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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15190
ONCOGENE SCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3159796
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
106 CHARLES LINDBERGH BOULEVARD,
UNIONDALE, NEW YORK 11553
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (516) 222-0023
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of November 29, 1996, the aggregate market value of the Registrant's
voting stock held by non-affiliates was $119,271,763. For purposes of this
calculation, shares of Common Stock held by directors, officers and stockholders
whose ownership exceeds five percent of the Common Stock outstanding at November
29, 1996 were excluded. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control with
the Registrant.
As of November 29, 1996 there were 22,179,994 shares of the Registrant's
$.01 par value common stock outstanding.
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PART I
ITEM 1. BUSINESS
Oncogene Science, Inc., a leader in the innovation of drug discovery
technologies, combines core technologies in genetically engineered live-cell
assays, proprietary small molecule libraries, and discovery chemistry with high
throughput robotic screening to discover novel, small molecule pharmaceuticals.
Independently and in collaboration with Pfizer Inc. ("Pfizer"), Hoechst Marion
Roussel, Inc. ("HMRI"), Wyeth-Ayerst Laboratories Division of American Home
Products Corporation ("Wyeth"), BioChem Pharma (International) Inc. ("BioChem
Pharma") and Ciba-Geigy, Ltd. ("Ciba"), the Company is engaged in the discovery
and development of drugs for 28 target proteins in a wide range of disease
areas, including cancer, systemic and topical viral, bacterial, fungal diseases,
diabetes, atherosclerosis, arthritis, neurological disorders and chronic
anemias. These core capabilities and discovery and development programs have
positioned the Company as a leading fully integrated drug discovery company. In
April 1996, the Company completed a public offering of 3,118,750 shares of
common stock at a price of $9.125 per share. Concurrent with the public
offering, the Company sold an additional 500,000 shares at the same price to
BioChem Pharma. The net proceeds from these transactions of approximately $30.5
million are being used for research and development expenses, including
enhancement of the Company's drug discovery technologies, and for general
corporate purposes.
BACKGROUND
Since the early 1980s, major advances in molecular biology have increased
the scientific understanding of the complex regulatory and functional mechanisms
that operate within the cell. Among these advances is the ability to isolate and
manipulate the key genetic molecules DNA and RNA. Genes are composed of segments
of DNA, which are located within the cell nucleus. Each gene contains the
chemical information required for the production of a single protein. Generally,
several thousand of the 100,000 genes contained in a human cell are actively
involved in the production of specific proteins.
Proteins are molecules that either regulate or perform most of the
physiological and structural functions of the body. Abnormalities in the
cellular production or activity of proteins are the causes of many diseases.
Most drugs work by binding to specific proteins to change their activity
resulting in a therapeutic effect on the disease state.
Gene transcription is a key step in the production of proteins by the cell.
Gene transcription occurs when a segment of DNA containing the coding sequence
for an individual protein is copied into an intermediate template called
messenger-RNA ("mRNA"). The DNA within a gene is divided into at least two types
of sequences. Certain types of sequences encode the structural information for
mRNA while other sequences, called response elements, regulate the production of
mRNA. A subset of intra-cellular proteins, known as transcription factors,
interact with response elements to regulate the production of mRNA and,
therefore, the production of the corresponding protein. The conversion of mRNA
into its corresponding protein takes place in a process called translation.
Changes in gene transcription occur in response to a wide variety of
signals. Complex interactions between transcription factors and response
elements control the rate with which gene transcription is carried out in
response to these signals. The process by which the information contained in
these signals is transmitted into the nucleus is called signal transduction.
Activation of gene transcription increases the production of a protein while
inhibition of gene transcription decreases production of a protein. Drug
discovery at Oncogene Science is primarily focused on novel therapeutics which
target changes in either gene transcription or signal transduction, in addition
to other efforts focused on inhibiting key enzymes in live cells.
TRADITIONAL DRUG DISCOVERY
The traditional discovery method for small molecule pharmaceuticals
involves the random testing of thousands of compounds in drug screens. These in
vitro tests or assays typically employ single proteins, such as receptors, as
targets for discovery of drug candidates. For each drug screen, the target
protein is selected
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because the scientist believes a compound that binds with this target may have a
therapeutic benefit with respect to the disease under study. Lead compounds or
"hits" are defined as compounds that bind to a target protein and either inhibit
or stimulate its activity. Medicinal chemists then focus on optimizing these
initial lead compounds to improve potency and specificity. Nearly all drugs sold
today (with the exception of recombinant proteins) were either discovered in
drug screens or are derived from the lead compounds identified in such screens.
The simplified drug screens used in traditional drug discovery employ
isolated components of the cell and are an inadequate representation of the
complex, physiological environment that exists within living cells. Receptors,
signal transduction proteins and transcription factors, which are targets for
therapeutic intervention, do not exist in isolation in the cell, but occur as
large complexes of multiple proteins bound together with specific structures.
Lead compounds identified in the artificial environment of traditional drug
screens are frequently found to be either ineffective or toxic in live cells,
because these complex intra-cellular interactions are not reproduced in
conventional in vitro screens. Consequently, drug companies often devote
substantial resources to optimizing a traditional drug screen lead compound
which is subsequently found to be ineffective in the more complex environment of
live cells.
In addition, slow and labor intensive traditional screening methods have
traditionally limited the number and chemical diversity of the compounds that
can be tested in assays. Even though many millions of distinct chemical
structures exist, it is not unusual that only a small fraction of available
compounds are tested. This limitation of speed and scale often restricts both
the quality and quantity of lead compounds available for further testing and
development and hinders drug discovery.
The rising costs of health care and changes in health care management
policies are applying increasing competitive pressure on the pharmaceutical
industry, leading to an emphasis on the cost-effectiveness and quality of drug
candidates and the speed with which novel classes of pharmaceuticals can be
brought to the marketplace. In this environment, new discovery technologies that
improve the number and quality of lead compounds have become critical in order
to identify novel drug candidates and to conduct cost-effective clinical
development.
ONCOGENE SCIENCE'S TECHNOLOGY PLATFORM
The Company's technologies have been designed to solve many of the
limitations associated with conventional drug screens. The Company's technology
platform consists of applying its understanding of the molecular biology of gene
transcription and signal transduction to the development of proprietary
live-cell assays. These assays are used to test diverse compounds derived from
proprietary natural product sources and from medicinal chemistry libraries
belonging to the Company and its collaborative partners using automated, high
throughput robotic drug screening techniques. In addition, the Company has
expanded its capabilities in discovery chemistry to include combinatorial
chemistry, which allows for the rapid synthesis of analogs of lead compounds and
generation of new compound libraries for drug discovery. The Company's
technology platform is widely applicable to the identification of drug
candidates to treat many different diseases, including diseases due to mutations
or abnormalities in multiple genes. Utilizing its technology, the Company has
been able to identify lead compounds that are potent and selective, possess
minimal or no cellular toxicity and have activity in live cells and animal
models and that have progressed to clinical evaluation in humans.
LIVE-CELL ASSAYS AND GENE TRANSCRIPTION
The Company's drug screens utilize live cells that express proteins
believed to be associated with a particular disease. For any one target protein,
there are multiple sites within the cell where a drug can act to exert a
specific effect. Cell-based screens, therefore, provide multiple sites of
therapeutic intervention, such as receptors, signal transduction proteins and
transcription factors, which the Company believes increase the probability of
finding promising lead compounds. Furthermore, live-cell assays provide data on
the cytotoxicity and specificity of the compounds tested, allowing the Company
to define key properties of a lead compound earlier in the development process.
Therefore, the Company believes that its drug discovery technology fosters
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the generation of high quality leads that are more likely to progress into
clinical studies compared to lead compounds identified by traditional methods.
The Company believes its live-cell assays are effective in identifying
compounds that exert a therapeutic effect by altering transcription of
particular target genes. Gene transcription-based drugs act by increasing or
decreasing the amount of mRNA and, therefore, the amount of the corresponding
protein associated with a particular disease. It has been demonstrated in recent
years that a number of widely used drugs exert their primary clinical effect
through a gene transcription-based mechanism. These include oral contraceptives,
tamoxifen for breast cancer, retinoids for dermatology, cholesterol lowering
drugs, and even aspirin. These drugs were discovered and developed prior to an
understanding of gene transcription. Now that gene transcription is better
understood, the Company believes its gene transcription technology provides an
important mechanism for therapeutic intervention and a process through which
drug discovery assays can be designed.
HIGH THROUGHPUT ROBOTIC SCREENING TECHNOLOGY
Since 1988, Oncogene Science has been a pioneer in the development of high
throughput screening. High throughput screening is the practice of rapidly
testing hundreds of thousands of test compounds against a target protein, and
has become a major focus of leading pharmaceutical companies over the last few
years. Competitive pressures in the pharmaceutical industry are requiring
pharmaceutical companies to find ways to identify quality drug candidates more
quickly and cost effectively. The Company believes that worldwide efforts to map
and sequence the human genome will result in the identification of increasing
numbers of new target genes. Moreover, new technologies, such as combinatorial
chemistry, may generate millions of new compounds to test in in-vitro and
live-cell assays.
The Company has developed proprietary hardware and software systems to
automate the entire drug screening process, from the addition of the test
substances to the cells to the analysis of the data generated from the tests. In
its proprietary robotic screening facility, the Company can analyze up to
300,000 different test samples each week, depending on the complexity of the
assays. The Company's robotic systems are not limited to any particular assay
format and can be reconfigured to run a wide variety of assays. In addition to
transcription-based, live-cell assays, the Company's robotic systems can perform
conventional in-vitro assays and live-cell assays not focusing on gene
transcription.
In designing drug screens, the Company generally selects the most relevant
human cell line for the target protein. In order to confirm results obtained in
these cell lines, the Company subjects lead compounds to assays using primary
cells isolated from fresh tissues, which it believes are the most accurate cell
types to predict the activity of the test compounds. Traditionally, primary cell
assays have not been used in high throughput screens because the sensitivity of
the cells to small changes in temperature, humidity and carbon dioxide levels
make accurate quantitative data difficult to obtain. The Company has developed
proprietary environmental control chambers to tightly regulate these conditions
and allow the use of primary cells in high throughput screens. While the Company
often focuses on transcription-based screens, it has the ability to perform an
extensive portfolio of different screens depending on the targeted disease
indication.
DIVERSE COMPOUND LIBRARIES AND COMBINATORIAL CHEMISTRY
Access to large libraries of diverse compounds is an important aspect of
the Company's drug discovery efforts. The Company's collaborative partners have
provided large compound libraries to the Company pursuant to its collaborative
research programs. Certain collaborative partners have made their compound
libraries available for additional research by the Company outside the existing
collaborative programs and the Company owns its own libraries of small
molecules, including its unique and diverse collection of approximately 70,000
fungal organisms from which extracts are generated for high throughput
screening. The Company has developed robotic systems to format medicinal
compound and natural product libraries into microtiter plates for high
throughput screening and an advanced inventory control process incorporating a
bar code system to track these compounds. The Company has prepared and archived
several distinct medicinal compound libraries belonging to the Company's
pharmaceutical partners for screening applications. In excess
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of 800,000 samples are archived at the Company and over 300,000 of these can be
made available to the Company's proprietary discovery programs. For any compound
from the Company's collaborative partners' libraries that emerges as a lead in a
proprietary program, the partner typically will have the right of first refusal
to develop the compound or terminate its further development or to allow the
Company to commercialize the compound independently or with a third party in
exchange for royalty payments from the Company on product sales.
In addition to the medicinal chemistry compounds, the Company also makes
extensive use of natural product compounds in fungal fermentation extracts.
Fungi are a known source of novel pharmaceuticals, including penicillin,
cephalosporin, lovastatin, prevastatin and cyclosporin A. In April 1996, the
Company acquired MYCOsearch, Inc., a private company specializing in fungal
fermentation products and development of fungal extracts. For three years prior
to the acquisition, Oncogene and MYCOsearch collaborated in the development of
automated technology for extract production. Through this acquisition, the
Company has obtained more than 60,000 extracts of fungal samples for its
proprietary uses and is adding to this collection at the rate of 1,000 to 2,000
samples per week.
Regardless of whether a lead compound is obtained by traditional or live
cell-based assays, the pharmaceutical properties of that compound must be
optimized before clinical development begins. Traditional lead optimization
requires medicinal chemists to synthesize new analogs. This methodology is
usually limited to producing approximately five to 20 new analogs per week.
Combinatorial chemistry techniques, however, enable the rapid production of
hundreds of chemical analogs per week, per chemist. The Company is automating
its combinatorial chemistry synthesis program in order to produce analogs of
lead compounds more rapidly. The Company believes that the continued development
of this technology will not only provide for a rapid expansion in its
proprietary libraries of medicinal compounds, but also accelerate the Company's
ability to rapidly analog lead compounds from its screening programs. In
September 1996, the Company acquired Aston Molecules Ltd., a private United
Kingdom Company providing discovery and pharmaceutical development services to
the pharmaceutical industry. The Company believes that the combinatorial
chemistry technologies that have been jointly developed with Aston Molecules
Ltd. will add further to its ability to optimize lead compounds identified in
the Company's live cell-based high-throughput screening systems and will further
advance its position as a fully integrated drug discovery company. The two
companies have collaborated on medicinal chemistry projects since 1994.
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PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following table summarizes Oncogene Science's current product
development and research programs as of September 30, 1996. The table is
qualified in its entirety by reference to the more detailed descriptions
elsewhere in this report.
<TABLE>
<CAPTION>
NO. OF
DRUG DISCOVERY PROTEIN PHASE PHASE
PROGRAM/PARTNERS TARGETS(1) DISCOVERY(1) PRECLINICAL(2) II(4) I(3)
----------------------- ------ -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ONCOGENE SCIENCE..... Erythropoietin Inducers 1 --
Sickle Cell Disease 1 -- --
Muscular Dystrophy 1 --
CIBA-GEIGY, LTD. .... Wound Healing
(TGF-Beta3) 1 --
Oral Mucositis in
Cancer (TGF-Beta3) 1 --
HOECHST MARION....... Cardiovascular 4 -- --
ROUSSEL, INC. ....... Inflammatory Diseases 2 -- --
Alzheimer's 1 --
PFIZER INC. ......... Oncogene Inhibitors 4 -- -- --
Tumor Suppressor Genes 1 --
Angiogenesis 1 -- --
Apoptosis 2 --
WYETH-AYERST......... Diabetes 1 --
Osteoporosis 1 --
BIOCHEM PHARMA....... HIV 2 --
Hepatitis C 1 --
ANADERM.............. Skin Wrinkling 1 --
Skin Pigmentation 1 --
Hair Growth 1 --
TOTAL 28
</TABLE>
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(1) For most of the Company's programs in the "Discovery" phase, the target
proteins are either undergoing high throughput screening or lead compounds
identified in these screens are being evaluated. Multiple lead compounds may
exist for any target protein. These lead compounds may be at different
stages of development, as indicated in the table above.
(2) In the "Preclinical" phase, the Company or its collaborative partners
optimize lead compounds and conduct laboratory pharmacology and toxicology
testing.
(3) "Phase I" clinical trials consist of small scale safety trials typically in
healthy human volunteers.
(4) "Phase II" clinical trials entail testing of compounds in humans for safety
and efficacy in a limited patient population.
SMALL MOLECULE COLLABORATIVE PROGRAMS
As part of its business strategy, Oncogene Science pursues collaborations
with pharmaceutical companies to combine the Company's drug discovery
capabilities with the collaborators' development and financial
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resources. Typically, the Company's collaborations provide for its partners to
make milestone and other payments in support of the Company's research programs
and to pay royalties on sales of any resulting products. The collaborative
partners generally retain manufacturing and marketing rights worldwide. In all
cases, the Company's collaborative partners give the Company access to their
compound libraries for screening against the target genes under their respective
collaborations. With its collaboration with BioChem Pharma, the Company
established a 50/50 joint venture, and thus it will commit greater resources in
exchange for greater commercialization rights. Generally, each collaborative
research agreement prohibits the Company from pursuing with any third party drug
discovery research relating to the target proteins being covered by research
under the collaboration. The Company is currently in discussions with several
pharmaceutical companies regarding potential collaborations or other ventures
related to the discovery or optimization of lead compounds or the clinical
development and commercialization of potential product candidates. There can be
no assurance, however, that current collaborations will be successful, any new
collaboration will be established, or if established, will be on terms favorable
to the Company. Failure to either maintain its existing, or enter into any new,
collaborations could limit the scope of the Company's drug discovery and
development activities, particularly if alternative sources of funding are
unavailable. Such failure could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's existing collaborations are as follows:
Pfizer Inc.
In April 1986, Pfizer and the Company entered into a collaborative research
agreement and several other related agreements. During the first five years of
the collaboration, the Company and Pfizer focused principally on understanding
the molecular biology of oncogenes. In 1991, Pfizer and the Company renewed the
collaboration for a second five-year term and expanded the resources and scope
of the collaboration to focus on the discovery and development of cancer
therapeutic products based on mechanism-of-action that target oncogenes and
anti-oncogenes. Oncogenes play a key role in the conversion of normal cells to a
cancerous state. Anti-oncogenes, or tumor suppressor genes, encode proteins that
generally function to block the proliferative growth of particular cell types. A
loss of function of certain tumor suppressor genes can result in uncontrolled
cell growth. Effective April 1, 1996, the Company and Pfizer renewed their
collaboration for a new five-year term by entering into new Collaborative
Research and License Agreements.
Currently, the Company's collaboration with Pfizer focuses on discovering
compounds that act upon various target proteins involved in cancer. The
Company's screening program has resulted in the identification of a proprietary
lead compound that inhibits a protein associated with a number of major cancers.
Pfizer is conducting pre-IND safety and toxicity studies on this compound. The
continued development of this compound depends on several factors outside the
control of the Company, including the amount and timing of resources devoted by
Pfizer, successful completion of safety and toxicity studies and successful
optimization of the compound. There can be no assurance that a drug will result
from this program.
All patent rights and patentable inventions derived from the research under
this collaboration are owned jointly by the Company and Pfizer. The Company is
obligated to file, prosecute and maintain such patents. The Company has granted
Pfizer an exclusive, worldwide license to make, use, and sell the therapeutic
products resulting from this collaboration in exchange for royalty payments.
This license terminates on the date of the last to expire of the Company's
relevant patent rights.
Pfizer will be responsible for the clinical development, regulatory
approval, manufacturing and marketing of any products derived from the
collaborative research program. However, the collaborative research agreement
does not obligate Pfizer to pursue these activities. Generally, the Company is
prohibited during the term of the contract from pursuing or sponsoring research
aimed at discovery of drugs for the treatment of cancer. If the Company becomes
aware of an opportunity to pursue such research, it must notify Pfizer of this
opportunity and negotiate in good faith for a period of 120 days. If the parties
fail to reach agreement to include this opportunity in their collaboration, the
Company may pursue the opportunity independently. Pfizer is subject to a similar
restriction to the extent it desires to pursue any opportunity with a third
party, but Pfizer is not prohibited from pursuing any cancer research on its
own. The collaborative research agreement will
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expire on April 1, 2001. However, it may be terminated earlier by either party
upon the occurrence of certain defaults by the other party. Any termination of
the collaboration resulting from a Pfizer default will cause a termination of
Pfizer's license rights. Pfizer will retain its license rights if it terminates
the agreement in response to a default by the Company. In addition, between July
1 and September 30, 1998, Pfizer may terminate the collaborative research
agreement, with or without cause, effective March 31, 1999. Furthermore, between
July 1 and September 30, 1999, Pfizer may terminate the collaborative research
agreement, with or without cause, effective March 31, 2000. Upon such early
termination by Pfizer, Pfizer will retain its license rights.
From 1986 to March, 1996, Pfizer paid an aggregate amount of $32.8 million
to the Company in research funding. In 1986, Pfizer purchased 587,500 shares of
the Company's common stock, which constitutes approximately 2.6% of the
Company's outstanding common stock, for an aggregate purchase price of
$3,525,000. Under the current collaborative research agreement, Pfizer has
committed to provide research funding to the Company in an aggregate amount of
approximately $18.8 million. Pursuant to a schedule set forth in the
collaborative research agreement, Pfizer will make annual research funding
payments to the Company, which will gradually increase from a maximum of
approximately $3.5 million in the first year of the five-year term to
approximately $4 million in the fifth year.
Hoechst Marion Roussel, Inc.
The Company is pursuing various areas jointly with HMRI. In July 1995, the
pharmaceutical operations of Marion Merrell Dow Inc. ("MMDI"), Hoechst Roussel
Pharmaceuticals, Inc. ("Hoechst Roussel") and Hoechst AG ("Hoechst") were
combined into one entity, HMRI. Prior to this date, the Company had
collaborative agreements with all three of these companies. The Company and HMRI
have agreed in principle to consolidate these agreements into one collaborative
program and are negotiating a definitive Amended and Restated Collaborative
Research and License Agreement. The Company believes that this consolidation
will result in a stronger, more flexible collaborative program, although it
expects the total level of funding from HMRI will be less than the aggregate
funding from the three previously separate entities. HMRI is responsible for
funding the costs of the Company's development efforts, and as of September 30,
1996, the Company had received or accrued an aggregate of $11.0 million in
research funding from HMRI and its predecessors.
The Company's current collaborations with HMRI are as follows:
Atherosclerosis. In December 1992, the Company entered into a five-year
collaborative research agreement with MMDI to discover and develop gene
transcription-based drugs to treat certain indications in cardiovascular
disease, focused principally on atherosclerosis. The Company completed screening
MMDI's compound library in its assays incorporating atherosclerosis targets,
which resulted in the identification of several lead compounds. HMRI later
requested that the Company screen the compound libraries formerly of Hoechst and
Hoechst Roussel against the same atherosclerosis targets to determine whether
additional lead compounds could be identified. The Company has completed this
additional screening and identified several more lead compounds.
Inflammation, Arthritis and Metabolic Diseases. The Company entered into a
six-year collaborative research agreement with Hoechst, effective January 1993.
This collaboration is focused on discovering drugs for the treatment of
inflammation, arthritis and metabolic diseases. The Company has completed the
screening of HMRI's compound libraries against all three targets in this
collaboration. The lead compounds identified in these screens are undergoing
further analysis, including evaluation in animal models by HMRI.
Alzheimer's. In October 1993, the Company entered into a six-year
collaborative research agreement with Hoechst Roussel pursuant to which it is
pursuing the discovery and development of gene transcription-based drugs to
treat Alzheimer's disease. The Company has completed screening HMRI's compound
libraries in cell-based assays and has identified a potential lead compound that
is undergoing further analysis.
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General. Under each of the Company's collaborative agreements with HMRI,
research committees were formed with equal representation from Oncogene Science
and HMRI. These committees, which meet at least three times a year, evaluate the
progress of the respective research programs, make priority and program
decisions, and prepare annual research plans identifying the drug targets to be
pursued and setting forth related research and budgeting information. The
Company is responsible for achieving its objectives in the annual research
plans. HMRI is responsible for assisting the Company in the pursuit of such
objectives, including advancing the pharmacological assessment of compounds
identified by the Company, determining the chemical structure of the selected
compounds, identifying and selecting development candidates, pursuing clinical
development and regulatory approval, and developing manufacturing methods and
pharmaceutical formulations for the selected candidates. HMRI, in its sole
discretion, may elect not to undertake one or more of these steps.
Generally, the Company is prohibited during the terms of the respective
contracts from pursuing or sponsoring research independent of HMRI on the
identified target proteins in the three areas of collaboration with HMRI. The
collaborative research agreements may be terminated early by either party upon
the occurrence of certain defaults by the other party. Any termination by the
Company resulting from an HMRI default will cause a termination of certain of
HMRI's license rights. HMRI will retain its license rights if it terminates an
agreement in response to a default by the Company.
The Company granted to HMRI, through its previous agreement with MMDI, an
exclusive, worldwide license with respect to, among other things, the use,
manufacture and sale of products resulting from their research collaboration.
HMRI also has the right to obtain an exclusive, worldwide license from the
Company with respect to any therapeutic product derived from the original
Hoechst and Hoechst Roussel research programs. In exchange for these licenses,
HMRI will pay royalties to the Company on sales of such products. The license
will become non-exclusive, and HMRI's obligation to pay royalties on sales will
terminate in each country, in the case of a patented product, when the patent
expires in such country, and in the case of a non-patented product, ten years
after the first commercial sale of such product in such country. The Company and
HMRI have mutually exclusive rights and obligations to prosecute and maintain
patent rights related to various specified areas of the research under the
original MMDI collaboration.
Wyeth-Ayerst Laboratories
In December 1991, the Company entered into a two-year collaborative
research agreement with Wyeth, which was extended for an additional three-year
term in December 1993. The purpose of the agreement is to discover and develop
transcription-based drugs for the treatment of diabetes, immune system
modulation, asthma and osteoporosis. This collaboration was successful in
identifying active compounds on all four protein targets. Wyeth is continuing
preclinical evaluation of compounds from two of these targets in osteoporosis
and diabetes. Wyeth is also responsible for selecting development candidates,
assessing the safety of the development candidates in animals and human patients
under conditions designed to meet FDA requirements, and developing manufacturing
methods and pharmaceutical formulations for those selected candidates. This
collaboration will be concluded on December 31, 1996 in accordance with the
terms of the collaborative research agreement.
The Company has granted to Wyeth an option which is valid until December
31, 1997, to obtain exclusive, worldwide licenses with respect to products
resulting from this collaboration in exchange for royalties to the Company on
sales of such products. Under the agreement, all technology and patent rights
will remain owned by the respective parties and each party has the right to
prosecute and maintain its own patents. Wyeth has funded the Company's drug
discovery efforts under this collaboration. As of September 30, 1996, Wyeth had
provided the Company with an aggregate of $6.1 million in research funding.
