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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1995 or
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/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-15190
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Oncogene Science, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3159796
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Charles Lindbergh Blvd., Uniondale, N.Y. 11553
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 222-0023
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
None None
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</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of December 31, 1995, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $120,595,080. For purposes of this
calculation, shares of Common Stock held by directors, officers and stockholders
whose ownership exceeds five percent of the Common Stock outstanding at
December 31, 1995 were excluded. Exclusion of shares held by any person should
not be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control with
the Registrant.
As of December 31, 1995 there were 17,527,789 shares of the Registrant's $.01
par value common stock outstanding.
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This Form 10-K/A is being filed to amend Items 1, 2, 5, 7, 10, 11,
12 and 13 of the Annual Report on Form 10-K of Oncogene Science, Inc. (ONCS)
filed on December 20, 1995, as amended by Form 10-K/A filed on January 29, 1996.
PART I
ITEM 1. 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 Laboratories 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, atherosclerosis, neurological
disorders and chronic anemias.
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.
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 signals 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 interven-
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tion, 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, with this approach it is not unusual for
screening 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 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
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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 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 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
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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 allow the Company to
commercialize the compound independently or with a third party in exchange for
royalty payments from the Company on product sales.
In addition to the medicinal chemistry compounds, the Company also makes
extensive use of natural product compounds in fungal fermentation extracts.
Fungi are a known source of novel pharmaceuticals, including penicillin,
cephalosporin, lovastatin, prevastatin and cyclosporin A. 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 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
combinatorial 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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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>
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ONCOGENE Chronic Anemias 2 -- --
SCIENCE ------------------------------------------------------------------------------------------------
Viral Infections 4 --
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Muscle Wasting Disorders 3 --
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CIBA-GIEGY Wound Healing (TGF-[BETA]3) 1 --
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Oral Mucositis in Cancer (TGF-[BETA]3) 1 --
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HOECHST Cardiovascular 4 -- --
MARION ------------------------------------------------------------------------------------------------
RUSSELL Arthritis 2 --
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Alzheimer's 1 --
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PFIZER Cancer: Oncogenes 4 -- --
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Tumor Suppressor Genes 1 --
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Angiogenesis 1 --
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Apoptosis 2 --
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WYETH-AYERST Diabetes 1 -- --
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Immune Suppression 1 --
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Asthma 1 --
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Osteoporosis 1 --
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TOTAL 30
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</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. No assurance can
be given that Phase I clinical trials will begin when planned, if at
all.
(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
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Company's collaborative partners give the Company access to their compound
libraries for screening against 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 3.4% 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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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 Laboratories
In December 1991, the Company entered into a two-year collaborative
research agreement with Wyeth, which was extended for an additional three-year
term in December 1993. The purpose of the agreement is to discover and develop
transcription-based drugs for the treatment of diabetes, immune system
modulation, asthma and osteoporosis. This collaboration 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 related to any target of its collaboration
with Wyeth outside 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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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-[BETA]3 COLLABORATION
In addition to its small molecule discovery programs, the Company has
developed the recombinant protein TGF-[BETA]3 for various indications. The
Company believes it was the first to isolate TGF-[BETA]3, a naturally occurring
human growth factor that exerts either stimulatory or inhibitory effects
depending upon the particular cell type to which it is applied. Topical or local
application of TGF-[BETA]3 in animal studies has been shown to enhance and
accelerate wound healing. Similarly, animal studies have shown that TGF-[BETA]3
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-[BETA]3. This agreement grants to Ciba an exclusive, worldwide license to
use and sell TGF-[BETA]3 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-[BETA]3 currently held by the Company. In
addition, Ciba has the worldwide license to manufacture TGF-[BETA]3 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 receive 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-[BETA]3
to temporarily inhibit the high proliferative growth rate of certain normal
cells in the mouth. The Company's objective is to develop TGF-[BETA]3 to reduce
the toxicity associated with chemotherapeutic agents.
Under its agreement with Ciba, the Company will fund Phase I clinical
trials of TGF-[BETA]3 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-[BETA]3 to treat oral mucositis, the Company is collaborating with Ciba in
the development of TGF-[BETA]3 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-[BETA]3 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-[BETA]3 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-[BETA]3 applied to intact skin, the other in the U.S. using
a multiple dose of TGF-[BETA]3 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, which are 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.
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There can be no assurance that additional trials will demonstrate safety and
efficacy or will begin when planned, or at all in part for the reasons discussed
below.
General. In exchange for its exclusive license with respect to the wound
healing, oral mucositis and certain other indications for TGF-[BETA]3, Ciba will
make royalty payments to the Company on the sale of TGF-[BETA]3 products. Also,
Ciba purchased 909,091 shares of the Company's Common Stock at $5.50 per share
for an aggregate purchase price of $5 million in April 1995. If, and at the
time, Ciba decides to initiate Phase III clinical trials (or the equivalent in
Europe) for oral mucositis, Ciba will be required to make a $10 million payment
to the Company. In exchange for such payment, Ciba's license will be expanded to
cover all other indications for TGF-[BETA]3. 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-[BETA]3 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-[BETA]3 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-[BETA]3, and will
supply the Company and any licensee of the Company with all developmental and
commercial quantities of TGF-[BETA]3 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-[BETA]3, subject to a
specified pricing formula should the parties fail to reach agreement. Ciba
recently experienced delays in manufacturing TGF-[BETA]3 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-[BETA]3 to the
Company or its licensees in sufficient quantities, Ciba will license to the
Company its technology relating to the production of TGF-[BETA]3 on terms to be
negotiated within specified parameters. There can be no assurance that the
TGF-[BETA]3 program will not experience significant delays as a result of Ciba's
failure to supply TGF-[BETA]3 on a timely basis.
The Company's agreement with Ciba ends upon the expiration of the last
Company's patents relating to TGF-[BETA]3.
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 anemia associated with chemotherapy for AIDS
and cancer. Sales of EPO therapeutics generated worldwide revenues of over $2.0
billion in 1995. EPO is also being tested for use in anemia resulting from other
indications. The Company believes 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 [BETA]-thalassemia are caused by
genetic mutations which result in the mutation, absence or decrease in the
[BETA] 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
[BETA]-thalassemia. The Company's approach to address sickle cell anemia and
[BETA]-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 [BETA] 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 B
virus ("HBV"), human hepatitis C virus ("HCV"), 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 U.S. 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 U.S., 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. The Company is in discussions with a pharmaceutical
company regarding a potential virology collaboration, 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
from $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.
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Muscular Dystrophy. Duchenne's and Becker's muscular dystrophy are due to
defects of the dystrophin gene. The Company is developing multiple approaches in
its discovery efforts with respect to a drug for the treatment of muscular
dystrophy. A portion of the funding for this project has been provided by the
Association Francaise Contre Les Myopathies.
CANCER DIAGNOSTICS
The Company is engaged in the development of a series of cancer diagnostic
tests based on oncogenes, tumor suppressor genes and other gene targets whose
proteins are directly involved in tumor growth or metastasis. One line of these
tests utilizes immunoassays and monoclonal antibodies to detect these cancer
markers in urine and serum. The other line of diagnostic tests utilizes a series
of monoclonal antibodies capable of measuring the cancer markers in tissue
sections using immunohistochemistry techniques such as manual pathology
diagnostic tests and image analysis. Both of these lines of tests are designed
to aid oncologists in the confirmation, monitoring, staging, screening or
prognosis of human cancer. These tests may enable reference labs and physicians
to select more effective types of treatment, more easily monitor patients during
therapy, or diagnose cancer at an earlier stage. The current focus of the
Company's diagnostic development program is on breast and colon cancer, but the
Company believes that many of the cancer markers in its program may have
clinical utility for other human tumors, such as lung, prostate, ovarian and
stomach cancer. None of these diagnostic tests have completed clinical
development or received FDA clearance to be marketed in the U.S.
