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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended September 30, 1997 or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number 0-15190
OSI Pharmaceuticals, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 13-3159796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Charles Lindbergh Blvd., Uniondale, N.Y. 11553
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 222-0023
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of November 28, 1997, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $133,215,769. For purposes of this
calculation, shares of Common Stock held by directors, officers and stockholders
whose ownership exceeds five percent of the Common Stock outstanding at November
28, 1997 were excluded. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control with
the Registrant.
As of November 28, 1997, there were 22,263,969 shares of the Registrant's $.01
par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its 1998
annual meeting of stockholders are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
OSI Pharmaceuticals, Inc. ("OSI" or the "Company"), formerly known as
Oncogene Science, Inc., is a leading drug discovery company which has assembled
a platform of drug discovery technologies enabling it to build and sustain a
pipeline of pharmaceutical product opportunities. The Company pioneered the
development of (i) genetically engineered live cell assays targeting gene
transcription and (ii) robotic high throughput screening in order to generate
lead compounds more efficiently. Over the last few years, the Company has,
through acquisition and internal technology development, added extensively to
these core capabilities. The addition of large diverse libraries of small
molecules and a broadened expertise in assay biology, medicinal, combinatorial
and pharmaceutical chemistry capabilities has created a comprehensive drug
discovery platform enabling the Company to progress leads discovered against
novel targets all the way through the discovery and pre-clinical development
stages.
Through corporate collaborations and co-ventures, OSI is partnering its
drug discovery capabilities with the resources of other companies. In this
manner, the Company receives current revenues from research funding and expects
to realize future revenues from research and milestone payments, success fees
and royalties from product sales. Independently and in collaboration with Pfizer
Inc. ("Pfizer"), Hoechst Marion Roussel, Inc. ("HMRI"), BioChem Pharma
(International) Inc. ("BioChem Pharma"), Sepracor, Inc. ("Sepracor"), Novartis
Pharma AG ("Novartis") and Sankyo Company, Ltd. ("Sankyo"), the Company is
engaged in the discovery and development of drugs for 45 target proteins in a
wide range of disease areas, including cancer, systemic and topical viral,
bacterial and fungal diseases, diabetes, atherosclerosis, arthritis,
neurological disorders and chronic anemias. Its research and development
capabilities together with its ongoing discovery and development programs have
positioned the Company as a leader in the field of drug discovery. The Company
was incorporated in 1983. To reflect the Company's evolution, effective October
1, 1997, the Company changed its name from Oncogene Science, Inc. to OSI
Pharmaceuticals, Inc. and its NASDAQ stock symbol to OSIP.
BACKGROUND
Over the last decade, major advances in molecular biology, automation,
computing and the understanding of the human genome have led to a revolution in
drug discovery technology. This has occurred at a time when the rising costs of
health care and changes in health care management policies are applying
increasing competitive pressure on the pharmaceutical industry. This has
resulted in a series of major mergers within the pharmaceutical industry as
organizations strive to maintain market share and build strong pipelines of new
products to maintain competitive positions. This has led 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.
OSI'S TECHNOLOGY PLATFORM
The Company's technologies are designed to accelerate the process of
identifying and optimizing high quality, small molecule drug candidates for
clinical development. The Company's technology platform is widely applicable to
the identification and optimization of small molecule drug candidates to treat
many different diseases, including diseases due to mutations or abnormalities in
multiple genes. Utilizing its technology platform, the Company has been able to
identify and optimize lead compounds that are potent and selective, possess
minimal or no cellular toxicity and have activity in live cells and animal
models, and that have progressed to clinical trials in humans. OSI's platform,
which constitutes an integrated set of drug discovery technologies covering
every aspect of pre-clinical drug development, includes proprietary live-cell
assays, high throughput robotic screening, diverse compound libraries and
combinatorial, medicinal and natural products chemistry capabilities, together
with significant pre-clinical expertise in pharmaceutics, pharmacokinetics and
molecular biology.
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Assay Biology
The Company has specialized in the development of drug screens that
utilize genetically engineered human cells to identify compounds that affect
transcription of target genes. These assay systems, which employ reporter gene
technology, can be utilized to discover drugs that affect the expression of
proteins encoded by the target genes. There are multiple sites within a cell
where a drug can act to exert a specific effect. This broadly enabling
technology allows the Company to discover compounds that exert their effects on
receptors, signal transduction proteins, transcription factors and other sites.
The Company's seminal contribution to the development of this technology was
recognized by the issuance of U.S. Patent No. 5,665,543 in September 1997, which
claims a method of identifying compounds that specifically modulate expression
of target genes using cells engineered to include reporter genes. This
technology is used in the biotechnology and pharmaceutical industry and the
Company believes that the claims covered by this patent, together with claims
covered by pending patent applications, can be licensed for certain monetary and
technology considerations. During the last two years the Company has broadened
its assay expertise extensively. Currently, the Company is able to conduct
screens on a wide variety of different assay platforms, including enzyme assays,
immunoassays, scintillation proximity assays, protein-protein interaction assays
and receptor-ligand screens. The Company believes this breadth of expertise
enables it to select the most appropriate assay with which to pursue drug
discovery against a novel biological target.
High Throughput Robotic Screening Technology
OSI has been a pioneer and remains a leader in the development of high
throughput screening. The Company has developed software and automation that
enable it to manage large compound libraries and prepare test substances for
screening. 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 rapidly reconfigured to run a wide variety of assays.
Diverse Compound Libraries
Access to large libraries of diverse compounds is a key asset in the
Company's drug discovery efforts. Leads discovered from these libraries become
the proprietary starting materials from which drugs are optimized. The Company
has access to over 1.5 million compounds from its own and several of its
partners' compound libraries for high throughput screening. The Company's
proprietary libraries include its unique natural products library of fungal
organisms, its focused libraries of small molecule compounds derived from its
high-speed combinatorial analoging, and The Dow Chemical Company's ("Dow")
library of approximately 140,000 small molecule compounds. In March 1997, the
Company acquired from Dow an exclusive worldwide license to this library for
the purposes of discovery and development of small molecular weight
pharmaceuticals and cosmeceuticals. The duration of this license is coextensive
with the life of the last to expire of the patents related to the licensed
compounds (or 20 years if no patents are filed). In exchange for these rights,
the Company issued to Dow 352,162 shares of common stock. The Company will also
pay royalties to Dow from sales of products derived from a small subset of
Dow's compound library that is covered by existing Dow patents or proprietary
technology. In addition, certain collaborative partners have made their
compound libraries available for additional research by the Company outside
their existing collaborative programs. For any compound from the Company's
collaborative partners' libraries that emerges as a lead in a proprietary
program, the partner typically will have the right of first refusal to develop
the compound or terminate its further development or to allow the Company to
commercialize the compound independently or with a third party in exchange for
royalty payments from the Company on product sales.
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Natural Products Discovery
The Company has an extensive program to discover novel and active
natural product compounds found in fungal fermentation extracts. Fungi are a
known source of pharmaceuticals, including penicillin, cephalosporin,
lovastatin, prevastatin and cyclosporin A. Through its MYCOsearch, Inc.
subsidiary ("MYCOsearch"), the Company owns a unique and diverse collection of
approximately 70,000 fungal organisms. In the MYCOsearch Natural Products
Discovery Center in North Carolina, the Company has implemented automated
microfermentation technology through which it has generated approximately
110,000 extracts for high throughput screening. This operation is expected to
add between 50,000 and 100,000 new extracts to the Company's natural products
library annually. The Company has invested substantial resources in implementing
a fully integrated fermentation biology and natural products chemistry
capability to provide the infrastructure and expertise necessary to isolate and
identify active natural product compounds that may be present in fungal
abstracts.
Chemistry and Lead Optimization
The pharmaceutical properties of a lead compound must be optimized
before clinical development of that compound begins. In 1996 the Company
acquired Aston Molecules Ltd. ("Aston"), a private company with expertise in
medicinal and combinatorial chemistry, which are critical elements in the lead
optimization process. The Company's Aston subsidiary also has expertise in
pharmacokinetics and pharmaceutical chemistry, which are disciplines applied
during the pre-clinical stages to accentuate the drug-like qualities of a lead
candidate. In November 1997, the Company officially dedicated Aston's newly
expanded medicinal, combinatorial and pharmaceutical chemistry facilities. The
Company continues to invest in technology designed to improve drug discovery in
this area. The Company also has a strategic alliance with Xenometrix, Inc. which
is aimed at the development of automated live-cell assays that will allow the
Company to profile genes that might be early indicators of the toxicological
liability of a lead compound. This molecular biology approach is being
implemented together with similar approaches that are being designed to allow
the Company to generate information on the metabolic liability of lead compounds
together with their physical and chemical properties. The Company is in the
process of establishing this integrated platform of automated and semi-automated
technologies in an effort to support decision making regarding the quality of
lead candidates earlier in the drug discovery process.
STRATEGY
Historically, drug discovery has been an expensive process of
attrition. In the pharmaceutical industry, only about 1 in 16 research and
development programs involving compounds screened against specific targets
actually result in a successful drug. It costs on average (including failures)
approximately $300 million in research and development to bring a drug from
initial lead to market. OSI's business strategy is to manage this risk by
applying its integrated discovery platform to improve the speed and
effectiveness of the drug discovery process, and to leverage this platform
through corporate collaborations to grow and sustain a pipeline of novel
pharmaceutical product opportunities.
To retain more of the downstream returns, the Company has also embarked
on a strategy of forming co-ventures with other pharmaceutical and biotechnology
companies. These co-ventures are in the form of (i) discovery and development
collaborations in which the Company has committed greater resources toward
product development in exchange for greater product commercialization rights and
(ii) new entities formed jointly by the Company and other organizations to which
the Company has contributed technology, expertise and other resources in
exchange for equity interests and royalty rights.
In addition to its collaborative programs and co-ventures, the Company
has undertaken independent efforts to discover and develop gene
transcription-based therapeutics in various proprietary areas. Generally, the
Company's objective with respect to its proprietary programs is to identify lead
compounds, progress them through pre-clinical development and manage clinical
development through early-stage clinical trials. If its drug discovery efforts
are successful, the Company's practice is to partner with large pharmaceutical
firms for clinical and commercial development of potential proprietary products.
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PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following table summarizes OSI's current product development and
research programs as of September 30, 1997. The table is qualified in its
entirety by reference to the more detailed descriptions elsewhere in this
report.
<TABLE>
<CAPTION>
- ------------------------- ----------------------- ------------ ------------ ------------- ------------ -------------
NO. OF
DRUG DISCOVERY DRUG PRECLINICAL
PROGRAM DISEASE FIELD TARGETS DISCOVERY(a) EVALUATION(b) PHASE I(c) PHASE II(d)
- ------------------------- ----------------------- ------------ ------------ ------------- ------------ -------------
COLLABORATIONS
<S> <C> <C> <C> <C> <C> <C>
Novartis Wound Healing 1 1
(TGF-Beta3)
Oral Mucositis 1 1
(TGF-Beta3)
Pfizer Cancer 14 10 3 1
HMRI Cardiovascular 4 3 1
Inflammatory 4 3 1
EPO Inducers 1 1
Wyeth Diabetes 1 1
Sankyo Influenza 4 4
CO-VENTURES
BioChem Pharma HIV 2 2
HCV 2 1 1
HBV 1 1
Sepracor Anti-Bacterials, 3 3
Anti-Fungals
Anaderm Skin Pigmentation 2 1 1
Skin Wrinkles 1 1
Hair Growth 1 1
Helicon Long-Term Memory 1 1
OTHER
AFM Muscular Dystrophy 1 1
OSI Sickle Cell Disease, 1 1
B-Thalassemia
- ------------------------- ----------------------- ------------ ------------ ------------- ------------ -------------
TOTAL 45 33 9 1 2
- ------------------------- ----------------------- ------------ ------------ ------------- ------------ -------------
</TABLE>
(a) 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.
(b) In the "Preclinical Evaluation" phase, the Company or its
collaborative partners optimize lead compounds and conduct
laboratory pharmacology and toxicology testing.
(c) "Phase I" clinical trials consist of small scale safety trials
typically in healthy human volunteers.
(d) "Phase II" clinical trials entail testing of compounds in
humans for safety and efficacy in a limited patient
population.
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Small Molecule Collaborative Programs and Co-Ventures
OSI pursues collaborations with pharmaceutical companies to combine the
Company's drug discovery capabilities with the collaborators' development and
financial resources. The Company's collaborations provide for its partners to
fund the Company's collaborative research programs and to pay royalties on sales
of any resulting products. Certain collaborative programs involve milestone
payments by the Company's partners. The collaborative partners generally retain
manufacturing and marketing rights worldwide. Generally, each collaborative
research agreement prohibits the Company from pursuing with any third party drug
discovery research relating to the target proteins being covered by research
under the collaboration.