Anaderm Research Corporation
On April 23, 1996, in connection with the formation of Anaderm Research
Corp., a Delaware corporation ("Anaderm"), the Company entered into a
Stockholder's Agreement (the "Stockholders' Agreement") among the Company,
Pfizer, Anaderm, New York University ("NYU") and certain NYU faculty members
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(the "Faculty Members"), and a Collaborative Research Agreement (the "Research
Agreement") among the Company, Pfizer and Anaderm for the discovery and
development of novel compounds to treat conditions such as baldness, wrinkles
and pigmentation disorders. Anaderm has issued common stock to Pfizer and the
Company and options to purchase common stock to NYU and the Faculty Members. NYU
and the Faculty Members have exercised their options fully, and Pfizer holds
82%, the Company holds 14%, and NYU and the Faculty Members collectively hold
4%, of Anaderm's common stock. In exchange for its 14% of the outstanding shares
of Anaderm common stock, the Company will provide formatting for high-throughput
screens and will conduct compound screening for 18 months at its own expense
under the Research Agreement. The term of the Research Agreement is three years.
During the initial phase of the agreement (the first 18 months) the Company is
required to provide at its own cost formatting for high throughput screens and
perform screening of its own compounds and those compounds provided by Pfizer.
Upon the termination of the initial phase, the Board of Directors of Anaderm
will make a determination as to whether the initial phase was successfully
completed. If the board determines that the initial phase was unsuccessful, the
Research Agreement will then terminate. If the Anaderm Board of Directors, with
Pfizer's approval, determines the initial phase was successful, then the funded
phase will commence and will continue for the term of the Research Agreement.
During this phase, Anaderm will make payments to the Company equal to its
research costs, including overhead, plus 10%. Anaderm or Pfizer will pay
royalties to the Company on the sales of products resulting from this
collaboration.
BioChem Pharma (International) Inc.
Effective as of May 1, 1996, the Company entered into a Collaborative
Research, Development and Commercialization Agreement with BioChem Pharma. Under
this agreement, the parties will seek to discover and develop antiviral drugs
for the treatment of Hepatitis C virus and HIV, although the focus of the
collaborative efforts may change at the discretion of a joint steering
committee. This agreement provides that the Company and BioChem Pharma will
jointly commit resources to the collaborative program. The Company and BioChem
Pharma will share equally the commercialization rights in the U.S. and Europe
for any product resulting from the collaboration. BioChem Pharma will
exclusively own commercialization rights in Canada. The agreement is for a term
of five years, with automatic, successive one-year renewal periods thereafter.
After May 1, 1999, however, either party may terminate the agreement by giving
the other party six-months prior written notice. The agreement is also subject
to early termination of the event of certain defaults by either party.
Ciba-Geigy, Ltd.
In addition to its small molecule discovery programs, the Company has
developed the recombinant protein TGF-Beta3 for various indications. The
Company believes it was the first to isolate TGF-Beta3, a naturally occurring
human growth factor that exerts either stimulatory or inhibitory effects
depending upon the particular cell type to which it is applied. Topical or local
application of TGF-Beta3 in animal studies has been shown to enhance and
accelerate wound healing. Similarly, animal studies have shown that TGF-Beta3
can minimize the severity of ulcerative mucositis when administered prior to
chemotherapy.
The Company entered into an agreement with Ciba in April 1995 expanding the
scope of the two companies' prior collaborative efforts with respect to
TGF-Beta3. This agreement grants to Ciba an exclusive, worldwide license to
use and sell TGF-Beta3 products for oral mucositis and wound healing, as well
as certain other indications, including psoriasis, and an option to obtain
rights to all other indications of TGF-Beta3 currently held by the Company. In
addition, Ciba has the worldwide license to manufacture TGF-Beta3 for all
indications.
Oral Mucositis. Oral mucositis is a painful, often debilitating condition
characterized by mouth and throat lesions that frequently occur as a side effect
of chemotherapy. In the U.S., over one million new cases of cancer occur each
year, over half of which receive multiple treatments of chemotherapy.
Approximately 40% of chemotherapy patients exhibit some degree of oral
mucositis. Most chemotherapeutic agents exert their lethal effects primarily
against cancerous cells undergoing active division and growth. Chemotherapeutic
agents also attack normal cells that are subject to rapid division, such as the
epithelial cells lining the mouth.
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The Company and Ciba have developed topical formulations of TGF-Beta3 to
temporarily inhibit the high proliferative growth rate of certain normal cells
in the mouth. The Company's objective is to develop TGF-Beta3 to reduce the
toxicity associated with chemotherapeutic agents.
Under its agreement with Ciba, the Company and CIBA are funding Phase I
clinical trials of TGF-Beta3 for oral mucositis in the U.S. and Ciba is
funding Phase I clinical trials in Europe. Ciba will fund all further Phase II
and III clinical trials. An IND for this indication was filed by Ciba in January
1996. The Company commenced Phase I clinical trials in the U.S. in 1996. A
second Phase I study is being conducted by Ciba in Europe to demonstrate safety
and determine the maximum tolerated dose. In addition, Ciba has initiated a
Phase IIa trial in Europe and will initiate a similar Phase IIa trial in the
U.S. before the end of 1996. No assurance can be given that any of these
clinical trials will demonstrate safety or efficacy.
Wound Healing. In addition to its program for the development of
TGF-Beta3 to treat oral mucositis, the Company is collaborating with Ciba in
the development of TGF-Beta3 in an application to promote soft tissue wound
healing, including venous leg ulcers, decubitus ulcers (pressure sores),
diabetic foot ulcers and burns. Such chronic cutaneous ulcers afflict an
estimated three million people in the U.S. TGF-Beta3 is believed to promote
wound healing by recruiting inflammatory cells, such as neutrophils and
macrophages, and fibroblasts, and stimulating fibroblast proliferation and
extracellular matrix production. TGF-Beta3 is also believed to stimulate
angiogenesis (new blood vessel growth) at the wound site.
To date, Ciba has completed four Phase I safety studies, one in Europe
using a single dose of TGF-Beta3 applied to intact skin, one in the U.S. using
a multiple dose of TGF-Beta3 applied to intact skin, and two in Japan. In all
studies, the drug was found to be well tolerated with no adverse effects. Ciba
recently completed two Phase IIa safety/dose-finding studies, one in Europe,
involving a single dose administration to venous leg ulcer patients, the other
in the U.S., involving a single dose administration to decubitus ulcer patients.
The drug was found to be well tolerated in these patients. Ciba initiated a
clinical trial of venous leg ulcer patients in Europe, a clinical trial in
pressure sore patients in the U.S. and Canada and a venous ulcer, decubitus
ulcer and burn study in Japan during 1996. In addition, Ciba is conducting
additional Phase II venous leg ulcer, decubitus ulcer and burn wound clinical
trials in Japan. There can be no assurance that additional trials will
demonstrate safety and efficacy or will begin when planned, or at all in part
for the reasons discussed below.
General. In exchange for its exclusive license with respect to the wound
healing, oral mucositis and certain other indications for TGF-Beta3, Ciba will
make royalty payments to the Company on the sale of TGF-Beta3 products. Also,
Ciba purchased 909,091 shares of the Company's Common Stock at $5.50 per share
for an aggregate purchase price of $5 million in April 1995. If, and at the
time, Ciba decides to initiate Phase III clinical trials (or the equivalent in
Europe) for oral mucositis, Ciba will be required to make a $10 million payment
to the Company. In exchange for such payment, Ciba's license will be expanded to
cover all other indications for TGF-Beta3. Ciba has the option to make such
payment by purchasing $10 million of the Company's Common Stock at the higher of
$5.50 per share or the then current market price. In the absence of a decision
by Ciba to pursue such clinical trials, Ciba may nonetheless exercise an option
within four years from inception of the agreement, or by April 1999, to expand
its license under the agreement to cover all indications for TGF-Beta3 by
making the $10 million payment.
Ciba has the right to discontinue clinical development at any time, in
which case all of its license rights from the Company with respect to
TGF-Beta3 will be terminated and it will make available to the Company the
results of all clinical work up to the date such activity was discontinued.
Under the agreement, Ciba has the right to manufacture TGF-Beta3, and will
supply the Company and any licensee of the Company with all developmental and
commercial quantities of TGF-Beta3 required. With respect to the Company's
commercial requirements in the future, if any, Ciba and the Company have agreed
to negotiate terms pursuant to which Ciba will supply TGF-Beta3, subject to a
specified pricing formula should the parties fail to reach agreement. In the
past Ciba experienced delays in manufacturing TGF-Beta3 due to the failure of
its contract manufacturer's facilities to comply with GMP regulations. If Ciba
is unable or unwilling to scale up its capacity to supply TGF-Beta3 to the
Company or its licensees in sufficient quantities, Ciba will license to the
Company its technology relating to the production of TGF-Beta3 on terms to be
negotiated within specified parameters. There
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can be no assurance that the TGF-Beta3 program will not experience significant
delays as a result of Ciba's failure to supply TGF-Beta3 on a timely basis.
The Company's agreement with Ciba ends upon the expiration of the last
Company's patents relating to TGF-Beta3.
PROPRIETARY DRUG DISCOVERY AND DEVELOPMENT
In addition to its collaborative programs, the Company has undertaken
independent efforts to discover and develop gene transcription-based
therapeutics in various proprietary areas. The Company initiated its proprietary
programs in 1994 and is currently screening compounds against multiple target
proteins in live-cell assays associated with chronic anemias, virology and
muscle wasting disorders. The goal of these programs is to identify small
molecule, orally-active compounds that will regulate the expression of key
proteins associated with these diseases. Generally, the Company's objective with
respect to its proprietary programs is to identify lead compounds, progress them
through preclinical development and manage clinical development through
early-stage clinical trials. If its drug discovery efforts are successful, the
Company intends to partner with a large pharmaceutical firm for clinical and
commercial development of each potential proprietary product. There can be no
assurance that lead compounds identified in the Company's proprietary programs
will progress into clinical development, that any such compounds will proceed
successfully through clinical trials or that the Company will secure any
collaboration agreements with respect to any program or compound.
Chronic Anemias
Currently, the Company's proprietary discovery and development efforts are
focused principally on the protein erythropoietin ("EPO"). Injectable
recombinant EPO is widely used for the treatment of anemia due to chronic renal
failure and anemia associated with chemotherapy for AIDS and cancer. Sales of
EPO therapeutics generated worldwide revenues of over $2.0 billion in 1995. EPO
is also being tested for use in anemia resulting from other indications. The
Company believes that a significant market opportunity exists for an effective,
oral, small molecular weight compound that could induce the cellular production
of EPO. The Company's gene transcription screens have resulted in the
identification of several potent lead compounds that increase the expression of
EPO in cell lines and certain animal models. The Company is undertaking early
preclinical development, which involves medicinal chemistry and pharmacology, of
these lead compounds.
Sickle cell anemia and thalassemia are caused by genetic mutations which
result in the mutation, absence or decrease in the adult chain of hemoglobin
(the protein in red blood cells that binds oxygen). Currently available
treatments for both of these diseases are inadequate and expensive. The cost of
treating each sickle cell patient in the U.S. has been estimated to be in excess
of $60,000 annually. Regular blood transfusions are the mainstay of current
therapy for thalassemia. The Company's approach to address sickle cell anemia
and thalassemia is to discover a small molecule compound that increases
expression of the fetal hemoglobin ("HbF") gene to compensate for defects in the
adult chain of hemoglobin. The Company has developed an assay to determine the
ability of test compounds to induce the production of HbF.
Virology
The Company's virology program targets certain proteins which are believed
to be essential to viral pathogenesis. The current viral targets in this program
include herpes simplex virus, human hepatitis B virus ("HBV") and influenza
virus. For each of these diseases there is an unmet need for new effective,
anti-viral drugs. For example, HBV is a chronic infection that can progress to
cirrhosis and liver cancer, making HBV one of the most significant of all
infectious diseases.
The Company's principal drug discovery approach in its virology program
focuses on discovering small molecule compounds that affect transcription of
novel gene sequences in the virus. The Company has designed novel assays that
target these genes. In May 1996, the Company formed a 50/50 co-venture with
BioChem Pharma for certain virology targets. The Company is also in discussions
with a pharmaceutical company regarding a potential collaboration in influenza,
although there can be no assurance that a collaboration will be established.
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Muscle Wasting Disorders
Muscular Dystrophy. Duchenne's and Becker's muscular dystrophy are due to
defects of the dystrophin gene. The Company is developing multiple approaches in
its discovery efforts with respect to a drug for the treatment of muscular
dystrophy. A portion of the funding for this project has been provided by the
Association Francaise Contre Les Myopathies.
CANCER DIAGNOSTICS
The Company is engaged in the development of a series of cancer diagnostic
tests based on oncogenes, tumor suppressor genes and other gene targets whose
proteins are directly involved in tumor growth or metastasis. One line of these
tests utilizes immunoassays and monoclonal antibodies to detect these cancer
markers in urine and serum. The other line of diagnostic tests utilizes a series
of monoclonal antibodies capable of measuring the cancer markers in tissue
sections using immunohistochemistry techniques such as manual pathology
diagnostic tests and image analysis. Both of these lines of tests are designed
to aid oncologists in the confirmation, monitoring, staging, screening or
prognosis of human cancer. These tests may enable reference labs and physicians
to select more effective types of treatment, more easily monitor patients during
therapy, or diagnose cancer at an earlier stage. The current focus of the
Company's diagnostic development program is on breast and colon cancer, but the
Company believes that many of the cancer markers in its program may have
clinical utility for other human tumors, such as lung, prostate, ovarian and
stomach cancer. None of these diagnostic tests have completed clinical
development or received FDA clearance to be marketed in the U.S.
The Company has been pursuing serum and tissue based cancer diagnostic
products in collaboration with Becton under a collaborative program started in
October 1991 (after an earlier collaboration from 1984 to 1989). During 1995,
the Company and Becton agreed that Becton would narrow its focus in the program
exclusively to tissue-based diagnostic tests including immunohistochemistry and
that the Company would continue its development program in serum-based cancer
diagnostics. Accordingly, Becton reduced its funding under this program in
fiscal 1996, and provided no further funding for this program after it ended on
its scheduled expiration date of September 30, 1996. Pursuant to an agreement
entered into as of September 27, 1996, the Company has granted to Becton
world-wide licenses to make, use and sell tissue-based diagnostic products that
incorporate specified antibodies with respect to which the Company owns patent
or other proprietary rights. The Company has generally retained the rights with
respect to nontissue-based (i.e., serum-based) diagnostic products. Becton's
license in any particular country will terminate upon the last to expire of the
Company's patent rights in such country or, in the case of any product
incorporating non-patented technology, ten years after such product is first
sold in the United States. During the term of its licenses, Becton will either
source from the Company the antibodies incorporated in the products licensed
from the Company or it will pay the Company royalties on net sales.
The Company is continuing the development of serum-based cancer diagnostic
products in collaboration with Bayer Corporation ("Bayer") pursuant to a
Collaborative Research and License Agreement effective January 1, 1997. Under
this agreement, the Company has granted to Bayer licenses to manufacture, use
and sell clinical diagnostic products based on the Company's cancer diagnostics
technology in exchange for royalties on net sales. Bayer will own all
technology, and has the exclusive right to commercialize clinical diagnostic
products, derived from the collaboration. Bayer's license is perpetual with
respect to nonpatented technology and will terminate with respect to patented
technology upon the expiration of the last to expire of the Company's patents.
Bayer will provide funding for the Company's research under the collaboration in
the amount of $1.5 million for each of the first two years, and $1 million for
each subsequent year. The Company will be required to provide up to $500,000 in
annual funding for the collaboration to the extent the Company derives net
revenues from out-licensing any cancer diagnostics technology or the sale of any
clinical diagnostic or research products. The agreement will terminate on
December 31, 2002. Bayer has the right to terminate the agreement at any time
after December 31, 1999 upon 12 months' notice.
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INTELLECTUAL PROPERTY
The Company believes that patents and other proprietary rights are vital to
its business. The Company's policy is to protect its intellectual property
rights in technology developed by its scientific staff by a variety of means,
including applying for patents in the United States and other major
industrialized countries. The Company also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing technological
innovations to develop and maintain its competitive position. In this regard,
the Company seeks restrictions in its agreements with third parties, including
research institutions, with respect to the use and disclosure of the Company's
proprietary technology. The Company also has confidentiality agreements with its
employees, consultants and scientific advisors.
The Company currently owns 12 U.S. patents and 35 foreign patents. In
addition, the Company currently has pending 30 applications for United States
patents, 3 of which have been allowed, and 33 applications for foreign patents,
2 of which have been allowed. In addition, other institutions have granted
exclusive rights under their United States and foreign patents and patent
applications to the Company.
There can be no assurance that patents will issue based upon the Company's
pending patent applications or any applications which it may file in the future,
that any patent issued will adequately protect a commercially marketable product
or process or that any patent issued will not be circumvented or infringed by
others or declared invalid or unenforceable. Moreover, there can be no assurance
that others may not independently develop the same or similar technology or
obtain access to the Company's proprietary technology. The Company is aware of
patents issued to other entities with respect to technology potentially useful
to the Company and, in some cases, related to products and processes being used
or developed by the Company. The Company currently cannot assess the effect, if
any, that these patents may have on its operations in the future. The extent to
which efforts by other researchers resulted or will result in patents and the
extent to which the issuance of patents to other entities would have a material
adverse effect on the Company or would force the Company to seek licenses from
such other entities currently is unknown as is the availability to the Company
of licenses from such other entities, and whether, if available, such licenses
can be obtained on terms acceptable to the Company.
In the cancer diagnostics area, the Company has a U.S. patent relating to
an assay which the Company is seeking to develop for the detection of protein
encoded by the neu oncogene ("neu") in serum. The Company is aware that a patent
application relating to a similar assay was filed by a third party shortly after
the Company filed the application from which its U.S. patent issued. It is
possible that the Company may have to participate in an interference proceeding
with such third party to determine priority of invention, which could result in
substantial cost to the Company. The Company cannot predict whether such an
interference proceeding will occur, or if it does occur, whether the Company
will prevail. If the Company does not prevail, it may not be able to
commercialize its assay for neu in serum without a license from such third
party, which may not be available on acceptable terms or at all.
The Company is aware of several U.S. and foreign patents owned by
others who may allege infringement by products, including TGF-Beta 3, which
the Company is seeking to develop in collaboration with a partner. Genentech
has U.S. patents relating to certain recombinant materials and procedures for
producing members of the TGF-Beta family, including TGF-Beta 3, which the
Company is seeking to develop in collaboration with a partner. Genentech has
U.S. patents relating to certain recombinant materials and procedures for
producing members of the TGF-Beta family, including TGF-Beta 3, which the
Company is seeking to develop in collaboration with a partner. Genentech has
U.S. patents relating to certain recombinant materials and procedures for
producing members of the TGF-Beta family, including TGF-Beta 3. In addition,
the Company believes that Genentech has license rights under a United States
Government patent relating to work done at the National Institute of Health of
the U.S. Department of Health and Human Services involving the identification
and isolation of TGF-Beta 1.
The Company believes that the currently planned development by the Company
and Ciba, its collaborative partner for TGF-Beta 3, involving manufacture in
Europe by Ciba of TGF-Beta 3 in nonmammalian cells for subsequent distribution
in Europe and the United States does not infringe any valid claim of any patent
owned by Genentech or by the U.S. Government. The Company and Ciba have taken
and continue to
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take such actions, including the pursuit of opposition proceedings against
foreign patents, as they deem prudent to minimize the possibility of any charge
of patent infringement being validly raised against Ciba or the Company based on
such patents.
The Company has received communications from Sibia Neuroscience, Inc.
("Sibia") in which Sibia has stated the Company's live-cell assay technology may
infringe a patent issued to Sibia covering cell-based assays. The Company does
not believe that it is infringing any valid claim of Sibia's patent or of any
patents owned by any other third parties. However, there can be no assurance
that a contrary position will not be asserted, or that, if asserted, such a
position would not prevail. If a patent infringement lawsuit were brought
against the Company or its licensees, the Company could incur substantial costs
in defense of such a suit, which could have a material adverse effect on the
Company's business, financial condition and results of operation, regardless of
whether the Company were successful in the defense. Furthermore, if Sibia (or
any other third party) were to establish that the Company's assays infringe
Sibia's patent (or any patent of any other third party), then the Company would
be required to design non-infringing assays or take a license under Sibia's
patent. There can be no assurance the Company would successfully design such
assays or that such a license would be available on acceptable terms or at all.
Moreover, the Company's royalties may be reduced by up to 50% if its licensees
or collaborative partners are required to obtain licenses from third parties
whose patent rights are infringed by the Company's products, technology or
operations.
COMPETITION
The pharmaceutical, biotechnology and diagnostics industries are intensely
competitive. The Company faces, and will continue to face, intense competition
from organizations such as large pharmaceutical companies, biotechnology
companies, diagnostic companies, academic and research institutions and
government agencies. The Company is subject to significant competition from
industry participants who are pursuing the same or similar technologies as those
which constitute the Company's technology platform and from organizations that
are pursuing pharmaceutical products or therapies or diagnostic products that
are competitive with the Company's potential products. Most of the organizations
competing with the Company have greater capital resources, research and
development staffs and facilities, and greater experience in drug discovery and
development, obtaining regulatory approval and pharmaceutical product
manufacturing and marketing. The Company's major competitors include fully
integrated pharmaceutical companies, such as Merck & Co., Inc., Glaxo Wellcome
Inc. and SmithKline Beecham plc, that conduct extensive drug discovery efforts
and are developing novel small molecule pharmaceuticals, as well as numerous
smaller companies.
The Company's technology platform consists principally of utilizing
genetically engineered live cells, gene transcription technologies and high
throughput drug screening. Pharmaceutical and biotechnology companies and others
are active in all of these areas. Ligand Pharmaceuticals Inc., a publicly owned
company, employs live-cell assays, gene transcription, and high throughput
robotics in its drug discovery operations. Numerous other companies use one or
more of these technologies. Several private companies, including Tularik Inc.,
Signal Pharmaceuticals Inc. and Scriptgen Pharmaceuticals, Inc., pursue drug
discovery using gene transcription methods. Other organizations may acquire or
develop technology superior to that of the Company.
Companies pursuing different but related fields also present significant
competition for the Company. For example, research efforts with respect to gene
sequencing and mapping are identifying new and possibly superior target genes.
In addition, alternative drug discovery strategies, such as rational drug
design, may prove more effective than those pursued by the Company. Furthermore,
competing entities may have access to more diverse compounds for testing by
virtue of larger compound libraries or through combinatorial chemistry skills or
other means. These include Pharmacopeia, Inc., CombiChem, Inc. and ArQule, Inc.,
all of which have major collaborations with leading pharmaceutical companies.
There can be no assurance that the Company's competitors will not succeed in
developing technologies or products that are more effective than those of the
Company or that would render the Company's products or technologies obsolete or
noncompetitive.
With respect to the Company's small molecule drug discovery programs, other
companies have potential drugs in clinical trials to treat disease areas for
which the Company is seeking to discover and develop drug candidates. These
competing drug candidates may be further advanced in clinical development than
are any of
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the Company's potential products in its small molecule programs and may result
in effective, commercially successful products. Even if the Company and its
collaborative partners are successful in developing effective drugs, there can
be no assurance that the Company's products will compete effectively with such
products. No assurance can be given that the Company's competitors will not
succeed in developing and marketing products that either are more effective than
those that may be developed by the Company and its collaborative partners or are
marketed prior to any products developed by the Company or its collaborative
partners.
With respect to its efforts to develop TGF-Beta 3 for various indications,
the Company is aware of competing growth factor proteins in clinical trials, and
competing treatment regimens, for wound healing indications. Platelet derived
growth factor (PDGF) for diabetic skin ulcers, under development by Chiron
Corporation and Johnson & Johnson, has completed Phase III clinical trials in
the U.S. Chiron Corporation and Johnson & Johnson have announced that they
intend to file a Product Licensing Application ("PLA") for PDGF with the FDA in
1996. Fibroblast growth factor (FGF) for chronic dermal ulcers, under
development by Scios Nova Inc. and Kaken Pharmaceutical Co., Ltd., is in Phase
III clinical trials in Japan. TGF-Beta 2 for leg ulcers, under development by
Genzyme Corp. and Celtrix Pharmaceuticals, Inc., is in Phase II clinical trials
in the U.S. No assurance can be given that the Company and Ciba will
successfully develop TGF-Beta 3 for any indication, including wound healing.
Furthermore, if any of the competing growth factor product candidates listed
above or other growth factors proves to be effective for wound healing
indications, there can be no assurance that any product developed by the Company
will be able to compete effectively with such product or products.
Other competing approaches to the treatment of chronic wounds include
comprehensive service-based patient centers, which are dedicated to intensive
wound management. These centers may include the use of autologous growth factor
therapy, in which extracts prepared from the patient's own platelets are used to
treat the wounds. Surgical intervention is also frequently employed, which may
involve partial amputation and/or surgical revascularization. The use of skin
grafts to treat wounds, either autografts (skin from elsewhere on the same
patient) or cultured allografts, are also being investigated by several
companies, including Advanced Tissues Sciences, Inc. and Organogenesis, Inc. No
assurance can be given that TGF-Beta 3 will prove to be safe and effective or
will compete successfully against current and emerging therapies for any
particular clinical indication.
The Company believes that its ability to compete successfully will be based
on, among other things, its ability to create and maintain scientifically
advanced technology, attract and retain scientific personnel with a broad range
of expertise, obtain patent protection or otherwise develop proprietary products
or processes, enter into collaborative arrangements, and, independently or with
its collaborative partners, conduct clinical trials, obtain required government
approvals on a timely basis, and commercialize its products.
MANUFACTURING
Ciba has the exclusive right to, and the Company will rely on Ciba for, the
manufacture of TGF-Beta 3 for all of the Company's requirements for clinical
trials and commercial purposes. Oncogene Science believes that, if Ciba should
fail to meet its requirements, there are other companies that could manufacture
and supply TGF-Beta 3, although there can be no assurance that this could be
accomplished on a timely basis, or at all.
The Company is, and will remain, dependent on its collaborative partners
and third parties for the manufacture of all products. There can be no assurance
that the Company will be able to manufacture products that will meet the
Company's demands for quality, quantity, cost and timeliness or otherwise
contract for manufacturing capabilities on acceptable terms. The failure of the
Company to successfully contract for the manufacture of products that satisfy
its requirements for quality, quantity, cost and timeliness would prevent the
Company from conducting preclinical testing and clinical trials and
commercializing its products.
