<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1996
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONCOGENE SCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3159796
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
106 CHARLES LINDBERGH BLVD., UNIONDALE, NY 11553, (516) 222-0023
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT L. VAN NOSTRAND
ONCOGENE SCIENCE, INC.
106 CHARLES LINDBERGH BLVD.
UNIONDALE, NEW YORK 11553
(516) 222-0023
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
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SPENCER W. FRANCK, JR., ESQUIRE LESLIE E. DAVIS, ESQUIRE
SAUL, EWING, REMICK & SAUL TESTA, HURWITZ & THIBEAULT
3800 CENTRE SQUARE WEST 125 HIGH STREET
PHILADELPHIA, PENNSYLVANIA 19102 BOSTON, MASSACHUSETTS 02110
(215) 972-7777 (617) 248-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
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Common Stock, Par Value $0.01 Per
Share........................... 2,875,000 shares $8.63 $24,796,875 $8,551
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</TABLE>
(1) Includes 375,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee, based
on the average of the high and low prices for the Common Stock as reported
on the Nasdaq National Market on February 12, 1996, in accordance with Rule
457(c) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 1996
[PASTEUP LOGO]
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being issued
and sold by Oncogene Science, Inc. ("Oncogene Science" or the "Company"). On
February 13, 1996, the last sale price of the Company's Common Stock, as
reported on the Nasdaq National Market, was $8.63 per share. See "Price Range of
Common Stock." The Common Stock of the Company is traded on the Nasdaq National
Market under the symbol "ONCS."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS COMPANY(1)
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Per Share................................... $ $ $
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Total(2).................................... $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $450,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If this option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any
order in whole or in part. It is expected that delivery of such shares will be
made through the offices of Robertson, Stephens & Company LLC ("Robertson,
Stephens & Company"), San Francisco, California on or about
, 1996.
ROBERTSON, STEPHENS & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected without charge and
copied at the public reference facilities maintained by the Commission at Room
1014, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, New
York, New York 10048; and 500 West Madison Street, 14th Floor, Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
the prescribed rates. Oncogene Science's Common Stock is listed and traded on
the Nasdaq National Market. Reports, proxy statements and other information
filed by the Company may also be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20002.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which provide certain information with respect to
Oncogene Science are incorporated by reference in this Prospectus:
1. Annual Report of the Company on Form 10-K for the fiscal year ended
September 30, 1995, as amended by Forms 10-K/A filed on January 29
and February 15, 1996;
2. Quarterly Report of the Company on Form 10-Q for the fiscal quarter
ended December 31, 1995;
3. The description of the Company's Common Stock, $.01 par value, which
is contained in the Company's Registration Statement on Form 8-A,
including any amendments or reports filed for the purpose of
updating such description.
All documents filed by Oncogene Science pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated by reference or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that the statement is
modified or superseded by any other subsequently filed document which is
incorporated or is deemed to be incorporated by reference herein. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Oncogene Science hereby undertakes to provide
without charge to each person, including any beneficial owner, to whom this
Prospectus has been delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated into this Prospectus and deemed to be part hereof, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents. These documents are available upon request from
Matthew Haines, Oncogene Science, Inc., 106 Charles Lindbergh Boulevard,
Uniondale, NY 11553, telephone (516) 222-0023.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
------------------------
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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Summary............................................................................... 4
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 17
Dividend Policy....................................................................... 17
Price Range of Common Stock........................................................... 18
Capitalization........................................................................ 19
Dilution.............................................................................. 20
Selected Consolidated Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 27
Management............................................................................ 45
Principal Stockholders................................................................ 48
Description of Capital Stock.......................................................... 50
Underwriting.......................................................................... 51
Legal Matters......................................................................... 52
Experts............................................................................... 52
Additional Information................................................................ 52
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus or
incorporated by reference herein.
THE COMPANY
Oncogene Science, Inc., a leader in the innovation of drug discovery
technologies, combines genetically engineered live-cell assays 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 Research Division of American Home Products
Corporation ("Wyeth") and Ciba-Geigy, Ltd. ("Ciba"), the Company is engaged in
the discovery and development of drugs for 30 target proteins in a wide range of
disease areas, including cancer, atherosclorosis, neurological disorders and
chronic anemias. The Company is developing its most advanced drug candidate,
TGF-B3, in collaboration with Ciba. The Company expects that Ciba will commence
Phase II clinical trials for wound healing and Phase I clinical trials for oral
mucositis in 1996. In addition, the Company's collaborative program with Pfizer
has resulted in the identification of a proprietary lead compound that inhibits
a protein associated with a number of major cancers. The Company expects that
Pfizer may file an Investigational New Drug application ("IND") in the second
half of 1996.
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 to the development of proprietary live-cell assays. These assays
are used to test diverse compounds derived from natural sources and from
medicinal chemistry libraries of its collaborative partners using automated,
high throughput robotic drug screening techniques. The Company believes its
technologies 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 technologies, the Company is
able to identify lead compounds that it believes are potent and selective,
possess minimal or no cellular toxicity, have activity in live cells and are
more likely to progress successfully through preclinical studies compared to
lead compounds identified by traditional methods.
In its collaborative programs with HMRI and Wyeth, the Company's drug
screens have identified initial lead compounds for the disease areas being
targeted and several of these lead compounds are in preclinical evaluation. In
addition to its collaborative programs, Oncogene Science conducts independent
drug discovery efforts to identify lead compounds in chronic anemias, virology
and muscle wasting disorders. The Company, is also engaged in the development of
a series of cancer diagnostic tests in collaboration with Becton Dickinson and
Company ("Becton").
The Company's strategy includes the following key elements: (i) enhance
drug discovery operations by combining new capabilities in combinatorial
chemistry with its industry leading robotics and information technology to
optimize lead drug candidates more quickly and effectively; (ii) maintain and
expand collaborations with pharmaceutical companies to provide funding,
development and commercialization capabilities, which enable the Company to
focus on its core strengths in drug discovery; and (iii) expand proprietary drug
discovery efforts to develop lead compounds through early clinical trials and
seek collaborative partners for proprietary programs later in the development
process in order to obtain more favorable terms for the funding, development and
commercialization of potential drug candidates.
The Company was incorporated in Delaware in March 1983. Oncogene Science's
corporate headquarters and principal research facilities are located at 106
Charles Lindbergh Boulevard, Uniondale, New York 11553, and its telephone number
is (516) 222-0023.
4
<PAGE> 6
THE OFFERING
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Common Stock Offered by the Company..................... 2,500,000 shares
Common Stock Outstanding after the Offering............. 20,027,789 shares(1)
Use of Proceeds......................................... For research and development
expenses, including the cost of
enhancing the Company's drug
discovery technologies, and for
general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol........................... ONCS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------- -------------------
1993 1994 1995 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................... $16,088 $16,299 $15,865 $ 4,208 $ 2,276
Operating expenses:
Research and development............ 10,660 12,125 13,523 3,077 2,683
Production.......................... 1,443 1,428 1,253 405 22
Selling, general and
administrative.................... 6,430 7,487 7,140 1,875 1,332
Amortization of intangibles......... 1,746 1,745 1,697 436 363
-------- -------- -------- -------- --------
-- -- -- -- --
Total operating expenses................. 20,279 22,785 23,613 5,793 4,400
Loss from operations..................... (4,191) (6,486) (7,748) (1,585) (2,124)
Gain on sale of Research Products
Business............................... - - 2,720 - -
Other income, net........................ 885 762 769 194 353
-------- -------- -------- -------- --------
-- -- -- -- --
Net loss................................. $(3,306) $(5,724) $(4,259) $(1,391) $(1,771)
========== ========== ========== ========== ==========
Net loss per share....................... $ (0.21) $ (0.35) $ (0.25) $ (0.09) $ (0.10)
========== ========== ========== ========== ==========
Weighted average shares outstanding...... 16,080 16,335 16,757 16,343 17,476
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments............ $ 24,085 $ 43,904
Total assets.................................................... 41,739 61,558
Accumulated deficit............................................. 27,900 27,900
Stockholders' equity............................................ 39,188 59,007
</TABLE>
- ---------------
(1) As of December 31, 1995 and excluding outstanding options and warrants to
purchase 2,452,366 shares of Common Stock as of that date.
(2) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock offered hereby at an assumed public offering price of $8.63 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."
Except as otherwise indicated, the information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Oncogene Science has limited experience in conducting clinical trials and
intends to rely primarily on the pharmaceutical companies with which it
collaborates, including Ciba, Pfizer, HMRI and Wyeth, for clinical development
and regulatory approval of its product candidates. Before obtaining regulatory
approvals for the commercial sale of its products, the Company or its
collaborative partners will be required to demonstrate through preclinical
studies and clinical trials that the proposed products are safe and effective
for use in each target indication. The results from preclinical studies and
early clinical trials may not be predictive of results that will be obtained in
large-scale testing, and there can be no assurance that the clinical trials
conducted by the Company or its partners will demonstrate sufficient safety and
efficacy to obtain the required regulatory approvals or will result in
marketable products. In addition, clinical trials are often conducted with
patients having the most advanced stages of disease. During the course of
treatment, these patients can die or suffer other adverse medical effects for
reasons that may not be related to the pharmaceutical agent being tested, but
which can nevertheless affect clinical trial results. Various companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials.
Clinical trials for the product candidates being developed by the Company
and its collaborators may be delayed by many factors. For example, clinical
trials for TGF-Beta3, the Company's product candidate most advanced in clinical
development, have been delayed as a result of a failure on the part of Ciba's
temporary contract manufacturer's facility to fully comply with good
manufacturing practices ("GMP") in producing clinical quantities of TGF-Beta3.
No assurance can be given that the same or similar problems will not recur and
that these clinical trials or trials with respect to its diagnostic and small
molecule pharmaceutical product candidates will not be subject to additional
delays or otherwise terminated. Any delays in, or termination of, the clinical
trials of any of the Company's product candidates would have a material adverse
effect on the Company's business, financial condition and results of operations.
In the Company's small molecule drug discovery operations, no product
candidates have entered clinical trials. Consequently, compounds discovered
using the Company's small molecule discovery technology have not yet been proven
safe or effective in humans. Furthermore, the roles played by several of the
Company's target genes in particular diseases have not yet been fully
elucidated. As such, the safety and efficacy of drugs that alter the
transcription of these genes are not yet established. No assurance can be given
that any lead small molecule compounds or diagnostic product candidates emerging
from the Company's discovery and development operations will successfully enter
or complete clinical trials or receive marketing approval from the U.S. Food and
Drug Administration ("FDA") or any foreign regulatory authorities on a timely
basis or at all. See "Business -- Product Development and Research Programs."
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company does not intend to conduct late-stage clinical trials, or
manufacturing or marketing activities with respect to any of its product
candidates in the foreseeable future. The Company has collaborations with Ciba,
Pfizer, HMRI and Wyeth for the development of potential drug candidates, and to
date, its most advanced programs are in TGF-Beta3 with Ciba for wound healing
and oral mucositis and an oncogene inhibitor with Pfizer for the treatment of
certain cancers. The Company also collaborates with Becton in the development of
cancer diagnostic products. The Company is dependent on the pharmaceutical and
diagnostic companies with which it collaborates for the preclinical testing,
clinical development, regulatory approval, manufacturing and marketing of its
products. 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
6
<PAGE> 8
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 would 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.
The Company has a collaborative research agreement with Ciba relating to
the clinical development, manufacturing and marketing of the Company's
recombinant protein TGF-SS3 for various indications. Under this agreement, Ciba
has the right to manufacture TGF-SS3 for clinical development and commercial
purposes for all indications. The Company and other potential licensees of
TGF-SS3 are, and will be, dependent on Ciba as the sole manufacturer of TGF-SS3.
No assurance can be given that Ciba will supply TGF-SS3 to the Company and its
licensees as needed. As a result of a failure on the part of its temporary
contract manufacturer to comply with certain FDA manufacturing regulations, Ciba
has experienced delays in the production of TGF-SS3, which have resulted in
delays in clinical trials, and there can be no assurance that the Company will
not experience problems in obtaining a supply of TGF-SS3 in the future. In
addition, a substantial milestone payment by Ciba under this collaboration is
dependent on Ciba accomplishing certain clinical development objectives, over
which the Company has no control. Failure of Ciba to complete clinical
development and obtain regulatory approval for TGF-SS3 in one or more
indications could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company relies on its collaborative partners to provide funding in
support of its research operations. As of December 31, 1995, the Company had
received or accrued an aggregate of $62.7 million in research funding and
milestone payments from its collaborative partners, approximately one-half of
which has been provided by Pfizer. The Company would be required to devote
additional internal resources to product development, or scale back or terminate
certain development programs or seek alternative collaborative partners, if
funding from one or more of its collaborative programs were reduced or
terminated. For example, Becton has reduced its funding under the Company's
diagnostic products collaboration for fiscal 1996. This collaboration will
expire on September 30, 1996 and the Company is uncertain as to whether it will
be renewed at such time. The Company is negotiating with Pfizer and HMRI for the
renewal of its collaborations with these companies, but there can be no
assurance that these collaborations will be renewed on acceptable terms, if at
all.
The Company owns or controls the rights to only a relatively small number
of the compounds that it tests in its drug discovery operations. The Company is
dependent on access to the compound libraries of its collaborative partners and
others in order to enhance the value of its high throughput drug screens.
Failure by the Company to gain access to the compound libraries of its
collaborative partners and others would restrict its ability to exploit fully
its high throughput screening capabilities and would have a material adverse
effect on its business, financial condition and results of operations.
Disputes may arise in the future with respect to the ownership of rights to
any technology developed with third parties. These and other possible
disagreements between collaborators and the Company could lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in litigation or arbitration, which would
be time-consuming and expensive, and would have a material adverse effect on the
Company's business, financial condition and results of operations.
Generally, in its collaborative research agreements, the Company agrees not
to conduct independently, or with any third party, any research that is
competitive with the research conducted under its collaborative programs. The
Company's collaborative relationships may have the effect of limiting the areas
of research the Company may pursue. However, the Company's collaborative
partners may develop, either alone or with others, products that are similar to
or competitive with the products or potential products that are the subject of
the Company's collaborations with such partners. Competing products, either
developed by the collaborative partners or to which the collaborative partners
have rights, may result in their withdrawal of support for the Company's product
candidates, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
7
<PAGE> 9
All of the Company's collaborative programs with pharmaceutical companies
have terms of six or fewer years, which is generally less than the period
required for the discovery, clinical development and commercialization of most
drugs. The continuation of any of the Company's drug discovery and development
programs is dependent on the periodic renewal of the relevant collaborative
partnership. Furthermore, all of the Company's collaborative research agreements
are subject to termination under various circumstances. Certain of the Company's
collaborative research agreements provide that, upon expiration of a specified
period after commencement of the agreement, its collaborative partners have the
right to terminate the agreement on short notice without cause. For example, the
Company's collaborative research agreement with Wyeth is currently terminable by
Wyeth on four months notice. The termination or nonrenewal of this or any other
collaborative relationship could have a material adverse effect on the Company's
business, financial condition and results of operations.
There have been a significant number of recent consolidations among large
pharmaceutical and diagnostic companies. Such consolidations among these
companies with which the Company is engaged in collaborative research can result
in the diminution or termination of, or delays in, one or more of the Company's
collaborative programs. For example, in 1995, the pharmaceutical operations of
three companies with which the Company had collaborative research agreements,
Hoechst AG ("Hoechst"), Hoechst Roussel Pharmaceuticals, Inc. ("Hoechst
Roussel") and Marion Merrell Dow Inc. ("MMDI") were combined in one entity,
HMRI. This combination resulted in delays in the Company's collaborative
programs with each of the constituent companies. In addition, HMRI is conducting
a review of all of its research and development programs with a view to
determining which programs to continue or terminate. The Company and HMRI have
reached an agreement in principle to consolidate all three collaborative
research agreements under one new agreement. However, HMRI's total funding
commitment under the consolidated agreement will be somewhat less than the
aggregate historical funding provided under the separate agreements.
Notwithstanding this agreement in principle, there can be no assurance that HMRI
will not terminate or elect not to renew certain or all of its agreements with
the Company. Termination by HMRI of any of its agreements with the Company could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's strategy for the discovery, development, clinical testing,
manufacturing and marketing of certain of its potential products includes
establishing additional collaborations. There can be no assurance that the
Company will be able to negotiate such collaborative arrangements on acceptable
terms, if at all, or that such collaborations will be successful. See
"Business -- Product Development and Research Programs -- Small Molecule
Collaborative Programs."
UNCERTAINTIES RELATED TO THE EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL
UNCERTAINTIES
To date, the Company has generated no revenue from the sale of
pharmaceutical products. All of the lead compounds in the Company's small
molecule drug discovery programs are in either the discovery or the preclinical
evaluation phase. TGF-Beta3, which is the Company's product candidate most
advanced in clinical development, to date has been subject to limited clinical
evaluation. The Company has commercialized one diagnostic product, which to date
has not generated significant sales and is not expected to generate significant
sales in the future. Any products resulting from the Company's development
programs are not expected to be commercially available for several years, if at
all.
All of the Company's potential products will require significant research
and development and are subject to significant risks. Potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. Potential products may be found ineffective or cause
harmful side effects during preclinical testing or clinical trials, fail to
receive necessary regulatory approvals, be difficult to manufacture on a large
scale, be uneconomical to produce, fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties. There
can be no assurance that the Company's or its collaborative partners' product
development efforts will be successfully completed, that required regulatory
approvals will be obtained or that any products, if introduced, will be
successfully marketed or achieve customer acceptance.
The Company's transcription-based live-cell assays are novel as a drug
discovery method and have not yet been shown to be successful in the development
of any commercialized drug. Furthermore, the roles played by
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certain of the Company's target genes in particular diseases have not yet been
fully elucidated. There can be no assurance that the Company's live-cell assay
technology will result in lead compounds that will be safe and efficacious.
Development of new pharmaceutical products is highly uncertain, and no assurance
can be given that the Company's drug discovery technology will result in
commercially successful products. See "Business -- Product Development and
Research Programs."
UNCERTAINTY OF FUTURE PROFITABILITY
Oncogene Science has had net operating losses since its inception in 1983.
At December 31, 1995, the Company's accumulated deficit was approximately $27.9
million. The Company's losses have resulted principally from costs incurred in
research and development, and from general and administrative costs associated
with the Company's operations. These costs have exceeded the Company's revenues,
which to date have been generated principally from collaborative research
agreements, and to a lesser extent, from operation of the Company's research
products business, sale of the research products business in August 1995,
research grants and interest income. Oncogene Science expects to incur
substantial additional operating expenses over the next several years as a
result of increases in its expenses for research and development, including
enhancements in its drug discovery technologies, and with respect to its
internal proprietary projects, its small molecule and diagnostic clinical
development activities. If the Company does not obtain additional third party
funding for such expenses, the Company expects that such increased expenses will
result in increased losses from operations. Oncogene Science does not expect to
generate revenues from the sale of its small molecule products for several
years, if ever. The Company currently has limited sales of one diagnostic
product. The Company's future profitability depends in part on the receipt of
royalties and other payments from its collaborative partners obtaining
regulatory approval for products derived from its collaborative research
efforts, the Company's collaborative partners successfully producing and
marketing products derived from technology or rights licensed from the Company;
and the Company's entering into agreements for the development,
commercialization, manufacture and marketing of any products derived from the
Company's internal proprietary programs. There can be no assurance that the
Company or its collaborative partners will obtain required regulatory approvals,
or successfully develop, commercialize, manufacture and market product
candidates or that the Company will ever achieve product revenues or
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company will require substantial additional funding in order to
continue its research, product development, preclinical testing and clinical
trials of its product candidates. The Company's internal proprietary programs
and operations will require a significant amount of funding that will not be
provided by the Company's existing collaborative partners. The Company's
strategy includes developing product candidates in its internal proprietary
programs through early stage clinical development before forming collaborations
for the further development of such product candidates. In addition, the Company
has implemented a program to enhance certain aspects of its drug discovery
technology and capabilities, including investment in, and possible acquisition
of, technology companies. These activities will require investment of
significant funds by the Company. No assurance can be given that the Company
will have adequate resources to support such existing and future activities or
that the Company will be able to enter into collaborative arrangements on
acceptable terms, if at all.
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the size and complexity of these programs, progress with preclinical
testing and early stage clinical trials, the time and costs involved in
obtaining regulatory approvals for its product candidates, the costs involved in
filing, prosecuting and enforcing patent claims, competing technological and
market developments, the establishment of additional collaborative arrangements,
the cost of manufacturing arrangements, commercialization activities, potential
indemnification payments to the purchaser of the Research Products Business, and
the cost of product in-licensing and strategic acquisitions, if any. The Company
evaluates on an ongoing basis potential collaborative arrangements with third
parties and acquisitions of companies or technologies that may complement its
business.
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The Company intends to seek additional funding through arrangements with
corporate collaborators and through public or private sales of the Company's
securities, including equity securities. There can be no assurance, however,
that additional funding will be available on reasonable terms, if at all. Any
additional equity financings would be dilutive to the Company's stockholders. If
adequate funds are not available, the Company may be required to curtail
significantly one or more of its research and development programs or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies or
product candidates, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Generally, the Company's funding pursuant to any particular collaborative
research agreement is subject to reduction or termination under various
circumstances. For example, as a result of the business combination in 1995 of
Hoechst, Hoechst Roussel and MMDI, all pharmaceutical companies with which the
Company had collaborative research programs, the Company expects that the total
annual research funding it will receive in the future from the combined entity
will be reduced relative to the aggregate funding it received under the three
separate programs prior to the combination. In addition, Becton reduced its
funding under the diagnostic products collaboration in fiscal 1996, and the
Company is uncertain as to Becton's ongoing support for this program. There can
be no assurance that the Company's cash reserves and other liquid assets,
including the net proceeds of this offering and funding that may be received
from the Company's collaborative partners and interest income earned thereon,
will be adequate to satisfy its capital and operating requirements for the
foreseeable future. See "Use of Proceeds" and "Business -- Product Development
and Research Programs."