The Company's existing collaborations are as follows:
Pfizer Inc.
In April 1986, Pfizer and the Company entered into a collaborative
research agreement and several other related agreements. During the first five
years of the collaboration, the Company and Pfizer focused principally on
understanding the molecular biology of oncogenes. In 1991, Pfizer and the
Company renewed the collaboration for a second five-year term and expanded the
resources and scope of the collaboration to focus on the discovery and
development of cancer therapeutic products based on mechanisms-of-action that
target oncogenes and anti-oncogenes. Oncogenes play a key role in the conversion
of normal cells to a cancerous state and can cause cancer when they mutate or
over express. Anti-oncogenes, or tumor suppressor genes, encode proteins that
generally function to block the proliferative growth of particular cell types. A
loss of function of certain tumor suppressor genes can result in uncontrolled
cell growth. Effective April 1, 1996, the Company and Pfizer renewed their
collaboration for a new five-year term by entering into new collaborative
research and license agreements.
Currently, the Company's collaboration with Pfizer focuses on
discovering compounds that act upon various target proteins involved in cancer.
The Company's screening program has resulted in the identification of a
proprietary lead compound, CP-358,774, that inhibits the activity of the
Epidermal Growth Factor Receptor, a protein associated with a number of major
cancers. Pfizer is conducting Phase I safety and toxicity studies in the United
States on this compound. The continued development of this compound depends on
several factors outside the control of the Company, including the amount and
timing of resources devoted by Pfizer, successful completion of safety and
toxicity studies and successful optimization of the compound. There can be no
assurance that a drug will result from this program.
All patent rights and patentable inventions derived from the research
under this collaboration are owned jointly by the Company and Pfizer. The
Company 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 and
Pfizer are prohibited during the term of the contract from independently
pursuing or sponsoring research aimed at the compounds or products in the target
area, except that the Company may conduct research with respect to human
diagnostic products within the area of its collaborative research with Pfizer.
The collaborative research agreement will expire on April 1, 2001. However, it
may be terminated earlier by either party upon the occurrence of certain
defaults by the other party. Any termination of the collaboration resulting from
a Pfizer default will cause a termination of Pfizer's license rights. Pfizer
will retain its license rights if it terminates the agreement in response to a
default by the Company. In addition, between July 1 and September 30, 1998,
Pfizer may terminate the collaborative research agreement, with or without
cause, effective March 31, 1999. Furthermore, between July 1 and September 30,
1999, Pfizer may terminate the collaborative research agreement, with or without
cause, effective March 31, 2000. In the event of such early termination, Pfizer
will retain its license rights.
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From 1986 to March 1997, Pfizer paid an aggregate amount of $36.4
million to the Company in research funding. In 1986, Pfizer purchased 587,500
shares of the Company's common stock, which constitutes approximately 2.6% of
the Company's outstanding common stock, for an aggregate purchase price of
$3,525,000. Under the current collaborative research agreement, Pfizer has
committed to provide research funding to the Company in an aggregate amount of
approximately $18.8 million. Pursuant to a schedule set forth in the
collaborative research agreement, Pfizer will make annual research funding
payments to the Company, which will gradually increase from a maximum of
approximately $3.5 million in the first year of the five-year term to
approximately $4 million in the fifth year.
Hoechst Marion Roussel, Inc.
The Company is pursuing various areas jointly with HMRI in two
collaborative efforts. Effective as of January 1, 1997, the Company entered into
a Collaborative Research and License Agreement with HMRI to develop orally
active, small molecule inducers of erythropoietin gene expression for the
treatment of anemia due to chronic renal failure and anemia associated with
chemotherapy for AIDS and cancer. This collaboration is focused on the
preclinical and clinical development of lead compounds previously discovered by
the Company from its natural products and combinatorial chemistry libraries and
from HMRI's compound library. In addition, effective as of April 1, 1997, the
Company and HMRI entered into an Amended Collaborative Research and License
Agreement that consolidated and extended formerly separate collaborative
programs between the Company and each of Marion Merrell Dow Inc. ("MMDI"),
Hoechst Roussel Pharmaceuticals, Inc. ("Hoechst Roussel") and Hoechst AG
("Hoechst"). This resulted from the corporate reorganization of HMRI in July
1995 in which the pharmaceutical operations of MMDI, Hoechst Roussel and Hoechst
were combined into HMRI. This Amended Collaborative Research and License
Agreement provides for HMRI and the Company to collaborate in the discovery and
development of drugs for the treatment of atherosclerosis, inflammation,
arthritis and metabolic diseases. HMRI holds 1,590,909 shares of common stock of
the Company, which includes a warrant to purchase 500,000 shares of the
Company's common stock for $5.50 per share.
Anemia. The anemia collaboration is focused on developing orally
active, small molecules that induce gene expression of the protein
erythropoietin. Under the terms of the agreement, a research committee, with
equal representation from the Company and HMRI, prepares and approves research
plans and reviews and evaluates progress under the plans. Both the Company and
HMRI are contributing medicinal chemistry and preclinical optimization teams
under the agreement. HMRI has the exclusive right to conduct preclinical and
clinical development of drug candidates emerging from the program. The Company
may receive from HMRI up to $30 million in research funding, milestone payments
and success fees depending on HMRI's clinical success.
The Company has granted to HMRI exclusive, worldwide licenses to, among
other things, use, manufacture and sell products resulting from the
collaboration. In exchange for these licenses, HMRI will pay the Company
royalties on the sales by HMRI of any products resulting from the collaboration.
The duration of the licenses is coextensive with the lives of the patents
related to the licensed compounds. The Company and HMRI each have certain
rights and obligations to prosecute and maintain patent rights related to
specified areas of the research under the agreement.
Generally, the Company and HMRI are prohibited during the term of the
collaboration from pursuing or sponsoring research and development of compounds
and products in the target area other than pursuant to the agreement without the
approval of the research committee. The term of the agreement is segmented into
three periods: (1) an option period, which terminates on March 31, 1998; (2) a
contract period, which continues until March 31, 2000; and (3) a development
phase which commences March 31, 1998 and continues for as long as HMRI continues
development activities. During the option period, the agreement may be
terminated by mutual written agreement of the parties. If HMRI elects not to
participate in the contract period term or discontinues participation during the
contract period term or development phase, it will offer the Company and the
Company may accept the license rights to develop and commercialize the compounds
and products of the collaboration, subject to payment of royalties by the
Company to HMRI. The agreement is also subject to early termination in the event
of certain defaults by the parties.
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Atherosclerosis, Inflammation, Arthritis and Metabolic Diseases.
Pursuant to the Amended Collaborative Research and License Agreement effective
April 1, 1997, the Company and HMRI are conducting joint research and
development activities in the areas of atherosclerosis, inflammation, arthritis
and metabolic diseases. In the atherosclerosis program, the Company has
completed screening HMRI's compound libraries. This has resulted in the
identification of several lead compounds, which HMRI is optimizing for further
development. In the inflammation, arthritis and metabolic diseases program, the
Company has completed the screening of HMRI's compound libraries against
specified targets. The lead compounds identified in these screens are undergoing
further analysis, including evaluation in animal models, by HMRI.
Under this collaboration, a research committee, with equal
representation from OSI and HMRI, meets at least three times a year to evaluate
the progress of the research program, make priority and program decisions, and
prepare research plans identifying the drug targets to be pursued. New targets
are added to the program on an ongoing basis by mutual agreement. The Company is
responsible for achieving objectives outlined in the annual research plans. HMRI
is responsible for assisting the Company in the pursuit of such objectives,
including advancing the pharmacological assessment of compounds identified by
the Company, determining the chemical structure of the selected compounds,
identifying and selecting development candidates, pursuing clinical development
and regulatory approval, and developing manufacturing methods and pharmaceutical
formulations for the selected candidates. HMRI is responsible for funding the
costs of the Company's discovery efforts. As of September 30, 1997, the
Company had received or accrued an aggregate of $16.1 million in research
funding from HMRI and its predecessors.
The Company has granted to HMRI (i) an exclusive, worldwide license
with respect to, among other things, the use, manufacture and sale of products
resulting from their atherosclerosis research collaboration and (ii) the right
to obtain an exclusive, worldwide license with respect to any therapeutic
product derived from the inflammation, arthritis and metabolic disease program.
In exchange for these licenses, HMRI will pay royalties to the Company on sales
of such products. The Company and HMRI have mutually exclusive rights and
obligations to prosecute and maintain certain patent rights related to various
specified areas of the research.
Generally, the Company is prohibited during the term of the
collaboration from pursuing or sponsoring research independent of HMRI if it
relates to the identified targets in the areas of collaboration with HMRI
without the approval of the research committee. HMRI is generally prohibited
from using the gene transcription method independent of OSI to discover novel
human therapeutic products without the approval of the research committee. The
agreement expires on the later of March 31, 2002 or the last to expire of
any obligations of HMRI to pay royalties. 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 an HMRI
default will cause a termination of certain of HMRI's license rights. HMRI will
retain its license rights if it terminates the agreement in response to a
default by the Company.
Sankyo Company, Ltd.
Effective as of February 12, 1997, the Company entered into a
Collaborative Research and License Agreement with Sankyo to be conducted in
partnership with MRC Collaborative Center ("MRC CC"), London, U.K. The
collaboration is focused on discovering and developing novel pharmaceutical
products to treat influenza.
Under the terms of the agreement, a research committee was formed
consisting of three representatives from Sankyo, two representatives from the
Company and one representative from MRC CC. The committee monitors the
progress of the research program and directs the objectives, tasks and required
activities of the collaboration. The Company is responsible for conducting
research as directed by the research committee, including, without limitation,
compound screening in exchange for research funding from Sankyo. Sankyo has the
responsibility and the exclusive right to conduct preclinical and clinical
development of all candidate compounds in exchange for milestone payments to the
Company.
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The Company and MRC CC have granted to Sankyo exclusive, worldwide
licenses to, among other things, use, manufacture and sell all products
resulting from the collaboration. In exchange for these licenses, Sankyo will
pay to the Company and MRC CC license fees and royalties on product sales. The
duration of the licenses is coextensive with the lives of the patents related to
the licensed compound. If Sankyo discontinues development of all candidate
compounds, the Company will have the sole and exclusive right to develop, use,
manufacture and sell all products resulting from the collaboration, and it will
pay royalties to Sankyo. Each of the parties has rights and obligations to
prosecute and maintain patent rights related to specified areas of the research
under the agreement.
Generally, the Company, Sankyo and MRC CC are prohibited during the
term of the contract from pursuing or sponsoring research and development of
compounds and products in the anti-influenza area other than pursuant to the
agreement. The agreement is for a term of three years, with the option to extend
for an additional one or two year period upon conditions and terms acceptable to
the Company, Sankyo and MRC CC. The agreement is subject to early termination in
the event of certain defaults by the parties.
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 was to discover and develop
transcription-based drugs for the treatment of diabetes, immune system
modulation, asthma and osteoporosis. This collaboration was successful in
identifying active compounds on all four protein targets. Wyeth has continued
pre-clinical evaluation of compounds active against diabetes targets and is
continuing research in the diabetes program. Wyeth is responsible for 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
funded portion of this collaboration was concluded on December 31, 1996 in
accordance with the terms of the collaborative research agreement.
The Company has granted to Wyeth an option which is valid until
December 31, 1997, to obtain exclusive, worldwide licenses with respect to
products resulting from this collaboration in exchange for royalties to the
Company on sales of such products. Under the agreement, all technology and
patent rights will remain owned by the respective parties and each party has the
right to prosecute and maintain its own patents. Wyeth has funded the Company's
drug discovery efforts under this collaboration. As of September 30, 1997, Wyeth
had provided the Company with an aggregate of $6.1 million in research funding.
The Company has established the following discovery and development
co-ventures:
BioChem Pharma (International) Inc.
Effective as of May 1, 1996, the Company entered into a Collaborative
Research, Development and Commercialization Agreement with BioChem Pharma. Under
this agreement, the parties will seek to discover and develop antiviral drugs
for the treatment of Hepatitis B virus, Hepatitis C virus and HIV, although the
focus of the collaborative efforts may change at the discretion of a joint
steering committee. This agreement provides that the Company and BioChem Pharma
will jointly commit resources to the collaborative program. The Company and
BioChem Pharma will share equally the commercialization rights in the U.S. and
Europe for any products resulting from the collaboration. BioChem Pharma will
exclusively own commercialization rights in Canada. The agreement is for a term
of five years, with automatic, successive one-year renewal periods thereafter.
After May 1, 1999, however, either party may terminate the agreement by giving
the other party six-months prior written notice. The agreement is also subject
to early termination in the event of certain defaults by either party. BioChem
Pharma presently holds 500,000 shares of common stock of the Company.