MARKETING AND SALES
The Company does not intend to develop its own marketing and sales
capabilities. Potential therapeutic products subject to the Company's
collaborative agreements with Pfizer, HMRI, Wyeth and Ciba, and potential
diagnostic products under the Company's collaboration with Becton, will be
marketed by those
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companies worldwide. The Company will receive royalties of up to 10% on net
sales of products, depending upon the nature of the product and the ownership of
the underlying technology. The Company expects that products resulting from
future collaborations in drug discovery and development and diagnostic product
development will be marketed under arrangements which are similar to these
agreements, although any collaborations established for products resulting from
proprietary programs may vary significantly.
GOVERNMENT REGULATION
The Company and its collaborative partners are, and any potential products
discovered and developed thereto, will be subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state, and local entities regulate,
among other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising, and promotion of pharmaceutical and diagnostic products.
The process required by the FDA before pharmaceutical products may be
approved for marketing in the United States generally involves: (i) preclinical
laboratory and animal tests, (ii) submission to FDA of an investigational new
drug application, which must become effective before clinical trials may begin,
(iii) adequate and well controlled human clinical trials to establish the safety
and efficacy of the drug for its intended indication, (iv) submission to the FDA
of an NDA or, in the case of biological products, such as TGF-Beta 3, a PLA,
and (v) FDA review of the NDA or PLA in order to determine, among other things,
whether the drug is safe and effective for its intended uses. There is no
assurance that FDA review process will result in product approval on a timely
basis, if at all.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies, to assess the potential safety and
efficacy of the product. Certain preclinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
preclinical tests are submitted to the FDA as part of an IND and are reviewed by
the FDA prior to the commencement of clinical trials.
Clinical trials are conducted under protocols that detail such matters as
the objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND.
Clinical trials are typically conducted in three sequential phases, which
may overlap. During Phase I, when the drug is initially given to human subjects,
the product is tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion. Phase II involves studies in a limited patient
population to: (i) evaluate preliminarily the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Pivotal or
Phase III trials are undertaken in order to further evaluate clinical efficacy
and to further test for safety within an expanded patient population. The FDA
may suspend or terminate clinical trials at any point in this process if it
concludes that clinical subjects are being exposed to an unacceptable health
risk.
FDA approval of the Company's and its collaborators' products, including a
review of the manufacturing processes and facilities used to produce such
products, will be required before such products may be marketed in the United
States. The process of obtaining approvals from the FDA can be costly, time
consuming and subject to unanticipated delays. There can be no assurance that
approvals of the Company's proposed products, processes or facilities will be
granted on a timely basis, if at all. Any failure to obtain or delay in
obtaining such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, even if
regulatory approval is granted, such approval may include significant
limitations on indicated uses for which a product could be marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's manufacturing procedures conform to Good
Manufacturing Practices ("GMP") requirements, which must be followed at all
times. In complying with those requirements, manufacturers (including a drug
sponsor's third-party contract manufacturers) must continue to expend time,
money and effort in the area of production and quality control to ensure
compliance. Domestic manufacturing establishments are subject to periodic
17
<PAGE> 18
inspections by the FDA in order to assess, among other things, GMP compliance.
To supply products for use in the United States, foreign manufacturing
establishments must comply with GMP and are subject to periodic inspection by
the FDA or by regulatory authorities in certain countries under reciprocal
agreements with the FDA.
Both before and after approval is obtained, a product, its manufacturer and
the holder of the NDA for the product are subject to comprehensive regulatory
oversight. Violations of regulatory requirements at any stage, including the
preclinical and clinical testing process, the approval process, or thereafter
(including after approval) may result in various adverse consequences, including
the FDA's delay in approving or refusal to approve a product, withdrawal of an
approved product from the market, and the imposition of criminal penalties
against the manufacturer and NDA holder. In addition, later discovery of
previously unknown problems may result in restrictions on such product,
manufacturer or NDA holder, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or prevent
regulatory approval of the Company's products under development.
For marketing outside the United States, the Company and its collaborators
and the drugs developed thereby, if any, will be subject to foreign regulatory
requirements governing human clinical trials and marketing approval for drugs
and diagnostic products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. In addition, before a new drug may be exported from the U.S., it must
be the subject of an approved NDA or comply with FDA regulations pertaining to
INDs.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and future federal, state or local regulations.
The Company's research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company.
Diagnostic tests undergo different FDA review processes depending whether
they are classified as "biologicals" or "medical devices." For medical devices,
a 510(k) application (for a product substantially equivalent to a product
already on the market) or a premarket approval ("PMA") application (generally, a
new product or method that is not substantially equivalent to an existing
product) must be filed with, and approved by, the FDA prior to
commercialization. Obtaining premarket approval is a costly and time-consuming
process, comparable to that for new drugs. There can be no assurance that the
Company's cancer diagnostic product candidates will be submitted for regulatory
approval, or if submitted, that the Company would not be required to seek
pre-market approval as opposed to filing a 510(k) application.
EMPLOYEES
The Company believes that its success will be largely dependent upon its
ability to attract and retain qualified personnel in scientific and technical
fields. As of September 30, 1996, the Company employed 142 persons, of whom 107
were primarily involved in research and development activities, with the
remainder engaged in executive and administrative capacities. Although the
Company believes that it has been successful to date in attracting skilled and
experienced scientific personnel, competition for such personnel is intense and
there can be no assurance that the Company will continue to be able to attract
and retain personnel of high scientific caliber. The Company considers its
employee relations to be good.
ITEM 2. PROPERTIES
The Company leases a 30,000 square foot facility located at 106 Charles
Lindbergh Boulevard, Uniondale, New York. This facility houses the Company's
principal executive offices and drug discovery laboratory. The Company also
leases an 11,000 square foot facility located at 80 Rogers Street/129 Binney
18
<PAGE> 19
Street, Cambridge, Massachusetts. This facility contains the offices and
laboratories of the Company's diagnostic product operations. The Company also
has two wholly-owned subsidiaries, Aston Molecules Limited and MYCOsearch, Inc.,
each of which lease facilities which house their offices and drug discovery
laboratories. Aston Molecules Limited leases a 7,440 square foot facility
located at Hold Court, Phase V, Aston Science Park, Birmingham, England.
MYCOsearch, Inc. leases two facilities, one located at Five Oaks Office Park,
4905 Pine Cone Drive, Durham, North Carolina consisting of 4,280 square feet and
the other located at 2 University Place, Durham, North Carolina consisting of
8,000 square feet. The Company believes that its facilities will be adequate to
meet current requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
19
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
included for quotation on the Nasdaq National Market under the symbol ONCS. The
following is the range of high and low sales prices by quarter for the Company's
common stock from the first quarter of fiscal 1995 through September 30, 1996 as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
1996 FISCAL YEAR HIGH LOW
---------------------------------------------------------- ----- ----
<S> <C> <C>
First Quarter............................................. $10 3/4 $5
Second Quarter............................................ 11 1/8 8
Third Quarter............................................. 12 1/2 8 7/8
Fourth Quarter............................................ 10 1/2 7 1/8
</TABLE>
<TABLE>
<CAPTION>
1995 FISCAL YEAR HIGH LOW
---------------------------------------------------------- ----- ----
<S> <C> <C>
First Quarter............................................. $3 3/8 $2 3/8
Second Quarter............................................ 3 3/8 2 3/8
Third Quarter............................................. 4 5/8 2 15/16
Fourth Quarter............................................ 7 1/8 3 1/2
</TABLE>
As of November 30, 1996, there were approximately 715 holders of record of
the Company's common stock. The Company has not paid any dividends since its
inception and does not intend to pay any dividends in the foreseeable future.
Declaration of dividends will depend, among other things, upon future earnings,
the operating and financial condition of the Company, its capital requirements
and general business conditions.
20
<PAGE> 21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data with
respect to the Company for each of the years in the five-year period ended
September 30, 1996. The information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------------------------------------------------
1996(A) 1995(B) 1994(C) 1993(D) 1992(E)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues...................... $ 9,718,437 $15,864,999 $16,299,489 $16,088,021 $11,094,175
Expenses:
Research and development... 13,918,968 13,523,043 12,125,210 10,659,806 8,127,466
Production................. 134,529 1,252,990 1,427,981 1,443,649 1,420,686
Selling, general and
administrative........... 6,314,697 7,140,208 7,487,090 6,429,701 5,219,606
Amortization of
intangibles.............. 1,452,755 1,696,561 1,745,163 1,745,713 1,745,694
Loss from operations.......... (12,102,512) (7,747,803) (6,485,955) (4,190,848) (5,419,277)
Other income, net............. 2,160,377 768,744 762,031 884,806 882,630
Gain on sale of Research
Products Business.......... -- 2,720,389 -- -- --
Net loss...................... (9,942,135) (4,258,670) (5,723,924) (3,306,042) (4,536,647)
Net loss per share............ (.50) (0.25) (0.35) (0.21) (0.31)
Weighted average number of
shares of common stock
outstanding................ 19,712,274 16,757,370 16,335,000 16,080,000 14,801,000
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term
investments................ $47,542,745 $26,786,566 $18,157,891 $22,390,454 $18,897,238
Accounts receivable........... 2,031,950 1,320,015 3,032,839 3,146,990 2,094,464
Working capital............... 47,181,407 26,127,781 21,208,145 25,914,827 22,363,383
Total assets.................. 73,537,054 44,057,421 42,040,900 47,614,538 43,930,705
Stockholders' equity.......... 68,286,959 40,549,636 38,656,314 45,044,603 41,960,868
</TABLE>
- ------------------
(a) During fiscal 1996, the Company acquired MYCOsearch, Inc. and Aston
Molecules, Ltd. and completed an offering of its common stock (See Notes 2
and 9(a) to the Consolidated Financial Statements.)
(b) During fiscal 1995, the Company sold its Research Products Business and also
sold shares of its common stock to Ciba-Geigy, Ltd. (See Notes 4 and 9(d) to
the Consolidated Financial Statements.)
(c) During fiscal 1994, the Company changed its method of accounting for
marketable securities to adopt the provisions of the Statement of Financial
Accounting Standards No.115, "Accounting for Certain Investments in Debt and
Equity Securities". (See Note 1(g) to the Consolidated Financial
Statements.)
(d) During fiscal 1993, the Company entered into collaborative agreements with
Marion Merrell Dow and Hoechst AG and also sold shares of its common stock
to Marion Merrell Dow (See Notes 5(b) and 9(c) to the Consolidated Financial
Statements.)
(e) During fiscal 1992, the Company acquired the cancer business of Applied
bioTechnology and completed an offering of its common stock.
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUES
Total revenues of $9.7 million in fiscal 1996 decreased approximately $6.1
million or 39% compared to fiscal 1995 and total revenues of $15.9 million in
fiscal 1995 decreased approximately $434,000 or 3% compared to fiscal 1994. The
Company sold its Research Products Business for $6.0 million in cash plus other
considerations in August 1995, and accordingly there were no significant sales
of research products recorded after this date. In the sale agreement, the
Company agreed to indemnify the purchaser for a period of two years for certain
breaches of the agreement. Approximately 4.2 million of the decrease in total
revenues in fiscal 1996 was attributable to the sale of the Research Products
Business in fiscal 1995. Collaborative program revenues decreased by
approximately $1.3 million or 14% in fiscal 1996 largely due to a reduction in
revenue under the collaboration agreement with Hoechst Marion Roussel, Inc.
(HMRI) as compared to the total revenue in the prior year's periods from Marion
Merrell Dow Inc. (MMDI), Hoechst Roussel Pharmaceuticals, Inc. (Hoechst Roussel)
and Hoechst AG (Hoechst) as well as a reduction in the funding under the Becton
Dickinson Collaboration due to a narrowing of scope in that program.. The
balance of the decrease represents changes in the timing and amount of grant
awards.
The decrease in total revenues of $434,000 in fiscal 1995 compared to
fiscal 1994 was attributable to decreases of $651,000 in research product
revenues due to the sale of the Research Products Business in August 1995 and
$380,000 in certain grant programs. The decreases in research product sales and
certain grant programs, were offset by increases in collaborative program
revenues. These revenues increased by approximately $597,000 or 7% in fiscal
1995 due to the commencement of a research program with Hoechst in April 1994,
the expansion and extension of the collaborative research program with Wyeth in
March 1994 and increases in revenues under the Pfizer collaboration with respect
to anti-cancer drugs. These increases were offset by decreased funding from
Pfizer associated with the termination of Pfizer's participation in the
TGF-(LOGO)3 oral mucositis program in order to focus exclusively on its
collaborative programs with the Company related to the research and development
of small molecule anti-cancer drugs. Previously, Pfizer had funded the Company's
TGF-(LOGO)3 oral mucositis program in addition to its anti-cancer program. Under
a collaborative agreement with Ciba entered into in April 1995, the Company will
fund the development of TGF-(LOGO)3 for oral mucositis through the end of Phase
I clinical trials and Ciba will fund its subsequent clinical development. Other
research revenues decreased approximately $380,000 or 17% in fiscal 1995
compared to fiscal 1994, which was largely the result of the expiration of a
U.S. government grant.
EXPENSES
Research and development expenses increased by approximately $396,000 or 3%
in fiscal 1996 compared to fiscal 1995 and increased by approximately $1.4
million or 12% in fiscal 1995 compared to fiscal 1994. The increase in fiscal
1996 was due to an increase in expenditures in the Company's joint venture with
Biochem Pharma, and its technology development programs as well as additional
amortization expense on the newly acquired MYCOsearch assets. These increases
were partially offset by reductions in expenditures in the collaborative
programs, primarily with HMRI.
The increase in fiscal 1995 was due principally to the start during 1994 of
the new research program with Hoechst, the expansion and extension of the Wyeth
program and the increase in activities related to the Company's proprietary
programs in the area of medicinal and natural products chemistry and clinical
development of TGF-(LOGO)3 for oral mucositis.
Production expenses decreased approximately $1,118,000 and $175,000 for
fiscal 1996 and fiscal 1995 respectively, reflecting the sale of the Research
Products Business.
Selling, general and administrative expenses decreased approximately
$826,000 or 12% in fiscal 1996 compared to fiscal 1995. This decrease reflected
the reduction in sales and marketing expenses due to the sale of the Research
Products Business, partially offset by increases in expenses related to
corporate development activities. Selling, general and administrative expenses
decreased approximately $347,000 or 5% in fiscal 1995
22
<PAGE> 23
compared to fiscal 1994. This decrease also reflected the reduction in sales and
marketing expenses due to the sale of the Research Products Business, offset by
increases in professional fees related to corporate development activities.
Amortization of intangibles in fiscal 1996, 1995, and 1994 represents
amortization of patents and goodwill that resulted from the acquisition of the
cancer diagnostics business of Applied bioTechnology. The decrease in
amortization expense in fiscal 1996 is due to the portion of goodwill which was
expensed in connection with the sale of the Research Products Business.
OTHER INCOME AND EXPENSE
Net investment income increased approximately $1,327,000 or 159% for fiscal
1996 compared to fiscal 1995. This increase was largely due to investment of the
proceeds from the Company's public offering of common stock in April 1996. Net
proceeds from the offering (along with the concurrent sale of 500,000 shares
directly to BioChem Pharma) were approximately $30.3 million.
Net investment income decreased approximately $24,000 or 3% for fiscal 1995
compared to fiscal 1994. Interest income earned in fiscal 1995 was higher than
in fiscal 1994 despite a lower average principal balance in fiscal 1995 due to
increased interest rates. However, this was offset in part by a net realized
loss on the sale of certain investments.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, working capital (representing primarily cash, cash
equivalents and short-term investments) aggregated approximately $47.2 million.
The Company has been, and will continue to be, dependent upon collaborative
research revenues, government research grants, interest income and cash balances
until products developed from its technology are commercially marketed. In April
1995, Ciba purchased 909,091 shares of the Company's common stock for an
aggregate purchase price of $5.0 million. In April 1996, the Company completed a
public offering of its common stock as well as the sale of 500,000 shares of
common stock to BioChem Pharma that provided total net proceeds of approximately
$30.3 million.
During 1995, the pharmaceutical operations of Hoechst, Hoechst Roussel and
MMDI were consolidated into HMRI. The Company is aware that HMRI is conducting a
review of all its research and development programs. The Company and HMRI have
jointly announced that they have entered into an agreement in principle to
continue their collaborative programs under one overall agreement through
December 31, 2000. In accordance with the agreement in principle, HMRI is
expected to provide up to $12.5 million in research funding over the term of the
renewal period. The Company will receive royalties on the sale of drugs derived
from the collaboration, if any. HMRI and the Company have not yet executed a new
definitive overall agreement.
The Company has been pursuing serum and tissue based cancer diagnostic
products in collaboration with Becton under a collaborative program started in
October 1991 (after an earlier collaboration from 1984 to 1989). During 1995,
the Company and Becton agreed that Becton would narrow its focus in the program
exclusively to tissue-based diagnostic tests including immunohistochemistry and
the Company would continue its development program in serum-based cancer
diagnostics. Accordingly, Becton reduced its funding under this program in
fiscal 1996, and provided no further funding for this program after it ended on
its scheduled expiration date of September 30, 1996. The Company is continuing
the development of serum-based cancer diagnostic products and is in negotiations
with a possible collaborative partner in this area.
The Company's collaboration with Wyeth will be concluded on December 31,
1996 in accordance with the collaborative research agreement. The Company has
received approximately $1.6 million annually in research and development funding
from Wyeth pursuant to this collaborative agreement. To the extent Wyeth
commercializes any products derived from this collaboration, it will pay certain
royalties to the Company on sales of such products, if any.
23
<PAGE> 24
In April 1996, the Company purchased MYCOsearch, Inc., owner of a
collection of fungi and actinomycetes, for approximately $1.75 million in cash
and $3.4 million in common stock and warrants. On September 19, 1996, the
Company acquired all of the outstanding capital stock of Aston Molecules
Limited. (Aston), a privately held United Kingdom company. The consideration
paid for Aston included 283,981 shares of the Company's common stock having a
fair market value of approximately $2.4 million. In addition, the Company also
issued rights exercisable at the end of three and five years following the
closing date (for an aggregate exercise price of $7,500) to obtain a number of
shares of the Company's common stock having an aggregate value of $750,000
(based on the then current market value). The present value of this additional
consideration of $590,675 is reflected as deferred acquisition costs in the
accompanying balance sheet as of September 30, 1996. Other direct costs of the
acquisition approximated $635,000 resulting in a total acquisition cost of $3.6
million.
The Company believes that with the funding from its collaborative research
programs, government research grants, interest income, and cash balances, the
Company's financial resources are adequate for its operations for the
foreseeable future. However, the Company's capital requirements may vary as a
result of a number of factors, including competitive and technological
developments, funds required for expansion of the Company's technology platform,
including possible joint ventures, collaborations and acquisitions, the time and
expense required to obtain governmental approval of products, and any potential
indemnification payments to the purchaser of the Research Products Business,
some of which factors are beyond the Company's control. The Company intends to
substantially increase its expenditures and capital investment over the next
several years to enhance its drug discovery technologies, pursue internal
proprietary drug discovery programs, and to commit resources to new
collaborative ventures, such as the new programs with Anaderm and BioChem
Pharma. There can be no assurance that scheduled payments will be made by third
parties, that current agreements will not be canceled, that government research
grants will continue to be received at current levels or that unanticipated
events requiring the expenditure of funds will not occur. Further, there can be
no assurance that the Company will be able to obtain any additional required
funds, or, if such funds are available, that such funds will be available on
favorable terms. Failure to obtain additional funds when required would have a
material adverse effect on the Company's business financial condition and result
of operations.
FORWARD LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not historical or current facts deal with potential future
circumstances and developments. The discussion of such matters and subject areas
is qualified by the inherent risks and uncertainties surrounding future
expectations generally, and such discussion may materially differ from the
Company's actual future experience involving any one or more of such matters and
subject areas. An example of this is the discussion in this Item 7 describing
the Company's expectations with regard to renewal of its collaborative research
programs with HMRI. Factors that may arise in the future that prevent the
execution of a definitive overall agreement covering the Company's collaborative
programs with HMRI include possible technological developments by competitors
that render the compounds being pursued by HMRI and the Company less
commercially viable, shifts in strategic direction on the part of HMRI that
would de-emphasize the therapeutic areas or technologies in which the Company is
involved, and negative results in the Company's current programs with HMRI. The
forward looking statement described above, as well as all other discussions
contained herein that deal with potential future circumstances and developments,
are also subject generally to other risks and uncertainties that are described
from time to time in the Company's reports and registration statements filed
with the Securities and Exchange Commission.
24
<PAGE> 25
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report....................................... 26
Consolidated Balance Sheets -- September 30, 1996 and 1995......... 27
Consolidated Statements of Operations -- Years ended September 30,
1996, 1995 and 1994.............................................. 28
Consolidated Statements of Stockholders' Equity -- Years ended
September 30, 1996, 1995 and 1994................................ 29
Consolidated Statements of Cash Flows -- Years ended September 30,
1996, 1995 and 1994.............................................. 30
Notes to Consolidated Financial Statements......................... 31
</TABLE>
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Stockholders
and Board of Directors
Oncogene Science, Inc.:
We have audited the accompanying consolidated balance sheets of Oncogene
Science, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended September-30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Oncogene
Science, Inc. and subsidiaries at September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Jericho, New York
December 3, 1996
26
<PAGE> 27
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $13,409,866 $17,919,609
Short-term investments.......................................... 34,132,879 8,866,957
Receivables, including trade receivables of $215,201 and
$163,132 at September 30, 1996 and 1995, respectively........ 2,031,950 1,320,015
Interest receivable............................................. 480,050 45,263
Grants receivable............................................... 331,014 433,530
Prepaid expenses................................................ 623,827 518,150
----------- -----------
Total current assets......................................... 51,009,586 29,103,524
=========== ===========
Property, equipment and leasehold improvements -- net............. 6,495,112 5,709,515
Fungi cultures -- net............................................. 5,048,584 --
Other receivable.................................................. -- 262,703
Loans to officers and employees................................... 37,342 25,516
Other assets...................................................... 300,949 325,582
Intangible assets -- net.......................................... 10,645,481 8,630,581
----------- -----------
$73,537,054 $44,057,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................... $ 3,686,638 $ 2,825,702
Current portion of unearned revenue............................. 141,541 150,041
Total current liabilities.................................... 3,828,179 2,975,743
Other liabilities:
Long-term portion of unearned revenue........................... 104,497 165,839
Loan payable.................................................... 83,244 --
Deferred acquisition costs...................................... 590,675 --
Accrued postretirement benefit cost............................. 366,203
643,500
Total liabilities............................................ 3,507,785 5,250,095
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized,
22,175,214 shares issued at September 30, 1996 and 17,683,047
shares issued at September 30, 1995.......................... 221,752 176,830
Additional paid-in capital...................................... 104,347,231 66,735,375
Accumulated deficit............................................. (36,071,476) (26,129,341)
Cumulative translation adjustments.............................. (5,355) (55,669)
Unrealized holding loss on short-term investments............... (205,193) (35,000)
----------- -----------
68,286,959 40,692,195
Less: treasury stock, at cost; 222,521 shares at September 30,
1995......................................................... --
----------- -----------
Total stockholders' equity................................... 68,286,959 40,549,636
----------- -----------
Commitments and contingencies..................................... $73,537,054 $44,057,421
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Collaborative program revenues, principally from
related parties.................................... $ 8,347,560 $ 9,685,856 $ 9,089,295
Sales................................................. 105,356 4,286,540 4,937,917
Other research revenue................................ 1,265,521 1,892,603 2,272,277
9,718,437 15,864,999 16,299,489
Expenses:
Research and development.............................. 13,918,968 13,523,043 12,125,210
Production............................................ 134,529 1,252,990 1,427,981
Selling, general and administrative................... 6,314,697 7,140,208 7,487,090
Amortization of intangibles........................... 1,452,755 1,696,561 1,745,163
21,820,949 23,612,802 22,785,444
Loss from operations............................... (12,102,512) (7,747,803) (6,485,955)
Other income (expense):
Net investment income................................. 2,162,294 834,830 858,904
Other expense-net..................................... (1,917) (66,086) (96,873)
Gain on sale of Research Products Business............ -- 2,720,389 --
----------- ----------- -----------
Net loss................................................ $(9,942,135) $(4,258,670) $(5,723,924)
=========== =========== ===========
Weighted average number of shares of common stock
outstanding........................................... 19,712,274 16,757,370 16,335,000
=========== =========== ===========
Net loss per weighted average share of common stock
outstanding........................................... $ (.50) $ (.25) $ (.35)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
COMMON STOCK ADDITIONAL CUMULATIVE LOSS ON
------------------------ PAID-IN ACCUMULATED TRANSLATION SHORT-TERM TREASURY
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT INVESTMENTS STOCK
----------- ----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1993................... 16,551,941 $ 165,520 $61,167,618 $(16,146,747) $ 771 $ -- $(142,559)
Options exercised........ 10,700 107 25,724 -- -- -- --
Issuance of common stock
for employee purchase
plan................... 2,074 20 6,328 -- -- -- --
Unrealized holding
loss on short-term
investments.......... -- -- -- -- -- (654,000) --
Translation adjustment... -- -- -- -- (42,544) -- --
---------- --------- ----------- ----------- --------- --------- ---------
Net loss................. -- -- -- (5,723,924) -- -- --
Balance at September 30,
1994................... 16,564,715 165,647 61,199,670 (21,870,671) (41,773) (654,000) (142,559)
Options exercised........ 206,025 2,060 571,408 -- -- -- --
Issuance of common stock
for employee purchase
plan................... 3,216 32 10,523 -- -- -- --
Unrealized holding gain
on short-term
investments............ -- -- -- -- -- 619,000 --
Sale of common stock to
Ciba-Geigy............. 909,091 9,091 4,953,774 -- -- -- --
Translation adjustment... -- -- -- -- (13,896) -- --
Net loss................. -- -- -- (4,258,670) -- -- --
---------- --------- ----------- ----------- --------- --------- ---------
Balance at September 30,
1995................... 17,683,047 176,830 66,735,375 (26,129,341) (55,669) (35,000) (142,559)
Options exercised........ 491,544 4,915 1,640,653 -- -- -- --
Issuance of common stock
for employee purchase
plan................... 3,860 39 10,214 -- -- -- --
Unrealized holding loss
on short-term
investments............ -- -- -- -- -- (170,193) --
Sale of common stock..... 3,618,750 36,188 30,293,757 -- -- -- --
Issuance of common stock
and treasury stock for
acquisitions........... 378,013 3,780 5,667,232 -- -- -- 142,559
Translation adjustment... -- -- -- -- 50,314 -- --
Net loss................. -- -- -- (9,942,135) -- -- --
---------- --------- ----------- ----------- --------- --------- ---------
Balance at September 30,
1996................... 22,175,214 $ 221,752 $104,347,231 $(36,071,476) $ (5,355) $(205,193) $ --
========== ========= ============ ============ ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss.................................................................... $(9,942,135) $(4,258,670) $(5,723,924)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of Research Products Business................................ -- (2,720,389) --
(Gain) loss on sale of investments........................................ (33,305) 118,141 --
Depreciation and amortization............................................... 1,837,873 1,037,044 1,165,809
Amortization of Fungi cultures.............................................. 458,962 -- --
Amortization of intangibles................................................. 1,452,755 1,696,561 1,745,163
Foreign exchange (gain) loss................................................ 50,314 (13,896) (26,649)
Changes in assets and liabilities, net of the effects of the sale of the
Research Products Business and acquisitions of MYCOsearch and Aston
Molecules:
Receivables............................................................. (412,935) 1,605,217 114,152
Inventory............................................................... -- 216,405 (197,570)
Interest receivable..................................................... (434,787) 101,959 (107,890)
Grants receivable....................................................... 102,516 226,091 105,895
Prepaid expenses........................................................ (105,677) (196,491) (98,068)
Other receivable........................................................ 262,703 162,817 92,090
Other assets............................................................ 41,051 (234,378) 23,863
Accounts payable and accrued expenses................................... 391,857 (586,276) 232,439
Unearned revenue........................................................ (69,842) (358,092) 415,972
Accrued postretirement benefit cost..................................... 277,297 177,760 78,568
----------- ----------- -----------
Net cash used by operating activities....................................... (6,123,353) (3,026,197) (2,180,150)
=========== =========== ===========
Cash flows from investing activities:
Additions to short-term investments..................................... (37,216,936) (3,723,180) (5,918,880)
Maturities and sales of short-term investments.......................... 11,814,126 13,192,665 9,135,823
Additions to property, equipment and leasehold improvements............. (2,421,040) (403,275) (1,512,543)
Payments for acquisition of MYCOsearch.................................... (1,889,960) -- --
Payments for acquisition of Aston Molecules............................... (635,441) -- --
Net change in loans to officers and employees ............................ (11,826) 10,400 (40,258)
Proceeds from sale of Research Products Business.......................... -- 6,000,000 --
Other..................................................................... -- -- (15,897)
Net cash provided by (used in) investing activities......................... (30,361,077) 15,076,610 1,648,245
Cash flows from financing activities:
Proceeds from issuance of common stock, net ............................ 30,329,945 4,962,865 --
Proceeds from exercise of stock options and employee stock stock
purchase plan......................................................... 1,655,821 584,023 32,180
Repayment of loan payable............................................... (11,079) -- --
----------- ----------- -----------
Net cash provided by financing activities................................... 31,974,687 5,546,888 32,180
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........................ (4,509,743) 17,597,301 (499,725)
Cash and cash equivalents at beginning of year ............................. 17,919,609 322,308 822,033
----------- ----------- -----------
Cash and cash equivalents at end of year.................................... $13,409,866 $17,919,609 $ 322,308
=========== =========== ===========
Non-cash investing activities:
Issuance of common stock, treasury stock and warrants for acquisition of
MYCOsearch and Aston Molecules.............................................. $ 5,816,736 -- --
=========== =========== ===========
Liabilities assumed from acquisition of MYCOsearch and AstonMolecules....... $ 563,402 -- --
=========== =========== ===========
Deferred purchase obligation incurred for acquisition of Aston Molecules.... $ 590,675 -- --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Oncogene Science, Inc. and its wholly-owned subsidiaries Applied
bioTechnology, Inc., MYCOsearch Inc., Aston Molecules, Inc., and Oncogene
Science S.A. All intercompany balances and transactions have been eliminated.