The Company has been pursuing serum and tissue based cancer diagnostic
products in collaboration with Becton under a collaborative program started in
October 1991 (after an earlier collaboration from 1984 to 1989). During 1995,
the Company and Becton agreed that Becton would narrow its focus in the program
exclusively to tissue-based diagnostic tests including immunohistochemistry and
that the Company would continue its development program in serum-based cancer
diagnostics. 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
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useful to the Company and, in some cases, related to products and processes
being used or developed by the Company. The Company currently cannot assess the
effect, if any, that these patents may have on its operations in the future. The
extent to which efforts by other researchers resulted or will result in patents
and the extent to which the issuance of patents to other entities would have a
material adverse effect on the Company or would force the Company to seek
licenses from such other entities currently is unknown as is the availability to
the Company of licenses from such other entities, and whether, if available,
such licenses can be obtained on terms acceptable to the Company.
In the cancer diagnostics area, the Company has a U.S. patent relating to
an assay which the Company is seeking to develop for the detection of protein
encoded by the neu oncogene ("neu") in serum. The Company is aware that a patent
application relating to a similar assay was filed by a third party shortly after
the Company filed the application from which its U.S. patent issued. It is
possible that the Company may have to participate in an interference proceeding
with such third party to determine priority of invention, which could result in
substantial cost to the Company. The Company cannot predict whether such an
interference proceeding will occur, or if it does occur, whether the Company
will prevail. If the Company does not prevail, it may not be able to
commercialize its assay for neu in serum without a license from such third
party, which may not be available on acceptable terms or at all.
The Company is aware of several U.S. and foreign patents owned by others
who may allege infringement by products, including TGF-[BETA]3, which the
Company is seeking to develop in collaboration with a partner. Genentech has
U.S. patents relating to certain recombinant materials and procedures for
producing members of the TGF-[BETA] family, including TGF-[BETA]3. In addition,
the Company believes that Genentech has license rights under a United States
Government patent relating to work done at the National Institute of Health of
the U.S. Department of Health and Human Services involving the identification
and isolation of TGF-[BETA]1.
The Company believes that the currently planned development by the Company
and Ciba, its collaborative partner for TGF-[BETA]3, involving manufacture in
Europe by Ciba of TGF-[BETA]3 in nonmammalian cells for subsequent distribution
in Europe and the United States does not infringe any valid claim of any patent
owned by Genentech or by the U.S. Government. The Company and Ciba have taken
and continue to 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 a suit, which could have a material adverse effect on the Company's
business, financial condition and results of operation, regardless of whether
the Company were successful in the defense. Furthermore, the Company's royalties
may be reduced by up to 50% if its licensees or collaborative partners are
required to obtain licenses from third parties whose patent rights are infringed
by the Company's products, technology or operations.
COMPETITION
The pharmaceutical, biotechnology and diagnostics industries are intensely
competitive. The Company faces, and will continue to face, intense competition
from organizations such as large pharmaceutical companies, 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 and facilities, and greater experience in drug discovery and
development, obtaining regulatory approval and pharmaceutical product
manufacturing and marketing. The Company's major competitors include fully
integrated pharmaceutical companies, such as Merck & Co., Inc., Glaxo Wellcome
Inc. and SmithKline Beecham plc, that conduct extensive drug discovery efforts
and are developing novel small molecule pharmaceuticals, as well as numerous
smaller companies.
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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, 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-[BETA]3 for various indications,
the Company is aware of competing growth factor proteins in clinical trials, and
competing treatment regimens, for wound healing indications. Platelet derived
growth factor (PDGF) for diabetic skin ulcers, under development by Chiron
Corporation and Johnson & Johnson, has completed Phase III clinical trials in
the U.S. Chiron Corporation and Johnson & Johnson have announced that they
intend to file a Product Licensing Application ("PLA") for PDGF with the FDA in
1996. Fibroblast growth factor (FGF) for chronic dermal ulcers, under
development by Scios Nova Inc. and Kaken Pharmaceutical Co., Ltd., is in Phase
III clinical trials in Japan. TGF-[BETA]2 for leg ulcers, under development by
Genzyme Corp. and Celtrix Pharmaceuticals, Inc., is in Phase II clinical trials
in the U.S. No assurance can be given that the Company and Ciba will
successfully develop TGF-[BETA]3 for any indication, including wound healing.
Furthermore, if any of the competing growth factor product candidates listed
above or other growth factors proves to be effective for wound healing
indications, there can be no assurance that any product developed by the Company
will be able to compete effectively with such product or products.
Other competing approaches to the treatment of chronic wounds include
comprehensive service-based patient centers, which are dedicated to intensive
wound management. These centers may include the use of autologous growth factor
therapy, in which extracts prepared from the patient's own platelets are used to
treat the wounds. Surgical intervention is also frequently employed, which may
involve partial amputation and/or surgical revascularization. The use of skin
grafts to treat wounds, either autografts (skin from elsewhere on the same
patient) or cultured allografts, are also being investigated by several
companies, including Advanced Tissues Sciences, Inc. and Organogenesis, Inc. No
assurance can be given that TGF-[BETA]3 will prove to be safe and effective or
will compete successfully against current and emerging therapies for any
particular clinical indication.
The Company believes that its ability to compete successfully will be based
on, among other things, its ability to create and maintain scientifically
advanced technology, attract and retain scientific personnel with a
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broad range of expertise, obtain patent protection or otherwise develop
proprietary products or processes, enter into collaborative arrangements, and,
independently or with its collaborative partners, conduct clinical trials,
obtain required government approvals on a timely basis, and commercialize its
products.
MANUFACTURING
Ciba has the exclusive right to, and the Company will rely on Ciba for, the
manufacture of TGF-[BETA]3 for all of the Company's requirements for clinical
trials and commercial purposes. Oncogene Science believes that, if Ciba should
fail to meet its requirements, there are other companies that could manufacture
and supply TGF-[BETA]3, although there can be no assurance that this could be
accomplished on a timely basis, or at all.
The Company is, and will remain, dependent on its collaborative partners
and third parties for the manufacture of all products. There can be no assurance
that the Company will be able to manufacture products that will meet the
Company's demands for quality, quantity, cost and timeliness or otherwise
contract for manufacturing capabilities on acceptable terms. The failure of the
Company to successfully contract for the manufacture of products that satisfy
its requirements for quality, quantity, cost and timeliness would prevent the
Company from conducting preclinical testing and clinical trials and
commercializing its products.
MARKETING AND SALES
The Company does not intend to develop its own marketing and sales
capabilities. Potential therapeutic products subject to the Company's
collaborative agreements with Pfizer, HMRI, Wyeth and Ciba, and potential
diagnostic products under the Company's collaboration with Becton, will be
marketed by those companies worldwide. The Company will receive royalties of up
to 10% on net sales of products, depending upon the nature of the product and
the ownership of the underlying technology. The Company expects that products
resulting from future collaborations in drug discovery and development and
diagnostic product development will be marketed under arrangements which are
similar to these agreements, although any collaborations established for
products resulting from proprietary programs may vary significantly.