NO ASSURANCE OF PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability or the ability of
its collaborative partners to obtain patent protection for product candidates,
to maintain trade secret protection and operate without infringing on the
proprietary rights of third parties.
The Company is aware of several U.S. and foreign patents owned by others
who may allege infringement by TGF-SS3, which the Company is seeking to develop
in collaboration within Ciba. Genentech, Inc. has U.S. patents relating to
certain recombinant materials and procedures for producing members of the TGF-SS
family, including TGF-SS3. In addition, the Company believes that Genentech has
license rights under a U.S. 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-SS1. There can be no assurance
that the activities or products of the Company or its collaborative partners do
not or will not infringe the claims of there or other issued patents held by
third parties or any other patent issued in the future. Furthermore, there can
be no assurance that any license required under any such patents would be made
available or, if available, would be available on acceptable terms. Failure to
obtain patent protection or a required license could prevent the Company and
Ciba from commercializing TGF-SS3 products. Inability on the part of the Company
and Ciba to commercialize TGF-SS3 products could have a material adverse effect
on the Company's business, financial condition and results of operations.
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 a 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 at all or on acceptable terms.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including Oncogene Science, are generally uncertain and involve
complex legal and factual questions. There can be no assurance that any of the
Company's pending patent applications will be approved, that the Company will
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develop additional proprietary technologies that are patentable, that any
patents issued to the Company or its licensors will provide a basis for
commercially viable products or will provide the Company with any competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the ability of the Company to do
business. In addition, patent law relating to the scope of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights therefore, is uncertain.
Furthermore, there can be no assurance that others will not independently
develop similar or alternative technologies, duplicate any of the Company's
technologies, or, if patents are issued to the Company, design around the
patented technologies developed by the Company. In addition, the Company could
incur substantial costs in litigation if it is required to defend itself in
patent suits brought by third parties or if it initiates such suits.
The extent to which efforts by other researchers have resulted or will
result in patents and the extent to which the issuance of patents to others
would have a material adverse effect on the Company or would force the Company
or its collaborative partners or other licensees to obtain licenses from others,
if available, is currently unknown. Generally, the Company's royalties could be
reduced by up to 50% if its licensees or collaborative partners are required to
obtain such licenses. There can be no assurance that the Company's products,
operations or technology will not infringe upon the rights of any third party.
The Company relies on trade secrets to protect technology where patent
protection is not believed to be appropriate or obtainable. The Company has
entered, and will continue to enter, into confidentiality agreements with its
employees, consultants, licensors and collaborative partners. There can be no
assurance, however, that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, that such obligations of confidentiality will be
honored or that the Company will be able to effectively protect its rights to
proprietary information. See "Business -- Intellectual Property."
COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
The pharmaceutical, biotechnology and diagnostics industries are intensely
competitive, and the Company faces, and will continue to face, intense
competition from organizations such as large pharmaceutical companies,
diagnostic companies, biotechnology 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, facilities, experience in drug
discovery and development, obtaining regulatory approval and pharmaceutical
product manufacturing and marketing. The Company's major competitors include the
fully-integrated pharmaceutical companies, such as Merck & Co., Inc., Glaxo
Wellcome Inc. and SmithKline Beecham plc that have 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 potentially 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., a publicly traded company,
Combichem Inc. and ArQule,
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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 all the disease areas
for which the Company is seeking to discover and develop drug candidates. These
competing drug candidates are further advanced in clinical development than are
any of 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 either that are more effective than
those that may be developed by the Company and its collaborators or that are
marketed prior to any products developed by the Company or its collaborators.
With respect to its efforts to develop TGF-SS3 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-SS2 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-SS3 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-SS3 will prove to be safe and effective or will
compete successfully against current and emerging therapies for any particular
clinical indication.
The Company will, for the foreseeable future, rely on its collaborative
partners for preclinical evaluation and clinical development of its potential
products and manufacturing and marketing of any products. In addition, the
Company relies on its collaborative partners for support in its drug discovery
operations. It is likely that all of the pharmaceutical companies with which the
Company has collaborations have multiple product development efforts within each
disease area. It is not unusual for large pharmaceutical companies to have
competing potential products in separate development programs. Generally, the
Company's collaborative research agreements do not restrict a party from
pursuing competing internal development efforts based on reasonable commercial
judgment and other factors. Any product candidate of the Company, therefore, may
be subject to competition with a potential product under development by the
pharmaceutical company with which the Company is collaborating in connection
with such product candidate.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technology associated with the
Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with such products. See "Business -- Competition."
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GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing by a collaborative partner, any new drug discovered by
the Company must undergo an extensive regulatory approval process in the U.S.
and other countries. This regulatory process, which includes preclinical testing
and clinical trials, and may include post-marketing surveillance, of each
compound to establish its safety and efficacy, can take many years and require
the expenditure of substantial resources. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations that could delay,
limit or prevent regulatory approval. In addition, delays or rejections may be
encountered based upon changes in FDA policies for drug approval during the
period of product development and FDA regulatory review of each submitted new
drug application ("NDA") in the case of new pharmaceutical agents, or PLA in the
case of a biologic, such as the Company's TGF-Beta3 product candidate. Similar
delays may also be encountered in the regulatory approval of any diagnostic
product. Such delays may also be encountered in obtaining regulatory approval in
foreign countries. There can be no assurance that regulatory approval will be
obtained for any drugs discovered, or diagnostic products developed, by the
Company. Furthermore, regulatory approval may entail limitations on the
indicated use of the drug.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product of the Company or its manufacturer may have adverse
effects on the Company's business, financial condition and results of
operations, including withdrawal of the product from the market. Violations of
regulatory requirements at any stage, including preclinical testing and clinical
trials, the approval process or post-approval, may result in various adverse
consequences to the Company, including the FDA's delay in approving or its
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. The Company has not submitted an IND for any product candidate, and no
product candidate has been approved for commercialization in the United States
or elsewhere. The Company intends to file INDs for product candidates in its
internal proprietary programs, but to rely on its partners to file INDs in its
collaborative programs. No assurance can be given that the Company or any of its
collaborative partners will be able to conduct clinical testing or obtain the
necessary approvals from the FDA or other regulatory authorities for any
products. Failure to obtain required governmental approvals will delay or
preclude the Company's partners from marketing drugs discovered, or diagnostic
products developed, by the Company or limit the commercial use of such products
and will have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
NO MANUFACTURING CAPACITY; RELIANCE ON THIRD-PARTY MANUFACTURING
The Company does not intend to develop or acquire facilities for the
manufacture of drug candidates or diagnostic products for clinical trials or
commercial purposes, and has been, and will remain, dependent on its
collaborative partners or third parties for the manufacture of product
candidates for preclinical, clinical and commercial purposes.
The manufacture of the Company's candidate products for clinical trials and
the manufacture of resulting products for commercial purposes is subject to
current GMP regulations promulgated by the FDA. The Company will rely on
collaborative partners or outside contractors to manufacture its products in
their FDA approved manufacturing facilities. The Company's products may be in
competition with other products for priority of access to these facilities.
Consequently, the Company's products may be subject to delays in manufacture, if
collaborative partners or outside contractors give other products greater
priority than the Company's products. For this and other reasons, there can be
no assurance that the Company's collaborative partners will manufacture such
products in an effective or timely manner. If not performed in a timely manner,
the clinical trial development of the Company's product candidates or their
submission for regulatory approval could be delayed and the Company's ability to
deliver products on a timely basis could be impaired or precluded. There can be
no assurance that the Company will be able to enter into any necessary third
party manufacturing arrangements on acceptable terms if at all. The Company's
current dependence upon others for the manufacture of its products may adversely
affect its future profit margin, if any, and its ability to commercialize
products on a timely and competitive basis.
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Pursuant to the collaborative research agreement between the Company and
Ciba, Ciba has the right to manufacture TGF-SS3 for all of the Company's
clinical and commercial requirements. As a result of the failure of its
temporary contract manufacturer's facilities to comply with GMP, Ciba has
experienced delays in manufacturing this compound, which has caused delays in
scheduled clinical trials for TGF-SS3. See "-- Dependence on Collaborative
Relationships."
UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business, financial condition and results of operations may
be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products and diagnostic tests. Cost
control initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any drugs it may discover
or develop or diagnostic products it may develop in the future and have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, to the extent that cost control initiatives have
a material adverse effect on the Company's commercial partners, the Company's
ability to commercialize its products and its ability to realize royalties may
be adversely affected.
The Company's or any collaborative partner's or licensee's ability to
commercialize pharmaceutical or diagnostic products may depend in part on the
extent to which reimbursement for the products will be available from government
and health administration authorities, private health insurers and other
third-party payors. Significant uncertainty exists as to the reimbursement
status of newly approved health care products, and third-party payors, including
Medicare, are increasingly challenging the prices charged for medical products
and services. There can be no assurance that any third-party insurance coverage
will be available to patients for any products discovered and developed by the
Company and its collaborative partners. Government and other third-party payors
are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products and by
refusing in some cases to provide coverage for uses of approved products for
disease indications for which the FDA has not granted labeling approval. If
adequate coverage and reimbursement levels are not provided by government and
other third-party payors for the Company's products, the market acceptance of
these products would be adversely affected, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITY
The use of any of the Company's potential products in clinical trials and
the sale of any approved products may expose the Company to liability claims
resulting from the use of products or product candidates. These claims might be
made directly by consumers, pharmaceutical companies, including the Company's
collaborative partners or others. The Company is currently an additional named
insured under a clinical trials liability insurance policy carried by Ciba with
respect to its TGF-SS3 clinical trials in the amount of $3 million. The Company
does not independently maintain product liability insurance coverage for claims
arising from the use of its products in clinical trials. Insurance coverage is
becoming increasingly expensive, and no assurance can be given that the Company
will continue to be a named insured with respect to trials underway or obtain
insurance in the future at a reasonable cost or in sufficient amounts to protect
the Company. The Company's inability to obtain adequate liability insurance
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to obtain commercially reasonable product liability insurance for
any product approved for marketing in the future or that insurance coverage and
the resources of the Company would be sufficient to satisfy any liability
resulting from product liability claims. A successful product liability claim or
series of claims brought against the Company could have a material adverse
effect on its business, financial condition and results of operations.
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ATTRACTION AND RETENTION OF KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on the principal members of its management
and scientific staff. The loss of services of any of these personnel could
impede the achievement of the Company's development objectives. Furthermore,
recruiting and retaining qualified scientific personnel to perform research and
development work in the future will also be critical to the Company's success.
There can be no assurance that the Company will be able to attract and retain
personnel on acceptable terms given the competition between pharmaceutical and
health care companies, universities and nonprofit research institutions for
experienced scientists. All of Oncogene Science's consultants are employed by
employers other than the Company and may have commitments to or consulting or
advisory contracts with other entities that may limit their availability to the
Company. See "Business -- Competition."
RISK ASSOCIATED WITH BIOLOGICAL MATERIALS
The activities of the Company involve and will continue to involve the
controlled use of potentially harmful biological materials as well as 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 laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. Furthermore, the full health risks associated with certain
biological materials, such as DNA, viruses and fungal organisms, are unknown. In
the event of contamination or injury, the Company could be held liable for
damages that result, and any such liability could exceed the Company's resources
or otherwise have a material adverse impact on the Company's business, financial
condition and results of operations.
VOLATILITY OF COMMON STOCK PRICE; MARKET FOR THE COMMON STOCK
The market prices for securities of biotechnology and pharmaceutical
companies, including Oncogene Science, have historically been highly volatile,
and the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs discovered or
developed by the Company or its collaborative partners or others, future sales
of substantial amounts of Common Stock by existing stockholders and general
market conditions can have an adverse effect on the market price of the Common
Stock. The realization of any of the risks described in these "Risk Factors"
could have an adverse effect on market price of the Company's Common Stock.
The Company's collaborative partners hold an aggregate of 3,837,500 shares
of the Company's Common Stock, which constituted approximately 22% of the
outstanding Common Stock at December 31, 1995. Of these shares, all but the
909,091 shares owned by Ciba are currently eligible for sale under Rule 144.
Ciba's shares become eligible for sale under Rule 144, subject to certain volume
and manner of sale limitations, on April 19, 1997. On April 19, 1998, Ciba's
shares will become freely saleable under Rule 144(k). In addition, HMRI has the
right until December 11, 1999 to purchase up to 500,000 shares of the Company's
Common Stock at a purchase price of $5.50 per share. Until April 19, 1999, Ciba
has an option to purchase $10 million of the Company's Common Stock at a
purchase price equal to the then current market price or $5.50 per share,
whichever is higher. Sales of a significant number of shares of Common Stock in
the public market could have an adverse effect on the price of the Common Stock.
See "Principal Stockholders" and "Description of Capital Stock -- Registration
Rights."
NO DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
anticipate paying any dividends in the foreseeable future. See "Dividend
Policy."
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DILUTION
Upon the purchase of Common Stock, investors will experience substantial
dilution in the net tangible book value of the Common Stock they acquire in this
offering. Based on the net tangible book value of the Common Stock at December
31, 1995 and an assumed offering price of $8.63, dilution in net tangible book
value for purchasers in this offering would be $6.10 per share.
ANTITAKEOVER PROVISIONS
Certain provisions of the Delaware corporate law may have the effect of
deterring hostile takeovers or delaying or preventing changes in the control or
management of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over the then current market
prices. See "Description of Capital Stock -- Delaware Takeover Statute."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby at an assumed public offering price of $8.63 per
share are estimated to be approximately $19.8 million ($22.9 million if the
Underwriters' over-allotment option is exercised in full).
The Company estimates that the majority of the net proceeds from the
offering will be used for research and development expenses, including the cost
of enhancing the Company's drug discovery technologies, and the balance will be
used for general corporate purposes. The Company intends to continue funding its
own research and development expenses, including preclinical and clinical
expenses for projects that are not subject to collaborative arrangements and for
non-reimbursed expenses of those projects that are subject to collaborative
arrangements. The amounts actually expended for each purpose may vary
significantly depending upon numerous factors, including the progress of the
Company's research, drug discovery and development programs, the results of
preclinical studies and clinical trials, the timing of regulatory approvals,
technological advances, determinations as to commercial potential of the
Company's compounds and the status of competitive products. In addition,
expenditures will also depend upon other factors including the retention and
establishment of, and compliance with, collaborative research arrangements, and
the availability of other financing. The Company may acquire other companies in
order to enhance its drug discovery technology and capabilities. The Company
also may make minority investments in equity securities of other companies in
order to license or acquire relevant technology. The Company evaluates on an
ongoing basis potential collaborative arrangements with third parties and
acquisitions of companies or technologies that may complement its business.
Although the Company has not reached any agreements with such third parties, a
portion of the net proceeds of this offering may be used in one or more such
acquisitions.
Based upon its current operating plan, the Company believes that its
available cash and cash equivalents and short-term investments, together with
proceeds of this offering and interest earned thereon, will be adequate to
satisfy its currently anticipated capital needs through fiscal 1999. Pending
application of the proceeds as described above, the Company intends to invest
the net proceeds of this offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and does not
anticipate paying any dividends in the foreseeable future.
17
<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is on the Nasdaq National Market under the
symbol "ONCS." The following table sets forth, for the calendar periods
indicated, the range of high and low sale prices for the Common Stock of the
Company on the Nasdaq National Market. These prices do not include retail
mark-up, mark-down or commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1993
First Quarter...................................................... $7 1/4 $4 5/8
Second Quarter..................................................... 6 1/4 4
Third Quarter...................................................... 5 1/8 3 5/8
Fourth Quarter..................................................... 4 3/4 3 1/2
1994
First Quarter...................................................... 4 1/8 3 1/8
Second Quarter..................................................... 3 7/8 2 7/8
Third Quarter...................................................... 3 5/8 2 1/4
Fourth Quarter..................................................... 3 3/8 2 3/8
1995
First Quarter...................................................... 3 3/8 2 1/2
Second Quarter..................................................... 4 5/8 2 /16
Third Quarter...................................................... 7 1/2 3 1/2
Fourth Quarter..................................................... 10 3/4 5
1996
First Quarter (through February 12)................................ 10 3/4 8
</TABLE>
As of December 31, 1995, there were 751 holders of record of the Common
Stock. On February 13, 1996, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $8.63 per share.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1995, and as adjusted to reflect the receipt of the estimated
proceeds from the sale of 2,500,000 shares of Common Stock offered hereby at an
assumed public offering price of $8.63 per share and the application of
estimated net proceeds therefrom:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Common Stock, $0.01 par value, 50,000,000 shares authorized;
17,750,310 shares issued; 20,250,310 shares issued, as
adjusted(1)...................................................... 178 203
Additional paid-in capital.......................................... 66,998 86,792
Accumulated deficit................................................. (27,900) (27,900)
Cumulative foreign currency transaction adjustment.................. (40) (40)
Unrealized holding gain on short-term investments................... 95 95
Treasury stock, at cost (222,521 shares)............................ (143) (143)
-------- ----
Total stockholders' equity..................................... 39,188 59,007
-------- ----
Total capitalization........................................ $ 39,188 $ 59,007
======== ====
</TABLE>
- ---------------
(1) Excludes options and warrants outstanding at December 31, 1995 to purchase
2,452,366 shares of Common Stock at a weighted average exercise price of
$4.10 per share.
19
<PAGE> 21
DILUTION
The net tangible book value of the Company as of December 31, 1995 was
approximately $30.9 million or $1.76 per share of Common Stock. After giving
effect to the sale by the Company of the 2,500,000 shares of Common Stock
offered hereby at an assumed public offering price of $8.63 per share and the
receipt of the net proceeds therefrom, the pro forma net tangible book value of
the Company as of December 31, 1995 would have been approximately $50.7 million,
or $2.53 per share. This represents an immediate increase in net tangible book
value of $0.77 per share to existing stockholders and an immediate dilution in
net tangible book value of $6.10 per share to new investors purchasing shares at
the public offering price. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Public offering price per share(1)................................... $8.63
Net tangible book value before the offering(2)..................... $1.76
Increase attributable to new investors............................. 0.77
------
-
Pro forma net tangible book value after the offering................. 2.53
------
-
Dilution to new investors............................................ $6.10
=======
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities divided by the number of shares of Common
Stock outstanding.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for
Oncogene Science. The selected consolidated financial data as of September 30,
1994 and 1995, and for each of the three years in the period ended September 30,
1995, are derived from the Company's audited consolidated financial statements,
which consolidated financial statements are included elsewhere in this
Prospectus. The selected consolidated financial data set forth below as of
September 30, 1991, 1992 and 1993, and for each of the two years in the period
ended September 30, 1992, are derived from audited consolidated financial
statements, which consolidated financial statements are not included or
incorporated by reference in this Prospectus. The unaudited consolidated
financial data as of December 31, 1995, and for the three months ended December
31, 1994 and 1995, have been prepared on a basis consistent with the audited
consolidated financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial condition and results of operations for the periods
presented. The results for the three months ended December 31, 1995 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1996. This selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes included in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1994 1995
------- ------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................... $ 7,824 $11,094 $ 16,088 $ 16,299 $ 15,865 $ 4,208 $ 2,276
Operating expenses:
Research and development.......... 4,860 8,127 10,660 12,125 13,523 3,077 2,683
Production........................ 749 1,421 1,443 1,428 1,253 405 22
Selling, general and
administrative.................. 4,131 5,219 6,430 7,487 7,140 1,875 1,332
Amortization of intangibles....... -- 1,746 1,746 1,745 1,697 436 363
------- ------- -------- -------- -------- -------- --------
Loss from operations................ (1,916) (5,419) (4,191) (6,486) (7,748) (1,585) (2,124)
Gain on sale of Research Products
Business.......................... -- -- -- -- 2,720 -- --
Other income, net................... 724 883 885 762 769 194 353
Relocation related expenses......... (342) -- -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Net loss............................ $(1,534) $(4,536) $ (3,306) $ (5,724) $ (4,259) $ (1,391) $ (1,771)
======== ======== ========= ========= ========= ========= =========
Net loss per share.................. $(0.17) $(0.31) $(0.21) $(0.35) $(0.25) $(0.09) $(0.10)
======== ======== ========= ========= ========= ========= =========
Weighted average shares
outstanding....................... 9,184 14,801 16,080 16,335 16,757 16,343 17,476
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------- DECEMBER 31,
1991 1992 1993 1994 1995 1995
------- ------- ------- ------- ------- --------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents
and short-term investments........ $10,110 $18,897 $22,390 $18,158 $26,787 $24,085
Working capital..................... 10,301 22,363 25,915 21,208 26,128 25,268
Total assets........................ 18,079 43,931 47,615 42,041 44,057 41,739
Stockholders' equity................ 15,867 41,961 45,045 38,656 40,550 39,188
</TABLE>
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in March 1983, Oncogene Science has devoted most of its
resources to the development of its technology platform and research and drug
discovery programs. To date, none of the Company's collaborative programs have
resulted in a commercial product and, therefore, the Company has not received
any royalty revenue from the sale of therapeutic products by its collaborators.