The Company is engaged in the research and development of biopharmaceutical
products for the treatment and diagnosis of cancer, cardiovascular and other
human diseases associated with abnormalities of cell growth and control.
(b) Revenue Recognition
Collaborative research revenues represent funding arrangements for the
conduct of research and development ("R&D") in the field of biotechnology and
are recognized when earned in accordance with the terms of the contracts and the
related development activities undertaken. Other research revenues are
recognized pursuant to the terms of grants which provide reimbursement of
certain expenses related to the Company's other R&D activities. Collaborative
and other research revenues are accrued for expenses incurred in advance of the
reimbursement and deferred for cash payments received in advance of
expenditures. Such deferred revenues are recorded as revenue when earned. (See
Note 5)
Revenue from the sale of diagnostic and research reagent products is
recognized at time of shipment.
(c) Patents and Goodwill
As a result of the Company's research and development programs, including
programs funded pursuant to the research and development funding agreements (See
Note 5), the Company has applied for a number of patents in the United States
and abroad. Such patent rights are of significant importance to the Company to
protect products and processes developed. Costs incurred in connection with
patent applications for the Company's research and development programs have
been expensed as incurred.
Patents and goodwill acquired in connection with the acquisition of Applied
bioTechnology's cancer business in October 1991 have been capitalized and are
being amortized on a straight-line basis over the remaining lives of the
respective patents, and over five years for goodwill. The goodwill acquired in
connection with the acquisition of Aston Molecules, Ltd. in September 1996 is
being amortized over five years (See Note 2). The Company continually evaluates
the recoverability of its intangible assets by assessing whether the unamortized
value can be recovered through expected future results.
(d) Research and Development Costs
Research and development costs are charged to operations as incurred and
include direct costs of research scientists and equipment and an allocation of
laboratory facility and central service. In fiscal years 1996, 1995, and 1994,
R&D activities include approximately $6,365,000, $5,696,000 and $3,516,000 of
independent R&D, respectively. Independent R&D represents those research and
development activities, including research and development activities funded by
government research grants, substantially all the rights to which the Company
will retain. The balance of research and development represents expenses under
the collaborative agreements with Pfizer Inc. (Pfizer), Becton Dickinson and
Co.(Becton), Wyeth-Ayerst, a division of American Home Products (Wyeth), Marion
Merrell Dow Inc. (Marion), Hoechst AG, Hoechst-Roussel Pharmaceuticals, Inc.
(Hoechst Roussel), BioChem Pharma International, Inc. (BioChem Pharma), and
Ciba-Geigy, Ltd. (Ciba). On July 18, 1995, Marion, Hoechst AG and
Hoechst-Roussel merged forming a new company named Hoechst Marion Roussel Inc.
(HMRI).
31
<PAGE> 32
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(e) Depreciation and Amortization
Depreciation of equipment is provided over the estimated useful lives of
the respective asset groups on a straight-line basis. Leasehold improvements are
amortized on a straight-line basis over the lesser of the estimated useful lives
or the remaining term of their lease.
Amortization of the fungi cultures acquired in connection with the
acquisition of MYCOsearch, Inc. (See Note 2) is on a straight line base over
five years, which represents the estimated period over which the fungi cultures
will be used in the Company's R&D efforts.
(f) Income Taxes
Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires that the Company recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under SFAS No.
109, deferred tax liabilities and assets are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at enacted tax rates in
effect for the years in which the differences are expected to reverse.
The adoption of SFAS No. 109 did not have any impact on the financial
position or results of operations of the Company. The Company, in years prior to
fiscal 1994, accounted for income taxes in accordance with Accounting Principles
Board Opinion No. 11, "Accounting for Income Taxes."
(g) Investments
The Company adopted SFAS No. 115, "Accounting for Investments in Certain
Debt and Equity Securities," (SFAS No. 115) as of October 1, 1993. SFAS No. 115
requires securities classified as available for sale to be recorded at estimated
fair value. The Company's short-term investments, which include U.S. Treasury
obligations and corporate debt securities with original maturities in excess of
one year, are classified as securities available for sale based upon
management's current investment policy. Such investments, prior to the adoption
of SFAS No. 115, were recorded at the lower of cost or estimated market value
with aggregate declines in market value below amortized cost charged against
earnings. Under SFAS No. 115, changes in the net unrealized gains or losses of
available for sale securities are reported as a separate component in
stockholders' equity. The adoption of SFAS No. 115 had no material impact on the
Company's financial position.
(h) Loss Per Share
Loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Common share equivalents (stock
options) are not included in the computation since their inclusion would be
anti-dilutive.
(i) Cash and Cash Equivalents
The Company includes as cash equivalents reverse repurchase agreements,
treasury bills, and other time deposits with original maturities of three months
or less.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relative to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated
32
<PAGE> 33
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) ACQUISITIONS
(a) MYCOsearch, Inc.
On April 11, 1996, the Company acquired all the outstanding shares of
MYCOsearch, Inc., a privately owned company, that specializes in the collection
of fungi cultures and the development of extracts derived therefrom. On the date
of the acquisition, MYCOsearch became a wholly-owned subsidiary of the Company.
Prior to the acquisition, the Company had purchased extracts and certain
services from MYCOsearch. Such expenses totaled $301,000, and $571,000, in
fiscal 1996 (through April 11, 1996) and fiscal 1995, respectively, which are
included in research and development expenses in the accompanying consolidated
statements of operations.
The purchase price paid by the Company to the shareholders of MYCOsearch
consisted of $1.75 million in cash, $2.95 million in common stock of the Company
(316,553 shares at $9.319 per share, of which 222,521 shares represented the
reissuance of shares held in treasury), and warrants to purchase 100,000 shares
of the Company's stock at $9.319 per share, valued at $483,000. The warrants are
exercisable for a three-year period starting on April 11, 1998. The Company also
incurred other direct costs totaling approximately $137,000 in connection with
the acquisition resulting in a total purchase price of $5.3 million.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based on the fair values at the
date of acquisition. The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fungi cultures.............................................. $5,508
Fixed assets................................................ 21
Other assets................................................ 16
Other liabilities........................................... (225)
------
Purchase price.............................................. $5,320
======
</TABLE>
The fungi cultures contain natural chemical structures that will be tested
against target proteins using the Company's drug screens. The Company will
amortize the fungi cultures on a straight-line basis over a five-year period and
will continually evaluate the recoverability of this asset based on the results
of its testing. Amortization of the fungi cultures totaling $459,000 is
reflected as research and development expense in the accompanying consolidated
statement of operations for the year ended September 30, 1996.
(b) Aston Molecules, Ltd.
On September 19, 1996, the Company completed the acquisition of all the
outstanding capital stock of Aston Molecules Ltd. (Aston), a privately held
United Kingdom company. On the date of the acquisition, Aston became a
wholly-owned subsidiary of the Company. Its operations and personnel will be
maintained at its present site in Birmingham, UK.
The consideration paid for Aston included 283,981 shares of the Company's
common stock having a fair market value of approximately $2.4 million. In
addition, the Company also issued rights exercisable at the end of three and
five years following the closing date (for an aggregate exercise price of
$7,500) to obtain a number of shares of the Company's common stock having an
aggregate value of $750,000 (based on the then current market value). The
present value of this additional consideration of $590,675 is reflected as
deferred acquisition costs in the accompanying consolidated balance sheet as of
September 30, 1996. Other direct costs of the acquisition approximated $635,000
resulting in a total acquisition cost of $3.6 million.
33
<PAGE> 34
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based on the fair values at the
date of acquisition. The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Goodwill.......................................... $3,468
Fixed assets...................................... 181
Other assets...................................... 299
Other liabilities................................. (338)
------
Purchase price.................................... $3,610
======
</TABLE>
The goodwill resulting from the acquisition will be amortized on a
straight-line basis over a five year period. Prior to the acquisition, the
Company purchased certain chemistry services from Aston. Such expenses totaled
$879,000, and $302,000 in fiscal 1996 (through September 19, 1996) and fiscal
1995, respectively, which are included in research and development expenses in
the accompanying consolidated statements of operations.
Concurrent with the acquisition, the Company entered into employment
agreements with certain of Aston's executives and scientific personnel and
granted stock options covering an aggregate of 125,000 shares of its common
stock to such persons. The exercise price of $8.51 per share was based on the
fair market value of the Company's stock on the date of the grant.
(c) Pro Forma Information (Unaudited)
The operating results of MYCOsearch and Aston have been included in the
consolidated statements of operations from the respective dates of the
acquisitions. The following unaudited pro form information presents a summary of
consolidated results of operations for the years ended September 30, 1996 and
1995 assuming the acquisitions had taken place as of October 1, 1995 and 1994,
respectively.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues.................................... $10,566,000 $17,130,000
Net loss.................................... (12,108,000) (6,213,000)
Net loss per share.......................... (.61) (.36)
</TABLE>
The pro forma results give effect to the amortization of the fungi cultures
and goodwill; elimination of intercompany sales; reduction of investment income;
and an increase in the number of common shares outstanding. The pro forma
financial information is not necessarily indicative of the results of operations
as they would have been had the acquisitions been affected on the assumed dates.
(3) INVESTMENTS
The Company invests its excess cash in U.S. Government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification of
its investments and their maturities that should maintain safety and liquidity.
These guidelines are periodically reviewed and modified to take advantage of
trends in yields and interest rates. The Company uses the specific
identification method to determine the cost of securities sold.
The following is a summary of available-for-sale securities as of September
30, 1996 and 1995:
34
<PAGE> 35
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
GROSS UNREALIZED
1996 COST (LOSSES) GAINS FAIR VALUE
- ------------------------------------------------ ---------- ---------------- -----------
<S> <C> <C> <C>
US Treasury Securities and obligations of US
Government agencies........................... $22,212,207 $ (218,842) $21,993,365
Corporate debt securities....................... 12,125,865 13,649 12,139,514
----------- ---------- -----------
Total................................. $34,338,072 $ (205,193) $34,132,879
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
1995 COST (LOSSES) GAINS FAIR VALUE
- ------------------------------------------------- ---------- ---------------- -----------
<S> <C> <C> <C>
US Treasury Securities and obligations of US
Government agencies............................ $6,232,027 $ (85,942) $ 6,146,085
Corporate debt securities........................ 2,669,930 50,942 2,720,872
---------- ---------- -----------
Total.................................. $8,901,957 $ (35,000) $ 8,866,957
========== ========== ===========
</TABLE>
Net realized gains on sales of investments during fiscal 1996 were
approximately $33,000. Net realized losses on sales of investments during fiscal
1995 were approximately $118,000. The Company did not realize any significant
gains or losses on the sale of its investments during fiscal year 1994.
(4) SALE OF RESEARCH PRODUCTS BUSINESS
In August 1995, the Company sold certain assets and the business of the
Research Products Business (Business) to Calbiochem-Novabiochem International,
Inc. (Calbiochem) for $6.0 million in cash. The assets sold included the
Business' line of research products sold or intended for sale to the academic,
industrial and clinical research markets, existing inventory, property and
equipment and certain other assets. The Company retained the trade accounts
receivable and accounts payable outstanding on the date of sale. In connection
with the sale, the Company wrote off the unamortized goodwill related to the
Business of approximately $343,000. The sale resulted in a net gain of
approximately $2.7 million. In the sale agreement, the Company agreed to
indemnify the purchase for a period of two years for certain breaches of the
agreement.
The Company also signed a sublease agreement with Calbiochem relating to
the Cambridge facility for a term of three years, at an annual payment equal to
50% of the Company's fixed lease payment and related facility costs, plus
certain operating costs. Payments from Calbiochem totaling $417,000 and $0 for
the years ended September 30, 1996 and 1995, respectively, have been reflected
as an offset to selling, general and administrative expenses in the accompanying
consolidated statements of operations.
(5) PRODUCT DEVELOPMENT CONTRACTS
(a) Pfizer
Effective April 1, 1996, the Company and Pfizer renewed their ten-year-old
collaboration for a new five-year term by entering into new Collaborative
Research and License Agreements. Under these agreements, all patent rights and
patentable inventions derived from the research under this collaboration are
owned jointly by the Company and Pfizer. Under the collaborative research
agreement, Pfizer has committed to provide research funding to the Company in an
aggregate amount of approximately $18.8 million. Pursuant to a schedule set
forth in the collaborative research agreement, Pfizer will make maximum annual
research funding payments to the Company, which will gradually increase from
approximately $3.5 million in the first year of the five-year term to
approximately $4 million in the fifth year. The collaborative research agreement
will expire on April 1, 2001. However, it may be terminated earlier by either
party upon the occurrence of
35
<PAGE> 36
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
certain defaults by the other party. Any termination of the collaboration
resulting from a Pfizer default will cause a termination of Pfizer's license
rights. Pfizer will retain its license rights if it terminates the agreement in
response to a default by the Company. In addition, between July 1 and September
30, 1998, Pfizer may terminate the collaborative research agreement, with or
without cause, effective March 31, 1999. Furthermore, between July 1 and
September 30, 1999, Pfizer may terminate the collaborative research agreement,
with or without cause, effective March 31, 2000. Upon such early termination by
Pfizer, Pfizer will retain its license rights. The Company also granted Pfizer
an exclusive, worldwide license to make, use, and sell the therapeutic products
resulting from this collaboration in exchange for royalty payments. This license
terminates on the date of the last to expire of the Company's relevant patent
rights.
(b) Hoechst Marion Roussel
Effective January 1, 1993, the Company and Marion entered into a
collaborative research and license agreement to identify and develop
transcription-based drugs to treat certain indications in the area of
cardiovascular disease. The agreement provided for payments to the Company of
$11 million in research funding and license fees over a five year period through
December 31, 1997. Marion also invested $6 million in common stock (See Note
9(c)). The payments with respect to 1997 and 1996 are being consolidated into a
proposed new research agreement with HMRI.
In January 1993, the Company and Hoechst AG entered into a collaborative
research agreement to jointly develop gene transcription-based drugs to treat
certain indications in the areas of inflammation, viral infection and metabolic
diseases. In April 1994, the Company and Hoechst-Roussel, a unit of Hoechst AG,
entered into a collaborative agreement to discover and develop gene
transcription-based drugs to treat Alzheimer's disease.
In July 1995, Marion was acquired by an affiliate of Hoechst AG and with
Hoechst Roussel, merged into one entity, HMRI. All of the Company's
collaborative agreements with Marion, Hoechst AG and Hoechst-Roussel have
continued under HMRI. The Company expects the related programs to continue under
one overall agreement in the future.
(c) Ciba-Geigy
In April 1995, the Company entered into an agreement with Ciba to expand
the scope of the companies' collaborative efforts with respect to the
development of TGF-Beta 3 for the treatment of oral mucositis and other
indications. Under the agreement, the Company will fund development through
Phase I clinical trials and Ciba will fund Phase II and III clinical trials.
Ciba will pay the Company $10 million if, and at the time, it decides to
initiate Phase IIB or III clinical trials or, at the option of Ciba, within four
years of the agreement date. The payment will be characterized, at Ciba's
option, as a milestone payment or a purchase of the Company's common stock at
the higher of $5.50 per share or the then current market price. In exchange for
such payment, Ciba's license will be expanded to include all other indications
for TGF-Beta 3.
(d) Becton Dickinson
On October 4, 1991, the Company and Becton established a collaborative
research program to develop cancer diagnostic products. The Company and Becton
shared equally the cost of discovery phase and pre-clinical research and
development. This collaborative research program expired on September 30, 1996
and was not renewed. To the extent Becton commercializes any products derived
from this program, it will pay certain royalties to the Company on sales of such
products, if any.
36
<PAGE> 37
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(e) Wyeth-Ayerst
Effective December 31, 1991, the Company entered into a collaborative
research agreement with Wyeth. This agreement was extended and expanded in
January 1994 for an additional 3 years through December 31, 1996 to provide for
additional funding of approximately $4.3 million. The Company receives
approximately $1.6 million annually in research and development funding from
Wyeth pursuant to this collaborative agreement. The Company anticipates that the
research collaboration will expire on December 31, 1996 and not be extended. To
the extent Wyeth commercializes any products derived from this collaboration, it
will pay certain royalties to the Company on sales of such products, if any.
(f) Anaderm Research
In April 1996, in connection with the formation of Anaderm Research Corp.,
(Anaderm), the Company entered into a Stockholders' Agreement (Stockholders'
Agreement) among the Company, Pfizer, Anaderm, New York University (NYU) and
certain NYU faculty members (Faculty Members), and a Collaborative Research
Agreement (Research Agreement) among the Company, Pfizer and Anaderm. Anaderm
issued common stock to Pfizer and the Company and options to purchase common
stock to NYU and the Faculty Members. NYU and the Faculty Members have exercised
their options fully, and Pfizer holds 82%, the Company holds 14%, and NYU and
the Faculty Members collectively hold 4% of Anaderm's common stock. In exchange
for its 14% of the outstanding shares of Anaderm common stock, the Company will
provide formatting for high-throughput screens and will conduct compound
screening for 18 months at its own expense under the Research Agreement. The
term of the Research Agreement is three years. During the initial phase of the
agreement (the first 18 months) the Company is required to provide at its own
cost formatting for high throughput screens and perform screening of its own
compounds and those compounds provided by Pfizer. Upon the termination of the
initial phase, the Board of Directors of Anaderm will make a determination as to
whether the initial phase was successfully completed. If the board determines
that the initial phase was unsuccessful, the Research Agreement will then
terminate. If the board, with Pfizer's approval, determines the initial phase
was successful, then the funded phase will commence and will continue for the
term of the Research Agreement. During this phase, Anaderm will make payments to
the Company equal to its research costs, including overhead, plus 10%. Anaderm
or Pfizer will pay royalties to the Company on the sales of products resulting
from this collaboration.
The estimated total cost of the initial Phase is approximately $1.8
million. As of September 30, 1996, the Company has expended approximately
$329,000 on the initial phase. This cost has been capitalized as the cost of the
Company's 14% interest in Anaderm. This capitalized cost has been offset by the
Company's interest in the loss of Anaderm as of September 30, 1996 of
approximately $193,000. The Company's net investment in Anaderm at September 30,
1996 of $136,000 is included in other assets in the accompanying consolidated
balance sheet.
(g) BioChem Pharma
Effective May 1, 1996, the Company entered into a Collaborative Research,
Development and Commercialization Agreement with BioChem Pharma. Under this
agreement, the parties will seek to discover and develop antiviral drugs for the
treatment of Hepatitis C virus and HIV, although the focus of the collaborative
efforts may change at the discretion of a joint steering committee. This
agreement provides that the Company and BioChem Pharma will jointly commit
resources to the collaborative program. The Company and BioChem Pharma will
share equally the commercialization rights in the U.S. and Europe for any
product resulting from the collaboration. BioChem Pharma will exclusively own
commercialization rights in Canada. The agreement is for a term of five years,
with automatic, successive one-year renewal periods thereafter. After May 1,
1999, however, either party may terminate the agreement by giving the other
party six-months
37
<PAGE> 38
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
prior written notice. The agreement is also subject to early termination in the
event of certain defaults by either party.
(h) Other
Under the terms of aforementioned collaborative research agreements, the
collaborative partners will pay the Company royalties ranging from 2% to 10% of
net sales of products resulting from these research programs. To date, the
Company has not received any royalties pursuant to these agreements. The Company
or its collaborative partners may terminate each of the collaborative research
programs upon the occurrence of certain events.
The Company does not intend to conduct late-stage clinical trials,
manufacturing or marketing activities with respect to any of its product
candidates in the foreseeable future. The Company is dependent on the companies
with which it collaborates for the preclinical testing, clinical development,
regulatory approval, manufacturing and marketing of potential products developed
under its collaborative research programs. The Company's collaborative
agreements allow its collaborative partners significant discretion in electing
to pursue or not to pursue any of these activities. The Company cannot control
the amount and timing of resources its collaborative partners devote to the
Company's programs or potential products. If any of the Company's collaborative
partners were to breach or terminate its agreements with the Company or
otherwise fail to conduct its collaborative activities successfully in a timely
manner, the preclinical or clinical development or commercialization of product
candidates or research programs could be delayed or terminated. Any such delay
or termination could have a material adverse effect on the Company's business,
financial condition and results of operations.
Total collaborative research revenues under the aforementioned agreements are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
1996 >1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Related Parties:
Pfizer..................................................... $3,208,077 $3,505,427 $3,373,573
HMRI....................................................... 2,439,358 3,405,335 3,026,532
Becton..................................................... 1,150,125 1,400,094 1,392,314
---------- ---------- ----------
Total Related Parties...................................... 6,797,560 8,310,856 7,792,419
Wyeth...................................................... 1,550,000 1,375,000 1,296,876
---------- ---------- ----------
Total...................................................... $8,347,560 $9,685,856 $9,089,295
========== ========== ==========
</TABLE>
38
<PAGE> 39
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(6) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost and
consist of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30,
LIFE -----------------------
(YEARS) 1996 1995
-------------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment..................................... 5-15 $8,079,536 $6,765,012
Office furniture and equipment........................... 5-10 2,357,247 1,622,524
Automobile equipment..................................... 3 35,954 12,697
Leasehold improvements................................... Life of lease 4,879,814 4,176,290
---------- ---------
15,352,551 12,576,523
Less: accumulated depreciation and amortization.......... 8,857,439 6,867,008
---------- ---------
Net property, equipment and leasehold
improvements........................................... $6,495,112 $5,709,515
========== ==========
</TABLE>
(7) INTANGIBLE ASSETS
The components of intangible assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Patents.............................................................. $ 7,177,825 $7,945,038
Goodwill............................................................. 3,467,656 685,543
----------- ----------
$10,645,481 $8,630,581
=========== ==========
</TABLE>
The above amounts reflect accumulated amortization of $7,260,874 and
$5,808,119 at September 30, 1996 and 1995, respectively. During fiscal 1996,
goodwill increased $3,467,656 in connection with the acquisition of Aston
Molecules, Ltd. (See Note 2). As of September 30, 1996, the goodwill related to
the acquisition of Applied bioTechnology has been fully amortized.