GOVERNMENT REGULATION
The Company and its collaborative partners are, and any potential products
discovered and developed thereto, will be subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state, and local entities regulate,
among other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising, and promotion of pharmaceutical and diagnostic products.
The process required by the FDA before pharmaceutical products may be
approved for marketing in the United States generally involves: (i) preclinical
laboratory and animal tests, (ii) submission to FDA of an investigational new
drug application, which must become effective before clinical trials may begin,
(iii) adequate and well controlled human clinical trials to establish the safety
and efficacy of the drug for its intended indication, (iv) submission to the FDA
of an NDA or, in the case of biological products, such as TGF-[BETA]3, a PLA,
and (v) FDA review of the NDA or PLA in order to determine, among other things,
whether the drug is safe and effective for its intended uses. There is no
assurance that FDA review process will result in product approval on a timely
basis, if at all.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies, to assess the potential safety and
efficacy of the product. Certain preclinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
preclinical tests are submitted to the FDA as part of an IND and are reviewed by
the FDA prior to the commencement of clinical trials.
Clinical trials are conducted under protocols that detail such matters as
the objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND.
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Clinical trials are typically conducted in three sequential phases, which
may overlap. During Phase I, when the drug is initially given to human subjects,
the product is tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion. Phase II involves studies in a limited patient
population to: (i) evaluate preliminarily the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. 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 products for use in the United States, foreign
manufacturing establishments must comply with GMP and are subject to periodic
inspection by the FDA or by regulatory authorities in certain countries under
reciprocal agreements with the FDA.
Both before and after approval is obtained, a product, its manufacturer and
the holder of the NDA for the product are subject to comprehensive regulatory
oversight. Violations of regulatory requirements at any stage, including the
preclinical and clinical testing process, the approval process, or thereafter
(including after approval) may result in various adverse consequences, including
the FDA's delay in approving or refusal to approve a product, withdrawal of an
approved product from the market, and the imposition of criminal penalties
against the manufacturer and NDA holder. In addition, later discovery of
previously unknown problems may result in restrictions on such product,
manufacturer or NDA holder, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or prevent
regulatory approval of the Company's products under development.
For marketing outside the United States, the Company and its collaborators
and the drugs developed thereby, if any, will be subject to foreign regulatory
requirements governing human clinical trials and marketing approval for drugs
and diagnostic products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. In addition, before a new drug may be exported from the U.S., it must
be the subject of an approved NDA or comply with FDA regulations pertaining to
INDs.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and future federal, state or local regulations.
The Company's research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company.
Diagnostic tests undergo different FDA review processes depending whether
they are classified as "biologicals" or "medical devices." For medical devices,
a 510(k) application (for a product substantially
17
<PAGE> 18
equivalent to a product already on the market) or a premarket approval ("PMA")
application (generally, a new product or method that is not substantially
equivalent to an existing product) must be filed with, and approved by, the FDA
prior to commercialization. Obtaining premarket approval is a costly and time-
consuming process, comparable to that for new drugs. There can be no assurance
that the Company's cancer diagnostic product candidates will be submitted for
regulatory approval, or if submitted, that the Company would not be required to
seek pre-market approval as opposed to filing a 510(k) application.
EMPLOYEES
The Company believes that its success will be largely dependent upon its
ability to attract and retain qualified personnel in scientific and technical
fields. As of 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.
ITEM 2. PROPERTIES
The Company leases a 30,000 square foot facility located at 106 Charles
Lindbergh Boulevard, Uniondale, New York. This facility houses the Company's
principal executive offices and drug discovery laboratory. The Company also
leases an 11,000 square foot facility located at 80 Rogers Street/129 Binney
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.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
18
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
included for quotation on the Nasdaq National Market under the symbol ONCS. The
following is the range of high and low sales prices by quarter for the Company's
common stock from the first quarter of fiscal 1994 through September 30, 1995 as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
1995 FISCAL YEAR HIGH LOW
-------------------------------------------------------------- ---- ----
<S> <C> <C>
First Quarter............................................... $3 3/8 $2 3/8
Second Quarter.............................................. 3 3/8 2 3/8
Third Quarter............................................... 4 5/8 2 15/16
Fourth Quarter.............................................. 7 1/8 3 1/2
</TABLE>
<TABLE>
<CAPTION>
1994 FISCAL YEAR HIGH LOW
-------------------------------------------------------------- ---- ----
<S> <C> <C>
First Quarter............................................... $4 3/4 $3 1/2
Second Quarter.............................................. 4 1/8 3 1/8
Third Quarter............................................... 3 7/8 2 7/8
Fourth Quarter.............................................. 3 5/8 2 1/4
</TABLE>
As of December 31, 1995, there were approximately 751 holders of record of
the Company's common stock. The Company has not paid any dividends since its
inception and does not intend to pay any dividends in the foreseeable future.
Declaration of dividends will depend, among other things, upon future earnings,
the operating and financial condition of the Company, its capital requirements
and general business conditions.
19
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data with
respect to the Company for each of the years in the five year period ended
September 30, 1995. The information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------------------------------------------------
1995(a) 1994(b) 1993(c) 1992(d) 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues...................... $15,864,999 $16,299,489 $16,088,021 $11,094,175 $ 7,823,883
Expenses:
Research and development... 13,523,043 12,125,210 10,659,806 8,127,466 4,860,226
Production................. 1,252,990 1,427,981 1,443,649 1,420,686 748,927
Selling, general and
administrative........... 7,140,208 7,487,090 6,429,701 5,219,606 4,130,777
Amortization of
intangibles.............. 1,696,561 1,745,163 1,745,713 1,745,694 --
Loss from operations.......... (7,747,803) (6,485,955) (4,190,848) (5,419,277) (1,916,047)
Other income, net............. 768,744 762,031 884,806 882,630 724,450
Relocation related expenses... -- -- -- -- (342,653)
Gain on sale of Research
Products................... 2,720,389 -- -- -- --
Net loss...................... (4,258,670) (5,723,924) (3,306,042) (4,536,647) (1,534,250)
Net loss per share............ (0.25) (0.35) (0.21) (0.31) (0.17)
Weighted average number of
shares of common stock
outstanding................ 16,757,370 16,335,000 16,080,000 14,801,000 9,184,000
Balance Sheet Data:
Cash and short-term
investments................ $26,786,566 $18,157,891 $22,390,454 $18,897,238 $10,110,352
Accounts Receivable........... 1,320,015 3,032,839 3,146,990 2,094,464 666,054
Working capital............... 26,127,781 21,208,145 25,914,827 22,363,383 10,301,199
Total assets.................. 44,057,421 42,040,900 47,614,538 43,930,705 18,079,405
Stockholders' equity.......... 40,549,636 38,656,314 45,044,603 41,960,868 15,867,252
</TABLE>
- ---------------
(a) During fiscal 1995, the Company sold its Research Products Business and also
sold shares of its common stock to Ciba-Geigy, Ltd. (See Notes 3 and 8(c)
to the Consolidated Financial Statements.)
(b) During fiscal 1994, the Company changed its method of accounting for
marketable securities to adopt the provisions of the Statement of Financial
Accounting Standards No.115, "Accounting for Certain Investments in Debt
and Equity Securities".
