000: volatility of 0.01, risk-free interest rate of 5.8%, 5.5% and 6.2%,
respectively, zero dividend yield and an expected life of four years.
F-19
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 SHAREHOLDERS' EQUITY (CONTINUED)
For the purposes of pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro-forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss:
As reported............................................... $8,123 $10,746 $15,405
SFAS No. 123 pro-forma.................................... $8,128 $10,766 $15,515
Loss per share:
As reported--basic and diluted............................ $(0.41) $ (0.54) $ (0.73)
SFAS No. 123 pro-forma.................................... $(0.41) $ (0.54) $ (0.73)
</TABLE>
The effects of applying SFAS No. 123 for recognizing compensation expense
and for pro-forma disclosures are not likely to be representative of the effects
on reported net loss for future years.
WARRANTS
In February 2000 the Company granted warrants to purchase 40,000 ordinary
shares at an exercise price of L0.05 ($0.08) per share (see note 5). The warrant
remains outstanding at March 31, 2000.
8 INCOME TAXES
The Company has no provision for U.K. or Swedish income taxes for any period
as it has incurred operating losses throughout its life.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 5,484 $ 8,594
Book reserves in excess of tax.............................. 145 35
Short-term timing differences............................... 3 (2)
------- -------
Total deferred tax assets................................... 5,632 8,627
Valuation allowance......................................... (5,632) (8,627)
------- -------
Total....................................................... $ -- $ --
======= =======
</TABLE>
For the year ended March 31, 1999, the Company had, subject to agreement
with the U.K. Inland Revenue, corporation tax losses amounting to $8.6 million,
resulting in a total loss carry-forward at March 31, 1999 of approximately $18.2
million.
F-20
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 INCOME TAXES (CONTINUED)
As of March 31, 2000, the Company has accumulated losses, subject to
agreement with the U.K. Inland Revenue, amounting to a further $10.4 million,
resulting in total loss carried forward at March 31, 2000 of $28.6 million which
under U.K. and Swedish tax law do not expire. Because of the Company's lack of
earnings history, the deferred tax assets have been fully offset by a valuation
allowance.
As of March 31, 2000, Eurona Medical AB has, subject to agreement with the
Swedish tax authorities, income tax losses that are at least $8.0 million. These
are available for offset against profits from future Swedish operations.
9 ACQUISITION OF EURONA MEDICAL AB
On December 17, 1999, the Company completed the acquisition of Eurona
Medical AB, a Swedish pharmacogenetics company. The Company assumed all of the
liabilities of Eurona and acquired all of its ordinary shares in exchange for
1,820,180 preferred ordinary shares and $19,000 in cash. Including direct
acquisition costs of $186,000, the total purchase price was $4.9 million.
The acquisition was accounted for using the purchase method. Under the
purchase method of accounting, the aggregate acquisition cost is allocated to
the acquired company's assets and liabilities, based on the fair values on the
date of acquisition. Included within the liabilities assumed is $600,000
relating to termination costs of a number of employees.
In purchasing Eurona, the Company obtained access to clinical collaborators.
The total spent by Eurona since inception on research and development at the
date of acquisition was approximately $8.9 million. Eurona had raised a total of
approximately $13.3 million in equity finance prior to acquisition by the
Company, but had not succeeded in commercializing its business model.
The Company has performed a review of the research projects being undertaken
by Eurona and determined that none of the projects have economic value as none
of the research projects undertaken by Eurona will be pursued. Consequently, in
allocating the acquired assets and liabilities, no value has been assigned to
acquired in-process research and development.
F-21
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 ACQUISITION OF EURONA MEDICAL AB (CONTINUED)
A summary of the purchase price for the acquisition is a follows (in
thousands):
<TABLE>
<S> <C>
Preferred ordinary shares................................... $4,720
Cash paid to shareholders................................... 19
Accrued direct acquisition costs............................ 186
------
Total purchase price........................................ $4,925
======
The purchase price was allocated as follows (in
thousands):
Assets acquired............................................. $1,587
Liabilities assumed......................................... (2,284)
Intangible assets acquired:
Assembled workforce....................................... 350
Goodwill.................................................. 5,272
------
$4,925
======
</TABLE>
The above intangible assets are being amortized over their estimated useful
life of five years.