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at September 30, 1996 and 1995 are
comprised of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Accounts payable................................... $2,081,031 $1,497,601
Accrued future lease escalations................... 417,614 355,516
Accrued payroll and employee benefits.............. 462,958 243,073
Accrued incentive compensation..................... 285,370 424,705
Accrued expenses................................... 439,665 304,807
---------- ----------
$3,686,638 $2,825,702
========== ==========
</TABLE>
39
<PAGE> 40
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(9) STOCKHOLDERS' EQUITY
(a) Stock Offering
In April 1996, the Company completed a public offering for 3,118,750 shares
of common stock. The sale price was $9.125 per share. Concurrent with the public
offering, the Company sold 500,000 shares at $9.125 per share directly to
BioChem Pharma. The proceeds to the Company from these sales, net of
underwriting commissions and other costs, were approximately $30.3 million. The
net proceeds were added to the Company's general funds and are to be used for
research and development expenses, including funds for enhancing the Company's
drug discovery technologies, and for general corporate purposes.
(b) Stock Option Plans
The Company has established three stock option plans for its employees,
officers, directors and consultants. The Plans are administered by the
Compensation Committee of the Board of Directors, which may grant either
non-qualified or incentive stock options. The Committee determines the exercise
price and vesting schedule at the time the option is granted. Options vest over
various periods and may expire no later than 10 years from date of grant. The
total authorized shares under these plans is 3,400,000.
The following table summarizes changes in the number of common shares
subject to options in the stock option plans:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Beginning of year......................... 2,021,279 2,048,325 1,644,945
Granted -- $7.88 to $9.32 per share in
1996; $3.50 to $4.13 per share in 1995;
$4.00 to $4.75 per share in 1994; 776,000 803,000 475,500
Exercised................................. (491,544) (206,025) (10,700)
Canceled.................................. (87,678) (624,021) (61,420)
-------- --------- ---------
End of year -- $1.75 to $9.32 per share... 2,218,057 2,021,279 2,048,325
========= ========= =========
Exercisable............................... 872,513 952,883 1,081,874
========= ========= =========
</TABLE>
At September 30, 1996, the Company has reserved 2,218,057 shares of its
authorized common stock for all shares issuable under option.
On March 22, 1995, the Company granted the right to current option holders
to surrender their current options in exchange for replacement options on the
basis of three replacement options for four options surrendered. The exercise
price of the replacement options was $3.50 per share, which was greater than the
market price on the date of exchange. The replacement options vested 25% upon
grant with the remaining 75% vesting pro rata on a monthly basis over the
following three years. Option holders surrendered 606,000 options in exchange
for 454,500 replacement options.
(c) Sale of Common Stock and Warrant to Marion Merrell Dow
In December 1992, the Company entered into the common stock purchase and
common stock warrant purchase agreements with Marion. The Company issued
1,090,909 shares of common stock at $5.50 per share and a warrant to purchase up
to 500,000 additional shares at $5.50 per share which is exercisable during the
period December 1994 to December 1999. The proceeds to the Company were $6
million.
40
<PAGE> 41
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(d) Sale of Common Stock to Ciba-Geigy
On April 19, 1995, Ciba purchased 909,091 shares of the Company's common
stock at $5.50 per share for an aggregate purchase price of $5 million.
(e) Employee Stock Purchase Plan
On May 1, 1993, the Company adopted an Employee Stock Purchase Plan under
which eligible employees may contribute up to 10% of their base earnings toward
the quarterly purchase of the Company's common stock. The employees purchase
price is derived from a formula based on the fair market value of the common
stock. No compensation expense is recorded in connection with the plan. During
fiscal 1996, 1995 and 1994, 3,860, 3,216 and 2,074 shares were issued with 34,
18 and 13 employees participating in the plan, respectively.
(10) INCOME TAXES
There is no provision (benefit) for federal or state income taxes, since
the Company has incurred operating losses since inception and has established a
valuation allowance equal to the total deferred tax asset.
The tax effect of temporary differences, net operating loss carry forwards
and research and development tax credit carry forwards as of September 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1996 1995
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards................ $12,252,652 $ 8,122,444
Research and development credits................. 792,980 554,838
Intangible assets................................ 1,028,148 1,274,336
Other............................................ 678,849 469,396
----------- -----------
14,752,629 10,421,014
Valuation allowance.............................. (14,752,629) (10,421,014)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
As of September 30, 1996, the Company has available federal net operating
loss carry forwards of approximately $36 million which will expire in various
years from 1999 to 2011, and may be subject to certain annual limitations. The
Company's research and development tax credit carry forwards noted above expire
in various years through from 1999 to 2011.
(11) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office, operating and laboratory space under various
lease agreements.
Rent expense was approximately $727,000, $750,000, and $743,000, for the
fiscal years ended September 30, 1996, 1995, and 1994, respectively.
41
<PAGE> 42
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
The following is a schedule by fiscal years of future minimum rental
payments required as of September 30, 1996, assuming expiration of the lease for
the Uniondale facility on June 30, 2006, the Cambridge facility on December 31,
2003, the Durham facility on October 31, 2004, and the Birmingham facility on
April 30, 2000.
<TABLE>
<S> <C>
1997............................................................................. $ 867,489
1998............................................................................. 860,358
1999............................................................................. 881,046
2000............................................................................. 882,084
2001............................................................................. 816,678
2002 and thereafter.............................................................. 3,233,196
----------
$7,540,851
==========
</TABLE>
(b) Contingencies
The Company has received several letters from other companies and
universities advising the Company that various products being marketed and
research being conducted by the Company may be infringing on existing patents of
such entities. These matters are presently under review by management and
outside counsel for the Company. Where valid patents of other parties are found
by the Company to be in place, management will consider entering into licensing
arrangements with the universities and/or other companies or modify the conduct
of its research. The Company's royalties may be reduced by up to 50% if its
licensees or collaborative partners are required to obtain licenses from third
parties whose patent rights are infringed by the Company's products, technology
or operations. Management believes that the ultimate outcome of these matters
will not have a material adverse effect on the financial position of the
Company.
(12) RELATED PARTY TRANSACTIONS
Effective January 1, 1993, the Company compensates its independent outside
directors on a $1,000 retainer per month. This amount increased to $1,500
effective January 1, 1995. For the years ended September 30, 1996, 1995 and
1994, such fees amounted to $108,000, $99,000, and $66,000, respectively. The
Company also has compensated four directors for consulting services performed.
Two directors have consulting agreements, the other two were paid on a per diem
basis. For the years ended September 30, 1996, 1995 and 1994, consulting
services in the amounts of $100,000, $90,000 and $85,000 respectively, were paid
by the Company pursuant to these arrangements.
One director is a partner in a law firm which represents the Company on its
patent and license matters. Fees paid to this firm for the years ended September
30, 1996, 1995 and 1994 were approximately $413,000, $260,000 and $372,000,
respectively.
(13) EMPLOYEE SAVINGS AND INVESTMENT PLAN
The Company sponsors an Employee Savings and Investment Plan under Section
401(k) of the Internal Revenue Code. The plan allows employees to defer from 2%
to 10% of their income on a pre-tax basis through contributions into designated
investment funds. For each dollar the employee invests up to 6% of his or her
earnings, the Company will contribute an additional 50 cents into the funds. For
the years ended September 30, 1996, 1995, and 1994, the Company's expenses
related to the plan were approximately $164,000, $180,000, and $168,000
respectively.
42
<PAGE> 43
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(14) EMPLOYEE RETIREMENT PLAN
On November 10, 1992, the Company adopted a plan which provides
postretirement medical and life insurance benefits to eligible employees, board
members and qualified dependents. Eligibility is determined based on age and
service requirements. These benefits are subject to deductibles, co-payment
provisions and other limitations.
The Company utilizes SFAS No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions" to account for the benefits to be
provided by the plan. Under SFAS No. 106 the cost of post retirement medical and
life insurance benefits is accrued over the active service periods of employees
to the date they attain full eligibility for such benefits. As permitted by SFAS
No. 106, the Company elected to amortize over a 20 year period the accumulated
postretirement benefit obligation related to prior service costs.
Net postretirement benefit cost for the years ended September 30, 1996,
1995 and 1994 includes the following components:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Service cost for benefits earned during the period $161,800... $ 107,175 $ 65,830
Interest cost on accumulated postretirement
benefit obligation 89,300................................ 47,181 15,591
Amortization of unrecognized net loss (gain) 18,700......... 5,855 (20,402)
Amortization of initial benefits attributable to past
service 17,500........................................... 17,549 17,549
---------- ---------
Net postretirement benefit cost $287,300.................... $ 177,760 $ 78,568
========== =========
</TABLE>
The accrued postretirement benefit cost at September 30, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation-fully eligible
active plan participants................................. $1,306,300 $ 790,437
Unrecognized cumulative net loss............................ (377,600) (121,517)
Unrecognized transition obligation.......................... (285,200) (302,717)
---------- ---------
Accrued postretirement benefit cost......................... $ 643,500 $ 366,203
========== =========
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 8 percent in 1996 and 7.5 percent in 1995 and a health care
cost trend rate of approximately 9 percent in 1996, decreasing down to 5 percent
in year 2000. Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions constant would
increase the accumulated postretirement benefit obligation as of September 30,
1996 by approximately $233,000 and the net postretirement benefit cost by
approximately $55,000.
(15) NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" was issued which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain intangibles to be disposed of. SFAS No. 121 requires that long-lived
assets and certain intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying
43
<PAGE> 44
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
amount of the asset may not be recoverable. SFAS No. 121 must be implemented no
later than fiscal 1997. The adoption of SFAS No. 121 is not expected to have
material impact on the Company's consolidated financial position or operating
results.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation",
was issued which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, SFAS No. 123 would permit the
Company to continue to measure compensation costs for its stock option plans
using the intrinsic value based method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees". If the Company elected to
remain with its current accounting, the Company must make pro forma disclosures
of net income and earnings (loss) per share as if the fair value based method of
accounting had been applied. SFAS No. 123 must be implemented no later than
fiscal 1997. The Company has not yet determined the valuation method it will
employ or the effect on operating results of implementing SFAS No. 123.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
44
<PAGE> 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's Proxy Statement for its 1997 Annual
Meeting to be filed with the Securities and Exchange Commission not later than
120 days after September 30, 1996. (The "1997 Proxy")
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's 1997 Proxy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's 1997 Proxy.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's 1997 Proxy.
45
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements are included in
Part II, Item 8 of this report:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) All schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(3) The exhibits listed in the Exhibit Index on pages 48 and 49 hereof
are attached hereto or incorporated herein by reference and filed
as a part of this report.
(b) Reports on Form 8-K
None.
46
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONCOGENE SCIENCE, INC.
By: /s/ GARY E. FRASHIER
------------------------
Gary E. Frashier
Chief Executive Officer
December 23, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the days indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
/s/ GARY E. FRASHIER Chief Executive Officer and December 23, 1996
- --------------------------------------------- Director
Gary E. Frashier
President and Director
- ---------------------------------------------
Steven M. Peltzman
/s/ ROBERT L. VAN NOSTRAND Vice President and December 23, 1996
- --------------------------------------------- Administration (Principal
Robert L. Van Nostrand Financial Officer
/s/ EDWIN A. GEE, PH.D Director December 23, 1996
- ---------------------------------------------
Edwin A. Gee, Ph.D
/s/ G. MORGAN BROWNE Director December 23, 1996
- ---------------------------------------------
G. Morgan Browne
/s/ JOHN H. FRENCH, II Director December 23, 1996
- ---------------------------------------------
John H. French, II
/s/ DARRYL GRANNER M.D. Director December 23, 1996
- ---------------------------------------------
Darryl Granner M.D.
/s/ WALTER M. LOVENBERG, PH.D. Director December 23, 1996
- ---------------------------------------------
Walter M. Lovenberg, Ph.D.
/s/ GARY TAKATA Director December 23, 1996
- ---------------------------------------------
Gary Takata
/s/ JOHN P. WHITE Director December 23, 1996
- ---------------------------------------------
John P. White, Esquire
</TABLE>
47
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- ------------
<C> <C> <S>
3.2 -- Certificate of Incorporation, as amended (1)
3.2 -- Bylaws, as amended (1)
10.1 -- 1985 Stock Option Plan (filed as an exhibit to the Company's registration statement
on Form S-1 (file no. 33-3148) and incorporated herein by reference)
10.2 -- 1989 Incentive and Non-Qualified Stock Option Plan (filed as an exhibit to the
Company's registration statement on Form S-8 (file no. 33-38443) and incorporated
herein by reference)
10.3* -- 1993 Incentive and Non-Qualified Stock Option Plan, as amended
10.4 -- 1993 Employee Stock Purchase Plan (filed as an exhibit to the Company's
registration statement on Form S-8 (file no. 33-60182) and incorporated herein by
reference)
10.5* -- Employment Agreement dated as of February 9, 1990 between the Company and Gary E.
Frashier
10.6* -- Employment Agreement dated as of August 27, 1991 between the Company and Steven M.
Peltzman, which is substantially identical in all material respects to the
Employment Agreement dated as of April 28, 1993 between the Company and Colin
Goddard, Ph.D.
10.7 -- Agreement dated as of February 18, 1987 between The University of Massachusetts and
Applied bioTechnology, Inc. (2)
10.8 -- Letter Agreement dated October 1, 1991 among AbT Acquisition Corp., the Company and
E. I. duPont de Nemours and Company(2)
10.9*+ -- Agreement dated September 27, 1996 between the Company and Becton, Dickinson and
Company
10.10+ -- Collaborative research Agreement dated April 1, 1996 between the Company and Pfizer
Inc. (3)
10.11+ -- License Agreement dated April 1, 1996 between the Company and Pfizer Inc. (3)
10.12+ -- Stockholders' Agreement dated April 23, 1996 among Anaderm Research Corp., the
Company, Pfizer Inc., New York University and certain individuals (3)
10.13+ -- Collaborative Research Agreement dated April 23,1996 amount the Company, Pfizer
Inc. and Anaderm Research Corp. (3)
10.14 -- Registration Rights Agreement dated April 11, 1996 among the Company and the former
stockholders of MYCOsearch, Inc. and their designees (3)
10.15 -- Form of Warrants issued by the Company to the former stockholders of MYCOsearch,
Inc. and their designees covering an aggregate of 100,000 shares of common stock
(3)
10.16 -- Employment Agreement dated April 11, 1996 between the Company and Dr. Barry Katz
(3)
10.17+ -- Collaborative Research Agreement dated as of December 31, 1991 between the Company
and American Home Products Corporation (4)
10.18+ -- Amendatory Agreement dated as of December 31, 1993 between the Company and American
Home Products Corporation (4)
10.19+ -- Collaborative Research Agreement dated as of January 4, 1993 between the Company
and Hoechst AG (4)
10.20+ -- Collaborative Research Agreement dated as of October 1, 1993 between the Company
and Hoechst Roussel Pharmaceuticals, Inc. (4)
10.21 -- Common Stock Purchase Warrant granted to Marion Merrell Dow, Inc. dated December
11, 1992 (5)
10.22 -- Collaborative Research and License Agreement dated December 11, 1992 between the
Company and Marion Merrell Dow, Inc. (5)
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBITS
- ------------
<C> <C> <S>
10.23 -- Collaborative Agreement dated as of April 19, 1995 between the Company and
Ciba-Geigy Limited (6)
10.24 -- Letter Agreement dated as of April 19, 1995 between the Company and Ciba-Geigy
Limited (6)
10.25 -- Registration Rights Agreement dated as of April 19, 1995 between the Company and
Ciba-Geigy Limited (6)
10.26 -- Asset Purchase Agreement dated June 26, 1995 among the Company, Calbiochem-Novabi-
ochem International, Inc. and Calbiochem-Novabiochem Corporation (7)
10.27 -- New Product License Right of First Refusal Agreement dated August 2, 1995 between
the Company and Calbiochem-Novabiochem Corporation (7)
21* -- Subsidiaries of the Company
23* -- Consent of KPMG Peat Marwick, LLP, independent public accountants
27* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Portions of this exhibit have been redacted and are subject to a
confidential treatment request filed with the Secretary of the Securities
and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.
(1) Filed as an exhibit to the Company's registration statement on Form S-3
(file no. 333-937) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's registration statement on Form S-2,
as amended (file no. 33-42369), and incorporated herein by reference.
(3) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 1996, as amended, and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended December 31, 1995, as amended, and incorporated herein
by reference.
(5) Filed as an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended September 30, 1992 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended September 30, 1995, as amended, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's current report on Form 8-K dated August
2, 1995 and incorporated herein by reference.
49
<PAGE> 1
EXHIBIT 10.3
ONCOGENE SCIENCE, INC.
1993 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1993 Incentive and Non-Qualified Stock Option Plan (the
"Plan" is to encourage and enable selected management, other key employees,
directors (whether or not employees), and consultants of Oncogene Science, Inc.
(the "Company") or a parent or subsidiary of the Company to acquire a
proprietary interest in the Company through the ownership of common stock, par
value $.01 per share (the "Common Stock"), of the Company. Such ownership will
provide such employees, directors, and consultants with a more direct stake in
the future welfare of the Company, and encourage them to remain with the Company
or a parent or subsidiary of the Company. It is also expected that the Plan will
encourage qualified persons to seek and accept employment with, or become
associated with, the Company or a parent or subsidiary of the Company. Pursuant
to the Plan, such persons will be offered the opportunity to acquire Common
Stock through the grant of incentive stock options and "non-qualified" stock
options.
As used herein, the term "parent" or "subsidiary" shall mean any present or
future corporation which is or would be a "parent corporation" or "subsidiary
corporation" of the Company as the term is defined in Section 425 of the
Internal Revenue Code of 1986, as amended (the "Code") (determined as if the
Company were the employer corporation).
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a Stock Option Committee (the
"Committee") as appointed from time to time by the Board of Directors of the
Company, which committee shall consist of not less than three members of the
Board of Directors and each member of which shall be a "disinterested person,"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any successor rule or regulation
("Rule 16b-3"). Except as otherwise specifically provided herein, no person,
other than members of the Committee, shall have any discretion as to decisions
regarding the Plan.
In administering the Plan, the Committee may adopt rules and regulations
for carrying out the Plan. The interpretation and decision made by the Committee
with regard to any question arising under the Plan shall be final and conclusive
on all persons participating or eligible to participate in the Plan. Subject to
the provisions of the Plan, the Committee shall determine the terms of all
options granted pursuant to the Plan, including, but not limited to, the persons
to whom, and the time or times at which, grants shall be made, the number of
options to be included in the grants, the number of options which shall be
treated as incentive stock options, and the option price.
3. SHARES OF STOCK SUBJECT TO THE PLAN
Except as provided in subparagraphs 6(h) and 6(i) and paragraph 7, the
number of shares that may be issued or transferred pursuant to the exercise of
options granted under the Plan shall not exceed 1,600,000 shares of Common
Stock. Such shares may be authorized and unissued shares or previously issued
shares acquired or to be acquired by the Company and held in treasury. Any
shares subject to an option which for any reason expires or is terminated
unexercised as to such shares may again be subject to an option right under the
Plan. The aggregate Fair Market Value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
the Plan and all plans of the Company and any parent and subsidiary of the
Company) shall not exceed $100,000.
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4. ELIGIBILITY
Incentive stock options may be granted only to management and other key
employees who are employed by the Company or a parent or subsidiary of the
Company. An incentive stock option may be granted to a director of the Company
or a parent or subsidiary of the Company, provided that the director is also an
officer or key employee. Directors who are not officers or key employees, and
consultants, may only be granted non-qualified stock options.
5. GRANTING OF OPTIONS
No options pursuant to this Plan may be granted after the expiration of
business on January 14, 2003. The date of the grant of any option shall be the
date on which the Committee authorizes the grant of such option.
6. OPTIONS
Options shall be evidenced by stock option agreements in such form, not
inconsistent with this Plan, as the Committee shall approve from time to time,
which agreements need not be identical and shall be subject to the following
terms and conditions:
(a) Option Price. The purchase price under each incentive stock
option shall be not less than 100% of the Fair Market Value of the Common
Stock at the time the option is granted and not less than the par value of
such Common Stock. In the case of an incentive stock option granted to an
employee owning more than 10% of the total combined voting power of all
classes of stock of the Company or of any parent or subsidiary of the
Company (a "10% Stockholder"), actually or constructively under Section
425(d) of the Code, the option price shall not be less than 110% of the
Fair Market Value of the Common Stock subject to the option at the time of
its grant. The purchase price under each non-qualified stock option shall
be specified by the Committee, but shall in no case be less than the
greater of 50% of the Fair Market Value of the Common Stock at the time the
option is granted and the par value of such Common Stock.
(b) Medium and Time of Payment. Stock purchased pursuant to the
exercise of an option shall at the time of purchase be paid for in full in
cash, or, upon conditions established by the Committee, by delivery of
shares of Common Stock owned by the recipient. If payment is made by the
delivery of shares, the value of the shares delivered shall be the Fair
Market Value of such shares on the date of exercise of the respective
option. Upon receipt of payment and such documentation as the Company may
deem necessary to establish compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Company shall, without stock transfer
tax to the optionee or other person entitled to exercise the option,
deliver to the person exercising the option a certificate or certificates
for such shares. It shall be a condition to the performance of the
Company's obligation to issue or transfer Common Stock upon exercise of an
option or options that the optionee pay, or make provision satisfactory to
the Company for the payment of, any taxes (other than stock transfer taxes)
which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon such exercise, including any federal, state,
or local withholding taxes.
(c) Waiting Period. The waiting period and time for exercising an
option shall be prescribed by the Committee in each particular case;
provided, however, that no option may be exercised after 10 years from the
date it is granted. In the case of an incentive stock option granted to a
10% Stockholder, such option, by its terms, shall be exercisable only
within five years from the date of grant.
(d) Rights as a Stockholder. A recipient of options shall have no
rights as a stockholder with respect to any shares issuable or transferable
upon exercise thereof until the date a stock certificate is issued to him
for such shares. Except as otherwise expressly provided in the Plan, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
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(e) Non-Assignability of Options. No option shall be assignable or
transferable by the recipient except by will or by the laws of descent and
distribution. During the lifetime of a recipient, options shall be
exercisable only by him.
(f) Effect of Termination of Employment. If a recipient's employment
(or service as an officer, director or consultant) shall terminate for any
reason, other than death or Retirement, the right of the recipient to
exercise any option otherwise exercisable on the date of such termination
shall expire unless such right is exercised within a period of 90 days
after the date of such termination. The term "Retirement" shall mean the
voluntary termination of employment (or service as an officer, director or
consultant) by a recipient who has attained the age of 55 and who has at
least five years' service with the Company. If a recipient's employment (or
service as an officer, director or consultant) shall terminate because of
death or Retirement, the right of the recipient to exercise any option
otherwise exercisable on the date of such termination shall be unaffected
by such termination and shall continue until the normal expiration of such
option. Notwithstanding the foregoing, the tax treatment available pursuant
to Section 422 of the Code upon the exercise of an incentive stock option
will not be available to a recipient who exercises any incentive stock
option more than (i) 12 months after the date of termination of employment
due to death or permanent disability or (ii) three months after the date of
termination of employment due to Retirement. Option rights shall not be
affected by any change of employment as long as the recipient continues to
be employed by either the Company or a parent or subsidiary of the Company.
In no event, however, shall an option be exercisable after the expiration
of its original term as determined by the Committee pursuant to
subparagraph 6(c) above. The Committee may, if it determines that to do so
would be in the Company's best interests, provide in a specific case or
cases for the exercise of options which would otherwise terminate upon
termination of employment with the Company for any reason, upon such terms
and conditions as the Committee determines to be appropriate. Nothing in
the Plan or in any option agreement shall confer any right to continue in
the employ of the Company or any parent or subsidiary of the Company or
interfere in any way with the right of the Company or any parent or
subsidiary of the Company to terminate the employment of a recipient at any
time.
(g) Leave of Absence. In the case of a recipient on an approved leave
of absence, the Committee may, if it determines that to do so would be in
the best interests of the Company, provide in a specific case for
continuation of options during such leave of absence, such continuation to
be on such terms and conditions as the Committee determines to be
appropriate, except that in no event shall an option be exercisable after
10 years from the date it is granted.
(h) Recapitalization. In the event that dividends payable in Common
Stock during any fiscal year of the Company exceed in the aggregate five
percent of the Common Stock issued and outstanding at the beginning of the
year, or in the event there is during any fiscal year of the Company one or
more splits, subdivisions, or combinations of shares of Common Stock
resulting in an increase or decrease by more than five percent of the
shares outstanding at the beginning of the year, the number of shares
available under the Plan shall be increased or decreased proportionately,
as the case may be, and the number of shares deliverable upon the exercise
thereafter of any options theretofore granted shall be increased or
decreased proportionately, as the case may be, without change in the
aggregate purchase price. Common Stock dividends, splits, subdivisions, or
combinations during any fiscal year which do not exceed in the aggregate
five percent of the Common Stock issued and outstanding at the beginning of
such year shall be ignored for purposes of the Plan. All adjustments shall
be made as of the day such action necessitating such adjustment becomes
effective.
(i) Sale or Reorganization. In case the Company is merged or
consolidated with another corporation, or in case the property of stock of
the Company is acquired by another corporation, or in case of a separation,
reorganization, or liquidation of the Company, the Board of Directors of
the Company, or the board of directors of any corporation assuming the
obligations of the Company hereunder, shall either (i) make appropriate
provisions for the protection of any outstanding options by the
substitution on an equitable basis of appropriate stock of the Company, or
appropriate stock of the merged, consolidated, or otherwise reorganized
corporation, provided only that such substitution of options shall, with
respect to incentive stock options, comply with the requirements of Section
425 of the Code, or (ii) give written
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notice to optionees that their options, which will become immediately
exercisable notwithstanding any waiting period otherwise prescribed by the
Committee, must be exercised within 30 days of the date of such notice or
they will be terminated.