(c) During fiscal 1993, the Company entered into collaborative agreements with
Marion Merrell Dow and Hoechst AG and also sold shares of its common stock
to Marion Merrell Dow (See Notes 4 and 8(c) of Notes to Consolidated
Financial Statements.)
(d) During fiscal 1992, the Company acquired the cancer business of Applied
bioTechnology and completed an offering of its common stock (see Notes 3
and 8(d) of Notes to Consolidated Financial Statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
20
<PAGE> 21
molecule anti-cancer drugs. Previously, Pfizer had funded the Company's
TGF-[BETA]3 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-[BETA]3 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 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-[BETA]3 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.
21
<PAGE> 22
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.
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.
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.
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 with
each of Hoechst, Hoechst Roussel and MMDI. 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.
22
<PAGE> 23
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.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report........................................ 24
Consolidated Balance Sheets -- September 30, 1995 and 1994.......... 25
Consolidated Statements of Operations -- Years ended September 30,
1995, 1994 and 1993............................................... 26
Consolidated Statements of Stockholders' Equity -- Years ended
September 30, 1995, 1994 and 1993................................. 27
Consolidated Statements of Cash Flows -- Years ended September 30,
1995, 1994 and 1993............................................... 28
Notes to Consolidated Financial Statements.......................... 29
</TABLE>
23
<PAGE> 24
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
24
<PAGE> 25
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 17,919,609 $ 322,308
Short-term investments........................................ 8,866,957 17,835,583
Receivables, including trade receivables of $163,132 and
$956,747 at September 30, 1995 and 1994, respectively...... 1,320,015 3,032,839
Inventory..................................................... -- 1,744,663
Interest receivable........................................... 45,263 147,222
Grants receivable............................................. 433,530 659,621
Prepaid expenses.............................................. 518,150 445,464
----------- -----------
Total current assets.................................. 29,103,524 24,187,700
----------- -----------
Property, equipment and leasehold improvements -- net........... 5,709,515 6,554,237
Other receivable................................................ 262,703 425,520
Loans to officers and employees................................. 25,516 85,516
Other assets.................................................... 325,582 118,068
Intangible assets -- net........................................ 8,630,581 10,669,859
----------- -----------
$ 44,057,421 $ 42,040,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 2,825,702 $ 2,522,171
Current portion of unearned revenue........................... 150,041 457,384
----------- -----------
Total current liabilities............................. 2,975,743 2,979,555
----------- -----------
Other liabilities:
Long-term portion of unearned revenue......................... 165,839 216,588
Accrued postretirement benefit cost........................... 366,203 188,443
----------- -----------
Total liabilities..................................... 3,507,785 3,384,586
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized,
17,683,047 shares issued at September 30, 1995 and
16,564,715 shares issued at September 30, 1993............. 176,830 165,647
Additional paid-in capital.................................... 66,735,375 61,199,670
Accumulated deficit........................................... (26,129,341) (21,870,671)
Cumulative foreign currency translation adjustment............ (55,669) (41,773)
Unrealized holding loss on short-term investments............. (35,000) (654,000)
----------- -----------
40,692,195 38,798,873
Less: treasury stock, at cost; 222,521 shares at September 30,
1995 and 1994.............................................. (142,559) (142,559)
----------- -----------
Total stockholders' equity............................ 40,549,636 38,656,314
----------- -----------
Commitments and contingencies................................... $ 44,057,421 $ 42,040,900
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Collaborative program revenues, principally from
related parties................................ $ 9,685,856 $ 9,089,295 $ 9,396,609
Sales............................................. 4,286,540 4,937,917 4,827,185
Other research revenue............................ 1,892,603 2,272,277 1,864,227
---------- ---------- ----------
15,864,999 16,299,489 16,088,021
---------- ---------- ----------
Expenses:
Research and development.......................... 13,523,043 12,125,210 10,659,806
Production........................................ 1,252,990 1,427,981 1,443,649
Selling, general and administrative............... 7,140,208 7,487,090 6,429,701
Amortization of intangibles....................... 1,696,561 1,745,163 1,745,713
---------- ---------- ----------
23,612,802 22,785,444 20,278,869
---------- ---------- ----------
Loss from operations...................... (7,747,803) (6,485,955) (4,190,848)
Other income (expense):
Net investment income............................. 834,830 858,904 930,428
Other expense..................................... (66,086) (96,873) (45,622)
Gain on sale of Research Products Business........ 2,720,389 -- --
---------- ---------- ----------
Net loss............................................ $(4,258,670) $(5,723,924) $(3,306,042)
========== ========== ==========
Weighted average number of shares of common stock
outstanding....................................... 16,757,370 16,335,000 16,080,000
========== ========== ==========
Net loss per weighted average share of common stock
outstanding....................................... $ (.25) $ (.35) $ (.21)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN HOLDING
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 at 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-Geigy....... 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
========= ======== ========== =========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss.............................................. $(4,258,670) $(5,723,924) $(3,306,042)
Adjustments to reconcile net loss to net cash used by
operating activities:
Gain on sale of Research Products Business............ (2,720,389) -- --
Loss on sale of investments........................... 118,141 -- --
Depreciation and amortization......................... 1,037,044 1,165,809 955,952
Amortization of intangibles........................... 1,696,561 1,745,163 1,745,713
Foreign exchange loss................................. (13,896) (26,649) 5,319
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)
Inventory............................................. 216,405 (197,570) (132,236)
Interest receivable................................... 101,959 (107,890) 171,643
Grants receivable..................................... 226,091 105,895 (497,240)
Prepaid expenses...................................... (196,491) (98,068) 27,674
Other receivable...................................... 162,817 92,090 (517,610)
Other assets.......................................... (234,378) 23,863 (115,851)
Accounts payable and accrued expenses................. (586,276) 232,439 468,673
Unearned revenue...................................... (358,092) 415,972 (209,500)
Accrued post-retirement benefit cost.................. 177,760 78,568 109,875
----------- ----------- -----------
Net cash used by operating activities................... $(3,026,197) $(2,180,150) $(2,346,156)
=========== =========== ===========
Cash flows from investing activities:
Additions to short-term investments................... (3,723,180) (5,918,880) (29,092,688)
Maturities and sales of short-term investments........ 13,192,665 9,135,823 25,827,272
Additions to property, equipment and leasehold
improvements ...................................... (403,275) (1,512,543) (1,486,646)
Disposition of equipment.............................. -- -- 12,028
Net change in loans to officers and employees......... 10,400 (40,258) (4,702)
Proceeds from sale of Research Products Business...... 6,000,000 -- --
Foreign currency transaction.......................... -- (15,897) (4,548)
----------- ----------- -----------
Net cash provided by (used in) investing activities..... 15,076,610 1,648,245 (4,749,284)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net........... 4,962,865 -- 6,000,000
Proceeds from exercise of stock options and employee
stock purchase plan................................ 584,023 32,180 389,006
Repayment of loan to stockholders..................... -- -- 1,000,000
----------- ----------- -----------
Net cash provided by financing activities............... 5,546,888 32,180 7,389,006
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... 17,597,301 (499,725) 293,566
Cash and cash equivalents at beginning of year.......... 322,308 822,033 528,467
----------- ----------- -----------
Cash and cash equivalents at end of year................ $17,919,609 $ 322,308 $ 822,033
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(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 3)
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. 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. On July 18,
1995, Marion, Hoechst AG and Hoechst-Roussel merged forming a new company named
Hoechst Marion Roussel Inc. (HMRI). The Company believes all of the Hoechst
collaborative agreements will continue under HMRI.