Furthermore, the Company does not expect to generate any such revenues for
several years, if at all. The Company has incurred an accumulated deficit of
approximately $27.9 million as of December 31, 1995 and expects to continue to
incur operating losses for several years.
The Company has funded its operations primarily through public and private
placements of equity securities and payments under collaborative research
agreements with major pharmaceutical companies. The Company's revenues consist
principally of funding under such collaborative research agreements, and to a
lesser extent, government and private grants and investment income. The Company
also derived revenues from the operations of its Research Products Business,
which it sold in August 1995 in order to concentrate on its drug discovery
operations. Although the Company anticipates increased expenditures in research
and development, it expects a portion of such expenses to be reimbursed by the
Company's existing and potential collaborative partners. The Company's strategy
is to develop its product candidates in collaboration with others on whom the
Company will rely for funding, clinical development, regulatory approval,
manufacturing and marketing capabilities.
The Company collaborates with leading pharmaceutical companies in most of
its drug discovery programs. Currently, the Company has collaborative programs
with Pfizer, HMRI, Wyeth and Ciba. Generally, the Company's collaborative
partners have exclusive, worldwide licenses to manufacture and market products
resulting from the collaborative research, in exchange for research funding and
the payment of royalties to the Company on product sales. In addition, the
collaborative partners generally have responsibility for clinical development
and obtaining regulatory approvals.
In the Company's collaboration with Pfizer, Oncogene Science is pursuing
the discovery and development of cancer therapeutic products that target
oncogenes and anti-oncogenes. Through December 31, 1995, cumulative revenues
from Pfizer were $31.8 million.
The Company is pursuing the discovery and development of drugs in various
areas jointly with HMRI. In July 1995, the pharmaceutical operations of Hoechst,
Hoechst Roussel and MMDI were combined in one entity, HMRI. Prior to this date
the Company had collaborative agreements with all three of these companies. In
1992, the Company entered into a collaborative agreement with MMDI to discover
and develop drugs to treat certain indications in the area of cardiovascular
disease, primarily focused on atherosclerosis. Through December 31, 1995,
cumulative revenues under this agreement were $6.2 million. The Company entered
into a collaborative research agreement with Hoechst effective January 1993. The
collaboration is focused on discovering drugs for the treatment of inflammation,
arthritis and metabolic disease. In October 1993, the Company entered into a
collaborative agreement with Hoechst Roussel pursuant to which the companies are
pursuing the discovery and development of gene transcription-based drugs to
treat Alzheimer's disease. This collaboration is scheduled to terminate in
October 1999. Under these agreements with Hoechst and Hoechst Roussel, the
Company is being reimbursed for its expenses under the collaborative programs on
a fixed-fee basis. Cumulative revenues under these two agreements through
December 31, 1995 were $3.1 million. Based upon discussions and negotiations
with HMRI, the Company believes that the agreements with MMDI, Hoechst and
Hoechst Roussel will be consolidated under one overall agreement. However, there
can be no assurance that the Company and HMRI will enter into such an overall
agreement, or if such agreement, is entered into that if will not be on terms
less favorable than the current agreements.
In December 1991, the Company entered into a collaborative research
agreement with the Wyeth. Under the agreement, the companies are pursuing the
discovery and development of transcription-based drugs for the treatment of
diabetes, immune system modulation, asthma and osteoporosis. Cumulative revenues
for the Company under this collaboration through December 31, 1995 were $4.9
million.
22
<PAGE> 24
The Company entered into an agreement with Ciba in April 1995 with respect
to the development of TGF-SS3. This agreement grants to Ciba an exclusive
worldwide license to manufacture, use and sell TGF-SS3 products for oral
mucositis and wound healing, as well as certain other indications, including
psoriasis while the Company retains the rights to all other indications. Under
this agreement, the Company will fund oral mucositis Phase I clinical trials and
Ciba will fund Phase II and III clinical trials. Ciba is responsible for the
clinical development for wound healing indications. In exchange for its
exclusive license, Ciba will make royalty payments to the Company on the sale of
TGF-SS3 products, if any are commercialized. The Company also is developing
cancer diagnostic products in collaboration with Becton. Under this
collaboration, the Company granted Becton rights to market products derived from
the joint research in exchange for royalty payments to the Company on product
sales. In conjunction with this collaboration, the Company acquired the cancer
business of Applied bioTechnology, Inc. in October 1991. Becton is currently
funding a portion of the Company's cancer diagnostics program. Through December
31, 1995, cumulative revenues from Becton under this program were $16.7 million.
The Company's business is subject to significant risks, including but not
limited to the risks inherent in its research and development efforts, including
clinical trials, uncertainties associated both with obtaining and enforcing its
patents and with the patent rights of others, the lengthy, expensive and
uncertain process of seeking regulatory approvals, uncertainties regarding
government reforms and of product pricing and reimbursement levels,
technological change and competition, manufacturing uncertainties and dependence
on third parties. Even if the Company's product candidates appear promising at
an early stage of development, they may not reach the market for numerous
reasons. Such reasons include the possibilities that the products will be unsafe
or ineffective during clinical trials, will fail to receive necessary regulatory
approvals, will be difficult to manufacture on a large scale, will be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties.
The Company will require substantial additional funding in order to
continue its research, product development, preclinical testing and clinical
trials of its product candidates. The Company sold its research products
business in August 1995, and this will no longer be a source of revenue in the
future. The Company is anticipating the combined collaborative revenue of the
separate Hoechst, Hoechst Roussel and MMDI collaborations to be somewhat lower
under a new agreement with HMRI, which has not yet been established.
Accordingly, the Company has reduced expenses under these programs.
Additionally, revenues under the Becton collaboration have been reduced due to a
narrowing of Becton's focus in the program. The Company expects grant revenue
will be somewhat lower in fiscal 1996 as a result of the expiration of a drug
discovery grant from the U.S. government.
The Company intends to seek additional funding through arrangements with
corporate collaborators and through public or private sales of the Company's
securities, including equity securities. There can be no assurance, however,
that additional funding will be available on reasonable terms, if at all. Any
additional equity financing would be dilutive to the Company's stockholders. If
adequate funds are not available, the Company may be required to curtail
significantly one or more of its research and development programs and/or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies or
product candidates. The Company will be dependent upon its outside partners to
conduct preclinical testing and clinical trials and to provide adequate funding
for the Company's development programs. Under certain of these arrangements, the
Company's collaborative partners may have all or a significant portion of the
development and regulatory approval responsibilities. Failure of the
collaborative partners to develop marketable products or to gain appropriate
regulatory approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."
23
<PAGE> 25
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
Revenues
Revenues for the quarter ended December 31, 1995 were approximately $2.3
million, a decrease of $1.9 million, or 46% compared to revenues of $4.2 million
reported for the quarter ended December 31, 1994. The decrease was due to lower
sales of research products, which accounted for approximately $1.3 million of
the decrease in revenues. 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 purchase agreement, the Company agreed to indemnify the purchaser for a
period of two years for certain breaches of the agreement. Collaborative program
revenue decreased approximately $331,000 or 14%. This was largely due to a
reduction in collaborative revenue under the collaborative arrangement with HMRI
as compared to the total revenue in the prior year's quarter from MMDI, Hoechst
Roussel and Hoechst. Other research revenues representing primarily government
grants decreased approximately $316,000 in the quarter ended December 31, 1995
compared to the quarter ended December 31, 1994 due in part to the expiration of
a U.S. government grant. The balance of the decrease represents changes in the
timing and amount of grant awards. The Company expects that grant revenue will
be somewhat lower in the current fiscal year.
Expenses
The Company's operating expenses decreased by approximately $1.4 million or
24% for the quarter ended December 31, 1995 compared to the quarter ended
December 31, 1994. Research and development expenses decreased approximately
$394,000, or 13% due to reductions in expenses in the HMRI and Becton
collaborations commensurate with the reduced funding in these programs. This was
offset in part by increased expenditures in the Company's proprietary research
programs. Production expenses and selling, general and administrative expenses
decreased approximately $926,000. These reductions were directly related to
expenses which were associated with the Company's Research Products Business in
the quarter ended December 31, 1994. The reduction of approximately $73,000 of
amortization of intangibles is due to a portion of goodwill relating to the
Research Products Business which was expensed when the business was sold in
1995.
Other Income and Expense
Investment income increased approximately $144,000, or 65% for the quarter
ended December 31, 1995 compared to the quarter ended December 31, 1994. This
increase was largely due to the increase in funds invested as a result of the
proceeds from the sale of the Research Products Business and the sale of stock
to Ciba in April 1995.
FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
Revenues
Total revenues of $15.9 million in fiscal 1995 decreased approximately
$434,000, or 3% compared to fiscal 1994 and total revenues of $16.3 million in
fiscal 1994 increased approximately $211,000 or 1%, compared to fiscal 1993.
Collaborative program revenues increased by approximately $597,000 or 7% in
fiscal 1995 due to the commencement of an additional research program with HMRI
in April 1994, the expansion and extension of the collaborative research
agreement with Wyeth in March 1994 and increases in revenues under the Pfizer
agreement with respect to anti-cancer drugs. These increases were offset by
decreased funding from Pfizer associated with Pfizer's reduced participation in
the TGF-SS3 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-SS3 oral mucositis program in addition to its anti-cancer collaborative
program. Under a collaborative agreement with Ciba entered into in April 1995,
the Company will fund the development of TGF-SS3 for oral mucositis through the
end of Phase I clinical trials and Ciba will fund its subsequent clinical
development. The increase in collaborative revenues in fiscal 1995 was offset by
decreases in sales of research products and other research revenues. The Company
sold its Research Products Business to Calbiochem-Novabiochem International,
Inc. in August 1995, and accordingly, there were no significant sales of
research products recorded after this date. Sales of research
24
<PAGE> 26
products decreased approximately $651,000 or 13% in fiscal 1995 compared to
fiscal 1994. 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.
The increase in total revenues in fiscal 1994 compared to fiscal 1993 is
attributable to increases of $1.6 million in collaborative research revenues
relating to the commencement of the additional HMRI collaborative program and a
milestone payment from MMDI, grant revenues and sales of research products,
offset by a $1.4 million decrease in revenues from Pfizer. Sales of research
products increased approximately $111,000 or 2% in fiscal 1994 compared to
fiscal 1993, due primarily to a change in the mix of products sold. Other
research revenues in fiscal 1994 increased by approximately $408,000 or 22%,
compared to fiscal 1993, due to an increase in the number and size of grants
awarded to the Company.
Expenses
Research and development expenses increased by approximately $1.4 million,
or 12% in fiscal 1995 compared to fiscal 1994 and increased by approximately
$1.5 million, or 14%, in fiscal 1994 compared to fiscal 1993. The increase in
fiscal 1995 was due principally to the start during 1994 of the additional
research program with HMRI, the expansion and extension of the Wyeth agreement
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-SS3 for oral mucositis.
The increase in fiscal 1994 was due to an increase in expenditures in the
collaborative programs with MMDI and the commencement of the additional program
with HMRI, and increased research and development expenses incurred in
connection with the Company's proprietary and grant programs.
Research and development expenses reimbursed by collaborative partners and
government research grants aggregated approximately $12.4 million, $11.1 million
and $10.3 million for fiscal years 1995, 1994, and 1993, respectively.
Production expenses decreased approximately $175,000, or 12% for fiscal
1995 as compared with fiscal 1994, reflecting the sale of the Research Products
Business. Production expenses remained approximately constant in fiscal 1994
compared to fiscal 1993.
Selling, general and administrative expenses decreased approximately
$347,000 or 5% in fiscal 1995 compared to fiscal 1994. This decrease 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. Selling, general and administrative expenses increased
approximately $1.1 million or 16% in fiscal 1994 compared to fiscal 1993. This
increase was principally attributable to expenses incurred in the Company's
international operations including a subsidiary in France engaged in the sale of
research products, as well as increased payroll and consulting expenses. In
connection with the sale of the Research Products Business, the Company elected
to close down the operations of its French subsidiary. Costs associated with the
close down have been offset against the gain on the sale of the Research
Products Business.
Amortization of intangibles in fiscal 1995, 1994, and 1993 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 1995 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 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.
Net investment income decreased approximately $72,000 or 8% for fiscal 1994
compared to fiscal 1993. This decrease was a result of declining interest rates
and decreased principal balance invested.
25
<PAGE> 27
The Company sold its Research Products Business to Calbiochem-Novabiochem
International, Inc. in August 1995 for $6.0 million in cash and other
considerations. The net gain on the sale was approximately $2.7 million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, working capital (representing primarily cash, cash
equivalents and short-term investments) aggregated approximately $25.3 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.
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. Based on discussions with
HMRI, the Company expects its programs with HMRI to continue under one overall
agreement in the future, although there can be no assurance that the Company and
HMRI will enter into such an agreement, or if such an agreement is entered into,
that it will not be on terms less favorable than the existing agreements. The
Company anticipates that the total funding under the consolidated agreement will
be somewhat lower than the aggregate level of funding under the three previously
separate agreements.
Since its commencement in 1991 and until the second quarter of fiscal 1995,
the cancer diagnostics collaborative program with Becton has focused on both
serum-based and histochemical immunoassays. During the second quarter of fiscal
1995, Becton decided to focus exclusively on cellular cancer diagnostics,
including histochemical immunoassays. Becton has reduced its funding under this
program in fiscal 1996, and the Company is uncertain as to Becton's ongoing
support for this program. The Company is continuing the development of
serum-based cancer diagnostic products and is in discussions with possible new
collaborative partners in this area. However, there can be no assurance that the
development of these tests will not be terminated.
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 through fiscal
1999. 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 and pursue internal proprietary drug
discovery programs. There can be no assurance that scheduled payments will be
made by third parties, that current agreements will not be cancelled, 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.
26
<PAGE> 28
BUSINESS
Oncogene Science, Inc., a leader in the innovation of drug discovery
technologies, combines genetically engineered live-cell assays 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 Research Division of American Home Products
Corporation ("Wyeth") and Ciba-Geigy, Ltd. ("Ciba"), the Company is engaged in
the discovery and development of drugs for 30 target proteins in a wide range of
disease areas, including cancer, atherosclorosis, neurological disorders and
chronic anemias. The Company is developing its most advanced drug candidate,
TGF-B3, in collaboration with Ciba. The Company expects that Ciba will commence
Phase II clinical trials for wound healing and Phase I clinical trials for oral
mucositis in 1996. In addition, the Company's collaborative program with Pfizer
has resulted in the identification of a proprietary lead compound that inhibits
a protein associated with a number of major cancers. The Company expects that
Pfizer may file an Investigational New Drug application ("IND") in the second
half of 1996.
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,
10,000 to 20,000 of the 100,000 genes contained in a human cell are actively
involved in the production of proteins specific to that cell.
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 associated with that protein.
[GRAPHIC OMITTED. SEE PAGE 72 FOR DESCRIPTION.]
The above diagram illustrates the processes of gene
transcription and translation. The Company's cell-based drug
screens are designed to identify drug molecules that interact
with receptors, transcription factors or signal transduction
proteins. Traditional drug screens typically identify molecules
that bind to isolated receptors or target proteins.
27
<PAGE> 29
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. Certain 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 signal is transmitted into the nucleus is called signal transduction.
Activation of gene transcription increases the levels of a protein while
inhibition of gene transcription decreases production of a protein.
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 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 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 rather
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 that will be found to be ineffective in the more complex environment of
live cells.
A further limitation of traditional drug discovery is that many of the
major diseases, such as many types of cancer, atherosclerosis and diabetes, are
due to mutations or abnormalities in more than one protein, many of which remain
unknown. Consequently, the classical drug discovery paradigm of targeting a
single protein in a drug screen has met with only limited success in identifying
drugs for treatment of such complex diseases.
In addition, slow and labor intensive traditional screening methods have
limited the number and chemical diversity of the compounds that can be tested in
assays. Traditional drug screens, carried out manually by scientists working at
the bench, or by using limited automation, typically evaluate less than 10,000
test compounds per year against each target protein. Even though many millions
of distinct chemical structures exist, it is not unusual with this approach for
a screen to be terminated at the end of several years with no lead compounds
identified, after examining only a small fraction of available compounds. 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
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<PAGE> 30
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 to the development of proprietary live-cell assays. These assays
are used to test diverse compounds derived from natural sources and from
medicinal chemistry libraries of its collaborative partners using automated,
high throughput robotic drug screening techniques. In addition, the Company is
expanding its capabilities in combinatorial chemistry. The Company believes its
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 it believes are potent and selective,
possess minimal or no cellular toxicity and have activity in live cells.
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 increases 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 the
generation of high quality leads that are more likely to progress through
preclinical 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,
tamoxifan for breast cancer, cyclosporin A for immunosuppression (used in tissue
transplantation), retinoids for dermatology, and 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 is an important mechanism for therapeutic intervention
and a process through which drug discovery assays can be designed.
In order to measure production of the target protein produced by gene
transcription in the cell, Oncogene Science's live cell assays utilize a
reporter gene, luciferase. Luciferase is the molecule that causes fireflies to
illuminate and is the source of one of nature's most sensitive chemilumiscent
reactions. The Company genetically engineers the luciferase gene into the
regulatory framework of the gene of interest to create a live cell line, where
the amount of light produced by luciferase corresponds to the level of the
target protein produced by the gene of interest. These cell lines are then
employed in screens for small molecule test compounds that affect expression of
the reporter gene. Lead compounds are readily identified by changes in the
amount of light produced by the tester cell line. Compounds that show activity
on the reporter gene in the specific cell line are then further tested to
confirm their activity on the target gene.
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
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<PAGE> 31
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 tens of 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 through 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. For example, liver cells are used in
assays designed to test for the production of proteins normally produced in the
liver. 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, these 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. The Company has developed robotic systems to format
compound 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 of 700,000 samples are archived at the
Company and over 150,000 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 will have the right of first refusal to develop the
compound or terminate its further development or to receive royalty payments
from the Company if the compound is successfully commercialized by the Company
independently or with a third party.
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. The Company has
established a collaboration with a company specializing in fungal fermentation
products in which the Company sponsors the research and development of fungal
extracts. Pursuant to this collaboration, the Company has acquired more than
60,000 extracts of fungal samples for its proprietary uses and has the capacity
to add 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
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. In a recent pilot program conducted by
the Company, nearly 3,000 analogs of a lead compound in one of the Company's
proprietary programs were synthesized over three months. The Company is
automating its combinatorial chemistry synthesis program in
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<PAGE> 32
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.
ONCOGENE SCIENCE'S STRATEGY
The Company's goal is to discover and develop novel small molecule drugs
through proprietary and collaborative drug discovery programs using its
proprietary technology platform.
The Company's strategy includes the following key elements:
- Enhance Capabilities in Drug Discovery. The Company is seeking to
enhance its drug discovery operations by combining new capabilities in
combinational chemistry with its industry leading robotics and
information technologies to optimize leads more quickly and effectively.
The Company is also developing new live-cell assays to detect complex
intra-cellular mechanisms thereby enhancing the potential of discovering
lead compounds.
- Maintain and Expand Collaboration with Pharmaceutical Partners. The
Company will seek to maintain and expand collaborations with
pharmaceutical companies to provide funding, development and
commercialization capabilities, which enables the Company to focus on its
core strengths in drug discovery. The Company has collaborations with
four major pharmaceutical companies with which it is pursuing over 20
protein targets for various diseases.
- Expand Capabilities to Advance Internal Proprietary Programs. The
Company will seek to expand its proprietary drug discovery efforts to
develop lead compounds through early clinical trials. The Company
believes that by seeking collaborative partners later in the development
process, it will be able to realize more favorable terms for the funding,
development and commercialization of potential drug candidates.
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<PAGE> 33
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following table summarizes Oncogene Science's current product
development and research programs. The table is qualified in its entirety by
reference to the more detailed descriptions elsewhere in this Prospectus.
<TABLE>
<CAPTION>
No. of Protein
Drug Discovery Program/Partners Targets(1) Discovery(1) Preclinical(2) Phase I(3) Phase II(4)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ONCOGENE Chronic Anemias 2 -- --
------------------------------------------------------------------------------------------------
SCIENCE Viral Infections 4 --
------------------------------------------------------------------------------------------------
Muscle Wasting Disorders 3 --
- ------------------------------------------------------------------------------------------------------------------
CIBA-GIEGY Wound Healing (TGF-SS3) 1 --
------------------------------------------------------------------------------------------------
Oral Mucositis in Cancer (TGF-SS3) 1 --
- ------------------------------------------------------------------------------------------------------------------
HOECHST Cardiovascular 4 -- --
------------------------------------------------------------------------------------------------
MARION Arthritis 2 --
------------------------------------------------------------------------------------------------
ROUSSEL Alzheimer's 1 --
- ------------------------------------------------------------------------------------------------------------------
PFIZER Cancer: Oncogenes 4 -- --
------------------------------------------------------------------------------------------------
Tumor Suppressor Genes 1 --
------------------------------------------------------------------------------------------------
Angiogenesis 1 --
------------------------------------------------------------------------------------------------
Apoptosis 2 --
- ------------------------------------------------------------------------------------------------------------------
WYETH-AYERST Diabetes 1 -- --
------------------------------------------------------------------------------------------------
Immune Suppression 1 --
------------------------------------------------------------------------------------------------
Asthma 1 --
------------------------------------------------------------------------------------------------
Osteoporosis 1 --
- ------------------------------------------------------------------------------------------------------------------
TOTAL 30
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(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. The Company expects to conduct Phase I
clinical trials of TGF-SS3 for oral mucositis in 1996.