Had the acquisition of Eurona been consummated at the beginning of the years
below, the unaudited pro forma results would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue................................................ $ 295 $ 1,238
Net loss for the period................................ $20,506 $22,933
Net loss per ordinary share--basic and diluted......... $ (0.94) $ (1.00)
</TABLE>
The Company made a $0.6 million provision in respect of the termination
costs of 35 employees (largely executive, managerial and support staff) under an
integration plan approved in December 1999. These costs all related to salaries
and benefits due, and employment costs arising within these 35 employees' notice
periods. A total of $0.3 million of termination benefits were paid in the period
ended March 31, 2000, leaving a $0.3 million provision at March 31, 2000. The
Company also realigned the research focus of Eurona although the only activities
terminated were those of the executive functions.
10 PENSION PLANS
The Company operates a defined contribution group personal pension plan for
substantially all its employees in the United Kingdom and contributes to a state
scheme and a defined contribution scheme for its employees in Sweden. Company
contributions to the U.K. defined contribution scheme totaled $39,000, $60,000
and $81,000 in the years ended March 31, 1998, 1999 and 2000, respectively and
$199,000 in the period from September 11, 1995 (inception) through March 31,
2000.
F-22
<PAGE>
GEMINI GENOMICS PLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 RELATED PARTY TRANSACTIONS
Cloverleaf Holdings Limited, a company controlled by Michael Fitzgerald,
provided consulting services to the Company for which it received $140,000 per
annum, payable in equal monthly installments. No balances were outstanding at
March 31, 1999 or 2000. In November 1999, the foregoing arrangement was
terminated and replaced with a contract under which Michael Fitzgerald will
receive fees for services as a non-executive director. Michael Fitzgerald
received no fees for services as a non-executive director through March 2000.
12 SEGMENT INFORMATION--GEOGRAPHIC
The Company reports operating results based on geographic areas. A summary
of the key financial data by segment is as follows:
<TABLE>
<CAPTION>
UNITED
KINGDOM SWEDEN TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED, AND AT MARCH 31, 1998:
Revenue................................................... $ -- $ -- $ --
Loss from operations...................................... (7,899) -- (7,899)
Property, plant and equipment............................. 1,696 -- 1,696
Total assets.............................................. $ 2,735 $ -- $ 2,735
YEAR ENDED, AND AT MARCH 31, 1999:
Revenue................................................... $ 198 $ -- $ 198
Loss from operations...................................... (10,694) -- (10,694)
Property, plant and equipment............................. 2,099 -- 2,099
Total assets.............................................. $ 14,766 $ -- $ 14,766
YEAR ENDED, AND AT MARCH 31, 2000:
Revenue................................................... $ 164 $ -- $ 164
Loss from operations...................................... (12,716) (2,674) (15,390)
Property, plant and equipment............................. 1,933 708 2,641
Total assets.............................................. $ 21,049 $ 1,187 $ 22,236
</TABLE>
13 SUBSEQUENT EVENTS
ESTABLISHMENT OF A JOINT VENTURE
In February 2000 the Company entered into an agreement to form a joint
venture with Lineage Biomedical Inc. to establish a clinical genetics, DNA
storage and analysis facility in St. John's, Newfoundland. The joint venture has
not yet been established but its intended purpose is to study the genetics of
common diseases in the Newfoundland population. The details of the joint venture
have not yet been finalized. However, the Company proposes to account for the
joint venture using the equity method in accordance with APB 18.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Eurona Medical AB
We have audited the annual accounts, the accounting records and the
administration of the board of directors and the managing director of Eurona
Medical AB for the years ended December 31, 1997 and 1998. These accounts and
the administration of the company are the responsibility of the board of
directors and the managing director. Our responsibility is to express an opinion
on the annual accounts and the administration based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Sweden, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance that the annual accounts are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the accounts. An audit also includes assessing
the accounting principles used and their application by the board of directors
and the managing director, as well as evaluating the overall presentation of
information in the annual accounts.
The annual accounts have been prepared in accordance with the Annual
Accounts Act and, thereby, give a true and fair view of the financial position
of the company and of the results of its operations in accordance with generally
accepted accounting principles of Sweden, which differ in certain respects from
those generally accepted in the United States (see note 7 to the financial
statements).