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Sepracor, Inc.
On March 7, 1997, the Company entered into a Collaborative Research
Development and Commercialization Agreement with Sepracor. Under this agreement,
the parties will seek to discover and develop certain anti-infective agents and
anti-inflammatory agents. A joint steering committee consisting of equal
representation from each of the parties will manage all aspects of the research
program. The Company and Sepracor will commit equal resources to the program,
including, among other things, access to all their respective compound libraries
and dedicated teams of research scientists. Generally, the parties will share
equally the commercialization rights throughout the world for products derived
from the program and will share equally the profits from sales of such products,
except that in the case of drugs that are derived from two specified lead series
that were contributed to the collaboration by Sepracor (and for which Sepracor
had previously established activity against specified targets), Sepracor will
receive 75% of such profits (and bear 75% of the commercialization
responsibilities). The agreement is for a term of three years, with automatic
successive one-year renewal terms thereafter (subject to the right of either
party to terminate the agreement at the end of each term). The agreement is
subject to early termination in the event of specified defaults by either party.
The Company and Sepracor are prohibited from conducting independently any
research within the scope of the co-venture without the consent of the joint
steering committee.
Xenometrix, Inc.
On June 27, 1997, the Company and Xenometrix, Inc. entered into an
agreement pursuant to which they will jointly seek a corporate partner to fund a
technology collaboration for the development of automated systems to generate
and analyze certain data relating to toxicological, metabolic and undesirable
systemic effects of drug candidates. The parties have cross licensed certain of
their respective assay technologies on a worldwide, royalty-free, non-exclusive
basis. The agreement is for a period of nine months, with automatic successive
three month renewal periods. Each party is prohibited from negotiating
independently with any potential corporate partner with respect to the subject
matter of this agreement without the consent of the other party. No assurance
can be given that the parties will identify or contract with an appropriate
corporate partner.
The Company has established the following equity co-ventures:
Anaderm Research Corporation
On April 23, 1996, in connection with the formation of Anaderm Research
Corp., a Delaware corporation ("Anaderm"), the Company entered into a
Stockholders' Agreement (the "Stockholders' Agreement") among the Company,
Pfizer, Anaderm, New York University ("NYU") and certain NYU faculty members
(the "Faculty Members"), and a Collaborative Research Agreement (the "Research
Agreement") among the Company, Pfizer and Anaderm for the discovery and
development of novel compounds to treat conditions such as baldness, wrinkles
and pigmentation disorders. Anaderm has issued common stock to Pfizer and the
Company and options to purchase common stock to NYU and the Faculty Members. NYU
and the Faculty Members have exercised their options fully, and Pfizer holds
82%, the Company holds 14%, and NYU and the Faculty Members collectively hold
4%, of Anaderm's common stock. In exchange for its 14% of the outstanding shares
of Anaderm common stock, the Company provided formatting for high throughput
screens and conducted compound screening for 18 months at its own expense under
the Research Agreement.
The term of the initial Research Agreement was three years. During the
initial phase of the agreement (the first 18 months) the Company was required to
provide at its own cost formatting for high throughput screens and perform
screening of its own compounds and those compounds provided by Pfizer. Upon the
termination of the initial phase, the Board of Directors of Anaderm made a
determination that the initial phase was successfully completed. Pursuant to
Pfizer's approval, the funded phase commenced as of October 1, 1997 and will
continue for the term of the Research Agreement. During this phase, Anaderm will
make payments to the Company equal to its research costs, including overhead,
plus 10%. Anaderm or Pfizer will pay royalties to the Company on the sales of
products resulting from this collaboration.
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Helicon Therapeutics, Inc.
In July 1997, the Company, Cold Spring Harbor Laboratory and Hoffman-La
Roche Inc.("Roche") formed Helicon Therapeutics, Inc., a new Delaware
corporation ("Helicon"). In exchange for approximately 28% of Helicon's
outstanding capital stock, the Company will contribute to Helicon molecular
screening services and a nonexclusive license with respect to certain screening
technology. Such services are to be performed within one year. Cold Spring
Harbor Laboratory contributed a royalty-free license to commercialize certain
technology relating to genes associated with long-term memory in exchange for a
portion of Helicon's outstanding capital stock. Roche contributed cash for a
portion of Helicon's outstanding capital stock. Certain individuals associated
with Cold Spring Harbor Laboratory hold the remaining outstanding capital stock
of Helicon.
The parties have entered into various collaborative research and
license agreements pursuant to which they will jointly pursue the discovery,
development and commercialization of novel drugs for the treatment of long-term
memory disorders and other central nervous system dysfunctions. The initial term
of the collaborative program is three years, commencing as of July 1, 1997,
subject to extension for successive one-year periods upon agreement of the
parties. Roche, however, will have the right to terminate the program at the end
of the second year, or otherwise if certain milestones identified by the
research committee are not achieved. The Company and Cold Spring Harbor
Laboratory are to conduct research under the program, which will be funded by
Helicon (except for the molecular screening services the Company is contributing
to Helicon). Helicon is to receive funding from Roche for the first two years of
the program. If the program is not previously terminated, Roche is to continue
to provide funding for the third year of the program, with the actual amount to
be determined by a research committee established to oversee the collaborative
program. Roche is obligated to use reasonably diligent efforts to commercialize
products derived from the program.
Helicon has granted to Roche a worldwide license to commercialize
pharmaceutical products resulting from the collaborative program in exchange for
certain milestone payments and royalties on Roche's sales of such products. Each
of Helicon, the Company, Cold Spring Harbor Laboratory and Roche have various
rights and obligations to prosecute and maintain patent rights related to
specified developments and areas of the research under the collaborative
program. Helicon is prohibited from independently conducting or sponsoring
research related to the objectives of this collaborative program.
Recombinant TGF-Beta3 Collaboration
Novartis Pharma AG
In addition to its small molecule discovery programs, the Company has
developed the recombinant protein TGF-Beta3 for various indications. The
Company believes it was the first to isolate TGF-Beta3, a naturally occurring
human growth factor that exerts either stimulatory or inhibitory effects
depending upon the particular cell type to which it is applied. Topical or local
application of TGF-Beta3 in animal studies has been shown to enhance and
accelerate wound healing. Similarly, animal studies have shown that TGF-Beta3
can minimize the severity of ulcerative mucositis when administered prior to
chemotherapy.
The Company entered into an agreement with Novartis in April 1995
expanding the scope of the two companies' prior collaborative efforts with
respect to TGF-Beta3. This agreement grants to Novartis an exclusive,
worldwide license to use and sell TGF-Beta3 products for wound healing and
oral mucositis, as well as certain other indications, including psoriasis, and
an option to obtain rights to all other indications of TGF-Beta3 currently
held by the Company. In addition, Novartis has the worldwide license to
manufacture TGF-Beta3 for all indications.
Wound Healing. The Company is collaborating with Novartis in the
development of TGF-Beta3 in an application to promote soft tissue wound
healing, including venous leg ulcers, decubitus ulcers (pressure sores),
diabetic foot ulcers and burns. This is the primary indication for TGF-Beta3
on which Novartis and the Company are focusing. Such chronic cutaneous ulcers
afflict an estimated three million people in the U.S. TGF-Beta3 is
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believed to promote wound healing by recruiting inflammatory cells, such as
neutrophils and macrophages, and fibroblasts, and stimulating fibroblast
proliferation and extracellular matrix production. TGF-Beta3 is also believed
to stimulate angiogenesis (new blood vessel growth) at the wound site.
To date, Novartis has completed four Phase I safety studies, one in
Europe using a single dose of TGF-Beta3 applied to intact skin, one in the
U.S. using a multiple dose of TGF-Beta3 applied to intact skin, and two in
Japan. In all studies, the drug was found to be well tolerated with no adverse
effects. Novartis recently completed two Phase IIa safety/dose-finding studies,
one in Europe, involving a single dose administration to venous leg ulcer
patients, the other in the U.S., involving a single dose administration to
decubitis ulcer patients. The drug was found to be well tolerated in these
patients and shown initial efficacy data. Novartis initiated a comprehensive
Phase II clinical trial of venous leg ulcer patients in Europe, a clinical trial
in pressure sore patients in the U.S. and Canada and a venous ulcer, decubitis
ulcer and burn study in Japan during 1996. In addition, Novartis is conducting
additional Phase II venous leg ulcer, decubitus ulcer and burn wound clinical
trials in Japan. There can be no assurance that additional trials will
demonstrate safety and efficacy or will begin when planned, or at all in part
for the reasons discussed below.
Oral Mucositis. Oral mucositis is a painful, often debilitating
condition characterized by mouth and throat lesions that frequently occur as a
side effect of chemotherapy. In the U.S., over one million new cases of cancer
occur each year, over half of which receive multiple treatments of chemotherapy.
Approximately 40% of chemotherapy patients exhibit some degree of oral
mucositis. As a secondary indication, the Company and Novartis have developed
topical formulations of TGF-Beta3 in an attempt to temporarily inhibit the
high proliferative growth rate of certain normal cells in the mouth. The
Company's objective is to develop TGF-Beta3 to reduce the toxicity associated
with chemotherapeutic agents.
Under an agreement with the Company, Novartis is funding clinical
trials of TGF-Beta3 for oral mucositis in the United States and in Europe.
Having completed two Phase I clinical trials, Novartis has initiated
multi-center Phase II clinical studies in Europe and the U.S. Novartis will fund
all further Phase III clinical trials. No assurance can be given that any of
these clinical trials will demonstrate efficacy.
General. In exchange for its exclusive license with respect to the
wound healing, oral mucositis and certain other indications for TGF-Beta3,
Novartis will make royalty payments to the Company on the sale of TGF-Beta3
products. Also, Novartis 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, Novartis decides to initiate Phase III clinical trials (or
the equivalent in Europe) for oral mucositis, Novartis will be required to make
a $10 million payment to the Company. In exchange for such payment, Novartis's
license will be expanded to cover all other indications for TGF-Beta3.
Novartis 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 Novartis to pursue such clinical
trials, Novartis may nonetheless exercise an option within four years from
inception of the agreement, or by April 1999, to expand its license under the
agreement to cover all indications for TGF-Beta3 by making the $10 million
payment.
Novartis has the right to discontinue clinical development at any time,
in which case all of its license rights from the Company with respect to
TGF-Beta3 will be terminated and it will make available to the Company the
results of all clinical work up to the date such activity was discontinued.
Under the agreement, Novartis has the right to manufacture TGF-Beta3, and will
supply the Company and any licensee of the Company with all developmental and
commercial quantities of TGF-Beta3 required. With respect to the Company's
commercial requirements in the future, if any, Novartis and the Company have
agreed to negotiate terms pursuant to which Novartis will supply TGF-Beta3,
subject to a specified pricing formula should the parties fail to reach
agreement. If Novartis is unable or unwilling to scale up its capacity to
supply TGF-Beta3 to the Company or its licensees in sufficient quantities,
Novartis will license to the Company its technology relating to the production
of TGF-Beta3 on terms to be negotiated within specified parameters.
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The Company's agreement with Novartis ends upon the expiration of the
last Company's patents relating to TGF-Beta3.
Proprietary Drug Discovery And Development
Chronic Anemias
Currently, the Company's proprietary discovery and development efforts
are focused principally on sickle cell anemia and B-thalassemia that are caused
by genetic mutations which result in the mutation, absence or decrease in the
adult chain of hemoglobin (the protein in red blood cells that binds oxygen).
Currently available treatments for both of these diseases are inadequate and
expensive. The cost of treating each sickle cell patient in the U.S. has been
estimated to be in excess of $60,000 annually. Regular blood transfusions are
the mainstay of current therapy for thalassemia. The Company's approach to
address sickle cell anemia and thalassemia is to discover a small molecule
compound that increases expression of the fetal hemoglobin ("HbF") gene to
compensate for defects in the adult chain of hemoglobin. The Company has
identified lead compounds that induce the production of HbF and has initiated
pre-clinical developments.
Muscle Wasting Disorders
Muscular Dystrophy. Duchenne's and Becker's muscular dystrophy are due
to defects of the dystrophin gene. The Company is developing multiple approaches
in its discovery efforts with respect to a drug for the treatment of muscular
dystrophy. A portion of the funding for this project has been provided by the
Association Francaise Contre Les Myopathies ("AFM").
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 United
States.
The Company pursued serum and tissue based cancer diagnostic products
in collaboration with Becton, Dickinson and Company ("Becton") under a
collaborative program started in October 1991 (after an earlier technology
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. Pursuant to
an agreement entered into as of September 27, 1996, the Company has granted to
Becton world-wide licenses to make, use and sell tissue-based diagnostic
products that incorporate specified antibodies with respect to which the Company
owns patent or other proprietary rights. The Company has generally retained the
rights with respect to nontissue-based (i.e., serum-based) diagnostic products.