(4) "Phase II" clinical trials entail testing of compounds in humans for
safety and efficacy in a limited patient population. The Company expects
Ciba will commence Phase II efficacy studies with respect to the TGF-SS3
for wound healing indications in 1996. No assurance can be given that
Phase II clinical trials will begin when planned, if at all.
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 resources.
Typically, the Company's collaborations provide for its partners to make
milestone or other payments in support of the Company's research programs and to
pay royalties on sales of any resulting products. The collaborative partners
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
<PAGE> 34
the target genes under their respective collaborations. Certain pharmaceutical
collaborators make their compound libraries available to the Company for
additional research outside the collaborative programs. Generally, each
collaborative research agreement prohibits the Company from pursuing drug
discovery research relating to the target proteins identified under the
collaboration with any third party. 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 new five-year term and expanded the resources and scope of
the collaboration to focus on the discovery and development of cancer
therapeutic products 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.
Currently, the Company's collaboration with Pfizer focuses on discovering
compounds that act upon eight 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 currently conducting pre-IND safety and toxicity studies on this
compound. If such studies are successful, the Company expects that Pfizer may
file an IND as early as the second half of 1996. The success of such studies and
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 and the successful optimization of the compound. There can be no
assurance that this schedule will be met or that an IND for this lead compound
will be filed.
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 may be terminated early 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.
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From 1986 to 1991, Pfizer paid an aggregate amount of $13.7 million to the
Company in research funding. In addition, during the current five-year term of
the collaboration the Company received or accrued an aggregate of $18.1 million
through December 31, 1995 in research payments from Pfizer. In 1986, Pfizer
purchased 587,500 shares of the Company's common stock, which constitutes
approximately 3.6% of the Company's outstanding common stock, for an aggregate
purchase price of $3,525,000. The current collaborative research agreement
expires on March 31, 1996. The Company expects this agreement to be renewed
under substantially the same terms, effective April 1, 1996. There can be no
assurance, however, that the collaborative research agreement with Pfizer will
be renewed on similar terms or at all. The failure to renew this collaboration
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Hoechst Marion Roussel, Inc.
The Company is pursuing various areas jointly with HMRI. In July 1995, the
pharmaceutical operations of MMDI, Hoechst and Hoechst Roussel 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
the terms of this ongoing collaboration. 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. In anticipation
of the HMRI transaction, during fiscal 1995 the Company reallocated resources
and reduced expenses under these collaborative programs. HMRI is responsible for
funding the costs of the Company's development of the assay cell lines and
compound screening and as of December 31, 1995, the Company had received or
accrued an aggregate of $9.3 million in research funding from HMRI and its
predecessors, of which $6.2 million of this amount was provided by MMDI. There
can be no assurance, however, that the Company and HMRI will successfully
negotiate a new agreement on terms favorable to the Company or at all. Failure
to secure such agreement could have a material adverse effect on the Company's
business, financial condition and results of operations.
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 artherosclerosis 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.
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,
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<PAGE> 36
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. HMRI
is prohibited from sponsoring research with third parties employing the
Company's gene transcription technology on the identified target proteins. 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 MMDI an exclusive, worldwide license with respect
to, among other things, the use, manufacture and sale of products resulting from
their research collaboration. HMRI 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 Research
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 has been successful in
identifying active compounds on all four protein targets. Wyeth is continuing
preclinical evaluation of these compounds, and lead compounds identified for a
diabetes target have been shown to be active in animal studies, although there
can be no assurance that a safe and effective compound will be identified for
clinical evaluation.
Under the agreement, a research committee, composed of representatives from
the Company and Wyeth, prepares an annual research plan describing the goals of
the collaboration for the current year. The Company is responsible for achieving
the objectives set forth in the annual research plan. Wyeth is required to make
reasonably diligent efforts to advance the pharmacological assessment of
compounds identified by the Company, determine the chemical structure of the
compounds and make related compounds to determine the relationship between
structure and activity. 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.
The Company has granted to Wyeth an option 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.
During the term of this agreement, Oncogene Science is prohibited from
conducting or sponsoring research outside of its collaboration with Wyeth
related to any target of this collaboration. Wyeth is not prohibited from
conducting or sponsoring such research. The collaborative research agreement may
be terminated early by either party upon the occurrence of certain defaults by
the other party. Any termination by the Company resulting from a Wyeth default
will cause a termination of Wyeth's license rights. Wyeth will retain its
license rights if it terminates the agreement in response to a default by the
Company. Currently on
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<PAGE> 37
four months notice, Wyeth may terminate the agreement without cause and retain
its license rights. Wyeth has funded the Company's drug discovery efforts under
this collaboration. As of December 31, 1995, Wyeth had provided the Company with
an aggregate of $4.9 million in research funding. The agreement will expire on
December 31, 1996. The parties have not yet determined whether to renew this
agreement, and there can be no assurance that this agreement will be renewed on
terms favorable to the Company, if at all.
RECOMBINANT TGF-B3 COLLABORATION
In addition to its small molecule discovery programs, the Company has
developed the recombinant protein TGF-B3 for various indications. The Company
believes it was the first to isolate TGF-B3, a naturally occurring human growth
factor, which exerts either stimulatory or inhibitory effects, depending upon
the particular cell type to which it is applied. Topical or local application of
TGF-B3 in animal studies has been shown to enhance and accelerate wound
healing. Similarly, animal studies have shown that TGF-B3 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-B3.
This agreement grants to Ciba an exclusive, worldwide license to use and sell
TGF-B3 products for oral mucositis and wound healing, as well as certain other
indications, including psoriasis and an option to obtain rights to all
indications of TGF-B3 currently held by the Company. In addition, Ciba has the
worldwide license to manufacture TGF-B3 for all indications.
Oral Mucositis. Oral mucositis is a painful, often debilitating condition
characterized by mouth 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 receiving multiple treatments of chemotherapy. Approximately
20 to 40% of chemotherapy patients exhibit some degree of oral mucositis. Most
chemotherapeutic agents exert their lethal effects primarily against cancerous
cells undergoing active growth. Chemotherapeutic agents also attack normal cells
that are subject to rapid division, such as the epithelial cells lining the
mouth. The Company and Ciba have developed topical formulations of TGF-B3 to
temporarily inhibit the high proliferative growth rate of certain normal cells
in the mouth. The Company's objective is to develop TGF-B3 to reduce the
toxicity associated with chemotherapeutic agents.
Under its agreement with Ciba, the Company will fund Phase I clinical
trials of TGF-B3 for oral mucositis in the U.S. and Ciba will fund Phase I
clinical trials in Europe, and if successful Ciba will fund all Phase II and III
clinical trials. An IND for this indication was filed by Ciba in January 1996.
The Company expects to commence Phase I clinical trials in the U.S. in 1996. A
second Phase I study is also expected to be conducted by Ciba in Europe in 1996
to demonstrate safety and determine the maximum tolerated dose. If these studies
are successful, the Company expects that Ciba will initiate two Phase II studies
in 1997. No assurance can be given that any of these clinical trials will
demonstrate safety and efficacy or will begin when planned, or at all, in part
for the reasons discussed below.
Wound Healing. In addition to its program for the development of TGF-B3 to
treat oral mucositis, the Company is collaborating with Ciba in the development
of TGF-B3 in an application to promote soft tissue wound healing, including
venous leg ulcers, decubitus ulcers (pressure sores) and diabetic foot ulcers.
Such chronic cutaneous ulcers afflict an estimated three million people in the
U.S. TGF-B3 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-B3 is also
believed to stimulate angiogenesis (new blood vessel growth) at the wound site.
To date, Ciba has completed two Phase I safety studies, one in Europe using
a single dose of TGF-B3 applied to intact skin, the other in the U.S. using a
multiple dose of TGF-B3 applied to intact skin. In both studies, the drug was
found to be well tolerated with no adverse effects. Ciba recently completed
Phase II-A safety/dose-finding studies in Europe, involving a single dose
administration to venous leg ulcer patients. The drug was found to be well
tolerated in these patients. There is an ongoing Phase II-A safety/dose-ranging
study in Europe involving a single dose administration to decubitus ulcer
patients. Ciba intends to initiate a clinical trial of venous leg ulcer patients
in Europe and another clinical trial in pressure sore patients in the U.S. and
Canada, scheduled to commence in late 1996. In addition, Ciba intends to conduct
an additional Phase II venous leg ulcer, decubitus ulcer and burn wound clinical
trials in Japan in late 1996. There can be
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<PAGE> 38
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-B3, Ciba will
make royalty payments to the Company on the sale of TGF-B3 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, it
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. In exchange
for such payment, Ciba's license will be expanded to cover all other indications
for TGF-B3 and 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-B3 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-B3
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-B3, and will supply the
Company and any licensee of the Company with all developmental and commercial
quantities of TGF-B3 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-B3, subject to a
specified pricing formula should the parties fail to reach agreement. Ciba
recently experienced delays in manufacturing TGF-B3 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-B3 to the Company or
its licensees in sufficient quantities, Ciba will license to the Company its
technology relating to the production of TGF-B3 on terms to be negotiated
within specified parameters. There can be no assurance that the TGF-B3 program
will not experience significant delays as a result of Ciba's failure to supply
TGF-B3 on a timely basis.
The Company's agreement with Ciba ends upon the expiration of the last
Company's patents relating to TGF-B3.
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 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, transition 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
Erythropoietin. 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 that 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 the requirement that it be administered by
injection may place limitations on its more widespread use. The Company believes
that a
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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 which naturally
secrete EPO. The Company is undertaking early preclinical development which
involves medicinal chemistry and pharmacology of these lead compounds.
Fetal Hemoglobin. Sickle cell anemia and B-thalassemia are caused by
genetic mutations which result in the mutation, absence or decrease in the B
chain of hemoglobin (the protein in red blood cells that binds oxygen).
Currently available treatments for both of these diseases are inadequate and
expensive. In sickle cell anemia, "sickled" cells become trapped in the spleen
and break down to produce symptoms of anemia. 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
B-thalassemia. The Company's approach to address sickle cell anemia and
B-thalassemia is to discover a small molecule compound that increases
expression of a fetal hemoglobin ("HbF") gene to compensate for the defects in
the adult B chain of hemoglobin. The Company has developed an assay to
determine the ability of test compounds to induce the production of HbF. The
Company's goal is to establish, through additional screening and evaluation, a
lead compound that induces expression of HbF as a candidate for clinical
development in this area.
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 human immunodeficiency virus, herpes simplex virus, human hepatitis
virus B ("HVB"), human hepatitis virus C ("HVC"), and influenza virus. For each
of these diseases there is an unmet need for new effective, anti-viral drugs.
For example, since the start of the AIDS epidemic, over 500,000 cases have been
reported in the US. Furthermore, HBV is a chronic infection that can progress to
cirrhosis and liver cancer, making HBV one of the most significant of all
infectious diseases. HCV is also a major viral pathogen. In the US, over 3.5
million people are infected with HCV and the virus may account for 40% of all
chronic liver disease. Currently, the principal therapy for HCV is alpha
interferon administered by injection, but this therapy has limited efficacy.
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 four novel assays
that target these genes and discussions with potential collaborators is ongoing
although there can be no assurance that a collaboration will be established.
Muscle Wasting Disorders
Cachexia. Cachexia is the accelerated breakdown of skeletal muscle coupled
with a high degree of morbidity and organ dysfunction. Cachexia is characterized
by progressive weight loss and a depletion of muscle. This "wasting syndrome" is
associated with a wide variety of chronic disease states and is particularly
common in both advanced metastic cancer and AIDS. While the exact mechanisms
responsible for the development of cachexia are not completely elucidated, the
Company believes both stimulators, or agonists, of growth hormone and
inhibitors, or antagonists, of tumor necrosis factor alpha could prove to be
effective agents in the treatment of this condition.
Human growth hormone (hGH) is a potent anabolic agent known to stimulate
protein accretion and to increase muscle mass. The usefulness of this hormone as
a therapy for wasting disorders associated with cancer, AIDS and old age is
being actively investigated by several companies. Furthermore hGH has completed
Phase III clinical trials and is pending FDA review. Recombinant hGH protein
requires injection for administration, and the current costs of this drug range
of $10,000 to $30,000 per patient annually. Recombinant hGH generated revenues
of over $1 billion in the treatment of growth disorders in 1994. The Company
believes there is a major market opportunity for an orally active,
cost-effective drug which acts to induce hGH gene expression, and increase
levels of hGH in the body.
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
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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. Becton has reduced funding under this program in fiscal 1996 and
the Company is uncertain as to Becton's ongoing support of this program
thereafter. The Company believes Becton will seek FDA approval for one or more
immunohistochemistry tests for the manual pathology market in the next 12 to 18
months although there is no assurance that such an approval will be received on
a timely basis, if at all. The Company is actively seeking to form
collaborations with one or more partners for the clinical and commercial
development of its serum-based diagnostic products. No assurance can be given
that the Company will establish such a collaboration on acceptable terms or at
all.
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
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<PAGE> 41
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-SS3 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-SS family, including TGF-SS3. 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-SS1.
The Company believes that the currently planned development by the Company
and Ciba, its collaborative partner for TGF-SS3, involving manufacture in Europe
by Ciba 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 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 does not believe that it is infringing any valid claim of any
patents owned by 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 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, 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, and the Company faces, and will continue to face, intense
competition from organizations such as large pharmaceutical companies,
diagnostic companies, biotechnology 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, facilities, experience in drug
discovery and development, obtaining regulatory approval and pharmaceutical
product manufacturing and marketing. The Company's major competitors include the
fully-integrated pharmaceutical companies, such as Merck & Co., Inc., Glaxo
Wellcome Inc. and SmithKline Beecham plc, that have 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
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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 potentially 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., a publicly traded company,
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 all the disease areas
for which the Company is seeking to discover and develop drug candidates. These
competing drug candidates are further advanced in clinical development than are
any of 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-SS3 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-SS2 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-SS3 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-SS3 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
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and obtain required government approvals on a timely basis, select and pursue
drug targets in areas in which significant market opportunities exist or are
likely to develop and successfullly market its products.
MANUFACTURING
Ciba has the exclusive right to, and the Company will rely on Ciba for, the
manufacture of TGF-SS3 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 which could manufacture and
supply TGF-SS3.
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 obtain products that will meet the Company's
demands for quality, quantity, cost and timeliness or contract for manufacturing
capabilities on acceptable terms. The failure to obtain products could
compromise the Company's ability to conduct preclinical testing and clinical
trials and to commercialize 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 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-SS3, 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:
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(i) evaluate preliminary 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. 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 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 inspections by the FDA in order to assess, among other
things, GMP compliance. To supply product 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 of such 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 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 potential 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 which is not substantially equivalent to an existing product)
be filed with and approved by the FDA prior to commercialization. Obtaining
premarket approval is a costly and time-consuming
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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 December 31, 1995, the Company employed 107 persons, of whom 84
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.
FACILITIES
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 officers and drug discovery laboratory. The Company also
leases an 11,000 square foot facility located at 80 Rogers Street/129 Binney
Street, Cambridge, Massachusetts. This facility contains the offices and
laboratories of the Company's diagnostic product operations. The Company
believes that its facilities will be adequate to meet current requirements for
the foreseeable future.
LITIGATION
There are no material legal proceedings pending against the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information with respect to the executive officers and directors of the
Company as of December 31, 1995 is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Edwin A. Gee, Ph.D. (1)(2)......... 75 Chairman of the Board and Director
Gary E. Frashier................... 59 Vice Chairman and Chief Executive Officer and
Director
Steve M. Peltzman.................. 49 President and Chief Operating Officer and Director
J. Gordon Foulkes, Ph.D............ 42 Vice President and Chief Scientific Officer and
Director
Colin Goddard, Ph.D................ 36 Vice President, Research Operations
Robert L. Van Nostrand............. 38 Vice President, Finance and Administration
Ann H. Rose, Ph.D.................. 54 Vice President, TGF-Beta Program and Regulatory
Affairs
G. Morgan Browne (2)............... 60 Director
John H. French II (1).............. 64 Director
Walter M. Lovenberg, Ph.D. (2)..... 61 Director
Walter M. Miller (1)............... 52 Director
Gary Takata (1).................... 61 Director
John P. White (1)(2)............... 49 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Edwin A. Gee, Ph.D., a director of the Company since 1985, served as
President, Chairman of the Board and Chief Executive Officer of International
Paper Company from 1978 until his retirement in April 1985. Prior to 1978, Dr.
Gee was a Senior Vice President, member of the Executive Committee and a
director of E.I. du Pont de Nemours and Company. Dr. Gee also serves as a member
of the Board of Directors of Biocryst Pharmaceuticals, Inc. and the Buckhill
Falls Company. Dr. Gee is also Director Emeritus of the Salomon Brothers Fund,
Inc., the Salomon Brothers Investors Fund, Inc. and the Salomon Brothers Capital
Fund, Inc. Dr. Gee served as an executive officer of the Company, holding the
position of Chairman of the Board of the Company, from April 1987 until March
1990. Since March 1990, Dr. Gee has retained the title of Chairman of the Board
of Directors, but no longer serves as an officer of the Company.
Gary E. Frashier was appointed Vice Chairman and Chief Executive Officer in
March 1994. Prior to that, he had been President and Chief Executive Officer of
the Company since March 1990. He was elected to the Board of Directors of the
Company on March 21, 1990. From April 1987 to February 1990, he served as
President, Chief Executive Officer and a director of Genex Corporation, a
biotechnology company which specialized in protein engineering. From 1984
through March 1987, he was Chairman, President and Chief Executive Officer of
Continental Water Systems Corporation, a corporation engaged in the manufacture
and marketing of equipment to produce ultrapure water, which was purchased from
Millipore Corporation ("Millipore") in a management buy-out organized by Mr.
Frashier. Mr. Frashier served as an Executive Vice President of Millipore and
President of Waters Associates, Inc., Millipore's liquid chromatography
subsidiary, from 1980 through 1983.
Steve M. Peltzman was appointed President and Chief Operating Officer of
the Company in March 1994. Prior to that, he had been the Company's Executive
Vice President and Chief Operating Officer since October 1991, upon consummation
of the acquisition by the Company of the cancer business of Applied
bioTechnology, Inc. From June 1984 until October 1991, he served as President
and Chief Executive Officer of Applied bioTechnology, Inc. From 1986 to 1990,
Mr. Peltzman also was President of a partnership between Applied bioTechnology
and E.I. du Pont de Nemours and Company, which focused on the development of
products relating to the prevention, diagnosis and treatment of human cancer. He
became a director of the Company in March 1992.
45
<PAGE> 47
J. Gordon Foulkes, Ph.D. has been the Chief Scientific Officer of the
Company since October 1991, a Vice President of the Company since 1990 and he
was Director of Therapeutics of the Company from 1987 until 1991. Prior to Dr.
Foulkes' employment with the Company, he was head of a laboratory and a tenured
member of the scientific staff of the Medical Research Council in London, U.K.
from 1984 to 1987. Dr. Foulkes became a director of the Company in March 1994.
Colin Goddard, Ph.D., has been the Vice President, Research Operations of
the Company since April 1995. Prior to that time, Dr. Goddard served in various
capacities for the Company, including Vice President, Research Operations,
Pharmaceutical Division from December 1993, Director, Pharmaceutical Operations
from February 1993, Director, Drug Discovery from May 1992, and Program Manager,
Drug Discovery from April 1991. Prior to joining the Company as a staff
scientist in 1989, Dr. Goddard was a research scientist with the National Cancer
Institute in Bethesda, Maryland from 1986.
Robert L. Van Nostrand has been the Vice President, Finance and
Administration of the Company since May 1990. He was appointed the Treasurer of
the Company in March 1992 and Secretary in March 1995. Prior to 1990, Mr. Van
Nostrand served as the Controller and Chief Accounting Officer of the Company
from September 1986. Mr. Van Nostrand was employed by the accounting firm of
Touche Ross & Co. prior to his employment by the Company. Mr. Van Nostrand is a
certified public accountant.
Ann H. Rose, Ph.D., was appointed Vice President, TGF-Beta Program and
Regulatory Affairs in April 1994. Dr. Rose was an independent consultant
providing clinical and regulatory development consulting services to companies
in the biopharmaceutical area prior to her employment by the Company.
G. Morgan Browne has been Administrative Director of the Cold Spring Harbor
Laboratory since June 1985. Prior to 1985, Mr. Browne provided management
services to a series of scientifically based companies. He is presently a
director of Harris & Harris Group, Inc., and the New York Biotechnology
Association, as well as a Director and Treasurer of the Long Island Research
Institute. Mr. Browne became a director of the Company in March 1993.
John H. French II has been Vice Chairman of Southern Pacific Petroleum N.L.
(U.S.) for the past five years. Mr. French has been the Vice Chairman of the
Russian American Chamber of Commerce since December 1994, and prior to that time
he was the Chairman of this organization from July 1992. He was Chairman of the
Board from January 1990 to February 1992, and President from 1960 to February
1992, of Research and Science Investors, Inc., a New York venture capital
concern. He became a director of the Company in July 1988.
Walter M. Lovenberg, Ph.D. was an Executive Vice President and member of
the Board of Directors of Marion Merrell Dow Inc. from 1989 through August 1993.
Dr. Lovenberg served as the President of the Merrell Dow Research Institute from
1989 to 1993 and Vice President from 1986 through 1989. Dr. Lovenberg has
received the Fulbright-Hayes Senior Scholar Award, the Public Health Service
Superior Service Award and the Third International Award for Research on Adult
Diseases. Dr. Lovenberg currently serves as a member of the Board of Directors
of Xenometrix Inc., Cytoclonal Pharmaceutics, Inc. and BioStart, Inc. Dr.