(j) General Restrictions. Each option granted under the Plan shall be
subject to the requirement that, if at any time the Board of Directors
shall determine, in its discretion, that the listing, registration, or
qualification of the shares issuable or transferable upon exercise thereof
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the granting of such
option or the issue, transfer, or purchase of shares thereunder, such
option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected
or obtained free of any conditions not acceptable to the Board of
Directors.
The Company shall not be obligated to sell or issue any shares of
Common Stock in any manner in contravention of the Securities Act or any
state securities law. The Board of Directors may, in connection with the
granting of each option, require the individual to whom the option is to be
granted to enter into an agreement with the Company stating that as a
condition precedent to each exercise of the option, in whole or in part, he
shall, if then required by the Company, represent to the Company in writing
that such exercise is for investment only and not with a view to
distribution, and also setting forth such other terms and conditions as the
Committee may prescribe. Such agreements may also, in the discretion of the
Committee, contain provisions requiring the forfeiture of any options
granted and/or Common Stock held, in the event of the termination of
employment or association, as the case may be, of the optionee with the
Company. Upon any forfeiture of Common Stock pursuant to an agreement
authorized by the preceding sentence, the Company shall pay consideration
for such Common Stock to the optionee, pursuant to any such agreement,
without interest thereon.
"Fair Market Value" for all purposes under the Plan shall mean the
closing price of shares of Common Stock, as reported in The Wall Street
Journal, in the NASDAQ National Market Issues or similar successor
consolidated transactions reports (or a similar consolidated transactions
report for the exchange on which the shares of Common Stock are then
trading) for the relevant date, or if no sales of shares of Common Stock
were made on such date, the average of the high and low prices of shares as
reported in such composite transaction report for the preceding day on
which sales of shares were made. If the shares are not listed on a national
securities exchange or the NASDAQ National Market System at the time Fair
Market Value is to be determined, then Fair Market Value shall be
determined by the Committee in good faith pursuant to such method as to the
Committee deems appropriate and equitable. Under no circumstances shall the
Fair Market Value of a share of Common Stock be less than its par value.
7. TERMINATION AND AMENDMENT OF THE PLAN
The Board of Directors shall have the right to amend, suspend, or terminate
the Plan at any time; provided, however, that no such action shall affect or in
any way impair the rights of a recipient under any option right theretofore
granted under the Plan; and, provided, further, that unless first duly approved
by the stockholders of the Company entitled to vote thereon at a meeting (which
may be the annual meeting) duly called and held for such purpose, except as
provided in subparagraphs 6(h) and 6(i), no amendment or change shall be made in
the Plan: (a) increasing the total number of shares which may be issued or
transferred under the Plan; (b) changing the purchase price hereinbefore
specified for the shares subject to options; (c) extending the period during
which options may be granted or exercised under the Plan; or (d) changing the
designation of persons eligible to receive options under the Plan.
8. RESTRICTION OF SALE OF SHARES
Without the written consent of the Company, no stock acquired by an
optionee upon exercise of an incentive stock option granted hereunder may be
disposed of by the optionee within two years from the date such incentive stock
option was granted, nor within one year after the transfer of such stock to the
optionee;
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provided, however, that a transfer to a trustee, receiver, or other fiduciary in
any insolvency proceeding, as described in Section 422A(c)(3) of the Code, shall
not be deemed to be such a disposition. The optionee shall make appropriate
arrangements with the Company for any taxes which the Company is obligated to
collect in connection with any such disposition, including any federal, state,
or local withholding taxes.
9. EFFECTIVE DATE OF THE PLAN
This Plan shall become effective January 15, 1993, subject, however, to
approval by the stockholders of the Company within 12 months next following
adoption by the Board of Directors; and if such approval is not obtained, the
Plan shall terminate and any and all options granted during such interim period
shall also terminate and be of no further force or effect. The Plan shall, in
all events, terminate on January 14, 2003, or on such earlier date as the Board
of Directors of the Company may determine. Any option outstanding at the
termination date shall remain outstanding until it has either expired of has
been exercised.
10. COMPLIANCE WITH RULE 16B-3
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or is successors. To the extent any provision of the
Plan or action by the Committee (or any other person on behalf of the Committee
or the Company) fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
11. AUTOMATIC GRANT OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Each director who is not also an employee of the Company or any of its
affiliates or the designee of any stockholder of the Company pursuant to a right
to designate one or more directors (an "Eligible Director") shall automatically
be awarded a grant of 50,000 non-qualified stock options upon his or her initial
election to the Board of Directors. Such options shall vest and be exercisable
solely in accordance with the following schedule:
(i) The options may be exercised with respect to a maximum of one-half
of the option shares during the twelve-month period beginning after
the date of grant.
(ii) The options may be exercised with respect to all of the option
shares upon the Eligible Director's reelection to the Board of
Directors for a second consecutive term.
(iii) The options will expire and will no longer be exercisable as of
the tenth anniversary of the date of grant, subject to sooner
expiration upon the occurrence of certain events as provided
elsewhere in this Plan.
(b) In addition to the grant provided in subsection (a), each Eligible
Director shall automatically be awarded a grant of non-qualified stock options
upon the re-election of such Eligible Director to a third or subsequent,
successive term, in the amount and at the times hereinafter set forth. Such
automatic grants of non-qualified stock options shall commence on June 21, 1995,
and shall occur annually thereafter on the date of the annual meeting of
stockholders for such year until the termination of the Plan. The number of
options to which each Eligible Director shall be entitled pursuant to this
subsection (b) shall be as follows:
(i) 20,000 on the later of June 21, 1995, or the date of the Eligible
Director's reelection to a third one-year term;
(ii) 20,000 on the later of the date of the annual meeting of
stockholders in 1996, or the date of the Eligible Director's
reelection to a fourth one-year term;
(iii) 15,000 on the later of the date of the annual meeting of
stockholders in 1997, or the date of the Eligible Director's
reelection to a fifth one-year term;
(iv) 15,000 on the later of the date of the annual meeting of
stockholders in 1998, or the date of the Eligible Director's
reelection to a sixth one-year term;
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(v) 10,000 on the later of the date of the annual meeting of
stockholders in 1999, or the date of the Eligible Director's
reelection to a seventh one-year term;
(vi) 10,000 on the later of the date of the annual meeting of
stockholders in 2000, or the date of the Eligible Director's
reelection to an eighth one-year term; and
(vii) 10,000 on the later of the date of the annual meeting of
stockholders in 2001, or the date of the Eligible Director's
reelection to a ninth one-year term.
Such options shall vest and be exercisable solely in accordance with the
following schedule:
(i) The options shall not be exercisable during the twelve-month period
beginning after the date of grant.
(ii) The options may be exercised with respect to one-third of the
option shares after the expiration of twelve months from the date
of grant.
(iii) The remaining two-thirds of the options shall vest and become
exercisable ratably on a monthly basis over the two-year period
commencing one year from the date of grant and ending three years
from the date of grant.
(iv) The options will expire and will no longer be exercisable as of the
tenth anniversary of the date of grant, subject to sooner
expiration upon the occurrence of certain events as provided
elsewhere in this Plan.
(c) The option price for all options awarded under this Section 11 shall be
equal to 100 percent of the Fair Market Value on the date of grant.
(d) This Section 11 shall not be amended more often than once every six
months, other than to comport with changes in the Internal Revenue Code, the
Employment Retirement Income Security Act, or the rules thereunder.
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 9, 1990, between ONCOGENE
SCIENCE, INC., a Delaware corporation having a place of business at 350
Community Drive, Manhasset, New York 11030 (the "Company"), and Gary E.
Frashier, who resides at 10812 Whiterim Drive, Potomac, Maryland 20854
("Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to engage Executive to perform services for
the Company and any subsidiary or affiliate of the Company, and Executive
desires to perform such services, on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Company and Executive, in consideration of the mutual
promises contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, hereby agree
as follows:
1. TERM
The Company hereby employs Executive, and Executive hereby accepts such
employment, upon the terms and conditions hereinafter set forth. Executive shall
perform the duties required of him hereunder during the period commencing on
March 1, 1990 and ending on February 28, 1993; provided, however, that on
February 28, 1993, and on each February 28 thereafter, such period shall be
automatically extended by one additional year unless at least 60 days prior to
any such February 28 either party shall deliver to the other written notice that
such period will not be extended, in which case this Agreement will terminate
upon the expiration of this then existing term of this Agreement, including any
previous extension. The period during which Executive shall perform the services
required of him hereunder (as same may be extended as provided in this Section 1
or reduced as hereinafter provided) is hereinafter referred to as the
"Employment Period."
2. DUTIES
(a) Executive shall serve, at the pleasure of the Board of Directors of the
Company, as President and Chief Executive Officer of the Company. In his
capacities as President and Chief Executive Officer, Executive shall perform for
the Company, and any subsidiary or affiliate of the Company, such duties
generally associated with such positions as well as such other duties consistent
with such positions as may be prescribed from time to time by the Board of
Directors.
(b) Subject to the exercise by the Board of Directors of its fiduciary
duties, during the Employment Period, Executive shall be nominated by the Board
of Directors for election as a director of the Company and, if elected by the
stockholders of the Company, agrees to serve as such and shall not receive any
additional compensation for serving in such capacity.
(c) Executive agrees to devote his full time, labor, energies and attention
to the performance of his duties hereunder, subject to the provisions of
Paragraph 10(a) hereof. (d) Executive agrees not to become involved in any
personal investment or business matters which may detract from the performance
of his duties or otherwise adversely affect the Company or any subsidiary or
affiliate of the Company.
3. PLACE OF PERFORMANCE
In connection with his employment by the Company, Executive shall be based
at the principal executive offices of the Company, but shall be available to
travel at such times and to such places as may be reasonably necessary in
connection with the performance of his duties hereunder.
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4. COMPENSATION
(a) Base Salary. During the Employment Period, Executive shall receive a
minimum base salary at the annual rate of $185,000, plus such other amounts, if
any, as the Board of Directors of the Company, in its sole discretion, may from
time to time determine. Executive's base salary shall be reviewed annually;
provided, however, that in no event shall Executive's base salary be reduced
below an annual rate of $185,000. Executive's salary shall be payable in
bi-weekly installments or at such other frequency as the Company may from time
to time determine.
(b) Incentive Bonus Opportunity. In addition to his base salary, Executive
may receive incentive bonus compensation in respect of the Company's fiscal year
ending September 30, 1990 and each subsequent fiscal year ending during the
Employment Period, in an amount up to 50% of Executive's base salary on the
first day of the applicable fiscal year (the "Annual Award"). The amount, if
any, of each such Annual Award shall be determined by the Board of Directors of
the Company in its sole discretion; provided, however, that the Annual Award in
respect of the fiscal year ending September 30, 1990 shall not be less than
12.5% of the salary payments made to Executive pursuant to Section 4(a) during
such fiscal year. Executive shall not receive any Annual Award unless he is
employed by the Company at the end of the fiscal year to which such Annual Award
relates. Any Annual Award will be paid to Executive within 90 days following the
end of the fiscal year to which such Annual Award relates.
5. STOCK OPTIONS
(a) Subject to the execution and delivery of this Agreement by the Company
and Executive, the Company's Board of Directors has granted to Executive options
to purchase 132,810 shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), under the Company's 1985 Stock Option Plan (the "1985
Plan"), at an exercise price of $1.75 per share. Such options have been
designated "Supplemental Stock Options" as defined in the 1985 Plan, and shall
be exercisable (i) immediately upon the commencement of the Employment Period as
to 100,000 shares and (ii) on the first anniversary of the date of commencement
of the Employment Period as to 32,810 shares, in each case provided Executive is
still employed by the Company on such date (subject, however, to the provisions
of Paragraph 8(c) hereof). The option agreement evidencing such options shall
contain such other terms and conditions consistent with the 1985 Plan as the
Board of Directors of the Company or the officer signing the same shall approve.
(b) Subject to the execution and delivery of this Agreement by the Company
and Executive, the Company's Board of Directors has granted to Executive
(subject to the approval of stockholders of the Company referred to below)
options to purchase 317,190 shares of Common Stock under the Company's 1989
Incentive and Non-Qualified Stock Option Plan (the "1989 Plan") at an exercise
price equal to $1.75 per share. Such options have been designated "nonqualified
stock options" as defined by the Internal Revenue Code of 1986, as amended (the
"Code"), and, subject to approval of the 1989 Plan by stockholders of the
Company, shall be exercisable (i) as to 67,190 shares on the first anniversary
of the date of commencement of the Employment Period, (ii) as to 100,000 shares
on the second anniversary of the date of commencement of the Employment Period,
and (iii) as to 150,000 shares on the third anniversary of the date of
commencement of the Employment Period, in each case provided Executive is still
employed by the Company on such date (subject, however, to the provisions of
Paragraph 8(c) hereof). The option agreement evidencing such options shall
contain such other terms and conditions consistent with the 1989 Plan as the
Board of Directors of the Company or the officer signing the same shall approve.
(c) The grant of the options referred to in Paragraph 5(b) above, shall be
subject to approval of the 1989 Plan by stockholders of the Company at the next
annual meeting of stockholders. The Company shall submit the 1989 Plan to
stockholders at said meeting, and the Board of Directors of the Company, subject
to the exercise of its fiduciary duties, shall recommend that stockholders
approve the 1989 Plan.
(d) Executive shall be eligible to receive such additional options as the
Board of Directors of the Company shall determine in its sole discretion.
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6. EXPENSES
(a) Temporary Living Expenses. Until the earlier of (i) the date on which
Executive moves from his present residence in Potomac, Maryland, or (ii) seven
months from the date hereof, the Company shall reimburse Executive for
reasonable temporary living expenses actually incurred by Executive, up to a
maximum of $1,800 per month and a maximum aggregate amount of $10,800, provided
that Executive properly accounts for such expenses in accordance with Company
policy. Executive shall be responsible for all applicable federal, state and
local taxes resulting from such reimbursement.
(b) Relocation Expenses. If within 18 months from the date hereof,
Executive moves from his present residence in Bethesda, Maryland, to a new
residence located in New York State within a 20 mile radius (or such further
distance as may be approved by the Board of Directors of the Company) of the
Company's principal executive offices in Manhasset, Long Island, New York, the
Company shall reimburse Executive for all reasonable and necessary expenses
incurred by Executive in connection with such relocation, up to a maximum of
$50,000. Executive shall be responsible for all applicable federal, state and
local taxes resulting from such reimbursement.
(c) Other Expenses. During the Employment Period, Executive shall be
entitled to reimbursement for all reasonable out-of-pocket expenses necessarily
incurred in performing services hereunder within the limits of authority which
may be established from time to time by the Board of Directors, provided that
Executive properly accounts for such expenses in accordance with Company policy.
7. EMPLOYEE BENEFITS
(a) Use of Automobile. The Company shall provide Executive with the use of
an automobile during the Employment Period and shall reimburse Executive for his
reasonable and necessary expenses in connection with the use of such vehicle in
furtherance of the business of the Company, provided that Executive properly
accounts for such expenses in accordance with Company policy.
(b) Vacation. Executive shall be entitled to four weeks paid vacation per
calendar year which may be taken at such time or times as Executive may elect,
subject to the needs of the Company's business. Executive shall also be entitled
to all paid holidays given by the Company to its senior executive officers.
(c) Savings Plan. To the extent permitted by the Company's Savings and
Investment Plan, as amended (the "Savings Plan"), Executive may roll-over into
the Savings Plan amounts held for his account pursuant to any plan established
pursuant to Section 401(k) of the Code.
(d) Other Benefits. Executive shall be entitled to participate in such
term life insurance, basic medical, major medical, dental and other employee
benefit plans established by the Company from time to time and generally made
available to employees at levels similar to Executive's for which he meets the
eligibility requirements.
8. TERMINATION
(a) The Company may terminate this Agreement at any time after the first
anniversary of the date of commencement of the Employment Period, and for any
reason whatsoever (or for no reason), by giving not less than 30 days' prior
written notice to Executive. Subject to the provisions of Paragraphs 8(e) and
8(f) hereof, in the event this Agreement is terminated by the Company other than
for a reason set forth in Paragraph 8(b) hereof, (i) Executive shall be entitled
to receive his base salary at the rate in effect on the date notice of
termination is given through the effective date of such termination and any
Annual Award granted through such date which has not yet been paid; and (ii)
Executive shall continue to receive his base salary at the rate in effect on the
date notice of termination is given (x) for the nine months immediately
succeeding the effective date of such termination in the case of a termination
which takes effect between the first and second anniversaries of the date of
commencement of the Employment Period; and (y) for the six months immediately
succeeding the effective date of such termination in the case of a termination
which takes effect between the second and third anniversaries of the date of
commencement of the Employment Period.
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(b) Notwithstanding anything herein contained to the contrary, if after the
date hereof and prior to the end of the Employment Period, (i) either (A)
Executive shall be physically or mentally incapacitated or disabled or otherwise
unable fully to discharge his duties hereunder ("Disabled") for a period of 90
consecutive days or for an aggregate of 90 days within any period of twelve
consecutive months, (B) Executive shall be convicted of a felony or other crime
involving moral turpitude, (C) Executive shall commit any act or omit to take
any action in bad faith and to the detriment of the Company or any subsidiary or
affiliate of the Company, or (D) Executive shall breach any material term of
this Agreement and fail to correct such breach within 10 days after receiving
notice of the same, then, and in each such case, the Company shall have the
right to give notice of termination of Executive's services hereunder as of a
date to be specified in such notice (which date may be the date such notice is
given), and this Agreement shall terminate on the date so specified; or (ii)
Executive shall die, then this Agreement shall terminate on the date of
Executive's death. If this Agreement is terminated by the Company for any of the
reasons set forth in this Paragraph 8(b), Executive or his estate, as the case
may be, shall be entitled to receive his base salary at the rate in effect on
the date notice of termination is given or the date of Executive's death, as the
case may be, to the date on which termination shall take effect and any Annual
Award granted through such date which has not been paid; provided, however, that
if Executive is Disabled, the amount payable to Executive pursuant to this
Paragraph 8(b) shall be reduced by an amount equal to the amounts, if any, to
which he is entitled with respect to such period pursuant to any insurance or
other plan established by the Company in which he is a participant.
(c) In the event of a Change in Control of the Company (as hereinafter
defined), and if, as a result of such Change in Control, Executive's title, job
duties, base salary or employee benefits are not substantially similar to those
enjoyed or performed by Executive prior to such Change in Control, then,
Executive may terminate this Agreement at any time within 150 days after such
Change in Control by giving at least 30 days' prior written notice to the
Company. Subject to the provisions of Paragraphs 8(e) and 8(f) hereof, in the
event this Agreement is terminated by Executive pursuant to this Paragraph 8(c),
(i) Executive shall be entitled to receive his base salary at the rate in effect
on the date of the Change in Control through the effective date of termination
and any Annual Award which he has earned through such date which has not yet
been paid; (ii) the Company shall pay to Executive, in a lump sum payment, an
amount equal to 2.99 times his base salary at the rate in effect on the date of
the Change in Control; and (iii) all of the stock options which have been
granted to Executive pursuant to Paragraph 5 hereof shall become immediately
exercisable on the date which is one day prior to the effective date of such
termination and, subject to the provisions of the plan pursuant to which they
were granted and the option agreements evidencing such grant, shall remain
exercisable for the term provided for therein notwithstanding such termination.
(d) As used in this Agreement, "Change in Control" shall mean one or more
of the following events:
(i) the Company shall consolidate with or merge into any other
corporation or any corporation shall consolidate with or merge into the
Company (other than a consolidation or merger of the Company with any
subsidiary or affiliate of the Company), in either event pursuant to a
transaction in which the holders of 100% of the voting securities of the
Company outstanding immediately prior to the effectiveness thereof do not
vote or direct the power to vote at least a majority of the outstanding
voting securities of the surviving entity upon effectiveness thereof;
(ii) the Company shall convey, transfer or lease all or substantially
all of its assets to any person or entity or group of persons or entities
(other than to any subsidiary or affiliate of the Company); or
(iii) any person or entity (other than the Company or any subsidiary,
employee benefit plan or affiliate of the Company, Executive or any
affiliate of Executive or any "group" (within the meaning referred to
below) of which Executive or any affiliate of Executive is a member, or any
person or entity who on the date hereof beneficially owns 5% or more of the
Common Stock), including a "group" (within the meaning of section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended) that includes
such person or entity, shall purchase or otherwise acquire, directly or
indirectly, beneficial ownership of securities of the Company and, as a
result of such purchase or acquisition, such person or entity (together
with its associates and affiliates) shall, directly or indirectly,
beneficially own in
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the aggregate (A) more than 50% of the Common Stock, or (B) securities
representing more than 50% of the Company's voting securities, in each
case, outstanding on the date immediately prior to the date of such
purchase or acquisition (or, if there be more than one, the last such
purchase or acquisition)
(e) Notwithstanding anything contained in this Agreement to the contrary,
the amount of any payment or benefit payable to Executive pursuant to Paragraph
8(a) or 8(c) hereof shall be reduced by the amount of compensation earned by,
and benefits provided for, Executive as a result of or in connection with his
becoming an officer, director, employee, consultant, advisor, lender,
stockholder, owner or partner of any other business or organization after the
effective date of his termination pursuant to Paragraph 8(a) or 8(c), as the
case may be.
(f) If any portion of any payment payable to Executive pursuant to this
Agreement which, after taking into account all other agreements between the
Company and Executive, is not deductible pursuant to Section 280G of the Code,
the amount of such portion, reduced by the Tax Amount (as hereinafter defined),
shall be paid to Executive. For purposes of this Agreement, the Tax Amount shall
be the amount of such portion multiplied by a percentage equal to the sum of the
highest federal and New York state marginal corporate income tax rates in effect
at the time of such payment. The Company shall be entitled to withhold any taxes
resulting from such payment in addition to any other withholding required by
law. All determinations required by Section 280G of the Code will be made by the
Company.
9. CONFIDENTIALITY
(a) Beginning on the date hereof, and at any time hereafter, Executive
shall treat as confidential any proprietary, confidential or secret information
relating to the business or interests of the Company or any subsidiary or
affiliate of the Company, including, without limitation, the organizational
structure, operations, business plans or technical projects of the Company or
any subsidiary or affiliate of the Company, and any research datum or result,
invention, trade secret, customer list, process or other work product developed
by or for the Company or any subsidiary or affiliate of the Company, whether on
the premises of the Company or elsewhere ("Confidential Information"). Beginning
on the date hereof, and at any time hereafter, Executive shall not disclose,
utilize or make accessible in any manner or in any form any Confidential
Information other than in connection with performing the services required of
him under this Agreement, without the prior written consent of the Company.
Notwithstanding the foregoing, the provisions of this Paragraph 9(a) shall not
apply to any proprietary, confidential or secret information or other research
datum or result, invention, trade secret, customer list or work product which
is, at the commencement of this Agreement or at some later date, publicly known
under circumstances involving no breach of this Agreement or is lawfully and in
good faith made available to Executive by a third party under no obligation of
confidentiality with respect thereto.
(b) Executive hereby agrees that any and all information, inventions and
discoveries, whether or not patentable, that he conceives and/or creates during
the Employment Period and any extensions thereof, and which are a direct or
indirect result of work performed hereunder, shall be the sole and exclusive
property of the Company. Executive hereby assigns to the Company any and all
right, title and interest which he has or may acquire in the same. Executive
further agrees that he will promptly execute any and all applications,
assignments or other instruments which an officer of the Company or the Board of
Directors of the Company shall deem necessary or useful in order to apply for
and obtain Letters Patent in the United States and all foreign countries for
said information, inventions and discoveries and in order to assign and convey
to the Company the sole and exclusive right, title and interest in and to said
information, inventions, discoveries, patent applications and patents thereon.
The Company will bear the cost of preparation of all such patent applications
and assignments, and the cost of prosecution of all such patent applications in
the United States Patent Office and in the patent offices of foreign countries.
(c) All documents, records, apparatus, equipment and other physical
property furnished to Executive by the Company or produced by Executive or
others in connection with his employment shall be and remain the sole property
of the Company. Executive will return and deliver such property to the Company
as and when requested by the Company.
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(d) Executive agrees that the provisions of this Paragraph 9 shall survive
the termination of his employment and of this Agreement.
10. NON-COMPETITION
(a) Executive agrees that, during the period he is employed by the Company
or any subsidiary or affiliate of the Company, under this Agreement or
otherwise, he will not engage in, or otherwise directly or indirectly be
employed by, or act as a consultant, advisor or lender to, or be a director,
officer, employee, stockholder, owner or partner of, any other business or
organization, whether or not such business or organization now is or shall then
be competing with the Company or any parent, subsidiary or affiliate of the
Company; provided, however, that Executive shall not be prohibited either from
managing his own personal investments on his own personal time or from serving
on up to three outside boards of directors or advisory boards, so long as such
activities do not (i) involve a business or organization which competes with the
Company or any subsidiary or affiliate of the Company, (ii) interfere or
conflict with the performance of his duties as an employee of the Company or any
subsidiary or affiliate of the Company, (iii) otherwise result in a breach of
any of the provisions of this Agreement; or (iv) in the case of serving as a
director or advisory board member of other companies, such activities for all
such companies do not require, in the aggregate, more than 15 days per year,
including travel time.