Ingemar Rindstig
Authorized Public Accountant
Ernst & Young
Uppsala, Sweden
February 29, 2000
F-24
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN SWEDISH KRONOR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -----------------------------------
NOTES 1997 1998 1998 1999
-------- --------------- --------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales.......................... 1 SEK 2,235,380 SEK 774,243 SEK -- SEK 98,500
Work performed by the company for
its own use...................... 2 10,683,346 18,087,367 18,048,000 19,600,000
--------------- --------------- --------------- ---------------
Total income....................... 12,918,726 18,861,610 18,048,000 19,698,500
--------------- --------------- --------------- ---------------
Operating expenses
External costs..................... (13,073,465) (21,424,491) (22,433,600) (24,000,300)
Personnel costs.................... 3, 4 (21,229,611) (32,325,511) (23,844,000) (25,263,000)
Depreciation of tangible and
intangible assets................ 5 (5,824,703) (12,519,023) (8,100,900) (12,629,600)
--------------- --------------- --------------- ---------------
Total operating costs.............. (40,127,779) (66,269,025) (54,378,500) (61,892,900)
--------------- --------------- --------------- ---------------
Operating result................... (27,209,053) (47,407,415) (36,330,500) (42,194,400)
--------------- --------------- --------------- ---------------
Result from financial investments
Interest income.................... 266,078 1,021,601 942,000 77,700
Exchange profit/losses............. (1,621,290) (122,169) (104,300) --
Other financial items.............. 6 (1,135,300) (2,384,625) (386,600) (2,508,400)
--------------- --------------- --------------- ---------------
Loss after financial items......... (29,699,565) (48,892,608) (35,879,400) (44,625,100)
--------------- --------------- --------------- ---------------
Appropriations
Change of foreign exchange
reserve.......................... (24,410) 30,141 -- --
--------------- --------------- --------------- ---------------
Net loss for the year.............. SEK (29,723,975) SEK (48,862,467) SEK (35,879,400) SEK (44,625,100)
--------------- --------------- --------------- ---------------
</TABLE>
F-25
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN SWEDISH KRONOR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -------------------------------------
1997 1998 1998 1999
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Operating loss............................ SEK (29,723,975) SEK (48,862,467) SEK (35,879,400) SEK (44,625,100)
Depreciation and amortization............. 5,824,703 12,587,409 9,389,267 12,630,000
Exchange reserve.......................... 24,409 (30,141) -- --
Synthetic options......................... 1,403,876 (580,000) -- --
Changes in operating assets and
liabilities............................. (12,637,794) 22,535,212 13,402,050 (7,785,878)
--------------- --------------- --------------- ---------------
Net cash used in operating activities..... (35,108,781) (14,349,987) (13,088,083) (39,780,978)
INVESTING ACTIVITIES:
Purchases of plant, property and
equipment............................... (10,159,154) (2,824,264) (1,857,750) (1,403,900)
Purchase of intangible assets............. (14,259,600) (26,381,000) (19,785,750) (19,600,399)
Proceeds from disposal of plant, property
and equipment........................... -- -- 68,078 --
--------------- --------------- --------------- ---------------
Net cash used in investing activities..... (24,419,154) (29,205,264) (21,574,921) (21,004,299)
FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares,
net of issuance costs................... 111,878,376 -- -- 46,143,524
Loans (repaid) received................... (7,692,109) 1,242,300 1,767,000 19,813,900
--------------- --------------- --------------- ---------------
Net cash provided by financing
activities.............................. 104,186,267 1,242,300 1,767,000 65,957,424
--------------- --------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents............................. 44,658,332 (42,312,951) (32,896,004) 5,172,147
Cash and cash equivalents, beginning of
period.................................. 268,872 44,927,204 44,927,204 2,614,253
--------------- --------------- --------------- ---------------
Cash and cash equivalents, end of
period.................................. SEK 44,927,204 SEK 2,614,253 SEK 12,031,200 SEK 7,786,400
=============== =============== =============== ===============
</TABLE>
F-26
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS OF SWEDISH KRONOR)
The financial information for the nine months ended September 31, 1999 is
unaudited but, in the opinion of management, has been prepared on the same basis
as the annual financial statements and includes all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a fair
presentation of the operating results and cash flows for such periods.
The unaudited pro forma information is provided for information purposes
only and is not necessarily indicative of the results of future full years.
NOTE 1: SHARE OF NET SALES PER COUNTRY OF DESTINATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998
------------ -----------
<S> <C> <C>
Sweden...................................................... SEK 986,842 SEK 89,993
United States............................................... 1,248,538 684,250
------------ ----------
Total....................................................... SEK2,235,380 SEK774,243
============ ==========
</TABLE>
The revenue arises from the provision of contract research and development
services to customers. These revenues are recognized on completion of specified
milestones according to contract terms and when no further performance
obligations exist.