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The Company entered into a Collaborative Research and License Agreement
with the Bayer Corporation ("Bayer"), effective January 1, 1997, for the
development of serum-based cancer diagnostic products. Under this agreement, the
Company has granted to Bayer licenses to manufacture, use and sell clinical
diagnostic products based on the Company's cancer diagnostics technology in
exchange for royalties on net sales. Bayer will own all technology, and has the
exclusive right to commercialize clinical diagnostic products, derived from the
collaboration. Bayer's license is perpetual with respect to nonpatented
technology and will terminate with respect to patented technology upon the
expiration of the last to expire of the Company's patents. Bayer will provide
funding for the Company's research under the collaboration in the amount of $1.5
million for each of the first two years, and $1 million for each subsequent
year. The Company will be required to provide up to $500,000 in annual funding
for the collaboration to the extent the Company derives net revenues from
out-licensing any cancer diagnostics technology or the sale of any clinical
diagnostic or clinical research products. The agreement will terminate on
December 31, 2002. Bayer has the right to terminate the agreement at any time
after December 31, 1997 upon 12 months notice.
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 21 U.S. patents and 36 foreign patents. In
addition, the Company currently has pending 28 applications for U.S. patents, 5
of which have been allowed, and 44 applications for foreign patents, 3 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.
In September 1997, the Company was issued U.S. Patent No. 5,665,543,
which claims a method of identifying compounds that specifically modulate
expression of target genes using cells engineered to include reporter genes. The
Company has additional patent applications pending, some of which have been
allowed, which should enhance the Company's patent position in the area of gene
transcription, including an allowed U.S. patent application claiming a method
of specifically modulating gene transcription in a multicellular organism using
a low molecular weight compound.
There can be no assurance that patents will issue based upon the
Company's pending patent applications or any applications which it may file in
the future, that any patent issued will adequately protect a commercially
marketable product or process or that any patent issued will not be circumvented
or infringed by others or declared invalid or unenforceable. Moreover, there can
be no assurance that others may not independently develop the same or similar
technology or obtain access to the Company's proprietary technology. The Company
is aware of patents issued to other entities with respect to technology
potentially useful to the Company and, in some cases, related to products and
processes being used or developed by the Company. The Company currently cannot
assess the effect, if any, that these patents may have on its operations in the
future. The extent to which efforts by other researchers resulted or will result
in patents and the extent to which the issuance of patents to other entities
would have a material adverse effect on the Company or would force the Company
to seek licenses from such other entities currently is unknown as is the
availability to the Company of licenses from such other entities, and whether,
if available, such licenses can be obtained on terms acceptable to the Company.
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In the cancer diagnostics area, the Company has an issued U.S. patent
and a granted European patent relating to an assay the Company, in collaboration
with Bayer, is seeking to develop for the detection of a protein encoded by the
neu oncogene ("neu") in serum. The U.S. Patent Office has declared an
interference between the Company's issued U.S. Patent and a pending patent
application owned by Chiron Diagnostics Inc. ("Chiron"). In addition, Chiron has
filed an opposition against the corresponding granted European patent. These
legal proceedings, if not settled, could result in substantial legal expenses
being incurred by the Company. Also, the Company cannot predict whether it would
prevail in these proceedings. If the Company does not prevail, it may not be
able to commercialize its assay for neu in serum without a license from Chiron,
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-Beta3, 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-Beta3. 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-Beta1. Furthermore, Celtrix Pharmaceuticals, Inc.
("Celtrix") has been granted a European patent relating to TGF-Beta2.
The Company believes that the currently planned development by the
Company and Novartis, its collaborative partner for TGF-Beta3, involving
manufacture in Europe by Novartis of TGF-Beta3 in nonmammalian cells for
subsequent distribution in Europe and the United States does not infringe any
valid claim of any patent owned by Genentech, by the U.S. Government or by
Celtrix. The Company and Novartis 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 Novartis or the Company based on such patents.
The Company has received communications from Sibia Neuroscience, Inc.
("Sibia") in which Sibia has stated the Company's live-cell assay technology may
infringe a patent issued to Sibia covering cell-based assays. The Company does
not believe that it is infringing any valid claim of Sibia's patent or of any
patents owned by any other third parties. However, there can be no assurance
that a contrary position will not be asserted, or that, if asserted, such a
position would not prevail. If a patent infringement lawsuit were brought
against the Company or its licensees, the Company could incur substantial costs
in defense of such a suit, which could have a material adverse effect on the
Company's business, financial condition and results of operation, regardless of
whether the Company were successful in the defense. Furthermore, if Sibia (or
any other third party) were to establish that the Company's assays infringe
Sibia's patent (or any patent of any other third party), then the Company would
be required to design non-infringing assays or take a license under Sibia's
patent. There can be no assurance the Company would successfully design such
assays or that such a license would be available on acceptable terms or at all.
Moreover, the Company's royalties may be reduced by up to 50% if its licensees
or collaborative partners are required to obtain licenses from third parties
whose patent rights are infringed by the Company's products, technology or
operations.
COMPETITION
The pharmaceutical, biotechnology and diagnostics industries are
intensely competitive. The Company faces, and will continue to face, intense
competition from organizations such as large pharmaceutical companies,
biotechnology companies, diagnostic companies, academic and research
institutions and government agencies. The Company is subject to significant
competition from industry participants who are pursuing the same or similar
technologies as those which constitute the Company's technology platform and
from organizations that are pursuing pharmaceutical products or therapies or
diagnostic products that are competitive with the Company's potential products.
Most of the organizations competing with the Company have greater capital
resources, research and development staffs and facilities, and greater
experience in drug discovery and development, obtaining regulatory approval and
pharmaceutical product manufacturing and marketing. The Company's major
competitors include fully integrated pharmaceutical companies, such as Merck &
Co., Inc., Glaxo Wellcome Inc.
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and Smith Kline Beecham, that conduct extensive drug discovery efforts and
are developing novel small molecule pharmaceuticals, as well as numerous smaller
companies.
The Company's technology platform consists principally of utilizing
genetically engineered live cells, gene transcription technologies, high
throughput drug screening, and medicinal, combinatorial and natural product
chemistry. Pharmaceutical and biotechnology companies and others are active in
all of these areas. Ligand Pharmaceuticals Inc. and Aurora Biosciences, Inc.,
publicly owned companies, employ live-cell assays, gene transcription, and high
throughput robotics in their drug discovery operations. Numerous other companies
use one or more of these technologies. Several private companies, including
Tularik Inc., Signal Pharmaceuticals Inc. and Scriptgen Pharmaceuticals, Inc.,
pursue drug discovery using gene transcription methods. Other organizations may
acquire or develop technology superior to that of the Company.
Companies pursuing different but related fields also present
significant competition for the Company. For example, research efforts with
respect to gene sequencing and mapping are identifying new and possibly superior
target genes. In addition, alternative drug discovery strategies, such as
rational drug design, may prove more effective than those pursued by the
Company. Furthermore, competing entities may have access to more diverse
compounds for testing by virtue of larger compound libraries or through
combinatorial chemistry skills or other means. These include Pharmacopeia, Inc.,
CombiChem, Inc. and ArQule, Inc., all of which have major collaborations with
leading pharmaceutical companies. There can be no assurance that the Company's
competitors will not succeed in developing technologies or products that are
more effective than those of the Company or that would render the Company's
products or technologies obsolete or noncompetitive.
With respect to the Company's small molecule drug discovery programs,
other companies have potential drugs in clinical trials to treat disease areas
for which the Company is seeking to discover and develop drug candidates. These
competing drug candidates may be further advanced in clinical development than
are any of 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-Beta3 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
had filed a Product Licensing Application ("PLA") for PDGF with the FDA and in
July 1997, an FDA advisory panel recommended approval. 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-Beta2 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 Novartis will successfully develop TGF-Beta3
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.
Organogenesis, Inc. presently has an application for Apligraft(TM), a
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treatment for wounds after autografting, pending premarket approval. No
assurance can be given that TGF-Beta3 will prove to be effective or will compete
successfully against current and emerging therapies for any particular clinical
indication.
The Company believes that its ability to compete successfully will be
based on, among other things, its ability to create and maintain scientifically
advanced technology, attract and retain scientific personnel with a broad range
of expertise, obtain patent protection or otherwise develop proprietary products
or processes, enter into collaborative arrangements, and, independently or with
its collaborative partners, conduct clinical trials, obtain required government
approvals on a timely basis, and commercialize its products.
MANUFACTURING
Novartis has the exclusive right to, and the Company will rely on
Novartis for, the manufacture of TGF-Beta3 for all of the Company's requirements
for clinical trials and commercial purposes. The Company believes that, if
Novartis should fail to meet its requirements, there are other companies that
could manufacture and supply TGF-Beta3, 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 expect to develop significant marketing and sales
capabilities. Potential therapeutic products subject to the Company's
collaborative agreements with Pfizer, HMRI, Wyeth, Sankyo, BioChem Pharma, and
Novartis, and potential diagnostic products under the Company's collaboration
with Bayer, will be marketed by those companies worldwide. The Company will
receive royalties of up to 8% 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 pre-clinical 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) pre-clinical
laboratory and animal tests, (ii) submission to FDA of an investigational new
drug application ("NDA"), 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-Beta3, 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.
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Preclinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies, to assess the potential safety and
efficacy of the product. Certain preclinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
preclinical tests are submitted to the FDA as part of an IND and are reviewed by
the FDA prior to the commencement of clinical trials.
Clinical trials are conducted under protocols that detail such matters
as the objectives of the study, the parameters to be used to monitor safety and
the efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND.
Clinical trials are typically conducted in three sequential phases,
which may overlap. During Phase I, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase II involves studies in a limited
patient population to: (i) evaluate preliminarily the efficacy of the product
for specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Pivotal or
Phase III trials are undertaken in order to further evaluate clinical efficacy
and to further test for safety within an expanded patient population. The FDA
may suspend or terminate clinical trials at any point in this process if it
concludes that clinical subjects are being exposed to an unacceptable health
risk.
FDA approval of the Company's and its collaborators' products,
including a review of the manufacturing processes and facilities used to produce
such products, will be required before such products may be marketed in the
United States. The process of obtaining approvals from the FDA can be costly,
time consuming and subject to unanticipated delays. There can be no assurance
that approvals of the Company's proposed products, processes or facilities will
be granted on a timely basis, if at all. Any failure to obtain or delay in
obtaining such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, even if
regulatory approval is granted, such approval may include significant
limitations on indicated uses for which a product could be marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's manufacturing procedures conform to Good
Manufacturing Practices ("GMP") requirements, which must be followed at all
times. In complying with those requirements, manufacturers (including a drug
sponsor's third-party contract manufacturers) must continue to expend time,
money and effort in the area of production and quality control to ensure
compliance. Domestic manufacturing establishments are subject to periodic
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 United States, it must be the subject of an approved NDA or comply with
FDA regulations pertaining to INDs.
18
<PAGE> 19
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and future federal, state or
local regulations. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
Diagnostic tests undergo different FDA review processes depending
whether they are classified as "biologicals" or "medical devices." For medical
devices, a 510(k) application (for a product substantially equivalent to a
product already on the market) or a premarket approval 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
premarket approval as opposed to filing a 510(k) application.
EMPLOYEES
The Company believes that its success is largely dependent upon its
ability to attract and retain qualified personnel in scientific and technical
fields. As of September 30, 1997, the Company employed 156 persons worldwide
(128 in the United States), of whom 130 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.
19
<PAGE> 20
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 also
has two wholly-owned subsidiaries, Aston Molecules Ltd. and MYCOsearch, Inc.,
each of which lease facilities which house their offices and drug discovery
laboratories. Aston Molecules Ltd. leases a 9,689 square foot facility located
at 10 Holt Court, Aston Science Park, Birmingham, England. MYCOsearch, Inc.
leases two facilities, one located at Five Oaks Office Park, 4905 Pine Cone
Drive, Durham, North Carolina consisting of 4,280 square feet and the other
located at 4727 University Drive, Durham, North Carolina consisting of 8,000
square feet. The Company believes that its facilities will be adequate to meet
current requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal 1997.
20
<PAGE> 21
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 OSIP.
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 1996 through September
30, 1997 as reported on the NASDAQ National Market:
<TABLE>
<CAPTION>
1997 FISCAL YEAR HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter........................................................... $9 $6-1/4
Second Quarter.......................................................... 7-7/8 5-5/8
Third Quarter........................................................... 6-15/16 4-3/4
Fourth Quarter.......................................................... 11-3/4 5-5/8
1996 FISCAL YEAR HIGH LOW
---------------- ---- ---
First Quarter .......................................................... $10-3/4 $5
Second Quarter.......................................................... 11-1/8 8
Third Quarter........................................................... 12-1/2 8-7/8
Fourth Quarter.......................................................... 10-1/2 7-1/8
</TABLE>
As of November 30, 1997, there were approximately 659 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.