Executive further agrees that (y) if his employment with the Company is
terminated by the Company pursuant to Paragraphs 8(a) or 8(b)(i) hereof, or (z)
if he terminates this Agreement pursuant to Paragraph 8(c) hereof or resigns or
otherwise fails or refuses to perform the services required of him under this
Agreement other than as a result of a breach of this Agreement by the Company
(which breach is not cured within 30 days after receiving notice thereof), then
during the two-year period commencing on the date he ceases to be employed by
any of the Company or any subsidiary or affiliate of the Company, under this
Agreement or otherwise, Executive shall not directly or indirectly compete with
or be engaged in the same business as the Company or any subsidiary or affiliate
of the Company, or be employed by, or act as consultant, advisor or lender to,
or be a director, officer, employee, stockholder, owner or partner of, any
business or organization which, at the time of such cessation, directly or
indirectly competes with or is engaged in the same business as Company or any
subsidiary or affiliate of the Company; provided, however, that if Executive's
employment with the Company is terminated pursuant to Paragraphs 8(a),
8(b)(i)(A) or 8(c) hereof, Executive's obligations pursuant to this sentence
shall continue only so long as the Company pays Executive compensation at the
same rate compensation was being paid to him pursuant to Paragraph 4 of this
Agreement at the time of such termination (subject, in the case of termination
pursuant to Paragraphs 8(a) or 8(c) hereof, to the provisions of Paragraphs 8(e)
and 8(f) hereof.) Notwithstanding anything contained herein to the contrary, the
provisions of this Paragraph 10(a) will not be deemed breached merely because
Executive owns not more than 1% of the outstanding common stock of a corporation
if, at the time of its acquisition by Executive, such stock is listed on a
national securities exchange, is reported on NASDAQ, or is regularly traded in
the over-the-counter market by a member of a national securities exchange.
(b) Executive agrees that for a period of three years from the termination
of this Agreement he will not, directly or indirectly, employ or solicit the
employment or engagement by others of any employees of, or consultants hired by,
the Company, or any subsidiary or affiliate of the Company, without the prior
written consent of the Company.
(c) The obligations of Executive pursuant to this Paragraph 10 shall
survive the termination of this Agreement.
11. EQUITABLE RELIEF
Executive acknowledges that the restrictions contained in Paragraphs 9 and
10 of this Agreement are reasonable in view of the nature of the business in
which the Company is engaged and the knowledge he will obtain concerning the
Company's business (and the business of any subsidiary or affiliate of the
Company), and that any breach of his obligations under Paragraphs 9 and 10
hereof will cause the Company irreparable harm for which the Company will have
no adequate remedy at law. As a result, the Company shall be entitled
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to the issuance by a court of competent jurisdiction of an injunction,
restraining order or other equitable relief in favor of itself restraining
Executive from committing or continuing any such violation, and Executive
consents to such an injunction, restraining order or other equitable relief. Any
right to obtain an injunction, restraining order or other equitable relief
hereunder will not be deemed a waiver of any right to assert any other remedy
the Company may have under this Agreement or otherwise at law or in equity.
12. REPRESENTATIONS AND WARRANTIES
Executive represents and warrants to the Company that (i) Executive is
under no contractual or other restriction or obligation which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of the Company and any subsidiary or affiliate of the Company
hereunder, and (ii) Executive is under no physical or mental disability that
would hinder the performance by him of his duties under this Agreement.
13. ASSIGNMENT
Under no circumstances shall Executive assign, pledge or otherwise dispose
of any of his rights or obligations under this Agreement, and any such attempted
assignment, pledge or disposition shall be void and shall, at the Company's
option, relieve the Company of all its obligations under this Agreement. The
Company may assign any of its rights or obligations under this Agreement to any
parent, subsidiary, affiliate or successor.
14. ENTIRE AGREEMENT
This Agreement and the stock option agreements referred to in Paragraph 5
hereof represent the entire agreement between the Company and Executive with
respect to the subject matter hereof and there have been no oral or other
agreements of any kind whatsoever as a condition precedent or inducement to the
signing of this Agreement or otherwise concerning this Agreement or the subject
matter hereof.
15. WAIVERS
Any waiver of any breach of any terms or conditions of this Agreement shall
not operate as a waiver of any other breach of such terms or conditions or any
other term or condition, nor shall any failure to enforce any provision hereof
on any one occasion operate as a waiver of such provision or of any other
provision hereof or a waiver of the right to enforce such provision or any other
provision on any subsequent occasion.
16. AMENDMENTS
This Agreement may not be amended, nor shall any waiver, change,
modification, consent or discharge be effected, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
such amendment, waiver, change, modification, consent or discharge is sought.
17. SEVERABILITY
(a) If any provision of this Agreement shall be held or deemed to be
invalid, inoperative or unenforceable as written, it shall be construed, to the
greatest extent possible, in a manner which shall render it valid and
enforceable and any limitation on the scope or duration of any such provision
necessary to make it valid and enforceable shall be deemed to be part thereof.
(b) If any provision of this Agreement shall be held or deemed to be
invalid, inoperative or unenforceable as applied to any particular case in any
jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because
of the conflict or any provision with any constitution or statute or rule of
public policy or for any other reason, such circumstance shall not have the
effect of rendering the provision or provisions in question invalid, inoperative
or unenforceable in any other jurisdiction or in any other case or circumstance
or of rendering any other provision or provisions herein contained invalid,
inoperative or unenforceable to the extent that such other provisions are not
themselves actually in conflict with such constitution, statute or rule of
public policy, but this Agreement shall be reformed and construed in any such
jurisdiction or case as if such
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invalid, inoperative or unenforceable provision had never been contained herein,
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
18. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to rules
governing conflict of laws.
19. COURTS
Any action to enforce any of the provisions of this Agreement may be
brought in the courts of the State of New York. The parties hereby consent to
the jurisdiction of the courts of the State of New York.
20. NOTICES
Any notice or other communication required or permitted by this
Agreement shall be in writing and personally delivered or mailed by certified
mail, return receipt requested, addressed to the parties at their addresses set
forth above, or to such other addresses as one party may specify to the other
party, from time to time, in writing. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
21. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
And year first above written.
ONCOGENE SCIENCE, INC.
By: /s/ EDWIN GEE
------------------------------
/s/ GARY E. FRASHIER
------------------------------
Gary E. Frashier
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 27, 1991 between ONCOGENE SCIENCE,
INC., a Delaware corporation having a place of business at 106 Charles Lindbergh
Boulevard, Uniondale, New York 11553 (the "Company"), and Steven M. Peltzman,
who resides at 9 Wildwood Drive, Sherborn, Massachusetts 01770 ("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to engage Executive to perform services for
the Company and any subsidiary or affiliate of the Company, and Executive
desires to perform such services, on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Company and Executive, in consideration of the mutual
promises contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, hereby agree
as follows:
1. TERM
The Company hereby employs Executive, and Executive hereby accepts such
employment, upon the terms and conditions hereinafter set forth. Executive shall
perform the duties required of him hereunder during the period commencing upon
closing of the acquisition of Applied bioTechnology, Inc. by Oncogene Science,
Inc. and ending on September 30, 1994; provided, however, that on September 30,
1994, and on each September 30 thereafter, such period shall be automatically
extended by one additional year unless at least 60 days prior to any such
September 30 either party shall deliver to the other written notice that such
period will not be extended, in which case this Agreement will terminate upon
the expiration of the existing term of this Agreement, including any previous
extension. The period during which Executive shall perform the services required
of him hereunder (as same may be extended as provided in this Section 1 or
reduced as hereinafter provided) is hereinafter referred to as the "Employment
Period."
2. DUTIES
(a) Executive shall serve, at the pleasure of the Board of Directors of the
Company, as Executive Vice President and Chief Operating Officer for Oncogene
Science, Inc. Executive shall also serve as President and a Director of Applied
bioTechnology, Inc. which will be a wholly-owned subsidiary of Oncogene Science,
Inc. In his capacities as Executive Vice President and Chief Operating Officer
for Oncogene Science, Inc. and President of Applied bioTechnology, Inc.,
Executive shall perform for the Company, and any subsidiary or affiliate of the
Company, such duties generally associated with such positions as well as such
other duties consistent with such positions as may be prescribed from time to
time by the President of Oncogene Science, Inc.
(b) Executive agrees to devote his full time, labor, energies and attention
to the performance of his duties hereunder, subject to the provisions of
Paragraph 10(a) hereof.
(c) Executive agrees not to become involved in any personal investment or
business matters which may detract from the performance of his duties or
otherwise adversely affect the Company or any subsidiary or affiliate of the
Company.
3. PLACE OF PERFORMANCE
In connection with his employment by the Company, Executive shall
proportion his time between the Company's headquarters in Uniondale, New York
and offices of its subsidiary, Applied biotechnology, Inc. in Cambridge,
Massachusetts as required. Executive shall also be available to travel at such
times and to such places as may be reasonably necessary in connection with the
performance of his duties hereunder.
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4. COMPENSATION
(a) Base Salary. During the Employment Period, Executive shall receive a
minimum base salary at the annual rate of $160,000 plus such other amounts, if
any, as the Board of Directors of the Company, in its sole discretion, may from
time to time determine. Executive's base salary shall be reviewed annually;
provided, however, that in no event shall Executive's base salary be reduced
below an annual rate of $160,000. Executive's salary shall be payable in
bi-weekly installments or at such other frequency as the Company may from time
to time determine for its senior executive officers as a group.
(b) Incentive Compensation Plan. In addition to his base salary, Executive
will participate in a Management Incentive Compensation Plan, a discretionary
bonus award program to be approved annually by the Board of Directors, and in
any other bonus or incentive compensation plan in which senior executive
employees are entitled to participate.
5. STOCK OPTIONS
Executive shall be eligible to receive stock options as the Board of
Directors of the Company shall determine in its sole discretion.
6. EXPENSES
During the Employment Period, Executive shall be entitled to reimbursement for
all reasonable out-of-pocket expenses necessarily incurred in performing
services hereunder within the limits of authority which may be established from
time to time by the Board of Directors, provided that Executive properly
accounts for such expenses in accordance with Company policy.
7. EMPLOYEE BENEFITS
(a) Vacation. Executive shall be entitled to four weeks paid vacation per
calendar year which may be taken at such time or times as Executive may elect,
subject to the needs of the Company's business. Executive shall also be entitled
to all paid holidays given by the Company to its senior executive officers.
(b) Savings Plan. To the extent permitted by the Company's Savings and
Investment Plan, as amended (the "Savings Plan"), Executive may roll-over into
the Savings Plan amounts held for his account pursuant to any plan established
pursuant to Section 401(k) of the Code.
(c) Other Benefits. Executive shall be entitled to participate in such
term life insurance, basic medical, major medical, dental and other employee
benefit plans established by the Company from time to time and generally made
available to employees at levels similar to Executive's for which he meets the
eligibility requirements.
8. TERMINATION
(a) The Company may terminate this Agreement at any time after the first
anniversary of the date of commencement of the Employment Period, and for any
reason whatsoever (or for no reason), by giving not less than 30 days' prior
written notice to Executive. In the event this Agreement is terminated by the
Company other than for a reason set forth in Paragraph 8(b) hereof, (i)
Executive shall be entitled to receive his base salary at the rate in effect on
the date notice of termination is given through the effective date of such
termination and any Annual Award or other bonus payment granted through such
date which has not yet been paid and (ii) Executive shall continue to receive
his base salary and all benefits at the rate in effect on the date notice of
termination is given (x) for the nine months immediately succeeding the
effective date of such termination in the case of a termination which takes
effect between the first and second anniversaries of the date of commencement of
the Employment Period; and (y) for the six months immediately succeeding the
effective date of such termination in the case of a termination which takes
effect between the second and third anniversaries of the date of commencement of
the Employment Period.
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(b) Notwithstanding anything herein contained to the contrary, if after the
date hereof and prior to the end of the Employment Period, (i) either (A)
Executive shall be physically or mentally incapacitated or disabled or otherwise
unable fully to discharge his duties hereunder ("Disabled") for a period of
ninety (90) consecutive days or for an aggregate of 90 days within any period of
twelve consecutive months, (B) Executive shall be convicted of a felony or other
crime involving moral turpitude, (C) Executive shall commit any act or omit to
take any action in bad faith and to the detriment of the Company or any
subsidiary or affiliate of the Company, or (D) Executive shall breach any
material term of this Agreement and fail to correct such breach within ten (10)
days after receiving notice of the same, then, and in each such case, the
Company shall have the right to give notice of termination of Executive's
services hereunder as of a date to be specified in such notice (which date may
be the date such notice is given), and this Agreement shall terminate on the
date so specified; or (ii) Executive shall die, then this Agreement shall
terminate on the date of Executive's death. If this Agreement is terminated by
the Company for any of the reasons set forth in this Paragraph 8(b), Executive
or his estate, as the case may be, shall be entitled to receive his base salary
at the rate in effect on the date notice of termination is given or the date of
Executive's death, as the case may be, to the date on which termination shall
take effect and any Annual Award or other bonus payment granted through such
date which has not been paid; Provided, however, that if Executive is Disabled,
the amount payable to Executive pursuant to this Paragraph 8(b) shall be reduced
by an amount equal to the amounts, if any, to which he is entitled with respect
to such period pursuant to any insurance or other plan established by the
Company in which he is a participant.
9. CONFIDENTIALITY
(a) Beginning on the date hereof, and at any time hereafter, executive
shall treat as confidential any proprietary, confidential or secret information
relating to the business or interests of the Company or any subsidiary or
affiliate of the Company, including, without limitation, the organizational
structure, operations, business plans or technical projects of the Company or
any subsidiary or affiliate of the Company, and any research datum or result,
invention, trade secret, customer list, process or other work product developed
by or for the Company or any subsidiary or affiliate of the Company, whether on
the premises of the Company or elsewhere ("Confidential Information"). Beginning
on the date hereof, and at any time hereafter, Executive shall not disclose,
utilize or make accessible in any manner or in any form any Confidential
Information other than in connection with performing the services required of
him under this Agreement, without the prior written consent of the Company.
Notwithstanding the foregoing, the provisions of this Paragraph 9(a) shall not
apply to any proprietary, confidential or secret information or other research
datum or result, invention, trade secret, customer list or work product which
is, at the commencement of this Agreement or at some later date, publicly known
under circumstances involving no breach of this Agreement or is lawfully and in
good faith made available to Executive by a third party under no obligation of
confidentiality with respect thereto.
(b) Executive hereby agrees that any and all information, inventions and
discoveries, whether or not patentable, that he conceives and/or creates during
the Employment Period and any extensions thereof, and which are a direct or
indirect result of work performed hereunder, shall be the sole and exclusive
property of the Company. Executive hereby assigns to the Company any and all
right, title and interest which he has or may acquire in the same. Executive
further agrees that he will promptly execute any and all applications,
assignments or other instruments which an officer of the Company or the Board of
Directors of the Company shall deem necessary or useful in order to apply for
and obtain Letters Patent in the United States and all foreign countries for
said information, inventions and discoveries and in order to assign and convey
to the Company the sole and exclusive right, title and interest in and to said
information, inventions, discoveries, patent applications and patents thereon.
The Company will bear the cost of preparation of all such patent applications
and assignments, and the cost of prosecution of all such patent applications in
the United States patent office and in the patent offices of foreign countries.
(c) All documents, records, apparatus, equipment and other physical
property furnished to Executive by the Company or produced by Executive or
others in connection with his employment shall be and remain the sole property
of the Company. Executive will return and deliver such property to the Company
as and when requested by the Company.
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(d) Executive agrees that the provisions of this Paragraph 9 shall survive
the termination of this employment and of this agreement.
10. NON-COMPETITION
(a) Executive agrees that, during the period he is employed by the Company
or any subsidiary or affiliate of the Company, under this Agreement or
otherwise, he will not engage in, or otherwise directly or indirectly be
employed by, or act as a consultant, advisor or lender to, or be a director,
officer, employee, stockholder, owner or partner of, any other business or
organization, whether or not such business or organization now is or shall then
be competing with the Company or any parent, subsidiary or affiliate of the
Company; provided, however, that Executive shall not be prohibited either from
managing his own personal investments on his own personal time or from serving
on up to two (2) outside boards of directors or advisory boards, so long as such
activities do not (i) involve a business or organization which competes with the
Company or any subsidiary or affiliate of the Company, (ii) interfere or
conflict with the performance of his duties as an employee of the Company or any
subsidiary or affiliate of the Company, (iii) otherwise result in a breach of
any of the provisions of this Agreement, or (iv) in the case of serving as a
director or advisory board member of other companies, such activities for all
such companies do not require, in the aggregate, more than ten (10) days per
year, including travel time.
Executive further agrees that (y) if his employment with the Company is
terminated by the Company pursuant to Paragraphs 8(a) or 8(b)(i) hereof, or (z)
resigns or otherwise fails or refuses to perform the services required of him
under this Agreement other than as a result of a breach of this Agreement by the
Company (which breach is not cured within thirty (30) days after receiving
notice thereof), then during the two-year period commencing on the date he
ceases to be employed by any of the Company or any subsidiary or affiliate of
the Company, under this Agreement or otherwise, Executive shall not directly or
indirectly compete with or be engaged in the same business as the Company or any
subsidiary or affiliate of the Company, or be employed by, or act as consultant,
advisor or lender to, or be a director, officer, employee, stockholder, owner or
partner of, any business or organization which, at the time of such cessation,
directly or indirectly competes with or is engaged in the same business as the
Company or any subsidiary or affiliate of the Company; provided, however, that
if Executive's employment with the Company is terminated pursuant to Paragraphs
8(a) or 8(b)(i)(A) hereof, Executive's obligations pursuant to this sentence
shall continue only so long as the Company pays Executive compensation at the
same rate compensation was being paid to him pursuant to Paragraph 4 of this
Agreement at the time of such termination. Notwithstanding anything contained
herein to the contrary, the provisions of this Paragraph 10(a) will not be
deemed breached merely because Executive owns not more than 1% of the
outstanding common stock of a corporation if, at the time of its acquisition by
Executive, such stock is listed on a national securities exchange, is reported
on NASDAQ, or is regularly traded in the over-the-counter market by a member of
a national securities exchange.
(b) Executive agrees that for a period of three years from the termination
of this Agreement he will not, directly or indirectly, employ or solicit the
employment or engagement by others of any employees of, or consultants hired by,
the Company, or any subsidiary or affiliate of the Company, without the prior
written consent of the Company, unless such person ceased to be employed or
engaged by the Company or its subsidiary or affiliate at least four (4) months
prior to the solicitation.
(c) The obligations of Executive pursuant to this Paragraph 10 shall
survive the termination of this Agreement.
11. EQUITABLE RELIEF
Executive acknowledges that the restrictions contained in Paragraphs 9 and
10 of this Agreement are reasonable in view of the nature of the business in
which the Company is engaged and the knowledge he will obtain concerning the
Company's business (and the business of any subsidiary or affiliate of the
Company), and that any breach of his obligations under Paragraphs 9 and 10
hereof will cause the Company irreparable harm for which the Company will have
no adequate remedy at law. As a result, the Company shall be entitled to the
issuance by a court of competent jurisdiction of an injunction, restraining
order or other equitable relief
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in favor of itself restraining Executive from committing or continuing any such
violation, and Executive consents to such an injunction, restraining order or
other equitable relief. Any right to obtain an injunction, restraining order or
other equitable relief hereunder will not be deemed a waiver of any right to
assert any other remedy the Company may have under this Agreement or otherwise
at law or in equity.
12. REPRESENTATIONS AND WARRANTIES
Executive represents and warrants to the Company that (i) Executive is
under no contractual or other restriction or obligation which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of the Company and any subsidiary or affiliate of the Company
hereunder, and (ii) Executive is under no physical or mental disability that
would hinder the performance by him of his duties under this Agreement.
13. ASSIGNMENT
Under no circumstances shall Executive sign, pledge or otherwise dispose of
any of his rights or obligations under this Agreement, and any such attempted
assignment, pledge or disposition shall be void and shall, at the Company's
option, relieve the Company of all its obligations under this Agreement. The
Company may assign any of its rights or obligations under this Agreement to any
parent, subsidiary, affiliate or successor, but shall remain liable in the case
of any assignment to a parent or subsidiary.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the Company and
Executive with respect to the subject matter hereof and there have been no oral
or other agreements of any kind whatsoever as a condition precedent or
inducement to the signing of this Agreement or otherwise concerning this
Agreement or the subject matter hereof.
15. WAIVERS
Any waiver of any breach of any terms or conditions of this Agreement shall
not operate as a waiver of any other breach of such terms or conditions or any
other term or condition, nor shall any failure to enforce any provision hereof
on any one occasion operate as a waiver of such provision or of any other
provision hereof or a waiver of the right to enforce such provision or any other
provision on any subsequent occasion.
16. AMENDMENTS
This Agreement may not be amended, nor shall any waiver, change,
modification, consent or discharge be effected, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
such amendment, waiver, change, modification, consent or discharge is sought.
17. SEVERABILITY
(a) If any provision of this Agreement shall be held or deemed to be
invalid, inoperative or unenforceable as written, it shall be construed, to the
greatest extent possible, in a manner which shall render it valid and
enforceable and any limitation on the scope or duration of any such provision
necessary to make it valid and enforceable shall be deemed to be part thereof.
(b) If any provision of this Agreement shall be held or deemed to be
invalid, inoperative or unenforceable as applied to any particular case in any
jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because
of the conflict or any provision with any constitution or statute or rule of
public policy or for any other reason, such circumstance shall not have the
effect of rendering the provision or provisions in question invalid, inoperative
or unenforceable in any other jurisdiction or in any other case or circumstance
or of rendering any other provision or provisions herein contained invalid,
inoperative or unenforceable to the extent that such other provisions are not
themselves actually in conflict with such constitution, statute or rule of
public policy, but this Agreement shall be reformed and construed in any such
jurisdiction or case as if such
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invalid, inoperative or unenforceable provision had never been contained herein,
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
18. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to rules
governing conflict of laws.
19. NOTICES
Any notice or other communication required or permitted by this Agreement
shall be in writing and personally delivered or mailed by certified mail, return
receipt requested, addressed to the parties at their addresses set forth above,
or to such other addresses as one party may specify to the other party, from
time to time, in writing. Any notice or other communication given by certified
mail shall be deemed given at the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
20. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
ONCOGENE SCIENCE, INC.
By: /s/ GARY E. FRASHIER
--------------------------------
/s/ STEVEN M. PELTZMAN
--------------------------------
Steven M. Peltzman
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<PAGE> 1
Portions of this Exhibit 10.9 have been redacted and are the subject of
a confidential treatment request filed with the Secretary of the Securities and
Exchange Commission.
<PAGE> 2
EXHIBIT 10.9
AGREEMENT
AGREEMENT dated as of September 27, 1996 by and between BECTON,
DICKINSON AND COMPANY ("Becton"), a New Jersey corporation, having an office at
1 Becton Drive, Franklin Lakes, New Jersey 07417, and ONCOGENE SCIENCE, INC.
("OSI"), a Delaware corporation, having an office at 106 Charles Lindbergh
Boulevard, Uniondale, New York 11533.
W I T N E S S E T H:
WHEREAS, Becton and OSI are parties to a Collaborative Research
Agreement dated October 4, 1991 (the "Research Agreement"); and
WHEREAS, Becton and OSI are also parties to a License Agreement dated
October 4, 1991, as amended on December 5, 1991 (as amended, the "License
Agreement"); and
WHEREAS, the Research Agreement expires by its terms on September 30,
1996 (the "Termination Date"); and
WHEREAS, the license rights granted to Becton pursuant to the License
Agreement shall be superseded by this Agreement; and
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WHEREAS, the license rights granted to OSI pursuant to the License
Agreement shall remain in effect, except to the extent OSI has granted such
rights to Calbiochem-Novabiochem International, Inc., and except to the extent
Becton grants to OSI rights as set forth below; and
WHEREAS, Becton and OSI desire herein to set forth their agreement with
respect to the period between the Effective Date (as hereinafter defined) and
the Termination Date and thereafter.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Definitions.
Whenever used in this Agreement, the terms defined in this Section 1
shall have the meanings specified.
1.1 "Affiliate" means any corporation or other legal entity fifty
percent or more of the voting capital shares or similar voting securities of
which is owned, directly or indirectly, by Becton or OSI.
1.2 "'A-List' Diagnostic Product" means any Diagnostic Product
incorporating an antibody set forth on Schedule A, attached hereto, when used
with IHC/cellular-based and flow cytometry applications as opposed to, for
example, a serum-based or cytosol application.
1.3 "'B-List' Diagnostic Product" means any Diagnostic Product
incorporating an antibody set forth on Schedule B, attached hereto, when used
with IHC/cellular-based and flow cytometry applications as opposed to, for
example, a serum-based or cytosol application.
2
<PAGE> 4
1.4 "Becton" means Becton, Dickinson and Company and its Affiliates.
1.5 "Becton Technology" means all Technology that was:
(a) developed by employees of, or consultants to, Becton alone
or jointly with Third Persons on or prior to the Collaboration Effective Date;
or
(b) acquired by purchase, license, assignment or other means
from Third Persons by Becton on or prior to the Collaboration Effective Date.
Becton Technology shall be owned by Becton.
1.6 "Collaboration Effective Date" shall mean October 4, 1991.
1.7 "Confidential Information" means all information which is disclosed
by either Becton or OSI to the other party relating to such disclosing party's
Technology, orally or in writing, and is designated "Confidential" by the
disclosing party, in writing, no later than thirty (30) days after the time of
disclosure, but excluding any such information that is (i) already known to the
recipient at the time of disclosure to it other than by virtue of a prior
confidential disclosure to the recipient by the disclosing party, (ii) at any
time disclosed in the published literature or otherwise generally known to the
public, or (iii) at any time obtained from a Third Person free from any
obligation of secrecy.
1.8 "Diagnostic Product" means any product specifically formatted for
the identification, quantification or monitoring of the propensity toward, or
actual existence of, any cancerous state in serum or cell preparations developed
within the Research Program (i.e., any hybridoma or clone on which a substantial
amount of work was conducted during the Research Program), the use or sale of
which product for clinical research or as a clinically approved diagnostic
product requires approval by the United States Food and Drug
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<PAGE> 5
Administration ("FDA"); provided, however, that Products useful in flow or image
cytometry systems and sold without FDA approval for clinical research shall be
both Diagnostic Products and Research Products. Diagnostic Products shall
otherwise exclude Research Products.
1.9 "Effective Date" shall be September 27, 1996.