Lovenberg has served as a consultant to the Company since October 1993. Dr.
Lovenberg became a director of the Company in March 1994.
Walter M. Miller has been Senior Vice President of Becton Dickinson and
Company since July 1995. Prior to that Mr. Miller was Sector President,
Infectious Disease Diagnostics of Becton from October 1994 to June 1995, and
Sector President, Diagnostics of Becton from July 1986 to September 1994. Mr.
Miller became a director of the Company in September 1990.
Gary Takata, a founder of the Company, is a private investor and venture
capitalist. From August 1989 until April 1992, he was President and a director
of Zeron Acquisition I Corp. (formerly named Pilgrim Acquisition Corp.), a
business development company. Since March 1992, he has been President and a
director of Jupiter Acquisitions, Inc. and Zeron Acquisition II, Inc., and since
November 1992, he has been President and a director of Athena Acquisitions,
Inc., Saturn Acquisitions, Inc., Mars Acquisitions, Inc., Juno Acquisitions,
Inc. and Neptune Acquisitions, Inc. All of these firms are business development
companies. Mr. Takata has been a director of the Company since May 1983.
46
<PAGE> 48
John P. White is a partner in Cooper & Dunham, a New York City law firm
specializing in patent, trademark and related intellectual property matters, and
has been associated with the firm since 1977. Mr. White is a member of numerous
professional organizations, both legal and scientific, and has written and
lectured extensively on the subject of legal protection for biotechnology. Mr.
White also serves on the Board of Directors of Bio-Technology General Corp. and
Biocardia Corporation. Mr. White has been a director of the Company since May
1985.
The Corporation has entered into an agreement with Becton pursuant to which
Becton is entitled to representation on the Board of Directors of the
Corporation. Mr. Miller was nominated to, and serves on, the Board of Directors
pursuant to the agreement between the Corporation and Becton.
The Compensation Committee of the Board of Directors is authorized, subject
to the Certificate of Incorporation and Bylaws of the Corporation and the
Delaware General Corporation Law, to exercise all power and authority of the
Board of Directors with respect to the compensation of employees of the
Corporation. It also addresses a variety of organizational matters with respect
to the Corporation and its employees. The Compensation Committee also
administers the Corporation's stock option plans. The Audit Committee of the
Board of Directors is responsible for reviewing the adequacy of the structure of
the Corporation's financial organization and the implementation of its financial
and accounting polices. In addition, the Audit Committee reviews the results of
the audit performed by the Corporation's outside auditors before the Annual
Report to Stockholders is published.
47
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 31, 1995
regarding the beneficial ownership of the Common Stock by (i) all persons known
to the Corporation who own more than 5% of the outstanding shares of the Common
Stock, (ii) all stockholders with whom the Corporation has entered into
strategic collaborations, (iii) each director and nominee for director, (iv)
each executive officer, and (v) all executive officers and directors as a group.
Unless otherwise indicated, the persons named in the table below have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
SHARES ---------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNERS OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Hoechst Marion Roussel, Inc.................................. 1,590,909(2) 8.83% 7.75%
10236 Marion Park Drive
Kansas City, MO 64137
Amerindo Investment Advisors Inc............................. 1,483,600 8.46% 7.41%
388 Market Street
San Francisco, CA 94111
Becton Dickinson and Company................................. 1,250,000 7.13% 6.24%
One Becton Drive
Franklin Lakes, NJ 07417
Ciba-Geigy, Ltd.............................................. 909,091 5.19% 4.54%
CH-4002 Basel
Switzerland
Pfizer Inc................................................... 587,500 3.35% 2.93%
235 East 42nd Street
New York, New York 10017
G. Morgan Browne............................................. 55,897(3) * *
J. Gordon Foulkes, Ph.D...................................... 114,157(4) * *
Gary E. Frashier............................................. 193,937(5) 1.10% *
John H. French II............................................ 38,880(6) * *
Edwin A. Gee, Ph.D........................................... 88,747(7) * *
Colin Goddard, Ph.D.......................................... 28,777(8) * *
Walter M. Lovenberg, Ph.D.................................... 53,000(9) * *
Walter M. Miller............................................. 0(10) * *
Steve M. Peltzman............................................ 118,300(11) * *
Ann H. Rose, Ph.D............................................ 25,559(12) * *
Gary Takata.................................................. 9,700(13) * *
Robert L. Van Nostrand....................................... 54,084(14) * *
John P. White................................................ 20,000 * *
All directors and executive officers as a group (13
persons)................................................... 769,038(15) 4.22% 3.71%
</TABLE>
- ---------------
* Represents ownership of less than 1% of the outstanding shares of the
Company's Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to stock options and warrants currently exercisable or exercisable within
60 days are deemed beneficially owned by the person holding such options
and warrants. The percent of the outstanding shares of the Company's Common
Stock for any person or group who as of December 31, 1995 beneficially
owned any shares pursuant to options which are exercisable within 60 days
of December 31, 1995 is calculated assuming all such options have been
exercised in full and adding the
48
<PAGE> 50
number of shares subject to such options to the total number of shares
issued and outstanding on December 31, 1995.
(2) Includes 500,000 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding warrants.
(3) Includes 400 shares owned by Mr. Browne's wife as to which Mr. Browne
disclaims beneficial ownership. Includes 18,747 shares that may be acquired
at or within 60 days of December 31, 1995 pursuant to the exercise of
outstanding options. Also includes 21,750 shares owned by Cold Spring
Harbor Laboratory, of which Mr. Browne is an executive officer. Mr. Browne
disclaims beneficial ownership of the shares owned by Cold Spring Harbor
Laboratory.
(4) Includes 113,987 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(5) Includes 185,003 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(6) Includes 34,380 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(7) Consists entirely of shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of options.
(8) Includes 27,899 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(9) Includes 50,000 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(10) Excludes 1,250,000 shares owned by Becton Dickinson and Company, of which
Mr. Miller is an executive officer. Mr. Miller disclaims beneficial
ownership of such shares.
(11) Includes 103,256 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(12) Includes 25,500 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(13) Consists entirely of shares owned by Mr. Takata's wife, as to which Mr.
Takata disclaims beneficial ownership.
(14) Includes 53,499 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
(15) Includes 701,018 shares that may be acquired at or within 60 days of
December 31, 1995 pursuant to the exercise of outstanding options.
49
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, par value $0.01 per
share.
COMMON STOCK
As of December 31, 1995, there were 17,527,789 shares of Common Stock
outstanding and held of record by 751 stockholders. The holders of Common Stock
are entitled to one vote for each share of Common Stock on matters to be voted
on by the stockholders of the Company. Holders of the Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefore. The Company has paid no cash dividends
on any of its capital stock and does not anticipate paying cash dividends in the
foreseeable future.
In the event of a liquidation, dissolution of winding up of the Company,
holders of Common Stock are entitled to share ratably and all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
Preferred Stock (the issuance of which is not currently authorized by the
Company's Certificate of Incorporation). The outstanding shares of Common Stock
are, and the Common Stock to be outstanding upon completion of this Offering
will be, fully paid and nonassessable. No pre-emptive rights, conversion rights,
redemption rights or sinking fund provisions are applicable to the Common Stock.
REGISTRATION RIGHTS
Several of the Company's collaborative partners are parties to agreements
with the Company that grant these partners, as holders of shares of the
Company's Common Stock, rights to have their shares of Common Stock registered
under the Securities Act of 1933. Becton and HMRI have the right to demand
registration of their shares subject to certain conditions and limitations. If
the Company proposes to register any of its Common Stock for sale, Ciba, HMRI,
and Pfizer have "piggyback" registration rights under which they have the right
to include their shares in such registered offering initiated by the Company.
The Company will pay all registration expenses (excluding underwriting discounts
and commissions and, with certain exceptions, legal fees and costs of selling
stockholders) arising from the inclusion of the selling stockholder shares in
such registration.
DELAWARE TAKEOVER STATUTE
In February 1988, a law regulating corporate takeovers (the "Takeover Law")
took effect in Delaware. In certain circumstances, the Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with any
"interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date on
which such stockholder became an "interested stockholder". A Delaware
corporation may "opt out" of the Takeover Law with an express provision either
in its original Certificate of Incorporation or in its Certificate of
Incorporation or Bylaws resulting from an amendment approved by at least a
majority of the outstanding voting shares. The Company is a Delaware corporation
that is subject to the Takeover Law and has not "opted out" of its provisions.
The foregoing provisions of Delaware law could have the effect of
discouraging others from attempting hostile takeovers of the Company and, as a
consequence, they may also inhibit temporary fluctuations in the market price of
the Common Stock that often result from actual or rumored hostile takeover
attempts. Such provisions may also have the effect of preventing changes in the
management of the Company. It is possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is The
Bank of New York, 101 Barclay Street, New York, New York 10286.
50
<PAGE> 52
UNDERWRITING
The Underwriters named below, acting through their representative,
Robertson, Stephens & Company LLC (the "Representative"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Robertson, Stephens & Company LLC....................................
---------
Total...................................................... 2,500,000
=========
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representative. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 2,500,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
2,500,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 2,500,000
shares are being sold.
The Company's officers and directors, Pfizer, HMRI, Ciba and Becton have
agreed with the Representative for a period of 90 days from the date of this
Prospectus (the "Lock-Up Period") not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any option to purchase any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock now owned or hereafter acquired directly by such holders or with respect
to which they have or hereinafter acquire the power of disposition without the
prior written consent of Robertson, Stephens & Company LLC, which may, in its
sole discretion and at any time or from time to time, without notice, release
all or any portion of the shares subject to the lock-up agreements. In addition,
the Company has agreed that during the Lock-Up Period, the Company will not,
without the prior written consent of Robertson, Stephens & Company LLC, issue,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the issuance of Common Stock upon the exercise of
outstanding warrants or options and the Company's grant of options and issuance
of stock under existing employee stock option and stock purchase plans.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities including
liabilities under the Securities Act.
The offering price for the Common Stock has been determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
51
<PAGE> 53
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted an exemption from these rules
that permits passive market making under certain conditions. These rules permit
an Underwriter or other member of the selling group to continue to make a market
in the Company's Common Stock subject to the conditions, among others, that its
bid not exceed the highest bid by a market maker not connected with the offering
and that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making the Company's Common
Stock during such period.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Saul, Ewing, Remick & Saul, Philadelphia, Pennsylvania.
Certain legal matters relating to the offering for the Underwriters will be
passed upon by Testa, Hurwitz & Thibeault, Boston, Massachusetts.
EXPERTS
The consolidated financial statements included and incorporated by
reference in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the and regulations of the Commission. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete. For further information with respect to the Company and
such Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto, copies of which may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Statements contained in this Prospectus as to the contents of any
contract or other document filed, or incorporated by reference, as an exhibit to
the Registration Statement are qualified in all respects by such reference.
52
<PAGE> 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Stockholders' Equity..................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 55
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, 1995 and 1994, 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, 1995.
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, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1995 in conformity with generally accepted accounting
principles.
During fiscal 1994, the Company changed its method of accounting for income
taxes and marketable securities to adopt the provisions of the Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", and No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
respectively.
KPMG PEAT MARWICK LLP
Jericho, New York
December 1, 1995
F-2
<PAGE> 56
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1994
----------- ----------- DECEMBER 31,
-------------
1995
-------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $17,919,609 $ 322,308 $ 1,787,990
Short-term investments...................................... 8,866,957 17,835,583 22,296,727
Receivables, including trade receivables of $163,132,
$956,747 and $88,371 at September 30, 1995 and 1994 and
December 31, 1995, respectively.......................... 1,320,015 3,032,839 2,253,533
Inventory................................................... -- 1,744,663 --
Interest receivable......................................... 45,263 147,222 67,769
Grants receivable........................................... 433,530 659,621 209,748
Prepaid expenses............................................ 518,150 445,464 652,024
----------- ----------- -----------
Total current assets................................ 29,103,524 24,187,700 27,267,791
----------- ----------- -----------
Property, equipment and leasehold improvements -- net......... 5,709,515 6,554,237 5,445,005
Other receivable.............................................. 262,703 425,520 408,659
Loans to officers and employees............................... 25,516 85,516 25,464
Other assets.................................................. 325,582 118,068 324,500
Intangible assets -- net...................................... 8,630,581 10,669,859 8,267,392
----------- ----------- -----------
$44,057,421 $42,040,900 $ 41,738,811
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $ 2,825,702 $ 2,522,171 $ 1,806,902
Current portion of unearned revenue......................... 150,041 457,384 193,166
----------- ----------- -----------
Total current liabilities........................... 2,975,743 2,979,555 2,000,068
----------- ----------- -----------
Other liabilities:
Long-term portion of unearned revenue....................... 165,839 216,588 151,509
Accrued postretirement benefit cost......................... 366,203 188,443 399,329
----------- ----------- -----------
Total liabilities................................... 3,507,785 3,384,586 2,550,906
----------- ----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized,
17,683,047 shares issued at September 30, 1995,
16,564,715 shares issued at September 30, 1994 and
17,750,310 shares issued at December 31, 1995............ 176,830 165,647 177,503
Additional paid-in capital.................................. 66,735,375 61,199,670 66,998,116
Accumulated deficit......................................... (26,129,341) (21,870,671) (27,899,935)
Cumulative foreign currency translation adjustment.......... (55,669) (41,773) (40,220)
Unrealized holding gain (loss) on short-term investments.... (35,000) (654,000) 95,000
----------- ----------- -----------
40,692,195 38,798,873 39,330,464
Less: treasury stock, at cost; 222,521 shares at September
30, 1995 and 1994 and December 31, 1995.................. (142,559) (142,559) (142,559)
----------- ----------- -----------
Total stockholders' equity.......................... 40,549,636 38,656,314 39,187,905
----------- ----------- -----------
Commitments and contingencies
$44,057,421 $42,040,900 $ 41,738,811
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 57
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------- -------------------------
1995 1994 1993 1995 1994
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative program revenues,
principally from related
parties........................... $ 9,685,856 $ 9,089,295 $ 9,396,609 $ 1,987,458 $ 2,318,374
Sales............................... 4,286,540 4,937,917 4,827,185 29,042 1,313,689
Other research revenue.............. 1,892,603 2,272,277 1,864,227 259,748 575,918
---------- ---------- ---------- ---------- ----------
15,864,999 16,299,489 16,088,021 2,276,248 4,207,981
---------- ---------- ---------- ---------- ----------
Expenses:
Research and development............ 13,523,043 12,125,210 10,659,806 2,683,262 3,076,965
Production.......................... 1,252,990 1,427,981 1,443,649 21,863 405,278
Selling, general and
administrative.................... 7,140,208 7,487,090 6,429,701 1,331,539 1,874,429
Amortization of intangibles......... 1,696,561 1,745,163 1,745,713 363,189 436,334
---------- ---------- ---------- ---------- ----------
23,612,802 22,785,444 20,278,869 4,399,853 5,793,006
---------- ---------- ---------- ---------- ----------
Loss from operations........... (7,747,803) (6,485,955) (4,190,848) (2,123,605) (1,585,025)
---------- ---------- ---------- ---------- ----------
Other income (expense):
Net investment income............... 834,830 858,904 930,428 364,524 220,672
Other expense....................... (66,086) (96,873) (45,622) (11,513) (26,634)
Gain on sale of Research Products
Business.......................... 2,720,389 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................................. $(4,258,670) $(5,723,924) $(3,306,042) $(1,770,594) $(1,390,987)
========== ========== ========== ========== ==========
Weighted average number of shares of
common stock outstanding............... 16,757,370 16,335,000 16,080,000 17,476,343 16,342,604
========== ========== ========== ========== ==========
Net loss per weighted average share of
common stock outstanding............... $ (.25) $ (.35) $ (.21) $ (.10) $ (.09)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 58
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
FOREIGN GAIN
COMMON STOCK ADDITIONAL CURRENCY (LOSS) ON TOTAL
--------------------- PAID-IN ACCUMULATED TRANSLATION SHORT-TERM TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT INVESTMENTS STOCK EQUITY
---------- -------- ----------- ------------ ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1992............ 15,285,092 $152,851 $54,791,281 $(12,840,705) $ -- $ -- $(142,559) $41,960,868
Options exercised.... 175,729 1,758 386,272 -- -- -- -- 388,030
Issuance of common
stock for employee
purchase plan...... 211 2 974 -- -- -- -- 976
Sale of common stock
and warrants to
Marion Merrell
Dow................ 1,090,909 10,909 5,989,091 -- -- -- -- 6,000,000
Foreign currency
translation
adjustment......... -- -- -- -- 771 -- -- 771
Net loss............. -- -- -- (3,306,042) -- -- -- (3,306,042)
---------- -------- ----------- ------------ -------- --------- --------- -----------
Balance of September
30, 1993........... 16,551,941 165,520 61,167,618 (16,146,747) 771 -- (142,559) 45,044,603
Options exercised.... 10,700 107 25,724 -- -- -- -- 25,831
Issuance of common
stock for employee
purchase plan and
other.............. 2,074 20 6,328 -- -- -- -- 6,348
Unrealized holding
loss on short-term
investments........ -- -- -- -- -- (654,000) -- (654,000)
Foreign currency
translation
adjustment......... -- -- -- -- (42,544) -- -- (42,544)
Net loss............. -- -- -- (5,723,924) -- -- -- (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) 38,656,314
Options exercised.... 206,025 2,060 571,408 -- -- -- -- 573,468
Issuance of common
stock for employee
purchase plan and
other.............. 3,216 32 10,523 -- -- -- -- 10,555
Unrealized holding
gain on short-term
investments........ -- -- -- -- -- 619,000 -- 619,000
Sale of common stock
to Ciba-Giegy...... 909,091 9,091 4,953,774 -- -- -- -- 4,962,865
Foreign currency
translation
adjustment......... -- -- -- -- (13,896) -- -- (13,896)
Net loss............. -- -- -- (4,258,670) -- -- -- (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) 40,549,636
Options exercised
(unaudited)........ 66,154 662 259,196 -- -- -- -- 259,858
Issuance of common
stock for employee
purchase plan and
other
(unaudited)........ 1,109 11 3,545 -- -- -- -- 3,556
Unrealized holding
gain on short-term
investments
(unaudited)........ -- -- -- -- -- 130,000 -- 130,000
Foreign currency
translation
adjustment
(unaudited)........ -- -- -- -- 15,449 -- -- 15,449
Net loss
(unaudited)........ -- -- -- (1,770,594) -- -- -- (1,770,594)
---------- -------- ----------- ------------ -------- --------- --------- -----------
Balance at December
31, 1995
(unaudited)........ 17,750,310 $177,503 $66,998,116 $(27,899,935) $ (40,220) $ 95,000 $(142,559) $39,187,905
========== ======== =========== ============ ======== ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 59
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
YEARS ENDED SEPTEMBER 30, 31,
--------------------------------------------- ----------------------------
1995 1994 1993 1995 1994
----------- ------------ ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss..................................... $(4,258,670) $ (5,723,924) $ (3,306,042) $ (1,770,594) $(1,390,987)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on sale of Research Products
Business............................... (2,720,389) -- -- -- --
Loss (gain) on sale of investments....... 118,141 -- -- (27,608) --
Depreciation and amortization............ 1,037,044 1,165,809 955,952 341,240 323,233
Amortization of intangibles.............. 1,696,561 1,745,163 1,745,713 363,189 436,334
Foreign exchange loss.................... (13,896) (26,649) 5,319 15,449 11,474
Changes in assets and liabilities, net of
the effects of the sale of the Research
Products Business:
Receivables.......................... 1,605,217 114,152 (1,052,526) (933,518) 460,588
Inventory............................ 216,405 (197,570) (132,236) -- 111,282
Interest receivable.................. 101,959 (107,890) 171,643 (22,506) (117,109)
Grants receivable.................... 226,091 105,895 (497,240) 223,782 134,997
Prepaid expenses..................... (196,491) (98,068) 27,674 (133,874) 46,322
Other receivable..................... 162,817 92,090 (517,610) (145,956) (279,584)
Other assets......................... (234,378) 23,863 (115,851) 1,082 4,392
Accounts payable and accrued
expenses........................... (586,276) 232,439 468,673 (1,018,800) (375,977)
Unearned revenue..................... (358,092) 415,972 (209,500) 28,795 459,676
Accrued postretirement benefit
cost............................... 177,760 78,568 109,875 33,126 34,689
----------- ----------- ----------- ---------- --------
Net cash used by operating activities.......... (3,026,197) (2,180,150) (2,346,156) (3,046,193) (140,670)
----------- ----------- ----------- ---------- --------
Cash flows from investing activities:
Additions to short-term investments.......... (3,723,180) (5,918,880) (29,092,688) (15,772,162) (499,687)
Maturities and sales of short-term
investments................................ 13,192,665 9,135,823 25,827,272 2,500,000 1,756,725
Additions to property, equipment and
leasehold improvements..................... (403,275) (1,512,543) (1,486,646) (76,730) (428,460)
Disposition of equipment..................... -- -- 12,028 -- --
Net change in loans to officers and
employees.................................. 10,400 (40,258) (4,702) 52 --
Proceeds from sale of Research Products
Business................................... 6,000,000 -- -- -- --
Other........................................ -- (15,897) (4,548) -- (7,900)
----------- ----------- ----------- ----------- --------
Net cash provided by (used in) investing
activities................................... 15,076,610 1,648,245 (4,749,284) (13,348,840) 820,678
----------- ----------- ----------- ----------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net........................................ 4,962,865 -- 6,000,000 -- --
Proceeds from exercise of stock options,
employee stock purchase plan and other..... 584,023 32,180 389,006 263,414 1,956
Repayment of loan to stockholders............ -- -- 1,000,000 -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by financing activities...... 5,546,888 32,180 7,389,006 263,414 1,956
----------- ----------- ----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents.................................. 17,597,301 (499,725) 293,566 (16,131,619) 681,964
Cash and cash equivalents at beginning of
period....................................... 322,308 822,033 528,467 17,919,609 322,308
----------- ----------- ----------- ------------ -----------
Cash and cash equivalents at end of period..... $17,919,609 $ 322,308 $ 822,033 $ 1,787,990 $ 1,004,272
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 60
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 AND
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THREE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
(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. and Oncogene Science S.A., a foreign subsidiary. 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 4)
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 4), 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 Company continually
evaluates the recoverability of its intangible assets by assessing whether the
amortized 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 1995, 1994, and 1993
R&D activities include approximately $5,695,740, $3,516,000, and $3,012,000, of
independent R&D, respectively. For the three months ended December 31, 1995 and
1994 (unaudited) R&D includes approximately $1,049,000 and $1,114,000 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 funded by Pfizer Inc. (Pfizer), Becton Dickinson
and Co.(Becton), Wyeth-Ayerst, a division of American Home Products (Wyeth),
Marion Merrell Dow Inc. (Marion), Hoechst AG and Hoechst Roussel
Pharmaceuticals, Inc.