RECENT SALE OF UNREGISTERED SECURITIES
Pursuant to Section 4(2) of the Securities Act of 1933, as amended, on
March 18, 1997, the Company issued 352,162 shares of its common stock to The Dow
Chemical Company. For a description of the transaction, see "Business-OSI's
Technology Platform-Diverse Compound Libraries."
21
<PAGE> 22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
with respect to the Company for each of the years in the five-year period ended
September 30, 1997. 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
----------------------------------------------------------------------------------------
1997(a) 1996(b) 1995(c) 1994(d) 1993(e)
------- ------- ------- ------- -------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $14,777,323 $9,718,437 $15,864,999 $16,299,489 $16,088,021
Expenses:
Research and development 16,896,617 13,918,968 13,523,043 12,125,210 10,659,806
Production 635,768 134,529 1,252,990 1,427,981 1,443,649
Selling, general and
administrative 7,424,265 6,314,697 7,140,208 7,487,090 6,429,701
Amortization of
intangibles 1,460,748 1,452,755 1,696,561 1,745,163 1,745,713
Loss from operations (11,640,075) (12,102,512) (7,747,803) (6,485,955) (4,190,848)
Other income, net 2,053,838 2,160,377 768,744 762,031 884,806
Gain on sale of Research
Products Business -- - 2,720,389 -- --
Net loss (9,586,237) (9,942,135) (4,258,670) (5,723,924) (3,306,042)
Net loss per share (0.44) (0.50) (0.25) (0.35) (0.21)
Weighted average number of
shares of common stock
outstanding 21,604,344 19,712,274 16,757,370 16,335,000 16,080,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and short-term
investments $31,834,669 $47,542,745 $26,786,566 $18,157,891 $22,390,454
Accounts receivable 1,215,672 2,031,950 1,320,015 3,032,839 3,146,990
Working capital 29,612,616 47,181,407 26,127,781 21,208,145 25,914,827
Total assets 59,585,565 73,537,054 44,057,421 42,040,900 47,614,538
Stockholders' equity 52,944,868 68,286,959 40,549,636 38,656,314 45,044,603
</TABLE>
- ----------
(a) During fiscal 1997, the Company entered into collaborative agreements
with Sankyo and Bayer, expanded its collaboration with HMRI, entered
into co-venture agreements with Sepracor and Helicon, entered into a
license agreement with Dow, and repurchased its common stock held by
Becton (See Notes 2(d), 5 and 9(a) to the Consolidated Financial
Statements).
(b) During fiscal 1996, the Company acquired MYCOsearch and Aston and
completed an offering of its common stock (See Notes 2 and 9(b) to the
Consolidated Financial Statements).
(c) During fiscal 1995, the Company sold its Research Products Business and
also sold shares of its common stock to Novartis (See Notes 4 and 9(e)
to the Consolidated Financial Statements).
22
<PAGE> 23
(d) 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".
(e) During fiscal 1993, the Company entered into collaborative agreements
with MMDI and Hoechst and also sold shares of its common stock to
MMDI (See Note 5(b) to the Consolidated Financial Statements).
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUES
Total revenues of $14.8 million in fiscal 1997 increased approximately
$5.1 million or 52% compared to fiscal 1996 and total revenues of $9.7 million
in fiscal 1996 decreased approximately $6.1 million or 39% compared to fiscal
1995. Collaborative program revenues increased approximately $3.9 million or
46%, in fiscal year 1997 due to new collaborative research and license
agreements with each of: (1) Hoechst Marion Roussel, Inc. ("HMRI"), to develop
orally active, small molecule drugs for the treatment of chronic anemia; (2)
Sankyo Company, Ltd. ("Sankyo") of Japan to discover and develop novel
pharmaceutical products to treat influenza; and (3) Bayer Corporation ("Bayer")
for the continuing development of serum-based cancer diagnostics. Included in
the revenue was a $1.0 million initiation fee from HMRI in connection with the
chronic anemia program, which was recorded in the quarter ended March 31, 1997.
The increase in revenues was partially offset by a decrease in revenues related
to the completion on December 31, 1996 of the funded discovery phase of the
Company's collaborative program with Wyeth-Ayerst Laboratories ("Wyeth")
relating to the discovery and development of drugs for the treatment of diabetes
and osteoporosis and the completion on September 30, 1996 of the funded
collaboration with Becton, Dickinson and Company ("Becton") relating to the
development of serum-based cancer diagnostics. Sales revenues, representing
primarily service revenue from the pharmaceutical division of the Company's
Aston Molecules Ltd. ("Aston") subsidiary and sales of research products
increased approximately $1.1 million or 1008%. The increase was primarily due to
the inclusion of the service revenues of Aston, which the Company acquired in
September 1996. Aston's service business is supplemental to the Company's
internal medicinal chemistry operations. Other research revenues, representing
primarily government and other research grants, increased approximately $143,000
or 11%. The increase was primarily due to the inclusion of a muscular dystrophy
grant from the French Muscular Dystrophy Association.
The decrease in total revenues of approximately $6.1 million in fiscal
1996 compared to fiscal 1995 was attributable to the sale of the Company's
Research Products Business in August 1995. Accordingly, there were no
significant sales of research products recorded after this date. Approximately
$4.2 million of the decrease in total revenues in fiscal 1996 was attributable
to the sale of the Research Products Business in fiscal 1995. Collaborative
program revenues decreased by approximately $1.3 million or 14% in fiscal 1996
largely due to a reduction in revenue under the collaboration agreement with
HMRI, as compared to the total revenue in the prior year's periods from Marion
Merrell Dow Inc. ("MMDI"), Hoechst Roussel Pharmaceuticals, Inc. ("Hoechst
Roussel") and Hoechst AG ("Hoechst") as well as a reduction in the funding under
the Becton collaboration due to a narrowing of scope in that program. The
balance of the decrease represents changes in the timing and amount of grant
awards.
EXPENSES
Research and development expenses increased by approximately $3.0
million or 21% in fiscal 1997 compared to fiscal 1996 and increased by
approximately $396,000 or 3% in fiscal 1996 compared to fiscal 1995. The
increase in fiscal 1997 was due to the expansion of the Company's joint ventures
with BioChem Pharma (International) Inc. ("BioChem Pharma") and Anaderm
Corporation, and the new collaborative agreements with Sankyo and HMRI. Although
the Company incurred expense in connection with its serum-based cancer
diagnostics collaboration with Bayer, these expenses generally were offset
(relative to the comparable periods in the prior fiscal year) by the elimination
of expenditures with respect to (i) the Company's former tissue-based cancer
diagnostics collaboration with Becton, which expired on September 30, 1996 and
(ii) the discovery and development of drugs for the treatment of diabetes and
osteoporosis by Wyeth which was competed December 31, 1996. Also contributing to
the increase in expenses were costs associated with the expansion of the
Company's natural products discovery and medicinal chemistry operations at its
MYCOsearch, Inc. ("MYCOsearch") and Aston subsidiaries. The Company acquired
MYCOsearch in April 1996. In addition, research and development expenses
included the amortization of the Company's compound library assets which
increased by approximately $1.1 million in fiscal 1997 reflecting a full year of
amortization of the fungi cultures acquired in April 1996 upon the acquisition
of MYCOsearch.
24
<PAGE> 25
The increase in fiscal 1996 was due to an increase in expenditures in
the Company's joint venture with Biochem Pharma, and its technology development
programs as well as additional amortization expense on the newly acquired
MYCOsearch assets. These increases were partially offset by reductions in
expenditures in the collaborative programs, primarily with HMRI.
Production and service costs increased approximately $501,000 in fiscal
1997, and decreased approximately $1,118,000 in fiscal 1996. The increase in
fiscal 1997 was due to the acquisition of Aston's pharmaceutical development
business. The decrease in fiscal 1996 was due to the Company's sale of the
Research Products Business.
Selling, general and administrative expenses increased approximately
$1.1 million or 18% in fiscal 1997 compared to fiscal 1996. These increases were
primarily related to the expenses associated with the Company's corporate
development activities and the general and administrative costs associated with
the expansion of the Company's recently acquired subsidiaries. Selling, general
and administrative expenses decreased approximately $826,000 or 12% in fiscal
1996 compared to fiscal 1995. This decrease reflected the reduction in sales and
marketing expenses due to the sale of the Company's Research Products Business,
partially offset by increases in expenses related to corporate development
activities.
Amortization of intangibles in fiscal 1997, 1996, and 1995 represents
amortization of patents and goodwill that resulted from the acquisition of the
cancer diagnostics business of Applied bioTechnology in fiscal 1991 and Aston in
fiscal 1996. The decrease in amortization expense in fiscal 1996 is due to the
portion of goodwill which was expensed in connection with the sale of the
Company's Research Products Business. The goodwill related to Applied
bioTechnology approximated $686,000 per annum and was fully amortized as of
September 1996. Amortization expense in fiscal 1997 includes the first year of
amortization of the goodwill from the acquisition of Aston totaling $694,000.
OTHER INCOME AND EXPENSE
Net investment income decreased approximately $70,000 or 3% for fiscal
1997 compared to fiscal 1996, This decrease was a result of the decline in
principal balance invested.
Net investment income increased approximately $1.3 million or 159% for
fiscal 1996 compared to fiscal 1995. This increase was largely due to investment
of the proceeds from the Company's public offering of common stock in April
1996. Net proceeds from the offering (along with the concurrent sale of 500,000
shares directly to BioChem Pharma) were approximately $30.3 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, working capital (representing primarily cash,
cash equivalents and short-term investments) aggregated approximately $29.6
million. The Company is dependent upon collaborative research revenues,
government research grants, interest income and cash balances, and will remain
so until products developed from its technology are successfully commercialized.
The Company believes that with the funding from its collaborative
research programs, government research grants, interest income, and cash
balances, its financial resources are adequate for its operations for
approximately the next four years based on its current business plan even if no
milestone payments or royalties are received during this period. However, the
Company's capital requirements may vary as a result of a number of factors,
including, but not limited to, competitive and technological developments, funds
required for further expansion or enhancement of the Company's technology
platform, (including possible additional joint ventures, collaborations and
acquisitions), potential milestone payments, and the time and expense required
to obtain governmental approval of products, some of which factors are beyond
the Company's control.
One of the Company's strategic objectives is to manage its financial
resources and the growth of its drug discovery and development programs so as to
balance its proprietary efforts and co-ventures with its funded
25
<PAGE> 26
collaborations. In pursuing this objective, the Company in fiscal 1997 has
expanded the scope of its discovery and development activities without
significantly increasing its rate of cash consumption. An example of this was
the conversion of the Company's chronic anemia program from an exclusively
proprietary effort to a funded collaboration with HMRI in the second quarter of
fiscal 1997. This made additional resources formerly allocated to the
proprietary chronic anemia program available for other proprietary programs and
co-ventures without requiring an increase in the rate of cash consumption. The
Company expects to continue its current level of expenditures and capital
investment over the next several years to enhance its drug discovery
technologies, pursue internal proprietary drug discovery programs, and to commit
resources to co-ventures with pharmaceutical companies.
Examples of the Company's co-ventures with pharmaceutical companies
include the formation of Helicon Therapeutics, Inc. in July 1997 with Cold
Spring Harbor Laboratory and Roche, the formation of Anaderm Corporation in
April 1996 with Pfizer. and New York University, the Company's co-ventures
with BioChem Pharma, which commenced in May 1996, and with Sepracor, Inc., which
commenced in March 1997. Generally the Company expects to commit greater
resources to such programs in exchange for greater commercialization rights, as
compared to its traditional collaborative research programs in which the Company
receives research funding and royalties on sales of commercialized products. If
the developmental activities on which one or more of these ventures are focused
are successful, then the Company will be required to make substantial additional
capital investment in such venture(s) in order to maintain its percentage
participation.
There can be no assurance that scheduled payments will be made by third
parties, that current agreements will not be canceled, that government research
grants will continue to be received at current levels, that milestone payments
will be made, 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 on acceptable terms, if at all. Failure
to obtain additional funds when required would have a material adverse effect on
the Company's business, financial condition and results of operations.
FORWARD LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in Item 1 "Business" and elsewhere in this report that are not
historical or current facts deal with potential future circumstances and
developments. The discussion of such matters and subject areas is qualified by
the inherent risks and uncertainties surrounding future expectations generally,
and such discussion may materially differ from the Company's actual future
experience involving any one or more of such matters and subject areas. These
forward looking statements are also subject generally to the other risks and
uncertainties that are described in Exhibit 99 to this report.