29
<PAGE> 30
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(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.
(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,
30
<PAGE> 31
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
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 September
30, 1995 and 1994:
<TABLE>
<CAPTION>
GROSS
UNREALIZED FAIR
1995 COST LOSSES (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............................ $ 8,901,967 $ (35,000) $ 8,866,957
----------- -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS
UNREALIZED FAIR
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>
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.
(3) SALE OF RESEARCH PRODUCTS BUSINESS
On August 2, 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-
31
<PAGE> 32
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
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.
On July 18, 1995 Marion was acquired by an affiliate of Hoechst AG. The new
company was named 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.
32
<PAGE> 33
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
Total collaborative research revenues under the aforementioned agreements
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Related Parties:
Pfizer....................................... $3,505,427 $3,373,573 $4,768,606
Becton....................................... 1,400,094 1,392,314 1,334,534
HMRI......................................... 3,405,335 3,026,532 2,211,936
---------- ---------- ----------
$8,310,856 $7,792,419 $8,315,076
Other.......................................... 1,375,000 1,296,876 1,081,533
---------- ---------- ----------
Total.......................................... $9,685,856 $9,089,295 $9,396,609
---------- ---------- ----------
</TABLE>
(5) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost and
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
ESTIMATED ---------------------------
LIFE (YEARS) 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Laboratory equipment....................... 5-15 $ 6,765,012 $ 6,376,997
Office furniture and equipment............. 5-10 1,622,524 1,708,534
Automobile equipment....................... 3 12,697 12,697
Leasehold improvements..................... Life of lease 4,176,290 4,214,228
---------- ----------
12,576,523 12,312,456
Less: accumulated depreciation and
amortization............................. 6,867,008 5,758,219
---------- ----------
Net property, equipment and leasehold
improvements............................. $ 5,709,515 $ 6,554,237
========== ==========
</TABLE>
(6) INTANGIBLE ASSETS
The components of intangible assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1995 1994
---------- -----------
<S> <C> <C>
Patents.................................................... $7,945,038 $ 8,712,250
Goodwill................................................... 685,543 1,957,609
---------- -----------
$8,630,581 $10,669,859
========== ===========
</TABLE>
The above amounts reflect accumulated amortization of $5,808,119 and
$5,236,407 at September 30, 1995 and 1994, respectively.
33
<PAGE> 34
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at September 30, 1995 and 1994 are
comprised of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Accounts payable............................................ $1,497,601 $1,326,744
Accrued future lease escalations............................ 355,516 282,718
Accrued payroll and employee benefits....................... 243,073 155,039
Accrued incentive compensation.............................. 424,705 426,189
Accrued expenses............................................ 304,807 331,481
---------- ----------
$2,825,702 $2,522,171
========== ==========
</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.
The following table summarizes changes in the number of common shares
subject to options in the stock option plans during the years ended September
30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Beginning of year................................. 2,048,325 1,644,945 1,278,045
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)
Cancelled......................................... (624,021) (61,420) (21,371)
--------- --------- ---------
End of year -- $1.75 to $5.63 per share........... 2,021,279 2,048,325 1,644,945
========= ========= =========
Exercisable....................................... 952,883 1,081,874 790,899
========= ========= =========
</TABLE>
At September 30, 1995, the Company has reserved 2,021,079 shares of its
authorized common stock for all shares issuable under option.
On March 22, 1995, the Company granted the right to current option holders
to surrender their current options in exchange for replacement options on the
basis of three replacement options for four options surrendered. The exercise
price of the replacement options was $3.50 per share, which was greater than the
market price on the date of exchange. The replacement options vested 25% upon
grant with the remaining 75% vesting pro rata on a monthly basis over the
following three years. Option holders surrendered 606,000 options in exchange
for 454,500 replacement options.
(b) Sale of Stock to Marion Merrell Dow
In December 1992, the Company entered into the common stock purchase and
common stock warrant purchase agreements with Marion. The company issued
1,090,909 shares of common stock at $5.50 per share
34
<PAGE> 35
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
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-Geigy
On April 19, 1995, Ciba-Geigy 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.
(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 carry forwards
and research and development tax credit carry forwards as of September 30, 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.......................... $ 8,122,444 $ 6,421,863
Research and development credits......................... 554,838 373,500
Inventory................................................ -- 838,361
Intangible assets........................................ 1,274,336 863,220
Other.................................................... 469,396 227,958
----------- ----------
$ 10,421,014 $ 8,724,902
Valuation allowance...................................... (10,421,014) (8,724,902)
----------- ----------
$ -- $ --
=========== ==========
</TABLE>
As of September 30, 1995, the Company has available federal net operating
loss carry forwards of approximately $24 million 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, and $656,000 for the
fiscal years ended September 30, 1995, 1994, and 1993, respectively.
35
<PAGE> 36
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
The following is a schedule by fiscal years of future minimum rental
payments required as of September 30, 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>
1996............................................................. $ 587,800
1997............................................................. 619,375
1998............................................................. 627,163
1999............................................................. 644,288
2000 and thereafter.............................................. 4,319,474
----------
$6,798,100
==========
</TABLE>
(b) Contingencies
The Company has received several letters from other companies and
universities advising the Company that various products being marketed and
research being conducted by the Company may be infringing on existing patents of
such entities. These matters are presently under review by management and
outside counsel for the Company. Where valid patents of other parties are found
by the Company to be in place, management will consider entering into licensing
arrangements with the universities and/or other companies or 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
such fees amounted to $99,000, $66,000 and $45,000, 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, consulting
services in the amounts of $90,000, $85,000 and $56,000 respectively, were paid
by the Company pursuant to these arrangements.
One director is a partner in a law firm which represents the Company on its
patent and license matters. Fees paid to this firm for the 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.
(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.
(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
36
<PAGE> 37
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
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
post-retirement benefit obligation related to prior service costs.
Net post-retirement benefit cost 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 post-retirement
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 post-retirement benefit cost................... $177,760 $ 78,568 $109,875
======== ======== ========
</TABLE>
The accrued post-retirement benefit cost at September 30, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accumulated post-retirement benefit obligationfully 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 post-retirement benefit cost......................... $ 366,203 $ 188,443
========= =========
</TABLE>
The accumulated post-retirement 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
37
<PAGE> 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
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.
38
<PAGE> 39
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.
39
<PAGE> 40
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.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on the Company's review of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for such persons, the Company believes that, during the fiscal
year ended September 30, 1995, all filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
complied with, except for the following: (i) with respect to a transaction by
Mr. French, no Form 4 was filed; and (ii) certain initial holdings of Dr.