F-7
<PAGE> 61
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Hoechst Roussel). In July 1995, Marion, Hoechst AG and Hoechst Roussel merged
forming a new company named Hoechst Marion Roussel, Inc. (HMRI).
(e) Inventories
Inventories represent principally diagnostics and research reagent products
and are stated at the lower of standard costs (approximating average costs) or
market. During fiscal 1995, the Company sold the business and certain assets,
including inventory, of the Research Products Business. (See Note 3)
(f) 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.
(g) 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."
(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 financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(k) Interim Financial Information
Information as of December 31, 1995, and for the three months ended
December 31, 1995 and 1994 is unaudited and, in the opinion of management,
reflects all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company's financial position as of December 31,
1995, its results of operations and its cash flows for the three months ended
December 31, 1995 and 1994. Certain reclassifica-
F-8
<PAGE> 62
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tions have been made to the prior financial statements to conform them to the
current presentation. It is recommended that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto in the Company's 1995 Annual Report on Form 10-K. Results for
interim periods are not necessarily indicative of results for the entire year.
(2) 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 cash 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 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 United States
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
stockholder's equity. The adoption of SFAS No. 115 had no material impact on the
Company's financial position.
The following is a summary of available-for-sale securities as of December
31, 1995 and September 30, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 GROSS
- --------------------------------------------------------- UNREALIZED
LOSSES FAIR
(Unaudited) COST (GAINS) VALUE
----------- ---------- -----------
<S> <C> <C> <C>
US Treasury Securities and obligations of US Government
agencies............................................... $12,155,908 $ (2,281) $12,153,627
Corporate debt securities................................ 10,045,819 97,281 10,143,100
----------- ---------- -----------
Total.......................................... $22,201,727 $ 95,000 $22,296,727
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS
UNREALIZED
LOSSES FAIR
SEPTEMBER 30, 1995 COST (GAINS) 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>
<TABLE>
<CAPTION>
GROSS
UNREALIZED FAIR
SEPTEMBER 30, 1994 COST LOSSES VALUE
- --------------------------------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
US Treasury Securities and obligations of US Government
agencies............................................... $16,753,928 $ (458,000) $16,295,928
Corporate debt securities................................ 1,735,655 (196,000) 1,539,655
----------- ---------- -----------
Total.......................................... $18,489,583 $ (654,000) $17,835,583
========== ========= ==========
</TABLE>
F-9
<PAGE> 63
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Realized losses on sales of investments during fiscal 1995 were
approximately $149,000. The Company has not realized any significant gains or
losses on the sale of its short-term investments during fiscal years 1994 and
1993 and the three months ended December 31, 1995 and 1994 (unaudited).
(3) 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.
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 or approximately $448,000 per annum.
(4) PRODUCT DEVELOPMENT CONTRACTS
Effective April 1, 1986, the Company entered into a collaborative research
agreement (the "Agreement") with Pfizer. On December 14, 1990, the Company and
Pfizer entered into an agreement to extend the Agreement ("Extension Agreement")
for up to an additional five years effective April 1, 1991. Pursuant to the
Extension Agreement, Pfizer agreed to provide the Company with up to $16,225,000
in research funding, essentially on a ratable basis, over the five-year period
ending April 1, 1996. In consideration for the funding commitments by Pfizer,
the Company has granted to Pfizer certain rights to human cancer therapeutic
products developed by the Company.
On October 4, 1991, the Company and Becton established a collaborative
research program to develop cancer diagnostic products. The Company and Becton
share equally the cost of discovery phase and pre-clinical research and
development. If Food and Drug Administration ("FDA") approval is obtained, these
products will be sold to the clinical markets by Becton. The Company will retain
some manufacturing rights. Unless terminated by either party, the collaborative
research program will continue for an initial five-year term through September
30, 1996.
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 to provide for additional funding of
approximately $4,300,000.
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
$11,000,000 in research funding and license fees over a five year period through
December 31, 1997. Marion invested $6,000,000 in common stock (See Note 8(b)).
The payments with respect to 1996 and 1997 are being consolidated into a
proposed new research agreement.
On January 4, 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.
F-10
<PAGE> 64
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In April 1995, the Company entered into an agreement with Ciba-Geigy, Ltd.
("Ciba") to expand the scope of the two companies' collaborative efforts with
respect to the development of TGF-Beta3 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-Beta3.
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.
Total collaborative research revenues under the aforementioned agreements
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------ ---------------------------
1995 1994 1993 1995 1994
---------- ---------- ---------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Related Parties:
Pfizer.......................... $3,505,427 $3,373,573 $4,768,606 $ 748,309 $ 845,001
Becton.......................... 1,400,094 1,392,314 1,334,534 248,469 334,825
HMRI............................ 3,405,335 3,026,532 2,211,936 640,680 813,548
---------- ---------- ---------- ---------- ----------
$8,310,856 $7,792,419 $8,315,076 $1,637,458 $1,993,374
Other........................... 1,375,000 1,296,876 1,081,533 350,000 325,000
---------- ---------- ---------- ---------- ----------
Total........................... $9,685,856 $9,089,295 $9,396,609 $1,987,458 $2,318,374
========== ========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 65
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------
ESTIMATED -------------------------- 1995
LIFE (YEARS) 1995 1994 -------------
------------- ---------- ------------- (Unaudited)
<S> <C> <C> <C> <C>
Laboratory equipment.................... 5-15 $6,765,012 $ 6,376,997 $ 6,816,462
Office furniture and equipment.......... 5-10 1,622,524 1,708,534 1,636,045
Automobile equipment.................... 3 12,697 12,697 12,697
Leasehold improvements.................. Life of lease 4,176,290 4,214,228 4,188,048
---------- ---------- ----------
12,576,523 12,312,456 12,653,252
Less: accumulated depreciation and
amortization.......................... 6,867,008 5,758,219 7,208,247
---------- ---------- ----------
Net property, equipment and leasehold
improvements.......................... $5,709,515 $ 6,554,237 $ 5,445,005
========== ========== ===========
</TABLE>
(6) INTANGIBLE ASSETS
The components of intangible assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------- ------------
1995 1994 1995
---------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Patents........................................ $7,945,038 $ 8,712,250 $7,753,235
Goodwill....................................... 685,543 1,957,609 514,157
---------- ----------- ----------
$8,630,581 $ 10,669,859 $8,267,392
========== =========== ==========
</TABLE>
The above amounts reflect accumulated amortization of $5,808,119,
$5,236,407 and $6,171,308 at September 30, 1995 and 1994, and December 31, 1995
(unaudited), respectively.
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------- ------------
1995 1994 1995
---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Accounts payable.............................. $1,497,601 $1,326,744 $ 400,387
Accrued future lease escalations.............. 355,516 282,718 373,665
Accrued payroll and employee benefits......... 243,073 155,039 564,140
Accrued incentive compensation................ 424,705 426,189 90,000
Accrued expenses.............................. 304,807 331,481 378,717
---------- ---------- ------------
$2,825,702 $2,522,171 $1,806,909
========= ========= ==========
</TABLE>
(8) STOCKHOLDERS' EQUITY
(a) 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.
F-12
<PAGE> 66
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, THREE MONTHS ENDED
------------------------------------- DECEMBER 31,
1995 1994 1993 ------------------
--------- --------- --------- 1995
------------------
(Unaudited)
<S> <C> <C> <C> <C>
Beginning of period...................... 2,048,325 1,644,945 1,278,045 2,021,279
Granted-$3.50 to $4.13 per share in 1995;
$4.00 to $4.75 per share in 1994; $4.38
to $5.25 per share in 1993;............ 803,000 475,500 498,000 --
Exercised................................ (206,025) (10,700) (109,729) (66,154)
Cancelled................................ (624,021) (61,420) (21,371) (2,759)
--------- --------- --------- ---------
End of period-$1.75 to $5.63 per share... 2,021,279 2,048,325 1,644,945 1,952,366
========= ========= ========= =========
Exercisable.............................. 952,883 1,081,874 790,899 958,732
========= ========= ========= =========
</TABLE>
At December 31, 1995, the Company has reserved 1,952,366 shares (unaudited)
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.
(b) Sale of Stock to Marion
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 are exercisable during the
period December 1994 to December 1999. The proceeds to the Company were
$6,000,000.
(c) Sale of Stock to Ciba
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 $5,000,000.
(d) 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 1995, 1994 and 1993, 3,216, 2,074 and 211 shares were issued with 18, 13
and 10 employees participating in the plan, respectively. During the three month
periods ended December 31, 1995 and 1994 (unaudited), 709 and 651 shares were
issued with 16 and 12 employees participating in the plan, respectively.
F-13
<PAGE> 67
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) 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 carryforwards
and research and development tax credit carryforwards as of September 30, 1994
and 1995 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------- DECEMBER 31,
1995 1994 1995
------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 8,122,444 $ 6,421,863 $ 8,700,000
Research & development credits.................... 554,838 373,500 575,000
Inventory......................................... -- 838,361 --
Intangible assets................................. 1,274,336 863,220 1,350,000
Other............................................. 469,396 227,958 470,000
----------- ---------- ------------
$ 10,421,014 $ 8,724,902 $ 11,095,000
Valuation allowance............................... (10,421,014) (8,724,902) (11,095,000)
----------- ---------- ------------
$ -- $ -- $ --
=========== ========== ============
</TABLE>
As of December 31, 1995, the Company has available federal net operating
loss carryforwards of approximately $25 million (unaudited) which will expire in
various years from 1999 to 2010, 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 2010.
(10) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office, operating and laboratory space under various
lease agreements.
Rent expense was approximately $750,000, $743,000, $656,000, $176,000 and
$178,000 for the fiscal years ended September 30, 1995, 1994, and 1993,
respectively and for the three months ended December 31, 1995 and 1994
(unaudited), respectively.
The following is a schedule of future minimum rental payments required as
of December 31, 1995, assuming expiration of the lease for the Uniondale
facility on June 30, 2006 and the Cambridge facility on December 31, 2003.
<TABLE>
<S> <C>
Nine months ended September 30, 1996 (unaudited)................................. $ 441,000
Fiscal years ended 1997.......................................................... 619,375
1998.......................................................... 627,163
1999.......................................................... 644,288
2000.......................................................... 682,163
2001 and thereafter........................................... 3,637,311
---------
$6,651,300
=========
</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
F-14
<PAGE> 68
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 discontinuing the sale or use of any infringing products.
Management believes that the ultimate outcome of these matters will not have a
material adverse effect on the financial position of the Company.
(11) 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, 1995, 1994 and 1993
and the three months ended December 31, 1995 and 1994 (unaudited) such fees
amounted to $99,000, $66,000, $45,000 and $27,000 and $18,000 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, 1995, 1994 and 1993, and the three
months ended December 31, 1995 and 1994 (unaudited) consulting services in the
amounts of $90,000, $85,000, $56,000, $22,500 and $22,500 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 year ended September
30, 1995 are estimated to be approximately $260,000. Fees paid for this firm for
the years ended September 30, 1994 and 1993 amounted to approximately $372,000
and $538,000, respectively. Fees paid to this firm for the three months ended
December 31, 1995 and 1994 (unaudited) were approximately $65,000 and $12,000.
(12) 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, 1995, 1994, and 1993, the Company's expenses
related to the plan were approximately $180,000, $168,000 and $131,000,
respectively. For the three months ended December 31, 1995 and 1994 (unaudited)
the Company's expenses related to the plan were approximately $22,000 and
$33,000 respectively.
(13) 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 Post
Retirement 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.
F-15
<PAGE> 69
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net postretirement benefit cost for the years ended September 30, 1995 and
1994 and 1993 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Service cost for benefits earned during the period.......... $107,175 $65,830 $ 70,867
Interest cost on accumulated postretirement benefit
obligation................................................ 47,181 15,591 19,742
Amortization of unrecognized net loss (gain)................ 5,855 (20,402) --
Amortization of initial benefits attributable to past
service................................................... 17,549 17,549 19,266
------- ------ -------
Net postretirement benefit cost............................. $177,760 $78,568 $109,875
======= ====== =======
</TABLE>
Net postretirement benefit cost for the three months ended December 31,
1995 and 1994 (unaudited) were approximately $33,000 and $35,000.
The accrued postretirement benefit cost at September 30, 1995 (most recent
valuation date) and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accumulated post retirement benefit obligation -- fully eligible
active plan participants........................................... $ 790,437 $ 285,582
Unrecognized cumulative net gain (loss).............................. (121,517) 223,127
Unrecognized transition obligation................................... (302,717) (320,266)
-------- --------
Accrued postretirement benefit cost.................................. $ 366,203 $ 188,443
======== ========
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.5 percent and a health care cost trend rate of approximately
12 percent decreasing to 6 percent in year 1999 and thereafter for 1995 and
1994. 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 post-retirement benefit obligation as of September 30, 1995 and 1994
by approximately $106,000 and $94,000 respectively.
(14) 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 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.
F-16
<PAGE> 70
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
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.
F-17
<PAGE> 71
[LOGO]
<PAGE> 72
Description of Graphic
[The graphic omitted from page 28 is an illustration of the human cell,
including the cell nucleus, depicting the processes of (i) gene transcription
(production of messenger RNA from the gene's DNA) within the nucleus and (ii)
the translation of messenger RNA into its corresponding target protein outside
the nucleus.]
<PAGE> 73
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses incurred in connection with the sale of the
securities being registered will be borne by the Company. Other than the SEC and
NASD registrations fee the amounts stated are estimates.
<TABLE>
<S> <C>
SEC registration fee....................................................... $ 9,000
NASD fee................................................................... 3,000
Nasdaq listing fee......................................................... 17,500
Blue Sky fees and expenses................................................. 1,500
Printing and engraving expenses............................................ 150,000
Accounting fees and expenses............................................... 75,000
Legal fees and expenses.................................................... 150,000
Miscellaneous expenses..................................................... 44,000
-------
Total............................................................ 450,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation or another enterprise if serving at the request of the corporation.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses that the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him or her in connection therewith.
The Registrant's Certificate of Incorporation provides that the Registrant
shall, to the fullest extent permitted by law, indemnify all directors,
officers, employees and agents of the Company. The Certificate of Incorporation
also contains a provision eliminating the liability of directors of the
Registrant to the Registrant or its stockholders for monetary damages, except
under certain circumstances. The Certificate of Incorporation also permits the
Registrant to maintain insurance to protect itself and any director, officer,
employee or agent against any liability with respect to which the Corporation
would have the power to indemnify such persons under the Delaware General
Corporation Law. The Registrant maintains an insurance policy insuring its
directors and officers against certain liabilities.
II-1
<PAGE> 74
ITEM 16. EXHIBITS.
The following is a list of exhibits filed as part of the Registration
Statement:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Oncogene Science, Inc., as amended
3.2 By-Laws of Oncogene Science, Inc., as amended
5.1 Opinion of Saul, Ewing, Remick & Saul as to the legality of the securities registered
hereunder
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Saul, Ewing, Remick & Saul (included in Exhibit 5.1)
24.1 Power of Attorney (contained on signature page)
</TABLE>
ITEM 17. UNDERTAKINGS.
a. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
b. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liability (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
c. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Uniondale, State of New York, on February 14, 1996.
ONCOGENE SCIENCE, INC.
By: /s/ GARY E. FRASHIER
------------------------------------
Gary E. Frashier,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Gary E. Frashier and Robert L. Van
Nostrand, and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments to this Registration Statement,
including posteffective amendments, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or any
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- ------------------
<S> <C> <C>
/s/ GARY E. FRASHIER Chief Executive Officer and February 14, 1996
- ------------------------------------- Director
Gary E. Frashier
/s/ STEVE M. PELTZMAN President, Chief Operating Officer February 14, 1996
- ------------------------------------- and Director
Steve M. Peltzman
/s/ J. GORDON FOULKES Vice President, Chief Scientific February 14, 1996
- ------------------------------------- Officer and Director
J. Gordon Foulkes
/s/ ROBERT L. VAN NOSTRAND Vice President, Finance and February 14, 1996
- ------------------------------------- Administration (Principal
Robert L. Van Nostrand Financial and Accounting Officer)
/s/ G. MORGAN BROWNE Director February 14, 1996
- -------------------------------------
G. Morgan Browne
/s/ JOHN H. FRENCH, II Director February 14, 1996
- -------------------------------------
John H. French, II
</TABLE>
II-3
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- ------------------
<S> <C> <C>
/s/ EDWIN A. GEE, PH.D. Director February 14, 1996
- -------------------------------------
Edwin A. Gee, Ph.D.
/s/ WALTER M. LOVENBERG, PH.D. Director February 14, 1996
- -------------------------------------
Walter M. Lovenberg
/s/ WALTER M. MILLER Director February 14, 1996
- -------------------------------------
Walter M. Miller
/s/ GARY TAKATA Director February 14, 1996
- -------------------------------------
Gary Takata
/s/ JOHN P. WHITE Director February 14, 1996
- -------------------------------------
John P. White
</TABLE>
II-4
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ------------ ---------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Oncogene Science, Inc., as
amended
3.2 By-Laws of Oncogene Science, Inc., as amended
5.1 Opinion of Saul, Ewing, Remick & Saul as to the legality of the
securities registered hereunder
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Saul, Ewing, Remick & Saul (included in Exhibit 5.1)
24.1 Power of Attorney (contained on signature page)
</TABLE>
<PAGE> 1
EXHIBIT 1.1
DRAFT 2/13/96
2,500,000 SHARES(1)
ONCOGENE SCIENCE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
___________________, 1996
ROBERTSON, STEPHENS & COMPANY LLC
As Representative of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
ONCOGENE SCIENCE, INC., a Delaware corporation (the "Company"), addresses you as
the Representative of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,500,000 shares of its authorized and unissued Common Stock, $.01 par value)
(the "Firm Shares") to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to 375,000 additional shares
of the Company's Common Stock. $.01 par value (the "Option Shares"), as provided
in Section 7 hereof. As used in this Agreement, the term "Shares" shall include
the Firm Shares and the Option Shares. All shares of Common Stock, par value
$.01, of the Company to be outstanding after giving effect to the sales
contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
2. Representations, Warranties and Agreements of the Company.
I. The Company represents and warrants to and agrees with each
Underwriter that:
__________________________
(1) Plus an option to purchase 375,000 additional shares from the Company to
cover over-allotments.
<PAGE> 2
-2-
(a) A registration statement on Form S-3 (File No.
33-_______) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments of each related prospectus subject to
completion (the "Preliminary Prospectuses"), including all documents
incorporated by reference therein, and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
The Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-3 under the Act.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such
<PAGE> 3
-3-
abbreviated registration statement. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations), provided, however, that if in reliance on Rule
434 of the Rules and Regulations and with the consent of Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus
subject to completion" (as defined in Rule 434(g) of the Rules and Regulations)
last provided to the Underwriters by the Company and circulated by the
Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately preceding
sentence (whether or not such revised prospectus is required to be filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. If in reliance on Rule 434
of the Rules and Regulations and with the consent of Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
of Section 2(10)(a) of the Act, the Prospectus and the term sheet, together,
will not be materially different from the prospectus in the Registration
Statement. Any reference to the Registration Statement or the Prospectus shall
be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the
Registration Statement or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the Registration Statement or the Prospectus
shall be deemed to refer to and include any documents filed after such date
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3. As used in this Agreement, the term
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the Registration Statement, the Prospectus or any amendment or
supplement thereto.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which
<PAGE> 4
-4-
they were made, not misleading; and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date (hereinafter defined) and on any later
date on which Option Shares are to be purchased, (i) the Registration Statement
and the Prospectus, and any amendments or supplements thereto, contained and
will contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any amendments or supplements thereto,
did not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed, when
such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder; any further Incorporated Documents so filed will, when they are
filed, conform in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder; no such document
when it was filed (or, if an amendment with respect to any such document was
filed, when such amendment was filed), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and no such further
amendment will contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of the
outstanding capital stock of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business
<PAGE> 5
-5-
prospects of the Company and its subsidiaries considered as one enterprise; no
proceeding has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification; each of the Company and its subsidiaries is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities, including, without limitation, the United States Food and Drug
Administration (the "FDA"), which are material to the conduct of its business,
all of which are valid and in full force and effect; there is no FDA enforcement
action pending or threatened against the Company or any of its subsidiaries; the
Company and its subsidiaries are conducting their business in compliance with
all the laws, rules and regulations of the jurisdictions in which they conduct
business, except where failure to be so in compliance would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; neither the Company nor any of its subsidiaries is in violation
of its respective charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties may be bound; and neither the
Company nor any of its subsidiaries is in material violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective properties of
which it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than those
subsidiaries listed in Exhibit 21 to the Company's Annual Report on Form 10-K
filed with the Commission and incorporated by reference into the Registration
Statement.