26
<PAGE> 27
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report............................................................... 28
Consolidated Balance Sheets -- September 30, 1997 and 1996................................. 29
Consolidated Statements of Operations -- Years ended September 30,
1997, 1996 and 1995..................................................................... 30
Consolidated Statements of Stockholders' Equity -- Years ended
September 30, 1997, 1996 and 1995....................................................... 31
Consolidated Statements of Cash Flows -- Years ended September 30,
1997, 1996 and 1995..................................................................... 32
Notes to Consolidated Financial Statements................................................. 33
</TABLE>
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
OSI Pharmaceuticals, Inc. (formerly known as Oncogene Science, Inc.):
We have audited the accompanying consolidated balance sheets of OSI
Pharmaceuticals, Inc. (formerly known as Oncogene Science, Inc.) and
subsidiaries (the "Company") as of September 30, 1997 and 1996, 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, 1997. 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 OSI
Pharmaceuticals, Inc. (formerly known as Oncogene Science, Inc.) and
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended
September 30, 1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Jericho, New York
December 5, 1997
28
<PAGE> 29
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ......................................................... $ 8,636,634 $ 13,409,866
Short-term investments ............................................................ 23,198,035 34,132,879
Receivables, including trade receivables of $350,100 and $215,201
at September 30, 1997 and 1996, respectively ................................... 1,215,672 2,031,950
Interest receivable ............................................................... 475,800 480,050
Grants receivable ................................................................. 179,740 331,014
Prepaid expenses and other ........................................................ 820,151 623,827
------------- -------------
Total current assets ...................................................... 34,526,032 51,009,586
------------- -------------
Property, equipment and leasehold improvements -- net .............................. 7,752,286 6,495,112
Compound library assets - net ...................................................... 6,800,406 5,048,584
Loans to officers and employees .................................................... 34,317 37,342
Other assets ....................................................................... 1,287,782 300,949
Intangible assets -- net ........................................................... 9,184,742 10,645,481
------------- -------------
$ 59,585,565 $ 73,537,054
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................. $ 4,180,039 $ 3,686,638
Current portion of unearned revenue ............................................... 733,377 141,541
------------- -------------
Total current liabilities ................................................. 4,913,416 3,828,179
------------- -------------
Other liabilities:
Long-term portion of unearned revenue ............................................. -- 104,497
Loan payable ...................................................................... 151,985 83,244
Deferred acquisition costs ........................................................ 630,796 590,675
Accrued postretirement benefit cost ............................................... 944,500 643,500
------------- -------------
Total liabilities ......................................................... 6,640,697 5,250,095
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized, 22,262,220 shares
issued at September 30, 1997 and 22,175,214 shares issued at September 30, 1996 222,622 221,752
Additional paid-in capital ........................................................ 104,864,056 104,347,231
Accumulated deficit ............................................................... (45,657,713) (36,071,476)
Cumulative translation adjustments ................................................ (101,531) (5,355)
Unrealized holding loss on short-term investments .................................. (97,700) (205,193)
------------- -------------
59,229,734 68,286,959
Less: treasury stock, at cost; 897,838 shares at September 30, 1997 ................ (6,284,866) --
------------- -------------
Total stockholders' equity ................................................ 52,944,868 68,286,959
------------- -------------
Commitments and contingencies ...................................................... $ 59,585,565 $ 73,537,054
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Collaborative program revenues, principally from
related parties .......................................... $ 12,200,801 $ 8,347,560 $ 9,685,856
Sales ...................................................... 1,167,604 105,356 4,286,540
Other research revenue ..................................... 1,408,918 1,265,521 1,892,603
------------ ------------ ------------
14,777,323 9,718,437 15,864,999
------------ ------------ ------------
Expenses:
Research and development ................................... 16,896,617 13,918,968 13,523,043
Production and service costs ............................... 635,768 134,529 1,252,990
Selling, general and administrative ........................ 7,424,265 6,314,697 7,140,208
Amortization of intangibles ................................ 1,460,748 1,452,755 1,696,561
------------ ------------ ------------
26,417,398 21,820,949 23,612,802
------------ ------------ ------------
Loss from operations ................................ (11,640,075) (12,102,512) (7,747,803)
------------ ------------ ------------
Other income (expense):
Net investment income ....................................... 2,092,331 2,162,294 834,830
Other expense-net ........................................... (38,493) (1,917) (66,086)
Gain on sale of Research Products Business .................. -- -- 2,720,389
------------ ------------ ------------
Net loss ..................................................... $ (9,586,237) $ (9,942,135) $ (4,258,670)
------------ ------------ ------------
Weighted average number of shares of common stock
outstanding ................................................ 21,604,344 19,712,274 16,757,370
============ ============ ============
Net loss per weighted average share of common stock
outstanding ................................................ $ (.44) $ (.50) $ (.25)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
------------
ADDITIONAL CUMULATIVE
PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994.. 16,564,715 $ 165,647 $61,199,670 $(21,870,671) $ (41,773)
Options exercised.............. 206,025 2,060 571,408 -- --
Issuance of common stock for
employee purchase plan........ 3,216 32 10,523 -- --
Unrealized holding gain on
short-term investments........ -- -- -- -- --
Sale of common stock
to Novartis................... 909,091 9,091 4,953,774 -- --
Translation adjustment......... -- -- -- -- (13,896)
Net loss....................... -- -- -- (4,258,670) --
---------- -------- ------------ ------------ ---------
Balance at September 30, 1995.. 17,683,047 176,830 66,735,375 (26,129,341) (55,669)
Options exercised.............. 491,544 4,915 1,640,653 -- --
Issuance of common stock for
employee purchase plan........ 3,860 39 10,214 -- --
Unrealized holding loss on
short-term investments........ -- -- -- -- --
Sale of common stock........... 3,618,750 36,188 30,293,757 -- --
Issuance of common stock and treasury
stock for acquisitions......... 378,013 3,780 5,667,232 -- --
Translation adjustment......... -- -- -- -- 50,314
Net loss....................... -- -- -- (9,942,135) --
---------- -------- ------------ ------------ ---------
Balance at September 30, 1996.. 22,175,214 221,752 104,347,231 (36,071,476) (5,355)
Options exercised.............. 74,618 746 407,503 -- --
Issuance of common stock for
employee purchase plan........ 12,388 124 74,456 -- --
Unrealized holding gain on
short-term investments........ -- -- -- -- --
Purchase of treasury stock..... -- -- -- -- --
Issuance of treasury stock for Dow
Compound Library License...... -- -- 34,866 -- --
Translation adjustment......... -- -- -- -- (96,176)
Net loss....................... -- -- -- (9,586,237) --
---------- -------- ------------ ------------ ---------
Balance at September 30, 1997 22,262,220 $222,622 $104,864,056 $(45,657,713) $(101,531)
========== ======== ============ ============ =========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
LOSS ON TOTAL
SHORT-TERM TREASURY STOCKHOLDERS'
INVESTMENTS STOCK EQUITY
----------- ----- ------
<S> <C> <C> <C>
Balance at September 30, 1994.. $ (654,000) $ (142,559) $38,656,314
Options exercised.............. -- -- 573,468
Issuance of common stock for
employee purchase plan........ -- -- 10,555
Unrealized holding gain on
short-term investments........ 619,000 -- 619,000
Sale of common stock
to Novartis................... -- -- 4,962,865
Translation adjustment......... -- -- (13,896)
Net loss....................... -- -- (4,258,670)
----------- ----------- ----------
Balance at September 30, 1995.. (35,000) (142,559) 40,549,636
Options exercised.............. -- -- 1,645,568
Issuance of common stock for
employee purchase plan........ -- -- 10,253
Unrealized holding loss on
short-term investments........ (170,193) -- (170,193)
Sale of common stock........... -- -- 30,329,945
Issuance of common stock and treasury
stock for acquisitions......... -- 142,559 5,813,571
Translation adjustment......... -- -- 50,314
Net loss....................... -- -- (9,942,135)
----------- ----------- ----------
Balance at September 30, 1996.. (205,193) -- 68,286,959
Options exercised.............. -- -- 408,249
Issuance of common stock for
employee purchase plan........ -- -- 74,580
Unrealized holding gain on
short-term investments........ 107,493 -- 107,493
Purchase of treasury stock..... -- (8,750,000) (8,750,000)
Issuance of treasury stock for
Dow Compound Library License.. -- 2,465,134 2,500,000
Translation adjustment......... -- -- (96,176)
Net loss....................... -- -- (9,586,237)
----------- ----------- -----------
Balance at September 30, 1997 $(97,700) $(6,284,866) $52,944,868
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ............................................................... $ (9,586,237) $ (9,942,135) $ (4,258,670)
Adjustments to reconcile net loss to net cash used in operating
activities:
Gain on sale of Research Products Business ............................ -- -- (2,720,389)
(Gain) loss on sale of investments .................................... 36,523 (33,305) 118,141
Depreciation and amortization .......................................... 1,518,751 1,837,873 1,037,044
Amortization of library assets ......................................... 1,101,509 458,962 --
Amortization of intangibles ............................................ 1,460,739 1,452,755 1,696,561
Amortization of warrants ............................................... 40,121 -- --
Cashless exercise of stock options ..................................... 126,600 -- --
Foreign exchange (gain) loss ........................................... (96,176) 50,314 (13,896)
Changes in assets and liabilities, net of the effects of the sale of the
Research Products Business and acquisitions of MYCOsearch and Aston
Molecules:
Receivables ......................................................... 816,278 (412,935) 1,605,217
Inventory ........................................................... -- -- 216,405
Interest receivable ................................................. 4,250 (434,787) 101,959
Grants receivable ................................................... 151,274 102,516 226,091
Prepaid expenses and other .......................................... (196,324) (105,677) (196,491)
Other receivable .................................................... -- 262,703 162,817
Other assets ........................................................ (72,514) (108,949) (15,622)
Accounts payable and accrued expenses ............................... 493,401 391,857 (586,276)
Unearned revenue .................................................... 487,339 (69,842) (358,092)
Accrued postretirement benefit cost ................................. 301,000 277,297 177,760
------------ ------------ ------------
Net cash used by operating activities .................................. (3,413,466) (6,273,353) (2,776,197)
------------ ------------ ------------
Cash flows from investing activities:
Additions to short-term investments ................................. (4,019,935) (37,216,936) (3,723,180)
Maturities and sales of short-term investments ...................... 15,025,749 11,814,126 13,192,665
Change in other assets .............................................. (914,319) 150,000 (250,000)
Additions to property, equipment and leasehold improvements ......... (2,775,925) (2,421,040) (403,275)
Additions to compound library assets ................................ (353,332) -- --
Payments for acquisition of MYCOsearch .............................. -- (1,889,960) --
Payments for acquisition of Aston Molecules ......................... (635,441)
Net change in loans to officers and employees ....................... 3,025 (11,826) 10,400
Proceeds from sale of Research Products Business .................... -- -- 6,000,000
------------ ------------ ------------
Net cash provided by (used in) investing activities ................. 6,965,263 (30,211,077) 14,826,610
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net ......................... -- 30,329,945 4,962,865
Purchase of treasury stock .......................................... (8,750,000) -- --
Proceeds from exercise of stock options and employee stock
stock purchase plan ................................................ 356,230 1,655,821 584,023
Net change in loan payable .......................................... 68,741 (11,079) --
------------ ------------ ------------
Net cash provided by (used in) financing activities .................... (8,325.029) 31,974,687 5,546,888
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................... (4,773,232) (4,509,743) 17,597,301
Cash and cash equivalents at beginning of year ......................... 13,409,866 17,919,609 322,308
------------ ------------ ------------
Cash and cash equivalents at end of year ............................... $ 8,636,634 $ 13,409,866 $ 17,919,609
============ ============ ============
Non-cash activities:
Issuance of common stock, treasury stock and warrants for acquisition
of MYCOsearch and Aston Molecules ...................................... -- $ 5,816,736 --
============ ============ ============
Liabilities assumed from acquisition of MYCOsearch and Aston Molecules -- $ 563,402 --
============ ============ ============
Deferred purchase obligation incurred for acquisition of Aston Molecules -- $ 590,675 --
============ ============ ============
Issuance of treasury stock for acquisition of
Dow Compound Library License ........................................... $ 2,500,000 -- --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of OSI Pharmaceuticals, Inc., known as Oncogene Science, Inc. prior to
October 1, 1997, and its wholly-owned subsidiaries Applied bioTechnology, Inc.,
MYCOsearch, Inc. ("MYCOsearch") and Aston Molecules Ltd. ("Aston"). All
intercompany balances and transactions have been eliminated. The Company
utilizes a platform of proprietary technologies in order to discover and develop
novel, small molecule compounds for the treatment of major human diseases. It
conducts the full range of drug discovery activities, from target identification
to drug candidate.