NOTE 2: WORK PERFORMED BY THE COMPANY FOR ITS OWN USE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1997 1998
---------------------------------------------- ----------------------------------------------
PREPARED RESEARCH & PREPARED RESEARCH &
SAMPLES DEVELOPMENT TOTAL SAMPLES DEVELOPMENT TOTAL
------------ -------------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Personnel costs...... SEK 370,340 SEK 7,584,130 SEK 7,954,470 SEK 594,570 SEK 13,556,000 SEK 14,150,570
Other production
costs.............. 265,526 2,463,350 2,728,876 112,797 3,824,000 3,966,797
----------- -------------- -------------- ----------- -------------- --------------
Total work performed
by the company for
its own use........ 635,866 10,047,480 10,683,346 707,367 17,380,000 18,087,367
Capitalized costs for
external
services........... -- 4,212,120 4,212,120 -- 9,001,000 9,001,000
----------- -------------- -------------- ----------- -------------- --------------
Total capitalized
costs.............. SEK 635,866 SEK 14,259,600 14,895,466 SEK 707,367 SEK 26,381,000 27,088,367
=========== ============== ============== =========== ============== ==============
</TABLE>
In accordance with Swedish GAAP, the Company records costs expended
internally on personnel and other production areas involved in sample
preparation, both within operating costs and within revenue. The amount included
within revenue is also capitalized along with external costs related to sample
preparation.
F-27
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF SWEDISH KRONOR)
NOTE 3: SALARIES, PENSION COSTS AND SOCIAL SECURITY CONTRIBUTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1998
------------------------------ -------------------------------
BOARD OTHER BOARD MEMBERS OTHER
MEMBERS EMPLOYEES AND CEO EMPLOYEES
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Salaries......................... SEK 3,296,916 SEK 10,086,999 SEK 1,913,131 SEK 20,337,949
Pension costs.................... 122,900 733,126 145,608 1,805,731
Social security expenses......... 1,156,055 3,475,244 757,151 7,388,599
------------- -------------- ------------- --------------
Total............................ SEK 4,575,871 SEK 14,295,369 SEK 2,815,890 SEK 29,532,279
============= ============== ============= ==============
</TABLE>
NOTE 4: SYNTHETIC OPTIONS
The revaluation of the synthetic options has decreased personnel costs by SEK
580,000 (1997--SEK 1,403,876). Synthetic options are a form of employee bonus
scheme. There is no equity element to the options.
NOTE 5: DEPRECIATION
In the Statements of Operations, operating earnings are charged with
depreciation according to plan, which is calculated on original acquisition
value and based on the estimated economic life. The economic life is estimated
to be five years for all fixed assets.
NOTE 6: OTHER FINANCIAL ITEMS
During 1998 expenses in connection with private placements activities have
been booked as other financial costs amounting to SEK 1,910,320.
NOTE 7: INTERIM FINANCIAL INFORMATION
The material information for the nine months ended September 30, 1998 and
1999 is unaudited but, in the opinion of management, has been properly prepared
on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the operating results and cash
flows for such periods.
NOTE 8: DIFFERENCES BETWEEN SWEDISH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
THOSE GENERALLY ACCEPTED IN THE UNITED STATES
The financial statements are prepared in accordance with accounting
principles generally accepted in Sweden ("Swedish GAAP"). Such principles differ
in certain respects from generally accepted
F-28
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF SWEDISH KRONOR)
NOTE 8: DIFFERENCES BETWEEN SWEDISH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
THOSE GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
accounting principles in the United States ("U.S. GAAP"). A summary of the
principal differences applicable to Eurona are set out below (in thousands of
Swedish kronor):
SHARE OPTIONS
Under both Swedish and U.S. GAAP, options issued with an exercise price
below the fair market value are considered compensatory. Under Swedish GAAP, the
compensation charge on options issued to reward past performance is reflected in
the statement of operations on the date of grant. Under U.S. GAAP, compensation
cost also represents the difference between the current market price and the
exercise price on the grant date, but is recognized in the statement of
operations over the vesting period of the options granted. A compensation charge
has been recorded to reflect the fair value of options and warrants granted to
non-employees. The options were valued using the Black-Scholes option valuation
method and using the following assumptions for the years ended December 31, 1997
and 1998, and the nine months ended December 31, 1998 and 1999: risk free
interest rate of 5.5%, volatility of 0.01 and zero dividend yield.
All Eurona share options were canceled upon the acquisition of Eurona by the
Company. The options were not exchanged for options to purchase the Company's
shares.
CAPITALIZED RESEARCH & DEVELOPMENT
Under Swedish GAAP, a portion of expenditure incurred on research and
development is capitalized and amortized. The portion which is capitalized is
included within "work performed by the Company for its own use" in the statement
of operations. This is inconsistent with U.S. GAAP and, accordingly, the
adjustments below reflect the write-off of capitalized research and development
costs in order to comply with U.S. GAAP.