(d) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign,
<PAGE> 6
-6-
having jurisdiction over the Company or any of its subsidiaries or over their
respective properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the execution
and delivery of this Agreement and the consummation by the Company or any of its
subsidiaries of the transactions herein contemplated, except such as may be
required under the Act, the Exchange Act (if applicable), or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or any of their respective officers or any of
their respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no statutes, government regulation
agreements, contracts, leases or documents of the Company or any of its
subsidiaries of a character required to be described or referred to in the
Registration Statement or Prospectus or any Incorporated Document or to be filed
as an exhibit to the Registration Statement or any Incorporated Document by the
Act or the Rules and Regulations or by the Exchange Act or the rules and
regulations of the Commission thereunder which have not been accurately
described in all material respects in the Registration Statement or Prospectus
or any Incorporated Document or filed as exhibits to the Registration Statement
or any Incorporated Document.
(f) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus and any Incorporated Document (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Firm Shares and the Option Shares have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of shareholders exists with
<PAGE> 7
-7-
respect to any of the Firm Shares or Option Shares or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically expire upon the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any shareholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act, the Exchange Act or under state or other
securities or Blue Sky laws. All issued and outstanding shares of capital stock
of each subsidiary of the Company have been duly authorized and validly issued
and, are fully paid and nonassessable, and were not issued in violation of or
subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included or incorporated by reference in the
Prospectus, neither the Company nor any subsidiary has outstanding any options
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) KPMG Peat Marwick LLP, which has examined the
consolidated financial statements of the Company, together with the related
schedules and notes, as of September 30, 1994 and 1995 and for each of the years
in the three (3) years ended September 30, 1995 filed with the Commission as a
part of or incorporated by reference into the Registration Statement, which are
included or incorporated by reference in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of or incorporated by
reference into the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included or incorporated by reference in
the Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included or incorporated by reference in the Registration Statement.
<PAGE> 8
-8-
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
stockholders' equity, earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise, (ii) any
transaction that is material to the Company and its subsidiaries considered as
one enterprise, except transactions entered into in the ordinary course of
business, (iii) any obligation, direct or contingent, that is material to the
Company and its subsidiaries considered as one enterprise, incurred by the
Company or its subsidiaries, except obligations incurred in the ordinary course
of business, (iv) any change in the capital stock or outstanding indebtedness of
the Company or any of its subsidiaries that is material to the Company and its
subsidiaries considered as one enterprise, (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company or any of
its subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) each of the Company and its
subsidiaries has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus and any Incorporated
Document as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any of
its subsidiaries is a party described in the Registration Statement and
Prospectus and any Incorporated Document are valid agreements, enforceable by
the Company and its subsidiaries (as applicable), except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) each of the
Company and its subsidiaries has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus and any Incorporated
Document as leased by it, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
(j) The Company and its subsidiaries have timely filed
all necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown thereon as due, and there is no tax deficiency that
has been or, to the best of the
<PAGE> 9
-9-
Company's knowledge, might be asserted against the Company or any of its
subsidiaries that might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise; and all tax
liabilities are adequately provided for on the books of the Company and its
subsidiaries.
(k) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materialy, and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or subcontractors
that might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or
possesses adequate rights to use all patents, patent applications, patent
rights, inventions, trade secrets, know-how, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights or other
information (collectively, "Intellectual Property") which are necessary to
conduct its business as now or as proposed to be conducted by it as described in
the Registration Statement, Prospectus and any Incorporated Document; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any Intellectual Property; the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property which singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise; to the knowledge of the
<PAGE> 10
-10-
Company, none of the patents owned or licensed by the Company or any of its
subsidiaries are enforceable or invalid. The Company has duly and properly filed
or caused to be filed with the United States Patent and Trademark Office (the
"PTO") and applicable foreign and international patent authorities all patent
applications described or referred to in the Prospectus, and believes it has
complied with the PTO's duty of candor and disclosure for each of the United
States patent and patent applications described or referred to in the
Registration Statement, Prospectus and any Incorporated Document; the Company is
unaware of any facts which would preclude the grant of a patent from each of the
patent applications described or referred to in the Registration Statement,
Prospectus and any Incorporated Document; the Company has no knowledge of any
facts which would preclude it from having clear title to its patent applications
referenced in the Registration Statement, Prospectus and any Incorporated
Document; and the Company has not terminated or breached and is not in violation
of any agreement covering its Intellectual Property rights. Except as set forth
in the Registration Statement and Prospectus and any Incorporated Document, the
Company is not aware of the granting of any patents to third parties or the
filing of patent applications by third parties or any other rights of third
parties to any of the Company's Intellectual Property.
(n) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed on The Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from The Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(q) Neither the Company nor any of its subsidiaries has
at any time during the last five (5) years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
<PAGE> 11
-11-
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each
beneficial owner of 1% or more shares of Common Stock, except any organization
primarily engaged in the business of investing, reinvesting, or trading in
publicly-traded securities, has executed an agreement in a form reasonably
satisfactory to you that such person will not, for the period specified in such
agreement (the "Lock-up Period"), offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
as specified in such agreement or with the prior written consent of Robertson,
Stephens & Company LLC. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the agreements pursuant to which its officers, directors and shareholders
have agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other shareholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) the Company is in compliance with
all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to
<PAGE> 12
-12-
its business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus and any Incorporated Document, (iii) the Company will not be required
to make future material capital expenditures to comply with Environmental Laws
and (iv) no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss.9601, et seq),
or otherwise designated as a contaminated site under applicable state or local
law.
(u) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) Except as set forth in the Registration Statement
and Prospectus and any Incorporated Document, there are no outstanding loans,
advances (except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the benefit of
any of the officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus and any Incorporated Document.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $___ per share, the respective
number of Firm Shares as hereinafter set forth. The obligation of each
Underwriter to the Company shall be to purchase from the Company that number of
Firm Shares which is set forth opposite the name of such Underwriter in Schedule
A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company, and, in the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach), at the offices
of Testa, Hurwitz & Thibeault, counsel to the underwriters (or at such other
place as may be
<PAGE> 13
-13-
agreed upon among the Representative and the Company), at 7:00 A.M., San
Francisco time (a) on the third (3rd) full business day following the first day
that Shares are traded, (b) if this Agreement is executed and delivered after
1:30 P.M., San Francisco time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representative and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "Closing Date" provided, however, that if the Company has not
made available to the Representative copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representative may, in its sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representative. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representative so elects,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representative.
It is understood that you, individually, and not as the Representative
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), under the ___
paragraph on page [__], concerning stabilization and over-allotment by the
Underwriters, and under the ____ and ___ paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the final form of Prospectus
filed pursuant to Rule 424(b) constitutes the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement or any Incorporated Document, and you,
on behalf of the respective Underwriters, represent and warrant to the Company
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the
<PAGE> 14
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statements therein, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period Prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations, if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of Testa, Hurwitz &
Thibeault, counsel for the several Underwriters ("Underwriters' Counsel"), may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any
<PAGE> 15
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Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus or the Incorporated
Documents, or, prior to the end of the period of time in which a prospectus
relating to the Shares is required to be delivered under the Act, file any
document which upon filing becomes an Incorporated Document, which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, and the Incorporated Documents (three of which will
include all exhibits,) all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing if Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request.
<PAGE> 16
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(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
Quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each, of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
shareholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the NASD, (v) every material
press release and every material news item or article in respect of the Company
or its affairs which was generally released to shareholders or prepared by the
Company or any of its subsidiaries, and (vi) any additional information of a
public nature concerning the Company or its subsidiaries, or its business which
you may reasonably request. During such five (5) year period, if the Company
shall have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
<PAGE> 17
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(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section II (b)(i),
the Company will reimburse the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred by
the Underwriters in investigating or preparing to market or marketing the
Shares.
(k) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not,
without the prior written consent of Robertson Stephens & Company LLC, effect
the Disposition of, directly or indirectly, any Securities other than the sale
of the Firm Shares and the Option Shares hereunder and the Company's issuance of
options or Common Stock under warrants outstanding as of the date hereof and the
Company's presently authorized stock option plans and stock purchase plans (the
"Stock Plans"),
(m) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Option Plan or other
employee benefit plan.
5. Expenses.
(a) The Company agrees with each Underwriter that.
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and the
Incorporated Documents and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any
Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power
of Attorney, and any instruments related to any of the foregoing; the
issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares
<PAGE> 18
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and transfer agents' and registrars' fees; the fees and disbursements
of counsel for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing to the
several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus and
the Incorporated Documents, and any amendments or supplements to any of
the foregoing; NASD filing fees and the cost of qualifying the Shares
under the laws of such jurisdictions as you may designate (including
filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); and all
other expenses directly incurred by the Company in connection with the
performance of their obligations hereunder.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(a) hereof, it will reimburse
the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company together
with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal
which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the
"Prime Rate"). Any such interim reimbursement payments which are not
made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request.
(b) In addition to their other obligations under Section
8(b) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action investigation, inquiry
or other proceeding described in Section 8(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the
<PAGE> 19
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Company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date and
any later date on which Option Shares are to be purchased, as the case may be,
of the representations and warranties of the Company herein, to the performance
by the Company of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or any Incorporated
Document or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
<PAGE> 20
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(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date there shall not have been any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, an
opinion of Saul, Ewing, Remick & Saul, counsel for the Company, in form and
substance satisfactory to you and Underwriters' Counsel dated the Closing Date
or such later date on which Option Shares are purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters.
<PAGE> 21
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(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Testa, Hurwitz & Thibeault, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such counsel
such documents as they may have requested for the purpose of enabling them to
pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from KPMG Peat Marwick addressed to the Company and the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from KPMG Peat Marwick shall be addressed to
or for the use of the Underwriters in form and substance satisfactory to the
<PAGE> 22
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Underwriters and shall (i) represent, to the extent true that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of September 30, 1995 and related consolidated
statements of operations, shareholders' equity, and cash flows for the twelve
(12) months ended September 30, 1995, (iii) state that KPMG Peat Marwick has
performed the procedure set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
KPMG Peat Marwick as described in SAS 71 on the financial statements for each
of the quarters ended December 31, 1994 and 1995, and (iv) address other
matters agreed upon by KPMG Peat Marwick and you. In addition, you shall have
received from KPMG Peat Marwick a letter addressed to the Company and made
available to you for the use of the Underwriters stating that their review of
the Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
consolidated financial statements as of September 30, 1995, did not disclose
any weaknesses in internal controls that they considered to be material
weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Closing Date or any
later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under
the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and
any amendments or supplements thereto and the Incorporated
Documents, when such Incorporated Documents became effective or
were filed with the Commission, contained all material information
required to be included therein by the Act and the Rules and
Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and
in all material respects conformed to the requirements of
<PAGE> 23
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the Act and the Rules and Regulations or the Exchange Act and the
applicable rules and regulations of the Commission thereunder, as
the case may be, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the
condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries
considered as one enterprise, (b) any transaction that is material
to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of
business, (c) any obligation, direct or contingent, that is
material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the
Company or any of its subsidiaries that is material to the Company
and its subsidiaries considered as one enterprise, (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (f)
any loss or damage (whether or not insured) to the property of the
Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on
the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(h) The Company shall have obtained and delivered to you an
agreement in a form reasonably satisfactory to you from each officer and
director of the Company, and each beneficial owner of 1% or more shares of
Common Stock, except any organization primarily engaged in the business of
investing, reinvesting or trading in publicy-traded securities, in writing prior
to the date hereof that such person will not, during the Lock-up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than as specified in such agreement
<PAGE> 24
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(i) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, the
following opinion of Cooper and Dunham, patent counsel to the Company,
in form and substance satisfactory to you and Underwriters' Counsel
dated the Closing Date or such later date on which Option Shares are
purchased, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.
<PAGE> 25
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(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
<PAGE> 26
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7. Option Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 375,000 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by the Representative on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representative in
such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment shall
take place at the offices of Testa, Hurwitz & Thibeault or at such other place
as may be agreed upon among the Representative and the Company (i) on the
Closing Date, if written notice of the exercise of such option is received by
the Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business day
following the date the Company receives written notice of the exercise of such
option, if such notice is received by the Company less than two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representative so elects, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representative.
<PAGE> 27
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It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements, the performance of any of the covenants or agreements of the
Company or the compliance with any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including any Incorporated Document, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage,
<PAGE> 28
- 28 -
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to
the-benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or-liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement thereto,
including any Incorporated Document, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action.
<PAGE> 29
- 29 -
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, and each person, if any, who controls the Company within the meaning of
the Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a) or 8(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been
<PAGE> 30
- 30 -
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the Company is responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter in excess of the amount of damages which such Underwriter
has otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
<PAGE> 31
- 31 -
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed
to purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a farther
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective number
of Firm Shares to be purchased by the remaining Underwriters and substituted
underwriter or underwriters shall be taken as the basis of their underwriting
obligation. If the remaining Underwriters shall not take up and pay for all such
Firm Shares so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid and
the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason
<PAGE> 32
- 32 -
permitted under this Agreement, to purchase the number of Firm Shares agreed by
such Underwriter to be purchased hereunder, which Underwriter shall remain
liable to the Company and the other Underwriters for damages, if any, resulting
from such default) be liable to the Company (except to the extent provided in
Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 12 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representative of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or
<PAGE> 33
- 33 -
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares, or
(v) if there shall have been an outbreak or escalation of hostilities or of any
other insurrection or armed conflict or the declaration by the United States of
a national emergency which, in the reasonable opinion of the Representative,
makes it impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. In the event of termination
pursuant to subparagraph (i) above, the Company shall remain obligated to pay
costs and expenses pursuant to Sections 4(j), 5 and 8 hereof. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 5 and
8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to 106 Charles Lindbergh Blvd.,
Uniondale, New York, 11553, telecopier number (__) ___________, Attention:
Gary Frashier, Chief Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8
hereof, any legal or equitable right, remedy or claim in respect of this
Agreement or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or corporation. No purchaser
of any of the Shares from any Underwriter shall be construed a successor or
assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters, and the Company shall be
entitled to act and
<PAGE> 34
- 34 -
rely upon any statement, request, notice or agreement made or given by you
jointly or by Robertson, Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
<PAGE> 35
- 35 -
If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the Company and the several Underwriters.
Very truly yours,
ONCOGENE SCIENCE, INC.
By _____________________________
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY, INC.
By ____________________________________
Authorized Signatory
<PAGE> 36
- 36 -
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ---------------
<S> <C>
Robertson, Stephens & Company LLC..........................
_______________
Total......................................................
===============
</TABLE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Firm
Shares To
Company Be Sold
------- ---------------
<S> <C>
_______________
Total......................................................
===============
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ONCOGENE SCIENCE, INC.
I, the President of Oncogene Science, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"), do
hereby certify that (i) Article Fourth of the Corporation's Certificate of
Incorporation has been amended in its entirety to read as set forth below, and
(ii) such amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of stock that the Corporation
shall have authority to issue is 50,000,000 shares of common stock,
having a par value of $.01 per share, all of the same class.
IN WITNESS WHEREOF, I have hereunto set my hand and seal as of the
31st day of March, 1993.
(Corporate Seal)
Attest:
/s/ Theresa R. Dragone /s/ Gary E. Frashier (SEAL)
- ----------------------------- -----------------------
Theresa R. Dragone Gary E. Frashier, President
Secretary
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ONCOGENE SCIENCE, INC.
-----------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
-----------------------------------------
We, the President and Secretary of ONCOGENE SCIENCE, INC., a
corporation existing under the laws of the State of Delaware, do hereby certify
as follows:
FIRST: That Article IX of the Certificate of Incorporation of said
corporation has been amended in its entirety to read as follows:
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 1. Right to Indemnification. Each person who was or
is made a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative ("Proceeding"), by reason of the fact that he, or a
person of whom he is the legal representative, is or was the
director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis
of such Proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (out, in the case of
-1-
<PAGE> 3
any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment),
against all expenses, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith; provided, however, that the
Corporation shall indemnify any such person seeking indemnity in
connection with a Proceeding (or part thereof) initiated by such
person only if the proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 1 shall be a contract
right and shall include the right to be paid by the Corporation
expenses incurred in defending any such Proceeding in advance of
its final disposition; provided, however, that if the Delaware
General Corporation Law requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in advance
of the final disposition of such Proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director of officer is
not entitled to be indemnified under this Section or otherwise.
SECTION 2. Non-Exclusivity of Rights. The rights conferred
on any person by Section 1 shall not be exclusive of any other
right which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, by-laws,
agreement, vote of stockholders or disinterested directors, or
otherwise.
SECTION 3. Limitation of Liability of Directors. A director
of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General
-2-
<PAGE> 4
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
SECTION 4. Insurance. The Corporation may maintain
insurance, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General
Corporation Law.
SECOND: That such amendment has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the affirmative vote of the holders of not less than a majority of the
outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this certificate this 9th day of
April, 1987.
/s/ Robert E. Ivy
----------------------------
Robert E. Ivy, President
ATTEST: /s/ Gary Takata
----------------------------
Gary Takata, Secretary
-3-
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ONCOGENE SCIENCE, INC.
-----------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
-----------------------------------------
We, the President and Secretary of ONCOGENE SCIENCE, INC., a
corporation existing under the laws of the State of Delaware, do hereby certify
as follows:
FIRST: That Article FOURTH of the Certificate of Incorporation of
said corporation has been amended in its entirety to read as follows:
"FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is 20,000,000 shares of
common stock, of the par value of $.01 per share, all of the same
class."
SECOND: That such amendment has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the written consent of the holders of not less than a majority of the
outstanding stock entitled to vote thereon and that written notice of the
corporation action has been given to those stockholders who have not consented
in writing, all in accordance with the provisions of Section 228 of the General
Corporation Law.
<PAGE> 6
IN WITNESS WHEREOF, we have signed this certificate this 18th day
of January, 1986.
/s/ Robert E. Ivy
----------------------------
Robert E. Ivy, President
ATTEST: /s/ Gary Takata
----------------------------
Gary Takata, Secretary
-2-
<PAGE> 7
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ONCOGENE SCIENCE, INC.
--------------------------------
(a Delaware corporation)
--------------------------------
Adopted in accordance with the
provisions of Section 241 of the
General Corporation Law of the
State of Delaware
--------------------------------
THE UNDERSIGNED, Steven Gelles, sole incorporator of ONCOGENE
SCIENCE, INC., does hereby certify:
FIRST: That the Certificate of Incorporation of ONCOGENE
SCIENCE, INC. (the "Corporation") was filed in the office of the Secretary of
State of Delaware on March 6, 1983 and a certified copy thereof was recorded in
the office of the Recorder of Kent County, Delaware on March 16, 1983.
SECOND: That the Corporation has not received payment for its
stock.
THIRD: That the Certificate of Incorporation of the
Corporation is amended as follows:
(i) By striking out paragraph FIRST thereof as it now
exists and inserting in lieu thereof ARTICLE I, reading
as follows:
ARTICLE I
NAME
The name of the corporation is ONCOGENE SCIENCE, INC.
(ii) By striking out paragraph SECOND thereof as it now
exists and inserting in lieu thereof ARTICLE II,
reading as follows:
<PAGE> 8
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of Delaware
is located at 229 South State Street, City of Dover, County of Kent. The name
and the address of the registered agent of the Corporation in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 229 South State Street,
Dover, Delaware.
(iii) By striking out paragraph THIRD thereof as it now
exists and inserting in lieu thereof ARTICLE III,
reading as follows:
ARTICLE III
CORPORATE PURPOSES AND POWERS
The nature of the business of the Corporation, or the objects or
purposes to be transacted, promoted or carried on by the Corporation are any
and all lawful acts or activities for which corporations may be organized under
the General Corporation Law of Delaware, including but not limited to research
and development, manufacture, production, purchase or acquisition, and sale,
licensing, leasing, or disposition of materials, supplies, substances,
chemicals or equipment used or useful in the field of biotechnology or in any
other field in which such materials, supplies, substances, chemicals or
equipment may profitably be used.
(iv) By striking out paragraph FOURTH thereof as it now
exists and inserting in lieu thereof ARTICLE IV,
reading as follows:
ARTICLE IV
CAPITAL STOCK
The amount of the total authorized capital stock of this
Corporation is One Hundred Thousand Dollars ($100,000) consisting of Ten
Million (10,000,000) common shares, with a par value of one cent ($.01) each.
(v) By striking out paragraph FIFTH thereof as it now
exists and inserting in lieu thereof ARTICLE V, reading
as follows:
ARTICLE V
INCORPORATOR
The name and mailing address of the sole incorporator of the
Corporation is:
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Name Address
---- -------
Steven Gelles 122 East 42nd Street
Suite 606
New York, New York 10168
(vi) By adding thereto additional ARTICLES VI - XI, reading
as follows:
ARTICLE VI
POWERS OF BOARD OF DIRECTORS
In addition to and not in limitation of the powers conferred by
statute, the board of directors of the Corporation expressly is authorized:
(a) To make, adopt, alter, amend or repeal the by-laws,
except as otherwise expressly provided in any by-law adopted by the
holders of Capital Stock of the Corporation entitled to vote thereon.