(b) Revenue Recognition
Collaborative research revenues represent funding arrangements for the
conduct of research and development ("R&D") in the field of biotechnology and
are recognized when earned in accordance with the terms of the contracts and the
related development activities undertaken. Other research revenues are
recognized pursuant to the terms of grants which provide reimbursement of
certain expenses related to the Company's other R&D activities. Collaborative
and other research revenues are accrued for expenses incurred in advance of the
reimbursement and deferred for cash payments received in advance of
expenditures. Such deferred revenues are recorded as revenue when earned. (See
Note 5)
Revenue from the sale of diagnostic and research reagent products is
recognized at time of shipment. Revenues from the performance of chemistry
services provided by Aston are recognized when performed.
(c) Patents and Goodwill
As a result of the Company's research and development programs,
including programs funded pursuant to the research and development funding
agreements (See Note 5), the Company has applied for a number of patents in the
United States and abroad. Such patent rights are of significant importance to
the Company to protect products and processes developed. Costs incurred in
connection with patent applications for the Company's research and development
programs have been expensed as incurred.
Patents and goodwill acquired in connection with the acquisition of
Applied bioTechnology's cancer business in October 1991 have been capitalized
and are being amortized on a straight-line basis over the remaining lives of the
respective patents, and over five years for goodwill. The goodwill acquired in
connection with the acquisition of Aston in September 1996 is being amortized on
a straight-line basis over five years (See Note 2). The Company continually
evaluates the recoverability of its intangible assets by assessing whether the
unamortized value can be recovered through expected future results.
(d) Research and Development Costs
Research and development costs are charged to operations as incurred
and include direct costs of research scientists and equipment and an allocation
of laboratory facility and central service. In fiscal years 1997, 1996, and
1995, R&D activities include approximately $5,052,000, $6,365,000 and $5,696,000
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 and co-ventures with Pfizer Inc. ("Pfizer"), Becton
Dickinson and Co. ("Becton"), Wyeth-Ayerst, a division of American Home Products
("Wyeth"), Marion Merrell Dow Inc. ("Marion"), Hoechst AG, Hoechst-Roussel
Pharmaceuticals, Inc. ("Hoechst Roussel"), BioChem Pharma International, Inc.
("BioChem Pharma"), and Novartis-Pharma AG, Ltd. ("Novartis"), Sankyo Company,
LTD. ("Sankyo"), Bayer AG ("Bayer"), Sepracor, Inc. ("Sepracor"), Helicon
Therapeutics, Inc. ("Helicon"), and Anaderm Research Co. ("Anaderm"). On July
18, 1995, Marion, Hoechst AG and Hoechst-Roussel merged forming a new company
named Hoechst Marion Roussel Inc. ("HMRI").
33
<PAGE> 34
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(e) Depreciation and Amortization
Depreciation of equipment is provided over the estimated useful lives
of the respective asset groups on a straight-line basis. Leasehold improvements
are amortized on a straight-line basis over the lesser of the estimated useful
lives or the remaining term of their lease.
Amortization of the fungi cultures acquired in connection with the
acquisition of MYCOsearch (See Note 2(a)), and amortization of the Dow Compound
Library License (See Note 2(d)) are on a straight line basis over five years,
which represents the estimated period over which the fungi cultures and
compounds will be used in the Company's R&D efforts.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Investments
Investment securities at September 30, 1997 and 1996 consist of U.S.
Treasury obligations and corporate debt securities. The Company classifies its
investments as available for sale. These securities are recorded at their fair
value. Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis.
A decline in the market value of any available-for-sale security below
cost that is deemed to be other than temporary results in a reduction in
carrying amount to fair value. The impairment is charged to earnings and a new
cost basis for the security is established. Premiums and discounts are amortized
or accreted over the life of the related held-to-maturity security as an
adjustment to yield using the effective interest method. Dividend and interest
income are recognized when earned.
(h) Loss Per Share
Loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Common share equivalents
(stock options) are not included in the computation since their inclusion would
be anti-dilutive.
(i) Cash and Cash Equivalents
The Company includes as cash equivalents reverse repurchase agreements,
treasury bills, and other time deposits with original maturities of three months
or less.
(j) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relative to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
34
<PAGE> 35
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(2) ACQUISITIONS
(a) MYCOsearch, Inc.
On April 11, 1996, the Company acquired all the outstanding shares of
MYCOsearch, a privately owned company, that specializes in the collection of
fungi cultures and the development of extracts derived therefrom. On the date of
the acquisition, MYCOsearch became a wholly-owned subsidiary of the Company.
Prior to the acquisition, the Company had purchased extracts and certain
services from MYCOsearch. Such expenses totaled $301,000, and $571,000 in fiscal
1996 (through April 11, 1996) and fiscal 1995, respectively, which are included
in research and development expenses in the accompanying consolidated statements
of operations.
The purchase price paid by the Company to the shareholders of
MYCOsearch consisted of $1.75 million in cash, $2.95 million in common stock of
the Company (316,553 shares at $9.319 per share, of which 222,521 shares
represented the reissuance of shares held in treasury), and warrants to purchase
100,000 shares of the Company's stock at $9.319 per share, valued at $483,000.
The warrants are exercisable for a three-year period starting on April 11, 1998.
The Company also incurred other direct costs totaling approximately $137,000 in
connection with the acquisition resulting in a total purchase price of $5.3
million.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based on the fair values at the
date of acquisition. The purchase price was allocated as follows (in thousands):
Fungi cultures $5,508
Fixed assets 21
Other assets 16
Other liabilities (225)
-----
Purchase price $5,320
======
The fungi cultures contain natural chemical structures that will be tested
against target proteins using the Company's drug screens. The Company is
amortizing the fungi cultures on a straight-line basis over a five-year period
and will continually evaluate the recoverability of this asset based on the
results of its testing. Amortization of the fungi cultures totaling $1,102,000
and $459,000 for the fiscal years ended September 30, 1997 and 1996,
respectively, is reflected as research and development expense in the
accompanying consolidated statement of operations.
(b) Aston Molecules Ltd.
On September 19, 1996, the Company completed the acquisition of all the
outstanding capital stock of Aston Molecules Ltd. ("Aston"), a privately held
United Kingdom company. On the date of the acquisition, Aston became a
wholly-owned subsidiary of the Company. Its operations and personnel will be
maintained at its present site in Birmingham, UK.
The consideration paid for Aston included 283,981 shares of the
Company's common stock having a fair market value of approximately $2.4 million.
In addition, the Company also issued rights exercisable at the end of three and
five years following the closing date (for an aggregate exercise price of
$7,500) to obtain a number of shares of the Company's common stock having an
aggregate value of $750,000 (based on the then current market value). The
present value of this additional consideration of $630,796 and $590,675 is
reflected as deferred acquisition costs in the accompanying consolidated balance
sheet as of September 30, 1997 and 1996, respectively. Other direct costs of the
acquisition approximated $635,000 resulting in a total acquisition cost of $3.6
million.
35
<PAGE> 36
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based on the fair values at the
date of acquisition. The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C> <C>
Goodwill $3,468
Fixed assets 181
Other assets 299
Other liabilities (338)
-----
Purchase price $3,610
======
</TABLE>
The goodwill resulting from the acquisition is being amortized on a
straight-line basis over a five year period. Prior to the acquisition, the
Company purchased certain chemistry services from Aston. Such expenses totaled
$879,000, and $302,000 in fiscal 1996 (through September 19, 1996) and fiscal
1995, respectively, which are included in research and development expenses in
the accompanying consolidated statements of operations.
Concurrent with the acquisition, the Company entered into employment
agreements with certain of Aston's executives and scientific personnel and
granted stock options covering an aggregate of 125,000 shares of its common
stock to such persons. The exercise price of $8.51 per share was based on the
fair market value of the Company's stock on the date of the grant.
(c) Pro Forma Information (Unaudited)
The operating results of MYCOsearch and Aston have been included in the
consolidated statements of operations from the respective dates of the
acquisitions. The following unaudited pro forma information presents a summary
of consolidated results of operations for the years ended September 30, 1996 and
1995 assuming the acquisitions had taken place as of October 1, 1995 and 1994,
respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues......................................... $10,566,000 $17,130,000
Net loss......................................... (12,108,000) (6,213,000)
Net loss per share............................... (.61) (.36)
</TABLE>
The pro forma results give effect to the amortization of the fungi
cultures and goodwill; elimination of intercompany sales; reduction of
investment income; and an increase in the number of common shares outstanding.
The pro forma financial information is not necessarily indicative of the results
of operations as they would have been had the acquisitions been affected on the
assumed dates.
(d) Compound Library License
On March 18, 1997, the Company entered into a license agreement with
The Dow Chemical Company ("Dow") giving the Company exclusive worldwide rights
to use more than 140,000 compounds for screening and potential development of
small molecule drugs and cosmeceuticals. The initial payment for the license was
352,162 shares of the Company's common stock with a fair market value of
approximately $2,500,000. Dow is also entitled to royalty payments from any new
drug products that may result from the screening of the compound library. The
common stock issued to Dow was from the shares held in treasury. The Company
will amortize the license agreement cost on a straight-line basis over a
five-year period, which represents the estimated period over which the compounds
will be used in the Company's research and development efforts. Since the
Company has not conducted significant research utilizing these compounds during
fiscal 1997, the Company will begin amortizing the license agreement cost in
October 1997.
36
<PAGE> 37
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(3) INVESTMENTS
The Company invests its excess cash in U.S. Government securities and
debt instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification of
its investments and their maturities that should maintain safety and liquidity.
These guidelines are periodically reviewed and modified to take advantage of
trends in yields and interest rates. The Company uses the specific
identification method to determine the cost of securities sold.
The following is a summary of available-for-sale securities as of September 30,
1997 and 1996:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
1997 COST (LOSSES) GAINS FAIR VALUE
---- ---- -------------- ----------
<S> <C> <C> <C>
US Treasury Securities and obligations of
US Government agencies ................................ $14,869,695 $(126,253) $14,743,442
Corporate debt securities ............................... 8,426,040 28,553 8,454,593
----------- --------- -----------
Total ......................................... $23,295,735 $ (97,700) $23,198,035
=========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS
UNREALIZED
1996 COST (LOSSES) GAINS FAIR VALUE
---- ---- -------------- ----------
<S> <C> <C> <C>
US Treasury Securities and obligations of
US Government agencies......................... $22,212,207 $(218,842) $21,993,365
Corporate debt securities........................ 12,125,865 13,649 12,139,514
----------- --------- -----------
Total.................................. $34,338,072 $(205,193) $34,132,879
=========== ========= ===========
</TABLE>
Net realized losses on sales of investments during fiscal 1997 were
approximately $37,000. Net realized gains on sales of investments during fiscal
1996 were approximately $33,000. Net realized losses on sales of investments
during fiscal 1995 were approximately $118,000.
The Company also has investments in certain biotechnology companies
that are not publicly traded and are included in other noncurrent assets in the
accompanying balance sheets. The investments are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1997 1996
---------- --------
<S> <C> <C>
Anaderm Research Co. ........ $677,471 $136,952
Helicon Therapeutics, Inc. .. 123,800 --
Amplicon Corp. .............. 250,000 100,000
NuGene Technologies, Inc. ... 100,000 --
---------- --------
$1,151,271 $236,952
========== ========
</TABLE>
37
<PAGE> 38
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
As further discussed in Note 5, the Company has collaborative research
agreements with Anaderm and Helicon and the investments are carried based on the
equity method of accounting. The investments in Amplicon Corp. ("Amplicon") and
NuGene Technologies, Inc. ("NuGene") are carried at cost and approximate fair
market value. In November 1997, Amplicon was acquired by Tularik Inc.
("Tularik"). The Company's Amplicon securities were exchanged for common shares
of Tularik.
(4) SALE OF RESEARCH PRODUCTS BUSINESS
In August 1995, the Company sold certain assets and the business of the
Research Products Business (Business) to Calbiochem-Novabiochem International,
Inc. (Calbiochem) for $6.0 million in cash. The assets sold included the
Business' line of research products sold or intended for sale to the academic,
industrial and clinical research markets, existing inventory, property and
equipment and certain other assets. The Company retained the trade accounts
receivable and accounts payable outstanding on the date of sale. In connection
with the sale, the Company wrote off the unamortized goodwill related to the
Business of approximately $343,000. The sale resulted in a net gain of
approximately $2.7 million. In the sale agreement, the Company agreed to
indemnify the purchaser for a period of two years for certain breaches of the
agreement.