Goddard were reported late.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth a summary of all compensation paid or
accrued by the Company for services rendered for the last three completed
fiscal years to its chief executive officer and its five other most highly
compensated executive officers (the "named executive officers"):
40
<PAGE> 41
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY(a) BONUS(b) SATION(c) OPTIONS(#) SATION(d)
------------------ ---- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gary E. Frashier 1995 $265,884 $90,000 -- -- $ 4,621
Vice Chairman and Chief 1994 255,369 90,000 -- 100,000 4,620
Executive Officer 1993 232,446 85,000 -- -- 4,497
and Director
Steve M. Peltzman 1995 $192,289 $50,000 -- 112,500(e) $ 4,987
President and Chief 1994 184,742 50,000 -- 40,000 4,750
Operating Officer 1993 172,288 45,000 -- 60,000 4,548
and Director
J. Gordon Foulkes, Ph.D. 1995 $176,250 $45,000 -- 37,500(e) $ 4,707
Vice President and Chief 1994 177,800 43,000 -- 20,000 5,001
Scientific Officer 1993 157,896 43,000 -- 35,000 4,326
and Director
Robert L. Van Nostrand 1995 $109,750 $28,500 -- 15,000(e) $ 3,571
Vice President, 1994 107,423 24,500 -- -- 3,223
Finance and Administration, 1993 97,329 23,500 -- 20,000 2,920
Treasurer and Secretary
Colin Goddard, Ph.D. 1995 $119,914 $35,000 -- 35,000 $ 3,598
Vice President, 1994 111,875 27,000 -- 25,000 11,826(f)
Research Operations 1993 82,918 23,500 -- 28,000 346
Ann H. Rose, Ph.D. 1995 $141,346 $25,000 $20,000 25,000 $ 3,747
Vice President, TGF-Beta 1994 68,019(g) 11,500 94,669 30,000 1,091
Program and Regulatory 1993 -- -- 76,801 -- --
Affairs
- ---------------------------
</TABLE>
(a) Includes the executive officers' before-tax contributions to the
Company's 401(k) Savings Plan.
(b) Bonuses are paid subsequent to the end of the fiscal year.
(c) Dr. Rose was a consultant for the Company prior to her employment,
which began on April 1, 1994. In 1995, her other compensation included
$20,000 in reimbursement for office expenses. In 1994, her other
compensation included $43,750 in consulting fees, $33,418 in
reimbursement for travel related expenses, and $17,501 in reimbursement
for office expenses. In 1993, her other compensation included $60,000
in consulting fees, $10,801 in reimbursement for travel and related
expenses, and $6,000 in reimbursement for office expenses.
(d) Consists of the Company's contributions to the executive officers'
401(k) Savings Plans, unless otherwise noted.
(e) Represents options granted upon surrender of other options pursuant
to an option exchange program, as described under "Stock Option
Grants."
(f) Consists of an Outstanding Achievement Award in the amount of $8,873
and the remainder consists of the Company's contribution to his 401(k)
account.
(g) Dr. Rose was hired on April 1, 1994.
41
<PAGE> 42
STOCK OPTION GRANTS
The following table sets forth grants of stock options made during the
Company's fiscal year ended September 30, 1995 to each of the named executive
officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ------- ----------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Gary E. Frashier 0 -- -- -- -- --
Steve M. Peltzman 112,500 (a) 14.01% $3.500 March 21, 2005 $110,531 $407,501
J. Gordon Foulkes, Ph.D. 37,500 (b) 4.67% 3.500 March 21, 2005 36,844 135,834
Robert L. Van Nostrand 15,000 (c) 1.87% 3.500 March 21, 2005 14,738 54,338
Colin Goddard, Ph.D. 35,000 (d) 4.36% 4.125 June 20, 2005 83,825 218,225
Ann H. Rose, Ph.D. 25,000 (d) 3.11% 4.125 June 20, 2005 59,875 155,875
</TABLE>
________________________
(a) New options granted upon surrender of 150,000 options pursuant to the
terms of an option exchange program (the "Exchange Program") made
available to all holders of options effective as of March 22, 1995.
The new options were 25% vested immediately, with the remainder
vesting ratably on a monthly basis over the succeeding 36 months.
(b) New options granted upon surrender of 50,000 options pursuant to the
Exchange Program.
(c) New options granted upon surrender of 20,000 options pursuant to the
Exchange Program.
(d) Options become one-third vested on the first anniversary of the date of
grant, with the remainder vesting ratably on a monthly basis over the
succeeding 24 months.
42
<PAGE> 43
EXERCISE OF OPTIONS
The following table sets forth (i) certain information relating to
options exercised by the named executive officers during the fiscal year ended
September 30, 1995 and (ii) the total number of unexercised options and the
total value of unexercised in-the-money options at September 30, 1995 for the
named executive officers:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
AGGREGATED NUMBER OF SECURITIES UNEXERCISED
OPTION EXERCISES UNDERLYING IN-THE-MONEY
DURING FISCAL 1995 UNEXERCISED OPTIONS OPTIONS AT
------------------ AT FISCAL YEAR END(#) FISCAL YEAR END(a)
SHARES --------------------- ------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
---- ----------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Gary E. Frashier 100,000 $365,821(b) 176,668 73,332 $580,419 $100,832
Steve M. Peltzman -- -- 83,201 129,299 126,168 199,770
J. Gordon Foulkes, Ph.D. 6,000 13,072(c) 103,433 58,067 210,077 83,900
Robert L. Van Nostrand -- -- 49,019 20,981 82,486 29,214
Colin Goddard, Ph.D. 5,850 16,557(d) 22,745 74,255 22,985 90,620
Ann H. Rose, Ph.D. -- -- 21,125 48,875 25,578 61,922
</TABLE>
___________________
(a) Based on the closing sale price of the Common Stock on the Nasdaq
National Market on September 30, 1995 of $5.375 per share, less the
exercise price.
(b) Net of $24,054 paid by Mr. Frashier to the Company pursuant to
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange
Act").
(c) Net of $68 paid by Dr. Foulkes to the Company pursuant to
Section 16(b) of the Exchange Act.
(d) Net of $3,129 paid by Dr. Goddard to the Company pursuant to
Section 16(b) of the Exchange Act.
COMPENSATION OF DIRECTORS
Drs. Gee and Lovenberg and Messrs. Browne, French, Takata and White are
the only current directors compensated for attendance at Board of Directors'
meetings. Each is paid a $1,500 retainer per month and $1,500 for each meeting
of the Board of Directors he attends. In addition, each of these persons
receives $250 for each meeting of a committee of the Board he attends that is
held on the same day as a meeting of the Board of Directors, and $500 for each
meeting of a committee of the Board he attends that is held on a date other than
a date upon which a meeting of the Board of Directors is held. Each new
director, who is not also an employee of the Company or the designee of a third
party who is entitled to representation on the Board of Directors of the
Company, is granted an option covering 50,000 shares of Common Stock when he or
she is first elected to the Board. This option is immediately exercisable with
respect to 25,000 shares, and becomes exercisable with respect to the remainder
of the shares upon the reelection of such director to the Board. Except for
Drs. Gee and Lovenberg and Messrs. Browne, French, Takata and White, none of
the Company's directors were compensated for services as directors during the
fiscal year ended September 30, 1995.
Dr. Gee has been paid $50,000 per year by the Company as a general
business consultant and for additional services he has performed on behalf of
the Company. Dr. Lovenberg was paid $49,333 by the Company in the last fiscal
year for services rendered as a general business consultant.
EMPLOYMENT AGREEMENTS
Gary E. Frashier
In February 1990, the Company entered into a three-year employment
agreement with Gary E. Frashier, Vice Chairman and Chief Executive Officer of
the Company. The initial term of the agreement expired in February 1993, but
pursuant to its terms, the agreement has been extended automatically on a year-
to-year basis. Under the agreement, Mr. Frashier is entitled to a minimum base
salary of $185,000 per annum, plus such other amounts, if any, as the Board may
from time to time determine. Mr. Frashier's current annual salary is $268,000.