PREPARED SAMPLES
Eurona has capitalized a portion of expenditure on research samples it has
prepared. This is inconsistent with U.S. GAAP and, accordingly, the adjustments
below reflect the write-off of capitalized research samples in order to comply
with U.S. GAAP.
CHANGES IN RESERVE FOR EXCHANGE DIFFERENCES
Under Swedish GAAP, until 1999, gains and losses arising from the
translation of balance sheet items carried at currencies other than the
functional currency are recorded in equity. Under U.S. GAAP, SFAS 52, such
translation adjustments are recorded in the profit and loss. The adjustments
below have therefore been made to comply with U.S. GAAP.
F-29
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF SWEDISH KRONOR)
NOTE 8: DIFFERENCES BETWEEN SWEDISH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
THOSE GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
RECONCILIATION OF STATEMENT OF OPERATIONS:
<TABLE>
<CAPTION>
YEAR TO YEAR TO
DECEMBER 31, DECEMBER 31, NINE MONTHS ENDED NINE MONTHS ENDED
1997 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------ ------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, SWEDISH KRONOR)
<S> <C> <C> <C> <C>
Loss for the year under Swedish
GAAP............................ SEK(29,723) SEK(48,862) SEK (35,879) SEK (44,625)
U.S. GAAP adjustments:
Share options and warrants...... (105) (3,208) (2,406) (7,658)
Capitalized research and
development................... (10,035) (16,880) (12,173) (9,535)
Capitalized primers and
samples....................... (1,040) (843) (784) (284)
Changes in reserve for exchange
differences................... 24 (30) -- --
---------- ---------- ---------- ----------
Net loss under U.S. GAAP.......... SEK(40,879) SEK(69,823) SEK(51,242) SEK(62,102)
---------- ---------- ---------- ----------
</TABLE>
Eurona was formed on April 21, 1995 and is considered a development stage
enterprise as defined by Statement of Financial Accounting Standards No. 7,
ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES. As required under the
standard, the deficit accumulated in the development stage on a U.S. GAAP basis
from April 21, 1995 to September 30, 1999 is SEK 187,011,000
The cumulative Statements of Operations and Cash Flows for the period since
inception are shown below:
UNAUDITED STATEMENT OF OPERATIONS FROM APRIL 21, 1995 (INCEPTION) THROUGH
SEPTEMBER 30, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS,
SWEDISH KRONOR)
----------------
<S> <C>
Revenues.................................................... SEK 6,607
Research and development expenses........................... (132,999)
Sales, general and administrative expenses.................. (55,277)
-----------
Operating loss.............................................. (181,669)
Interest income............................................. 1,385
Interest payable............................................ (6,727)
-----------
Retained loss since inception............................... SEK(187,011)
-----------
</TABLE>
F-30
<PAGE>
EURONA MEDICAL AB
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF SWEDISH KRONOR)
NOTE 8: DIFFERENCES BETWEEN SWEDISH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
THOSE GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
UNAUDITED STATEMENT OF CASH FLOWS FROM APRIL 21, 1995 (INCEPTION) THROUGH
SEPTEMBER 30, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS,
SWEDISH KRONOR)
----------------
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................... SEK(187,011)
Adjustments to reconcile operating loss to net cash outflow:
Depreciation............................................ 6,208
Amortization of deferred compensation................... 10,971
Changes in operating assets and liabilities
Inventories............................................. (496)
Prepaid expenses and other assets....................... (2,403)
Accounts payable and other accrued liabilities.......... 11,074
-----------
Net cash used in operating activities....................... (161,658)
INVESTING ACTIVITIES:
Purchase of plant, property and equipment............... (13,859)
-----------
Net cash used in investing activities....................... (13,859)
FINANCING ACTIVITIES:
Proceeds of loan from shareholders...................... 21,388
Proceeds of share issue................................. 158,122
Loans (repaid)/received................................. 3,793
-----------
Net cash provided by financing activities................... 183,303
Net increase/(decrease) in cash and cash equivalents........ 7,786
-----------
Cash and cash equivalents, end of period.................... SEK 7,786
</TABLE>
F-31
<PAGE>
MERRILL CORPORATION LTD. London
00LON1091
<PAGE>
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12,000,000 ORDINARY SHARES
[LOGO]
IN THE FORM OF AMERICAN DEPOSITARY SHARES
------------------
PROSPECTUS
--------------
SG COWEN
CHASE H&Q
July 25, 2000
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