1.10 "Net Sales" means the gross amount received by Becton and its
sublicensee for arm's length sales to a Third Person of Diagnostic Products
after deducting, where applicable, the following:
(a) normal and customary trade discounts actually allowed and
taken;
(b) returns and credits;
(c) taxes (the legal incidence of which is on the purchaser
and separately shown on the shipping invoice); and
(d) transportation, insurance and postage charges (if prepaid
and invoiced as a separate item); provided, however, that in the event a Product
is sold on a "reagent rental" basis (i.e., where an instrument is provided to a
purchaser without a separate charge or billing for use in conjunction with one
or more Products), then Net Sales further shall be reduced by an amount equal to
the fully loaded manufacturing cost of the instrument, its installation, service
and maintenance amortized over a four (4) year rental period.
1.11 "Non-IHC Product" means all Diagnostic Products except for
"A-List" Diagnostic Products and "B-List" Diagnostic Products.
1.12 "OSI" means Oncogene Science, Inc. and its Affiliates.
1.13 "OSI Technology" means all Technology that was:
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(a) developed by employees of, or consultants to, OSI alone or
jointly with Third Persons on or prior to the Collaboration Effective Date; or
(b) acquired by purchase, license, assignment or other means
from Third Persons by OSI on or prior to the Collaboration Effective Date.
OSI Technology shall be owned by OSI.
1.14 "Patent Rights" means all patentable inventions, including all
applications for patents, whether domestic or foreign, disclosing or claiming
such inventions, all continuations, continuations-in-part, divisions, renewals
and patents of addition thereof, all patents granted thereon, whether domestic
or foreign, and all reissued or reexamined patents based thereon.
1.15 "Person" means any individual, estate, trust, partnership, joint
venture, association, firm, corporation, company or other entity.
1.16 "Product(s)" means any or all of Diagnostic Products, "A-List"
Diagnostic Products, "B-List" Diagnostic Products, and Non-IHC Products.
1.17 "Research Product" means any product developed as a result of
research pursuant to the Research Program and formatted for research use only,
the sale or use of which does not require approval by the FDA. Research Products
specifically do not include Diagnostic Products except as otherwise provided in
Section 1.8.
1.18 "Research Program" means the collaborative research program
undertaken by the parties pursuant to the Research Agreement and the License
Agreement.
1.19 "Technology" means and includes all technology and technical
information that pertains to the Research Program, including all laboratory
notebooks, research plans,
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inventions, cultures, strains, vectors, genes and gene fragments and their
sequences, cell lines, hybridomas, monoclonal and polyclonal antibodies,
proteins and protein fragments, non-protein chemical structures and methods for
synthesis, structure-activity relationships, computer models of chemical
structures, computer software, assay, methodology, processes, materials and
methods for production, recovery and purification of natural products, formulae,
plans, specifications, characteristics, marketing surveys and plans, business
plans, know-how, experience and trade secrets.
1.20 "Third Person" means a Person other than OSI or Becton, or any
employee of, or consultant to, OSI or Becton.
1.21 "Valid Claim" means a claim within Patent Rights so long as such
claim shall not have been disclaimed or held invalid in a final decision
rendered by a tribunal of competent jurisdiction from which no appeal has been
or can be taken.
2. Termination of Research Agreement. The parties hereby acknowledge and
agree that the Research Agreement shall expire by its terms on September 30,
1996. In the event of a conflict between the terms of this Agreement and the
Research Agreement and/or the License Agreement, the terms of this Agreement
shall control.
3. Licenses.
3.1 License Granted to Becton.
3.1.1 "A-List" Diagnostic Products. Subject to Section 3.1.5,
OSI agrees to grant to Becton an exclusive, worldwide license to make, have made
for itself, use and sell "A-List" Diagnostic Products, subject to the following
conditions:
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<PAGE> 8
(a) **
(b) Becton shall source any antibody components of
"A-List" Diagnostic Products through OSI in accordance with the financial terms
set forth in Section 4.2 hereof; provided, however, that Becton may elect to
manufacture clinical trial material or FDA-approved products itself or through a
Third Person, in which case Becton shall pay OSI an ongoing royalty of ** of Net
Sales of such Products subject to the provisions of Section 4.1 hereof.
(c) OSI and/or its licensees shall retain the
co-exclusive right to make, have made for itself, use and sell "A-List"
Diagnostic Products for the clinical research market for all applications,
including, without limitation, for use in developing clinical research data in
support of product development programs.
3.1.2 "B-List" Diagnostic Products. Subject to the rights
granted to Calbiochem-Novabiochem International, Inc., OSI grants to Becton a
non-exclusive, worldwide license to make, have made for itself, use and sell
"B-List" Diagnostic Products. The foregoing license granted to Becton shall be
subject to the following condition:
______________
** This portion redacted pursuant to a request for confidential treatment.
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(a) Becton shall source any antibody or reagent
components of such "B-List" Diagnostic Products through OSI in accordance with
the financial terms set forth in Section 4.2 hereof; provided, however, that
Becton may elect to manufacture clinical trial material or FDA-approved products
itself or through a Third Person, in which case Becton shall pay OSI an ongoing
royalty of ** of Net Sales of such Products subject to the provisions of Section
4.1 hereof.
3.1.3 "B-List" Diagnostic Products - Exclusivity. Subject to
Section 3.1.5, so long as exclusive rights are available, OSI agrees to grant
Becton an exclusive license to make, have made for itself, use and sell "B-List"
Diagnostic Products subject to the following conditions:
(a) Such license shall be exclusive for a period of
two years upon a payment by Becton to OSI of ** per "B-List" Diagnostic
Product. Such exclusivity may be extended for an additional two years upon the
payment of an additional ** per "B-List" Diagnostic Product.
(b) Becton's exclusive rights with regard to a
"B-List" Diagnostic Product shall become permanent upon the earlier of (i)
receipt of FDA approval for such "B-List" Diagnostic Product or (ii) payment of
a one-time license fee to OSI of ** per "B-List" Diagnostic Product, plus
an ongoing royalty as provided for in Section 4.1 hereof.
3.1.4 Non-IHC Products. The parties hereby acknowledge that
OSI is retaining exclusive rights to Non-IHC Products, including, without
limitation, the right to sell such Products and the right to sublicense its
rights in and to such Products. In the event that OSI enters into a
collaborative arrangement or license agreement with a Third Person with
______________
** This portion redacted pursuant to a request for confidential treatement.
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regard to Non-IHC Products, OSI and Becton shall negotiate in good faith with
regard to a nominal royalty to be paid to Becton with respect to Non-IHC
Products, if any, resulting from such collaboration.
3.1.5 Co-Exclusivity. If, in order for OSI to successfully
negotiate a Third Person collaborative arrangement or license agreement for
Non-IHC Products, it is necessary to include certain "A-List" Diagnostic
Products or "B-List" Diagnostic Products exclusively licensed to Becton pursuant
to Section 3.1.1 or 3.1.3 hereof in such arrangement on a co-exclusive basis,
the parties hereby agree that OSI shall have such a right and that the parties
will negotiate in good faith a possible adjustment to the royalties owed by
Becton to OSI.
3.2 License Granted to OSI. Becton hereby grants to OSI an exclusive,
worldwide license, including the right to grant sublicenses, to make, have made
for itself, use and sell Research Products, Non-IHC Products and any other
products covered under 3.1.4. These rights include the rights under Becton
Technology and Joint Technology as defined in the License Agreement.
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3.3 Term of License Grants and Obligation to Pay Royalties.
For each Product, the term of the grant set forth in Sections 3.1.1,
3.1.2 and 3.1.3 and the obligation to pay royalties on Products made, used or
sold under said grant shall commence on the Effective Date and shall terminate,
in each country, on the date of the last to expire of Patent Rights of OSI in
such country so long as the applicable Patent Rights contain a Valid Claim
covering such Product or, with regard to Products not covered by Patent Rights
of OSI, ten (10) years after the first Product is sold by Becton in the United
States. For each Research Product, the term of the grant set forth in Section
3.2 and the obligation to pay royalties on Research Products made, used or sold
under said grant shall commence on the Effective Date and shall terminate, in
each country, on the date of the last to expire of Patent Rights of Becton in
such country so long as the applicable Patent Rights contain a valid claims
covering such Research Product or, with regard to Research Products not covered
by Patent Rights of Becton, ten (10) years after the first Research Product is
sold by OSI in the United States.
4. Royalties, Payments of Royalties, Accounting for Royalties and
Recordkeeping.
4.1 Royalties to be paid by Becton.
Becton shall pay to OSI a royalty of ** of Net
Sales of any "A-List" Diagnostic Product or "B-List" Diagnostic Product (net of
all other royalties) in the event that (a) Becton chooses to source any antibody
or reagent components of an "A-List" Diagnostic Product or "B-List" Diagnostic
Product from itself or a Third Person pursuant to Section 3.1.1(b) or 3.1.2(b)
hereof, or (b) Becton's exclusive rights with regard to "B-List" Diagnostic
Products become permanent upon payment of a ** license fee; provided,
______________
** This portion redacted pursuant to a request for confidential treatment.
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however, that if Becton's rights with regard to any such Product become
non-exclusive because exclusivity is no longer available, such royalty rate
shall reduced to ** of Net Sales of such Products (net of all other royalties).
If OSI is unable to transfer either hybridomas or antibodies to Becton because
OSI lacks the right to make such a transfer, then (a) with regard to Net Sales
made by Becton as a result of Becton's flow cytometry business, no royalties
shall be owing, and (b) with regard to Net Sales made by Becton other than those
relating to its flow cytometry business, the royalty rates set forth above shall
be reduced by 50%.
4.2 Sourced Products. For any reagent components or products sourced by
Becton through OSI, Becton shall pay OSI the actual fully absorbed cost thereof
plus ** . For the products listed on Schedules A and B, the costs agreed to by
the parties are set forth on Schedule C attached hereto. Fully absorbed cost
includes all direct expenses, as well as a proportional allocation of overhead
consistent with OSI's usual practice. If OSI ceases manufacturing and does not
assign manufacturing rights, OSI will deliver to Becton the hybridomas to enable
Becton to thereafter manufacture what had theretofore been manufactured by OSI,
and OSI will receive the royalty described in Section 4.1.
4.3 Royalties to be Paid by OSI. OSI shall pay to Becton a royalty of
** of Net Sales of Research Products sold directly by OSI as
covered under Section 3.1.3 and; provided, however, that this rate shall be
** for any Research Product if that Research Product is marketed in
competition with a product of a Third Person directed to the same oncogene,
anti-oncogene, tumor suppressor gene or cancer related marker. If OSI receives a
royalty on Net Sales of Research Products from a Third Person, OSI shall pay to
Becton an amount equal of ** of such royalty.
______________
** This portion redacted pursuant to a request for confidential treatment.
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4.4 Single Royalty. The parties acknowledge that only one royalty rate,
the highest one applicable, will apply to Net Sales of each Product or Research
Product regardless of the number of patents (or patent applications) within the
Patent Rights licensed under this Agreement which may apply.
4.5 Payment Dates. Within sixty (60) days after March 31, June 30,
September 30 and December 31 of each year during the term of this Agreement,
each party shall deliver to the other party a true and accurate report stating
for each royalty-bearing Product or Research Product, as the case may be, for
the preceding three (3) calendar months (a) Net Sales, (b) the royalties payable
thereon, and (c) the amount of any credit taken against royalties payable not
already taken in computing Net Sales. Except as otherwise provided,
simultaneously with the delivery of each such report, each party shall pay to
the other party the amount, if any, due for the period of such report. If no
payments are due, it shall be so reported.
4.6 Accounting. All amounts payable hereunder shall be payable in
United States Dollars; provided, however, that if any payment on account of Net
Sales by a party, its Affiliates or sublicensees is received in a foreign
currency, such amount shall be converted monthly to United States funds at the
rate set monthly by the party's international finance department from Reuters
wire service (providing international spot exchange rates) on or about the 25th
day of the each month (unless such date falls on a Saturday, Sunday or holiday,
in which case the date shall be the closest business day thereto). Upon written
notice to the other party, either party may elect a different recognized
independent wire service providing international spot exchange rates.
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4.7 Records. During the term of this Agreement, each party shall keep
complete and accurate records of Net Sales in sufficient detail to enable the
other party to determine payments owed to it under this Agreement for a period
of two (2) years after such payments are due. Each party shall permit an
independent certified public accountant, acceptable to the other party and
appointed by the requesting party and at the requesting party's expense, to
examine its books, ledgers and records covering Net Sales during regular
business hours for the purpose of verifying, and only to the extent necessary to
verify, the amount of royalty due and payable but in no event more than once per
calendar year. The accountant shall maintain all information received during
such examination in confidence, and shall report to the party requesting
examination only with respect to the accuracy of any report. Any report not
examined within two (2) years of its having been made shall be deemed true and
accurate. In the event the records examined reveal that a party has paid less
than ninety-five percent (95%) of the amount due to the other party, the party
being examined shall pay the costs of the audit and shall pay the additional
amount due plus accrued interest at the average prime rate in effect for the
period covered by the audit as set by Citibank, N.A.
5. Manufacturing.
5.1 Manufacturing Terms and Conditions. Any antibody or reagent
component of any Product or Products manufactured by OSI for Becton hereunder
shall be manufactured under all applicable regulations and rules including Good
Manufacturing Practices, if required. If OSI is unable or unwilling to meet the
manufacturing requirements, then Becton shall be free to manufacture the Product
itself or through a Third Person, in such case Becton agrees to pay OSI the
royalties specified in Article 4.1.
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6. Legal Action.
6.1 Actual or Threatened Disclosure or Infringement. If information
comes to the attention of Becton or OSI to the effect that any Patent Rights
relating to an "A-List" Diagnostic Product or a "B-List" Diagnostic Product,
with regard to which, in either case, Becton has an exclusive license, have been
or are threatened to be infringed, Becton shall have the right, at its expense,
to take such action as it may deem necessary to prosecute or prevent such
infringement, including the right to bring or defend any suit, action or
proceeding involving any such infringement. Becton shall notify OSI promptly of
the receipt of any such information and of the commencement of any such suit,
action or proceeding. If Becton determines that it is necessary or desirable for
OSI to join any such suit, action or proceeding, OSI shall execute all papers
and perform such other acts as may be reasonably required to permit Becton to
act in OSI's name. In the event that Becton brings a suit, it shall be entitled
to all sums recovered in such suit or in its settlement without any further
obligation to OSI. If Becton does not, within 120 days after giving notice to
OSI of the above-described information, notify OSI of Becton's intent to bring
suit against any infringer, OSI shall have the right to bring suit for such
alleged infringement, but it shall not be obligated to do so. OSI may join
Becton as party plaintiff, if appropriate, in which event OSI shall hold Becton
free, clear and harmless from any and all costs and expenses of such litigation,
including reasonable attorneys' fees, and all sums recovered in any such suit or
in its settlement shall belong to OSI without any further obligation to Becton.
Each party shall always have the right to be represented by counsel of its own
selection and at its own expense in any suit instituted by the other for
infringement, under the terms of this Section.
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If Becton lacks standing to bring any such suit, action or proceeding, then OSI
shall do so at the request of Becton and at Becton's expense. If neither party
brings suit, then the lower royalty rate set forth in Section 4.1 hereof shall
apply with regard to Net Sales made 60 days after expiration of the 120-day
notice period set forth above.
If information comes to the attention of Becton or OSI to the effect
that any Patent Rights relating to a Product to which rights have been retained
by OSI pursuant to this Agreement or to a Research Product have been or are
threatened to be infringed, OSI shall have the right, at its expense, to take
such action as it may deem necessary to prosecute or prevent such infringement,
including the right to bring or defend any suit, action or proceeding involving
any such infringement. OSI shall notify Becton promptly of the receipt of any
such information and of the commencement of any such suit, action or proceeding.
If OSI determines that it is necessary or desirable for Becton to join any such
suit, action or proceeding, Becton shall execute all papers and perform such
other acts as may be reasonably required to permit OSI to act in Becton's name.
In the event that OSI brings a suit, it shall be entitled to all sums recovered
in such suit or in its settlement without any further obligation to Becton.
Becton shall always have the right to be represented by counsel of its own
selection and at its own expense in any suit instituted by OSI for infringement,
under the terms of this Section. If OSI lacks standing to bring any such suit,
action or proceeding, then Becton shall do so at the request of OSI and at OSI's
expense.
6.2 Defense of Infringement Claims.
Each party will cooperate with the other, at the expense of
the party seeking such cooperation, in the defense of any suit, action or
proceeding against either such party or
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any sublicensee of such party alleging the infringement of the intellectual
property rights of a Third Person by reason of the use Patent Rights or
Technology in the manufacture, use or sale of a Diagnostic Product or a Research
Product. Each party shall give the other party prompt written notice of the
commencement of any such suit, action or proceeding or claim of infringement and
will furnish the other party with a copy of each communication relating to the
alleged infringement. The party defending any such suit or action shall have
full authority (including the right to exclusive control of defense of any such
suit, action or proceeding and the exclusive right to compromise, litigate,
settle or otherwise dispose of any such suit, action or proceeding), to defend
or settle any such suit, action or proceeding. If the parties agree that the
other party should institute or join any suit, action or proceeding pursuant to
this Section 6.2, the non-moving party may join the other party as a defendant
if necessary or desirable, and each such party shall execute all documents and
take all other actions, including giving testimony, which may reasonably be
required in connection with the prosecution of such suit, action or proceeding.
6.3 Licenses under Patents.
If the manufacture, use or sale by Becton or OSI of a Product
or a Research Product in any country would, in the opinion of both Becton and
OSI, infringe a patent owned by a Third Person, Becton and OSI shall attempt to
obtain a license under such patent. If Becton obtains a license under such
patent, then one-half (1/2) of any payments made by Becton to such Third Person
shall be fully creditable under Section 4.4 hereof against royalty payments due
from Becton to OSI under Section 4.1 hereof but in no event shall the royalty
payment be reduced by more than fifty percent (50%) in any reporting period. If
OSI is of
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the opinion that such manufacture, use or sale would not infringe such patent
owned by a Third Person, OSI may, at its election, bring suit against such Third
Person seeking a declaration that such patent is invalid or not infringed by
Becton's manufacture, use or sale of the Product involved, or may bring
opposition, nullity or other proceedings against such patent, as appropriate. If
OSI is successful in such suit, Becton shall continued to pay royalties in such
country as provided in Section 4. If OSI does not bring such suit or is
unsuccessful in such suit, it shall join Becton in an attempt to obtain a
license under such patent, and one-half (1/2) of any payments made by Becton to
such Third Person for such license shall be fully creditable under Section 4.4
hereof against royalty payments due from Becton to OSI as to that patent and
that country pursuant to this Agreement but in no event shall the royalty
payment be reduced by more than fifty percent (50%) in any reporting period.
7. Treatment of Confidential Information.
7.1 Confidentiality.
7.1.1 Becton and OSI each recognize that the other party's
Confidential Information constitutes highly valuable proprietary information.
Subject to the disclosure obligations set forth in Section 7.3 and publication
rights set forth in Section 7.2, Becton and OSI agree that for five (5) years
from the date of disclosure, they will keep confidential, and will cause their
Affiliates to keep confidential, all Confidential Information that is disclosed
to them or to any of their Affiliates pursuant to this Agreement. Neither Becton
nor OSI nor any of their Affiliates shall use Confidential Information except as
expressly permitted in this Agreement.
17
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7.1.2 Becton and OSI agree that any disclosure of Confidential
Information to any officer, employee or agent of the other party or of any of
the other party's Affiliates shall be made only to the extent necessary to carry
out its responsibilities under this Agreement. The receiving party agrees not to
disclose the other's Confidential Information to any Third Persons under any
circumstance without written permission. Both Becton and OSI shall take such
action to preserve the confidentiality of each other's Confidential Information
as they would customarily take to preserve the confidentiality of their own
confidential information. Each party, upon the other's request, will return all
Confidential Information disclosed pursuant to this Agreement including all
copies and extracts of documents within sixty (60) days of the request after the
termination of this Agreement except for one (1) copy which shall be retained
for archival purposes only.
7.2 Publication. Notwithstanding Section 7.1, any results obtained in
the course of the Research Program may be submitted for publication following
approval by OSI's and Becton's managements. After receipt of the proposed
publications by both Becton's and OSI's managements, written approval or
disapproval shall be provided within thirty (30) days for a manuscript or within
fourteen (14) days for a transcript of an oral presentation to be given at a
scientific meeting.
7.3 Restrictions on Transferring Materials. Becton and OSI recognize
that the biological, chemical and biochemical materials which are part of OSI
Technology or Becton Technology represent valuable commercial assets.
Accordingly, except as otherwise permitted by Section 12.6 hereof, throughout
the term hereof and for five (5) years thereafter, OSI and Becton agree not to
transfer to any Third Person any such material which
18
<PAGE> 20
constitutes Technology owned solely by the other party. Additionally, except as
otherwise permitted by Section 12.6 hereof, throughout the term hereof and for
six (6) months thereafter, OSI and Becton agree not to transfer to any Third
Person any biological, chemical or biochemical materials which comprise, consist
of or are useful in the manufacture of any Product, unless prior consent for any
such transfer is obtained from the other party, which consent may not be
unreasonably withheld and unless such Third Person agrees as a condition of any
such transfer not to transfer the material further and to use the material for
research purposes not directed toward the development of Diagnostic Products.
The provisions of this Section 7.3 specifically do not apply to transfer to
Pfizer Inc. pursuant to any agreements between OSI and Pfizer Inc. for purposes
other than developing Diagnostic Products.
8. Representations and Warranties. OSI and Becton each represents and
warrants as follows:
8.1 It is a corporation duly organized, validly existing and is in good
standing under the laws of the State of Delaware and New Jersey, respectively.
It is qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the conduct of its business or the ownership of
its properties requires such qualification. It has all requisite power and
authority, corporate or otherwise, to conduct its business as now being
conducted, to own, lease and operate its properties and to execute, deliver and
perform this Agreement.
8.2 The execution, delivery and performance by it of this Agreement has
been duly authorized by all necessary corporate action and does not and will not
(a) require the consent or approval of its stockholders, (b) violate any
provision of any law, rule, regulation, order,
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<PAGE> 21
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to it or any provision of its charter or by-laws or (c)
result in a breach of or constitute a default under any material agreement,
mortgage, lease, license, permit or other instrument or obligation to which it
is a party or by which it or its properties may be bound or affected.
8.3 This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws, from time to time in effect,
affecting creditor's rights generally.
8.4 It is not under any obligation to any Person, contractual or
otherwise, that is conflicting or inconsistent in any respect with the terms of
this Agreement or that would impede the diligent and complete fulfillment of its
obligations.
8.5 It has good and marketable title to or valid leases or licenses
for, all of its properties, rights and assets necessary for the fulfillment of
its responsibilities under this Agreement, subject to no claim of any Third
Person other than the relevant lessors or licensors.
9. Dispute Resolution. Any controversy or claim arising out of or relating
to this contract, or breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof; provided, however, the parties
expressly waive any right, whether statutory or otherwise, to claim or seek
punitive damages for any act or omission arising under or related to this
Agreement and
20
<PAGE> 22
any claim for punitive damages shall not be heard or considered by the
arbitrator and any finding or award of punitive damages shall be null, void and
unenforceable as if never having been made.
10. Notices. All notices shall be mailed via certified mail, return receipt
requested, or sent by courier or overnight delivery service or by facsimile
addressed as follows, or to such other address as may be designated from time to
time:
If to Becton: To Becton at its address as set forth at the
beginning of this Agreement
Attention: Sector President, Diagnostics
with a copy to: Chief Patent and
Licensing Counsel
If to OSI: To OSI at its address as set forth at
the beginning of this Agreement
Attention: Chief Executive Officer
Notices shall be deemed given as of the date of receipt.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York.
12. Miscellaneous.
12.1 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective legal representatives,
successors and permitted assigns.
12.2 Headings. Paragraph headings are inserted for convenience of
reference only and do not form a part of this Agreement.
21
<PAGE> 23
12.3 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original.
12.4 Amendment; Waiver; etc. This Agreement may be amended, modified,
superseded or cancelled, and any of the terms may be waived, only by a written
instrument executed by each party or, in the case of waiver, by the party or
parties waiving compliance. The delay or failure of any party at any time or
times to require performance of any provision shall in no manner affect the
rights at a later time to enforce the same.
12.5 No Third Party Beneficiaries. No Person not a party to this
Agreement, including any employee of any party to this Agreement, shall have or
acquire any rights by reason of this Agreement. Nothing contained in this
Agreement shall be deemed to constitute the parties partners with each other or
any Person.
12.6 Assignment and Successors. This Agreement may not be assigned by
either party, except that each party may assign this Agreement and the rights
and their interests, in whole or in part, (a) to any of the Affiliates of such
party, or (b) upon a sale or transfer of all or substantially all of the
business of such party relating to this Agreement, in either case upon notice to
the other party.
22
<PAGE> 24
12.7 Counterparts. This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
BECTON, DICKINSON AND COMPANY
By: /s/
-----------------------
Title: Senior Vice President
-----------------------
Date:
-----------------------
ONCOGENE SCIENCE, INC.
By: /s/
-----------------------
Title: Chief Executive Officer
-----------------------
Date:
-----------------------
23
<PAGE> 25
SCHEDULE A
"A" LIST
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** This portion redacted pursuant to a request for confidential treatment.
<PAGE> 26
SCHEDULE B
"B" LIST
**
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** This portion redacted pursuant to a request for confidential treatment.
<PAGE> 27
PRICING SCHEDULE
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** This portion redacted pursuant to a request for confidential treatment.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Aston Molecules, Inc.
MYCOsearch Inc.
Applied bioTechnology, Inc.
Oncogene Science S.A.
2
<PAGE> 1
EXHIBIT 23
Independent Auditors' Consent
-----------------------------
The Board of Directors
Oncogene Science, Inc.:
We consent to incorporation by reference in the registration statements on Forms
S-3 (No. 333-12593 and No. 333-2451) and on Forms S-8 (No. 333-06861, No.
33-64713, No. 33-60182, No. 33-38443 and No. 33-8980) of Oncogene Science, Inc.
of our report dated December 3, 1996, relating to the consolidated balance
sheets of Oncogene Science, Inc. and subsidiaries as of September 30, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 1996, which reports appears in the September 30, 1996 annual
report on Form 10-K of Oncogene Science, Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
December 23, 1996
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