In addition, Mr. Frashier is eligible for incentive bonus compensation in an
amount up to 50% of his base salary. Pursuant to this agreement, Mr. Frashier
was granted options to purchase up to an aggregate of 450,000 shares of the
Company's Common Stock under the Company's 1985 Stock Option Plan and
1989 Incentive and Non-Qualified Stock Option Plan at an exercise price of $1.75
per share. The agreement provides that Mr. Frashier will be entitled to other
customary fringe benefits generally available to executive employees of the
Company. The agreement also contains provisions prohibiting Mr. Frashier
from competing with or becoming engaged in the same business as the Company
or any parent, subsidiary or affiliate of the Company for a period of up to
two years commencing on the date he ceases to be employed by the Company or
any parent, subsidiary or affiliate of the Company (whether or not the
agreement is still in effect). The agreement also provides Mr. Frashier with
severance benefits in the event the Company terminates his employment, other
than for cause or due to Mr. Frashier's death or disability, or reduces his
title, job duties, salary or benefits following a change in control. The
agreement provides that in the event Mr. Frashier terminates his employment due
to a change in control of the Company, Mr. Frashier will receive a payment
equal to 2.99 times his base salary, and all options that were previously
granted to him shall become exercisable. If the Company terminates the
employment agreement, other than for cause or due to Mr. Frashier's death or
disability, the Company shall be obligated to continue Mr. Frashier's
benefits and to continue paying Mr. Frashier his base salary for the six month
period immediately succeeding such termination, at the rate in effect on the
date of termination.
43
<PAGE> 44
Steve M. Peltzman
On August 27, 1991, the Company entered into an employment
agreement with Steve M. Peltzman, President and Chief Operating Officer of the
Company, who was formerly the President of Applied bioTechnology, Inc. The
agreement became effective on October 4, 1991, upon the consummation of the
Company's acquisition of the cancer business of Applied bioTechnology. The
term of the agreement is three years, but provides for automatic extensions for
additional one-year terms. Under the agreement, Mr. Peltzman is entitled to
a minimum base salary of $160,000 per annum, plus such other amounts, if any, as
the Board may from time to time determine. Mr. Peltzman's current annual salary
is $193,500. In addition, Mr. Peltzman is entitled to participate in the
Company's discretionary Management Incentive Compensation Plan and to
receive other customary fringe benefits generally available to executive
employees of the Company. The agreement also contains provisions
prohibiting Mr. Peltzman from competing with or becoming engaged in the same
business as the Company or any parent, subsidiary or affiliate of the
Company for a period of up to two years commencing on the date he ceases to
be employed by the Company or any parent, subsidiary or affiliate of
the Company (whether or not the agreement is still in effect). The agreement
also provides Mr. Peltzman with severance benefits in the event that the
Company terminates his employment other than for cause or due to Mr.
Peltzman's death or disability. If the Company terminates the
employment agreement, other than for cause or due to Mr. Peltzman's death or
disability, the Company is obligated to pay Mr. Peltzman's benefits and to
continue paying Mr. Peltzman his base salary at the rate in effect on the date
of termination, for a period of six months immediately succeeding such
termination.
J. Gordon Foulkes, Ph.D.
In September 1992, the Company entered into an employment agreement
with Dr. J. Gordon Foulkes, Ph.D., Vice President and Chief Scientific
Officer of the Company. The initial term of the agreement expired on
February 28, 1995, but, pursuant to its terms, the agreement has been extended
automatically on a year-to-year basis. Under the agreement, Dr. Foulkes is
entitled to a minimum base salary of $152,500 per annum, plus such other
amounts, if any, as the Board may from time to time determine. Dr. Foulkes's
current annual salary is $180,500. In addition, Dr. Foulkes is entitled to
participate in the Company's discretionary Management Incentive Compensation
Plan and to receive other customary fringe benefits generally available to
executive employees of the Company. The agreement also contains provisions
prohibiting Dr. Foulkes from competing with or becoming engaged in the same
business as the Company or any parent, subsidiary or affiliate of the
Company for a period of up to one year commencing on the date he ceases to
be employed by the Company or any parent, subsidiary or affiliate of the
Company (whether or not the agreement is still in effect). The agreement
also provides Dr. Foulkes with severance benefits in the event that the
Company terminates his employment other than for cause or due to Dr.
Foulkes' death or disability. If the Company terminates the employment
agreement, other than for cause or due to Dr. Foulkes' death or disability, the
Company is obligated to pay Dr. Foulkes' benefits and to continue paying Dr.
Foulkes his base salary at the rate in effect on the date of termination, for a
period of six months immediately succeeding such termination.
Colin Goddard, Ph.D.
On April 28, 1993, the Company entered into an employment agreement
with Colin Goddard, Ph.D., Director of Research Operations of the Company.
The agreement expires on April 30, 1998, but provides for automatic extensions
for additional one-year terms. Under the agreement, Dr. Goddard is entitled to a
minimum base salary of $100,000 per annum, plus such other amounts, if any, as
the Board may from time to time determine. Dr. Goddard's current annual salary
is $123,000. In addition, Dr. Goddard is entitled to participate in the
Company's discretionary Management Incentive Compensation Plan and to
receive other customary fringe benefits generally available to executive
employees of the Company. The agreement also contains provisions prohibiting
Dr. Goddard from competing with or becoming engaged in the same business as the
Company or any parent, subsidiary or affiliate of the Company for a
period of up to two years commencing on the date he ceases to be employed by the
Company or any parent, subsidiary or affiliate of the Company (whether
or not the agreement is still in effect). The agreement also provides Dr.
Goddard with severance benefits in the event that the Company terminates his
employment other than for cause or
44
<PAGE> 45
due to Dr. Goddard's death or disability. If the Company terminates the
employment agreement, other than for cause or due to Dr. Goddard's death or
disability, the Company is obligated to pay Dr. Goddard's benefits and
to continue paying Dr. Goddard his base salary at the rate in effect on the date
of termination, for a period of six months immediately succeeding such
termination.
45
<PAGE> 46
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's fiscal year ended September 30, 1995 the
Compensation Committee consisted of Dr. Gee and Messrs. French, Miller, Takata
and White. Dr. Gee served as an executive officer of the Company from 1987
through 1990.
Mr. Miller is Senior Vice President of Becton. The Company and Becton
are parties to a collaborative research agreement and related contracts
pertaining to a joint program to develop cancer diagnostic products. These
agreements provide, among other things, that the Company and Becton share
equally all pre-clinical research and
46
<PAGE> 47
development costs. Becton will fund the clinical development of products, if
any. The Company has granted Becton an exclusive, perpetual, worldwide license
to make, use and sell all FDA-approved diagnostic products developed under this
program. Becton will pay the Company royalties of 2% to 5% on net sales of
such products for a period that, with respect to each product, expires ten
years after the first sale of such product in the United States. Thereafter,
Becton's license will be royalty-free. The collaborative research agreement,
which became effective in October 1991, expires in October 1996. Under this
agreement, Becton has provided an aggregate of $1,400,094 in funding to the
Company in the fiscal year ended September 30, 1995. Becton is expected to
provide an additional $1 million under this agreement in fiscal 1996.