Any by-law may be altered, amended or repealed by the holders of Capital
Stock of the Corporation entitled to vote thereon at any annual meeting
or at any special meeting called for that purpose;
(b) To authorize and cause to be executed mortgages, liens,
and other security interests upon the real and personal property of the
Corporation;
(c) To determine the use and disposition of any surplus and
net profits of the Corporation including, without limitation by
specification, the determination of the amount of working capital
required by the Corporation, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or
reserves for any proper purpose and to abolish any such reserve in the
manner in which it was created;
(d) To designate, by resolution passed by a majority of the
members of the board of directors, one or more committees, each
consisting of two or more directors of the Corporation which, to the
extent provided in the resolution designating the committee or provided
in the by-laws of the Corporation, have and may exercise, subject to the
provisions of the General Corporation Law of Delaware, all the powers and
authority of the board of directors in the management of the business and
affairs of the Corporation. Such committee or committees may authorize
the seal of the Corporation to be affixed to all papers which may require
it. Such committee or committees shall have such name or names as may be
provided in the by-laws of the Corporation or as may be determined from
time to time by resolution adopted by the board of directors;
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(e) To grant rights or options entitling the holders
thereof to purchase from the Corporation shares of its Capital Stock
evidenced by or in such instrument or instruments as shall be approved by
the board of directors. The terms upon which, the time or times at or
within which, the persons to whom, and the price or prices at which any
such rights or options may be issued and any shares of Capital Stock may
be purchased from the Corporation upon the exercise of any such right or
option shall be such as shall be fixed in a resolution or resolutions
adopted by the board of directors providing for the creation and issuance
of such rights or options. In the absence of actual fraud in the
transaction, the judgment of the board of directors as to the
consideration for the issuance of such rights or options and the
sufficiency thereof shall be conclusive. No such rights or options shall
be invalidated or in any way affected by the fact that any director shall
be a grantee thereof or shall vote for the issuance of such rights or
options to himself or for any plan pursuant to which he may receive any
such rights or options;
(f) To adopt such plans as from time to time may be
approved by the board of directors for the purchase by officers or
employees of the Corporation and of any corporation either affiliated
with or a subsidiary of the Corporation of shares of Capital Stock of the
Corporation. The terms upon which, the time or times at or within which
and the price or prices at which shares of Capital Stock may be purchased
from the Corporation pursuant to such plan shall be fixed in the plan by
the board of directors. No such plan which is not at the time of
adoption unreasonable or unfair shall be invalid or in any way affected
because any director shall be entitled to purchase shares of Capital
Stock of the Corporation thereunder and shall vote for such plan;
(g) To adopt or assume and carry out such plans as from
time to time may be approved by the board of directors for the
distribution among the officers or employees of the Corporation and of
any corporation which is affiliated with or a subsidiary of the
Corporation, or any of them, in addition to their regular salaries, of
part of the earnings of the Corporation, in consideration for or in
recognition of services rendered by such officers or employees or as an
inducement to future efforts. No such plan which is not at the time of
adoption or assumption unreasonable or unfair shall be invalidated or in
any way affected because any director shall be a beneficiary thereunder
or shall vote for any plan under which he may benefit or for any
distribution thereunder in which he may participate;
(h) To adopt such pension, profit sharing, retirement,
deferred compensation or other employee benefit plans or provisions as
may, from time to time, be approved by the board of directors, providing
for pensions, profit sharing, retirement income, deferred compensation or
other benefits for officers or employees of the Corporation and of any
corporation which is affiliated with or a subsidiary of the Corporation,
or any of them, in consideration for or in recognition of the services
rendered by such officers or employees or as an inducement to future
efforts. No
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such plan or provision, which is not at the time of adoption unreasonable
or unfair shall be invalidated or in any way affected because any
director shall be a beneficiary thereunder or shall vote for any plan or
provision under which he may benefit; and
(i) To exercise, in addition to the powers and authorities
herein or by law conferred upon the board of directors, any such powers
and authorities and do all such acts and things as may be exercised or
done by the Corporation subject, nevertheless, to the provisions of the
General Corporation Law of Delaware, this certificate of incorporation
and any by-laws from time to time adopted by the holders of Capital Stock
of the Corporation entitled to vote thereon.
ARTICLE VII
MEETINGS AND CONSENTS OF STOCKHOLDERS AND DIRECTORS;
CORPORATION BOOKS; ELECTIONS OF DIRECTORS;
AND NOTICES
Meetings of holders of Capital Stock of the Corporation and of the
board of directors and of any committee thereof may be held outside the State
of Delaware if the by-laws so provide. Except as otherwise provided by law or
by this certificate of incorporation, any action required to be taken at any
annual, or special meeting of stockholders of the Corporation or any action
which may be taken at any annual or special meeting of such stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders
of outstanding Capital Stock having not less than the minimum number of votes
that would be necessary to authorize or to take such action at a meeting at
which all shares of Capital Stock entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting as provided by statute if the by-laws of the Corporation so
provide. Except as otherwise provided by law, the books of the Corporation may
be kept outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the by-laws of the
Corporation. The elections of directors need not be by ballot unless the
by-laws of the Corporation so provide. Any notice permitted or required by
this certificate of incorporation shall be written, signed by the sender and
mailed, postage prepaid, in the United States by certified or registered mail.
ARTICLE VIII
TRANSACTIONS WITH DIRECTORS AND OFFICERS
No contract or transaction between the Corporation and one or more
of its directors or officers or between the Corporation and any other
corporation, partnership,
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<PAGE> 12
association or other organization, in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for such reason or solely because the director or officer is
present at or participates in the meeting of the board of directors or
committee thereof which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose if: (a) The material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the board of directors or the committee and the
board of directors or the committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors even though the disinterested directors may be less than a quorum; or
(b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (c) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified by the board of directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the stockholders or the board of directors or of a
committee which authorizes the contract or transaction.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification by Corporation.
(a) Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than action by or in the right of the Corporation) by reason of
the fact that he is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be indemnified by the
Corporation, unless similar indemnification is provided by such other
corporation or organization which may be involved (any funds received by
any person as a result of the provisions of this Article shall be deemed
an advance against his receipt of any such other indemnification from any
such other corporation or organization), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. Any such person
who could be indemnified pursuant to the preceding sentence except for
the fact that the subject action or suit is or was by or in the right of
the Corporation shall be indemnified by the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by him, in
connection with the defense or settlement of such
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<PAGE> 13
action or suit except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of
his duties to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem
proper;
(b) To the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in paragraph (a)
of this Section 1 or in defense of any claim, issue or matter therein, he
shall be indemnified by the Corporation against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith without the necessity of any action being taken by the
Corporation other than the determination, in good faith, that such
defense has been successful. In all other cases wherein indemnification
is provided by this Article, unless ordered by a court, indemnification
shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct specified in this Article. Such
determination shall be made: (1) By the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding; or (2) if such a quorum is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or (3) by the holders of
a majority of the Capital Stock outstanding;
(c) The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere
or its equivalent shall not create, of itself, a presumption that the
person seeking indemnification did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful. Entry of a judgment by consent as part of a settlement shall
not be deemed final adjudication of liability for negligence or
misconduct in the performance of duty or of any other issue or matter;
(d) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by
the board of directors in the specific case upon receipt of an
undertaking by the director, officer, employee or agent involved to repay
such amount unless it ultimately shall be determined that he is entitled
to be indemnified by the Corporation; and
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(e) The indemnification provided in this Article shall not
be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such person.
SECTION 2. Insurance. By action of the board of directors,
notwithstanding any interest of the directors in the action, the Corporation
may purchase and maintain insurance, in such amounts as the board of directors
deems appropriate, on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation shall have the power to
indemnify him against such liability under the provisions of this Article.
ARTICLE X
COMPROMISE OR ARRANGEMENT BETWEEN CORPORATION
AND ITS CREDITORS OR STOCKHOLDERS
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
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ARTICLE XI
RESERVATION OF RIGHT TO AMEND CERTIFICATE
OF INCORPORATION
The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this certificate of incorporation in the
manner now or hereafter prescribed by law and by this certificate of
incorporation. All the provisions of this certificate of incorporation and all
rights and powers conferred in this certificate of incorporation on
stockholders, directors and officers are subject to such reserved power.
FOURTH: That such amendment has been duly adopted in accordance
with the provision of Section 241 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, I have signed this certificate this 15th day of
April, 1983.
/s/ Steven Gelles
--------------------------
STEVEN GELLES
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<PAGE> 16
CERTIFICATE
OF
INCORPORATION
OF
ONCOGENE SCIENCE, INC.
FIRST: The name of this Corporation is ONCOGENE SCIENCE, INC.
SECOND: Its Registered Office in the State of Delaware is to be located at
600 Bay Road, in the City of Dover, Zip Code 19901. The Registered
Agent in charge thereof is Ms. Pam Goldsborough.
THIRD: The purpose of the Corporation is to perform research and to
develop, manufacture, produce, purchase or otherwise acquire, and
to sell, license, lease or otherwise dispose of materials,
supplies, substances, chemicals or equipment used or useful in the
field of Biotechnology or in any other field in which such
materials, supplies, substances, chemicals or equipment may be
profitably used and to engage in any lawful act or activity for
which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this
Corporation is One Hundred Thousand Dollars ($100,000) divided into
Ten Million (10,000,000) shares, of One Cent ($.01) each.
FIFTH: The name and mailing address of the incorporator are as follows:
Name: Steven Gelles
Mailing Address: 122 East 42nd Street, Suite 606
Zip Code: New York, New York 10168
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do
certify that the facts herein stated are true, and I have accordingly hereto
set my hand this Tenth day of March, 1983.
/s/ Steven Gelles
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<PAGE> 1
EXHIBIT 3.2
ONCOGENE SCIENCE, INC.
A Delaware corporation
BY-LAWS
------------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting
An annual meeting of stockholders for the purpose of electing
directors and of transacting such other business as may come before it shall be
held each year at such date, time, and place, either within or without the
State of Delaware, as may be specified by the Board of Directors.
Section 1.2 Special Meetings
Special meetings of stockholders for any purpose or purposes may be
held at any time upon call of the Chairman or the Board, if any, the President
or a majority of the Board of Directors, at such time and place either within
or without the State of Delaware as may be stated in the notice. A special
meeting of stockholders shall be called by the President upon the written
request, stating time, place, and the purpose or purposes of the meeting, of
stockholders who together own of record a majority of the outstanding stock of
all classes entitled to vote at such meeting.
Section 1.3 Notice of Meetings
Written notice of stockholders meetings, stating the place, date,
and hour thereof, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given by the Chairman of the
Board, if any, the President, any Vice
<PAGE> 2
President, the Secretary, or an Assistant Secretary, to each stockholder
entitled to vote thereat at least ten days but not more than sixty days before
the date of the meeting, unless a different period is prescribed by law.
Section 1.4 Quorum
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws, at any meeting of stockholders, the holders of
a majority of the outstanding shares of each class of stock entitled to vote at
the meeting shall be present or represented by proxy in order to constitute a
quorum for the transaction of any business. In the absence of a quorum, a
majority in interest of the stockholders present or the chairman of the meeting
may adjourn the meeting from time to time in the manner provided in Section 1.5
of these By-Laws until a quorum shall attend.
Section 1.5 Adjournment
Any meeting of stockholders, annual or special, may adjourn from
time to time to reconvene at the same or some other place, and notice need not
be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
Section 1.6 Organization
The Chairman of the Board, if any, or in his absence the President,
or in their
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absence any Vice President, shall call to order meetings of stockholders and
shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act, the stockholders may appoint any stockholder, director, or
officer of the Corporation to act as chairman of any meeting in the absence of
the Chairman of the Board, the President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all
meetings of stockholders, but, in the absence of the Secretary, the chairman of
the meeting may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws and except for the election of directors, at any
meeting duly called and held at which a quorum is present, a majority of the
votes cast at such meeting upon a given question by the holders of outstanding
shares of stock of all classes of stock of the Corporation entitled to vote
thereon who are present in person or by proxy shall decide such question. At
any meeting duly called and held for the election of directors at which a
quorum is present, directors shall be elected by a plurality of the votes cast
by the holders (acting as such) of shares of stock of the Corporation entitled
to elect such directors.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office
The business, property, and affairs of the Corporation shall be
managed by or under the direction of a Board of seven directors provided,
however, that the Board, by
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resolution adopted by vote of a majority of the then authorized number of
directors, may increase or decrease the number of directors. The directors
shall be elected at the annual meeting of stockholders, and each shall serve
(subject to the provisions of Article IV) until the next succeeding annual
meeting of the stockholders and until his respective successor has been elected
and qualified.
Section 2.2 Chairman of the Board
The directors may elect one of their members to be Chairman of the
Board of Directors. The Chairman shall be subject to the control of and may be
removed by the Board of Directors. He shall perform such duties as may from
time to time be assigned to him by the Board.
Section 2.3 Meetings
The annual meeting of the Board of Directors, for the election of
officers and the transaction of such other business as may come before the
meeting, shall be held without notice at the same place as, and immediately
following, the annual meeting of the stockholders.
Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by the
Board.
Special meetings of the Board of Directors shall be held at such
time and place as shall be designated in the notice of the meeting whenever
called by the Chairman of the Board, if any, the President, or by a majority of
the directors then in office.
Section 2.4 Notice of Special Meetings
The secretary, or in his absence any other officer of the
Corporation, shall
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give each director notice of the time and place of holding of special meetings
of the Board of Directors by mail at least three days before the meeting, or by
telegram, cable, radiogram, or personal service at least one day before the
meeting. Unless otherwise stated in the notice thereof, any and all business
may be transacted at any meeting without specification of such business in the
notice.
Section 2.5 Quorum and Organization of Meetings
A majority of the total number of members of the Board of Directors
as constituted from time to time shall constitute a quorum for the transaction
of business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place,
and the meeting may be held as adjourned without further notice or waiver.
Except as otherwise provided by law or in the Certificate of Incorporation or
these By-Laws, a majority of the entire Board of Directors may decide any
question brought before such meetings. Meetings shall be presided over by the
Chairman of the Board, if any, or in his absence by the President, or in the
absence of both such other person as the directors may select. The Secretary
of the Corporation shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.6 Committees
The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
one or more of the directors of the Corporation. The Board may designate one
or more directors as alternate
5
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members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all powers and authority of the Board of Directors
in the management of the business, property, and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have power or authority in
reference to amending the Certificate of Incorporation of the Corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, or amending
these By-Laws; and, unless the resolution expressly so provided, no such
committee shall have power or authority to declare a dividend or to authorize
the issuance of stock. Each committee which may be established by the Board of
Directors or these By-Laws may fix its own rules and procedures. Notice of
meetings of committees, other than of regular meetings provided for by the
rules, shall be given to committee members. All action taken by the committees
shall be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting
Nothing contained in these By-Laws shall be deemed to restrict the
power of
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the directors or members of any committee to take any action, required or
permitted to be taken by them, without meeting.
Section 2.8 Telephone Meetings
Nothing contained in these By-Laws shall be deemed to restrict the
power of members of the Board of Directors, or any committee designated by the
Board, to participate in a meeting of the Board, or committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers
The executive officers of the Corporation shall be a President, a
Scientific Director, one or more Vice Presidents, a Treasurer, and a Secretary,
each of whom shall be elected by the Board of Directors. The Board of
Directors may elect or appoint such other officers (including a Chairman of the
Board, Chief Financial Officer, a Controller and one or more Assistant
Treasurers and Assistant Secretaries) as it may deem necessary or desirable.
Each officer shall hold office for such term as may be prescribed by the Board
of Directors from time to time. Any person may hold at one time two or more
offices.
Section 3.2 Powers and Duties
The Chairman of the Board, if any, or, in his absence, the
President, shall preside at all meetings of the stockholders and of the Board
of Directors. The President shall be the chief executive officer of the
Corporation. In the absence of the President, a Vice
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<PAGE> 8
President appointed by the President or, if the President fails to make such
appointment, by the Board, shall perform all the duties of the President. The
officers and agents of the Corporation shall each have such powers and
authority and shall perform such duties in the management of the business,
property, and affairs of the Corporation as generally pertain to their
respective offices, as well as such powers and authorities and such duties as
from time to time may be prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
Section 4.1 Resignations
Any director or officer of the Corporation, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the President, or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time be
not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
Section 4.2 Removals
The Board of Directors, by a vote of not less than a majority of
the entire Board, at any meeting thereof, or by written consent, at any time,
may, to the extent permitted by law, remove with or without cause from office
or terminate the employment of any officer or member of any committee and may,
with or without cause, disband any committee.
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Any director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority of the shares entitled at the
time to vote at an election of directors.
Section 4.3 Vacancies
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from increase in the number of directors, may be filled
at any time by a majority of the directors then in office (even though less
than a quorum remains) or, in the case of any vacancy in the office of any
director, by the stockholders, and, subject to the provisions of this Article
IV, the person so chosen shall hold office until his successor shall have been
elected and qualified; or, if the person so chosen is a director elected to
fill a vacancy, he shall (subject to the provisions of this Article IV) hold
office for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates
The certificates for share of the capital stock of the Corporation
shall be in such form as shall be prescribed by law and approved, from time to
time, by the Board of Directors.
Section 5.2 Transfer of Shares
Shares of the capital stock of the Corporation may be transferred
on the books of the Corporation only by the holder of such shares or by his
duly authorized attorney, upon
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the surrender to the Corporation or its transfer agent of the certificate
representing such stock properly endorsed.
Section 5.3 Fixing Record Date
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which, unless otherwise provided by law, shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than sixty days
prior to any other action.
Section 5.4 Lost Certificates
The Board of Directors or any transfer agent of the Corporation may
direct a new share certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation, alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen, or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the Corporation bond in such
sum as the Board of Directors shall direct to indemnify the Corporation against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed or
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the issuance of such new certificates, and such requirement may be general or
confined to specific instances.
Section 5.5 Regulations
The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer, registration, cancellation, and replacement of certificates
representing stock of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware", and shall be in such form as may be approved from time to time by
the Board of Directors.
Section 6.2 Fiscal Year
The fiscal year of the Corporation shall be determined by
resolution of the Board of Directors.
Section 6.3 Notices and Waivers Thereof
Whenever any notice is required by law, the Certificate of
Incorporation, or these By-Laws to by given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or in the case of directors or officers, by telegram,
cable, or radiogram, addressed to such address as appears on the books or the
Corporation. Any notice given by telegram, cable, or radiogram shall be deemed
to have been given when it shall have been delivered for transmission and any
notice
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given by mail shall be deemed to have been given when it shall have been
deposited in the United States mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the Certificate
of Incorporation, or these By-Laws, a written waiver thereof, signed by the
person entitled to such notice, whether before or after the meeting or the time
stated therein, shall be deemed equivalent in all respects to such notice to
the full extent permitted by law.
Section 6.4 Stock of Other Corporations Other Interests
Unless otherwise ordered by the Board of Directors, the President,
the Secretary, and such attorneys or agents of the Corporation as may be from
time to time authorized by the Board of Directors or the President, shall have
full power and authority on behalf of this Corporation to attend and to act and
vote in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed
and exercised if present. The President, the Secretary or such attorneys or
agents, may also execute and deliver on behalf of the Corporation powers of
attorney, proxies, consents, waivers and other instruments relating to the
shares or securities owned or held by this Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election
of directors shall have power to adopt, amend, or repeal the By-Laws of the
Corporation by vote of not
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less than a majority of such shares, and except as otherwise provided by law,
the Board of Directors shall have power equal in all respects to that of the
stockholders to adopt, amend, or repeal the By-Laws by vote of not less than a
majority of the entire Board. However, any By-Law adopted by the board may be
amended or repealed by vote of the holders of a majority of the shares entitled
at the time to vote for the election or directors.
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Exhibit 5.1
LAW OFFICES OF
SAUL, EWING, REMICK & SAUL
HARRISBURG, PENNSYLVANIA 3800 CENTRE SQUARE WEST PRINCETON NEW JERSEY
MALVERN, PENNSYLVANIA PHILADELPHIA, PA 19102 WESTMONT, NEW JERSEY
NEW YORK, NEW YORK WILMINGTON, DELAWARE
(215) 972-7777
Fax: (215) 972-7725
Internet Email: [email protected]
World Wide Web: http://www.saul.com
February 14, 1996
Oncogene Science, Inc.
106 Charles Lindbergh Blvd.
Uniondale, NY 11553
Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") of Oncogene Science, Inc., a Delaware corporation (the "Company"),
to be filed with the Securities and Exchange Commission covering the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 2,875,000 shares of common stock, par value $.01 per share, of the
Company (the "Shares").
We have examined the Registration Statement, the Certificate of
Incorporation and By-laws of the Company and such records, certificates and
other documents as we have considered necessary or appropriate for the purposes
of this Opinion.
Based on the foregoing, it is our opinion that:
1. the Company is duly organized, validly existing and in good
standing under the laws of State of Delaware; and
2. the Shares to be issued in accordance with the terms described in
the Registration Statement have been duly authorized and, when issued in
accordance with the terms described in the Registration Statement, will be
validly issued, fully paid and non-assessable.
We hereby consent to use of our name in the Registration Statement as
counsel who will pass upon the legality of the Shares for the Company and as
having prepared this Opinion as an exhibit to the Registration Statement. In
giving the foregoing consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
SAUL, EWING, REMICK & SAUL
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Oncogene Science, Inc.:
We consent to the use of our report included herein (or incorporated
herein by reference) and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Jericho, New York
February 13, 1996