47
<PAGE> 48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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>
SHARES
BENEFICIALLY PERCENTAGE OF SHARES
BENEFICIAL OWNERS OWNED(1) BENEFICIALLY OWNED(1)
- ------------------------------------------------------------- ------------ ---------------------
<S> <C> <C>
Hoechst Marion Roussel, Inc.................................. 1,590,909(2) 8.83%
10236 Marion Park Drive
Kansas City, MO 64137
Amerindo Investment Advisors Inc............................. 1,483,600 8.46%
388 Market Street
San Francisco, CA 94111
Becton Dickinson and Company................................. 1,250,000 7.13%
One Becton Drive
Franklin Lakes, NJ 07417
Ciba-Geigy, Ltd.............................................. 909,091 5.19%
CH-4002 Basel
Switzerland
Pfizer Inc................................................... 587,500 3.35%
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%
</TABLE>
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* 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 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.
48
<PAGE> 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Walter M. Miller, a director of the Company, is an officer of Becton.
See "Compensation Committee Interlocks and Insider Participation" for a
description of the Company's relationship with Becton.
Mr. John P. White, a director of the Company, is a partner of Cooper &
Dunham, a New York City law firm specializing in patent, trademark and related
intellectual property matters. In fiscal year 1995, the Company paid or
accrued professional fees to Cooper & Dunham in an aggregate amount of $376,759.
Mr. G. Morgan Browne, a director of the Company, is the Administrative
Director of the Cold Spring Harbor Laboratory ("CSHL"). In fiscal year 1995, the
Company paid or accrued fees to CSHL in an aggregate amount of $120,500, for
funding under a corporate sponsorship program and license fees.
In July 1995, the pharmacentical operations of Hoechst, Hoechst Roussel
and MMDI were combined into one entity, HMRI. Prior to this date the Company had
collaborative agreements with all three of these companies (the "Predecessor
Agreements"). HMRI has succeeded to the Predecessor Agreements. In the
transaction described above, HMRI acquired 1,090,909 shares and a warrant to
purchase an additional 500,000 shares, of the Company's common stock, which
were formerly held by MMDI. Under the Predecessor Agreements, HMRI has been
granted certain exclusive, worldwide licenses by the Company, and has the
right to negotiate with the Company within specified parameters to obtain
certain other exclusive, worldwide licenses with respect to products resulting
from the joint research programs. In consideration for these licenses, HMRI will
pay royalties to the Company on sales of such products. In fiscal year 1995,
the Company earned an aggregate of $3.4 million in research funding under the
Predecessor Agreements. The Company and HMRI are currently in negotiations
with respect to a new agreement that would consolidate the Predecessor
Agreements. The terms of this prospective agreement are not yet determined, but
the Company anticipates that the level of annual funding under the new
agreement would be reduced compared to the total annual funding under the
Predecessor Agreements. 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 this agreement could have a material
adverse effect on the Company's business, financial condition and results of
operations.
49
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements and related notes are
included in this report and are set forth in Part II, Item 8 on
pages 24-37 hereof:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial statement schedules:
All schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or
related notes.
(3) The following is a list of exhibits filed as a part of this report:
<TABLE>
<CAPTION>
<S> <C>
3.1* Certificate of Incorporation, as amended
3.2* By-Laws
10.1 1985 Stock Option Plan (1)
10.2 1989 Incentive and Non-Qualified Stock Option Plan (3)
10.3 1993 Incentive and Non-Qualified Stock Option Plan (filed as an exhibit to
the Company's Registration Statement on Form S-8 (File No. 33-64713), and
incorporated herein by reference)
10.4 1993 Employee Stock Purchase Plan (filed as an exhibit to the Company's
Registration Statement on Form S-8 (File No. 33-60182), and incorporated
herein by reference)
10.5 Employment Agreement dated as of February 9, 1990 between the Company
and Gary E. Frashier (3)
10.6 Employment Agreement dated as of August 27, 1991 between the Company
and Steven M. Peltzman (4)
10.7 Employment Agreement dated December 30, 1986 between the Company
and Gordon Foulkes (3)
10.8 Consulting Agreement between the Company and Dr. Edwin A. Gee (1)
10.9 Lease dated as of October 12, 1990 between the Company and Charles
Bergwell (3)
10.10 First Amendment Lease dated April 2, 1993 between the Company and the
Trustees of the Cambridge East Trust (filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1993,
and incorporated herein by reference)
10.11 Form of Warrant Purchase Agreement (1)
10.12 Agreement dated as of February 18, 1987 between The University of
Massachusetts and Applied bioTechnology, Inc. (2)
10.13 Letter Agreement dated October 1, 1991 among AbT Acquisition Corp., the
Company and E.I. DuPont de Nemours and Company (2)
10.14 Agreement dated as of September 16, 1991 between Applied bioTechnology,
Inc. and Becton Dickinson and Company (2)
10.15 Amendment and Consent to Assignment dated as of October 4, 1991 between
the Company and Becton Dickinson and Company (2)
10.16 Collaborative Research Agreement dated as of October 4, 1991 between the
Company and Becton Dickinson and Company (2)
10.17 License Agreement between the Company and Becton Dickinson and Company (2)
10.18 Amendment dated December 5, 1991 to License Agreement between the Company
and Becton Dickinson and Company (4)
10.19* OSI Royalty Free License Agreement dated April 1, 1986 between the
Company and Pfizer Inc.
10.20* Pfizer Royalty Free License Agreement dated April 1, 1986 between the
Company and Pfizer Inc.
10.21* Royalty Agreement dated April 1, 1986 between the Company and Pfizer Inc.
10.22 License Agreement dated December 14, 1990 between the Company and Pfizer
Inc. (3)
10.23 Collaborative Research Agreement dated April 1, 1991 between the Company and
Pfizer Inc. (3)
10.24 Collaborative Research Agreement dated as of December 31, 1991 between the
Company and American Home Products Company (5)
10.25 Common Stock Purchase Warrant granted to Marion Merrell Dow, Inc. dated
December 11, 1992 (5)
10.26 Collaborative Research and License Agreement dated December 11, 1992
between the Company and Marion Merrell Dow, Inc. (5)
10.27* Collaborative Agreement dated as of April 19, 1995 between the Company and
Ciba-Geigy Limited
10.28* Letter Agreement dated as of April 19, 1995 between the Company and
Ciba-Geigy Limited
10.29* Registration Rights Agreement dated as of April 19, 1995 between the Company
and Ciba-Geigy Limited
10.30 Asset Purchase Agreement dated June 26, 1995 among the Company,
Calbiochem-Novabiochem International, Inc. and Calbiochem-Novabiochem
Company (6)
10.31 Sublease dated August 2, 1995 between the Company and Calbiochem-Novabiochem
Company (6)
10.32 New Product License Right of First Refusal Agreement dated August 2, 1995
between the Company and Calbiochem-Novabiochem Company (6)
21* Subsidiaries of the Company
23* Consent of KPMG Peat Marwick, LLP, independent public accountants
27* Financial Data Schedule
</TABLE>
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* Previously filed.
(1) Filed as an exhibit to the Company's registration statement on Form S-1
(File No. 33-3148), and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's registration statement on Form
S-2, as amended (File No. 33-42369), and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990, and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, and incorporated herein by
reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, as amended, and incorporated herein
by reference.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K dated
August 2, 1995, and incorporated herein by reference.
(b) Reports on Form 8-K
The Registrant did not file any Reports on Form 8-K during the last
quarter of fiscal year 1995.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONCOGENE SCIENCE, INC.
By /s/ ROBERT L. VAN NOSTRAND
-----------------------------
Robert L. Van Nostrand
Vice President, Finance
and Administration
Date: February 20, 1996