The Company also signed a sublease agreement with Calbiochem relating
to the Cambridge facility for a term of three years, at an annual payment equal
to 50% of the Company's fixed lease payment and related facility costs, plus
certain operating costs. Payments from Calbiochem totaling $355,000, $417,000
and $0 for the years ended September 30, 1997, 1996 and 1995, respectively, have
been reflected as an offset to selling, general and administrative expenses in
the accompanying consolidated statements of operations.
(5) PRODUCT DEVELOPMENT CONTRACTS
(a) Pfizer
Effective April 1, 1996, the Company and Pfizer renewed their
ten-year-old collaboration for a new five-year term by entering into new
Collaborative Research and License Agreements. Under these agreements, all
patent rights and patentable inventions derived from the research under this
collaboration are owned jointly by the Company and Pfizer. Under the
collaborative research agreement, Pfizer has committed to provide research
funding to the Company in an aggregate amount of approximately $18.8 million.
Pursuant to a schedule set forth in the collaborative research agreement, Pfizer
will make maximum annual research funding payments to the Company, which will
gradually increase from approximately $3.5 million in the first year of the
five-year term to approximately $4 million in the fifth year. The collaborative
research agreement will expire on April 1, 2001. However, it may be terminated
earlier by either party upon the occurrence of certain defaults by the other
party. Any termination of the collaboration resulting from a Pfizer default will
cause a termination of Pfizer's license rights. Pfizer will retain its license
rights if it terminates the agreement in response to a default by the Company.
In addition, between July 1 and September 30, 1998, Pfizer may terminate the
collaborative research agreement, with or without cause, effective March 31,
1999. Furthermore, between July 1 and September 30, 1999, Pfizer may terminate
the collaborative research agreement, with or without cause, effective March 31,
2000. Upon such early termination by Pfizer, Pfizer will retain its license
rights. The Company also granted Pfizer an exclusive, worldwide license to make,
use, and sell the therapeutic products resulting from this collaboration in
exchange for royalty payments. This license terminates on the date of the last
to expire of the Company's relevant patent rights.
38
<PAGE> 39
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(b) Hoechst Marion Roussel
Effective as of January 1, 1997, the Company entered into a
Collaborative Research and License Agreement with HMRI to develop orally active,
small molecule inducers of erythropoietin gene expression for the treatment of
anemia due to chronic renal failure and anemia associated with chemotherapy for
AIDS and cancer. The collaboration is focused on the preclinical and clinical
development of lead compounds previously discovered by the Company from its
natural products and combinatorial chemistry libraries and from HMRI's compound
library. Under the terms of the agreement, both the Company and HMRI are
contributing medicinal chemistry and preclinical optimization teams under the
agreement. HMRI has the exclusive right to conduct preclinical and clinical
development of drug candidates emerging from the program. The Company may
receive from HMRI up to $30 million in research funding, milestone payments and
success fees depending on HMRI's clinical success. During fiscal 1997, the
Company received and recorded as income a $1,000,000 initiation fee from HMRI in
connection with this program, 50% of which will be credited against future
royalties, if any.
The Company has granted to HMRI exclusive, worldwide licenses to, among
other things, use, manufacture and sell products resulting from the
collaboration. In exchange for these licenses, HMRI will pay the Company
royalties on the sales by HMRI of any products resulting from the collaboration.
The duration of the licenses is coextensive with the lives of the patents
related to the licensed compounds. Generally, the Company and HMRI are
prohibited during the term of the collaboration from pursuing or sponsoring
research and development of compounds and products in the target area other than
pursuant to the agreement without the approval of the research committee. The
term of the agreement is segmented into three periods: (1) an option period
which terminates on March 31, 1998; (2) a contract period term which continues
until March 31, 2000; and (3) a development phase which commences March 31, 1998
for as long as HMRI continues development activities. During the option period,
the agreement may be terminated by mutual written agreement of the parties. If
HMRI elects not to participate in the contract period term or discontinues
participation during the contract period term or development phase, it will
offer the Company and the Company may accept the license rights to develop and
commercialize the compounds and products of the collaboration, subject to
payment of royalties by the Company to HMRI.
Effective as of April 1, 1997, the Company and HMRI entered into an
Amended Collaborative Research and License Agreement that consolidated and
extended formerly separate collaborative programs between the Company and each
of Marion Merrell Dow Inc. ("MMDI"), Hoechst Roussel Pharmaceuticals, Inc.
("Hoechst Roussel") and Hoeschst AG ("Hoechst"). This resulted from the
corporate reorganization of HMRI in July 1995 in which the pharmaceutical
operations MMDI, Hoechst Roussel and Hoechst were combined into HMRI. This
Amended Collaborative Research and License Agreement provides for HMRI and the
Company to collaborate in the discovery and development of drugs for the
treatment of atherosclerosis, inflammation, arthritis and metabolic diseases.
Under this collaboration, a research committee, with equal
representation from the Company and HMRI, meets at least three times a year to
evaluate the progress of the research program, make priority and program
decisions, and prepare research plans identifying the drug targets to be
pursued. New targets are added to the program on an ongoing basis by mutual
agreement. The Company is responsible for achieving objectives outlined in the
annual research plans. HMRI is responsible for assisting the Company in the
pursuit of such objectives and for the clinical development and
commercialization of drugs resulting from the program. HMRI is responsible for
funding the costs of the Company so that's discovery efforts, and as of
September 30, 1997, the Company had received or accrued an aggregate of $16.1
million in research funding from HMRI and its predecessors.
39
<PAGE> 40
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The Company has granted to HMRI (i) an exclusive, worldwide license
with respect to, amount other things, the use, manufacture and sale of products
resulting from their atherosclerosis research collaboration and (ii) the right
to obtain an exclusive, worldwide license with respect to any therapeutic
product derived from the inflammation, arthritis and metabolic disease program.
In exchange for these licenses, HMRI will pay royalties to the Company on sales
of such products. The Company and HMRI have mutually exclusive rights and
obligations to prosecute and maintain certain patent rights related to various
specified areas of the research.
(c) Novartis
In April 1995, the Company entered into an agreement with Novartis to
expand the scope of the companies' collaborative efforts with respect to the
development of TGF-Beta3 for wound healing and the treatment of oral mucositis
and other indications. Under the agreement, the Company will fund development
through Phase I clinical trials and Novartis will fund Phase II and III clinical
trials. Novartis 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
Novartis, within four years of the agreement date. The payment will be
characterized, at Novartis'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, Novartis' license will be expanded
to include all other indications for TGF-Beta3.
(d) Becton Dickinson
On October 4, 1991, the Company and Becton established a collaborative
research program to develop cancer diagnostic products. The Company and Becton
shared equally the cost of discovery phase and pre-clinical research and
development. This collaborative research program expired on September 30, 1996
and was not renewed. To the extent Becton commercializes any products derived
from this program, it will pay certain royalties to the Company on sales of such
products, if any.
(e) Bayer
Effective January 1, 1997, the Company and Bayer entered into an
agreement to develop serum-based cancer diagnostic products. Under the
agreement, the Company granted to Bayer licenses to manufacture, use and sell
clinical diagnostic products based on the Company's cancer diagnostics
technology in exchange for royalties on net sales. Bayer will own all
technology, and has the exclusive right to commercialize clinical diagnostic
products derived from the collaboration. Bayer's license is perpetual with
respect to nonpatented technology and will terminate with respect to patented
technology upon the expiration of the last to expire of the Company's patents.
Bayer will provide funding for the Company's research under the collaboration in
the amount of $1.5 million for each of the first two contract years, and $1
million for each subsequent year. After the first two contract years, the
Company will be required to provide up to $500,000 in annual funding for the
collaboration to the extent the Company derives net revenues from out-licensing
any cancer diagnostics technology or the sale of any clinical diagnostic or
clinical research products. The agreement will terminate on December 31, 2002.
Bayer has the right to terminate the agreement at any time after December 31,
1997 upon 12 months' notice.
40
<PAGE> 41
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(f) Wyeth-Ayerst
Effective December 31, 1991, the Company entered into a collaborative
research agreement with Wyeth. This agreement was extended and expanded in
January 1994 for an additional 3 years through December 31, 1996 to provide for
additional funding of approximately $4.3 million. The Company had received
approximately $1.6 million annually in research and development funding from
Wyeth pursuant to this collaborative agreement. The funded portions of the
research collaboration expired on December 31, 1996. To the extent Wyeth
commercializes any products derived from this collaboration, it will pay certain
royalties to the Company on sales of such products, if any.
(g) Anaderm Research
In April 1996, in connection with the formation of Anaderm Research
Corp. ("Anaderm"), the Company entered into a Stockholders' Agreement
("Stockholders' Agreement") among the Company, Pfizer, Anaderm, New York
University ("NYU") and certain NYU faculty members ("Faculty Members"), and a
Collaborative Research Agreement ("Research Agreement") among the Company,
Pfizer and Anaderm. Anaderm issued common stock to Pfizer and the Company and
options to purchase common stock to NYU and the Faculty Members. NYU and the
Faculty Members have exercised their options fully, and Pfizer holds 82%, the
Company holds 14%, and NYU and the Faculty Members collectively hold 4% of
Anaderm's common stock. In exchange for its 14% of the outstanding shares of
Anaderm common stock, the Company will provide formatting for high-throughput
screens and will conduct compound screening for 18 months at its own expense
under the Research Agreement. The term of the Research Agreement is three years.
During the initial phase of the agreement (the first 18 months) the Company was
required to provide at its own cost formatting for high throughput screens and
perform screening of its own compounds and those compounds provided by Pfizer.
Upon the termination of the initial phase, the Board of Directors of Anaderm
made a determination that the initial phase was successfully completed. With
Pfizer's approval, the funded phase commenced on October 1, 1997 and will
continue for the term of the Research Agreement. During this phase, Anaderm will
make payments to the Company equal to its research costs, including overhead,
plus 10%. Anaderm or Pfizer will pay royalties to the Company on the sales of
products resulting from this collaboration.
As of September 30, 1997, the Company has expended approximately $1.8
million which has been capitalized as the cost of the Company's 14% interest in
Anaderm. This capitalized cost has been offset by approximately $1.2 million
which includes the Company's estimated interest in the loss of Anaderm as of
September 30, 1997 and additional discounted reserve. The Company's net
investment in Anaderm at September 30, 1997 of $677,000 is included in other
assets in the accompanying consolidated balance sheet. During fiscal 1997, the
Company received $388,000 from Anaderm for additional research during the
initial phase outside the scope of the original agreement.
(h) BioChem Pharma
Effective May 1, 1996, the Company entered into a Collaborative
Research, Development and Commercialization Agreement with BioChem Pharma. Under
this agreement, the parties will seek to discover and develop antiviral drugs
for the treatment of Hepatitis B virus, Hepatitis C virus and HIV, although the
focus of the collaborative efforts may change at the discretion of a joint
steering committee. This agreement provides that the Company and BioChem Pharma
will jointly commit resources to the collaborative program. The Company and
BioChem Pharma will share equally the commercialization rights in the U.S. and
Europe for any product resulting from the collaboration. BioChem Pharma will
exclusively own commercialization rights in Canada. The agreement is for a term
of five years, with automatic, successive one-year renewal periods thereafter.
After May 1, 1999, however, either party may terminate the agreement by giving
the other party six-months prior written notice. The agreement is also subject
to early termination in the event of certain defaults by either party. As of
September 30, 1997, the Company has recognized $518,000 which represents (i) a
$100,000 annual technology fee for the right to receive all available upgrades
and annual improvements to the equipment,
41
<PAGE> 42
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
software and license technology and (ii) reimbursement for all out of pocket
costs to build, deliver and install robotic equipment at the agreed BioChem
Pharma location.
(i) Sankyo
Effective as of February 12, 1997, the Company entered into a
Collaborative Research and License Agreement with Sankyo to be conducted in
partnership with MRC Collaborative Center ("MRC CC"), London, U.K. The
collaboration is focused on discovering and developing novel pharmaceutical
products to treat influenza. The Company is responsible for conducting research
as directed by a research committee, including, without limitation, compound
screening in exchange for research funding from Sankyo. Sankyo has the
responsibility and the exclusive right to conduct preclinical and clinical
development of all candidate compounds in exchange for milestone payments to the
Company. The Company received and recorded $267,000 for a non-refundable
technology disclosure fee upon signing the agreement.
The Company and MRC CC have granted to Sankyo exclusive, worldwide
licenses to, among other things, use, manufacture and sell all products
resulting from the collaboration. In exchange for these licenses, Sankyo will
pay to the Company and MRC CC license fees and royalties on product sales. The
duration of the licenses is coextensive with the lives of the patents related to
the licensed compound. If Sankyo discontinues development of all candidate
compounds, the Company will have the sole and exclusive right to develop, use,
manufacture and sell all products resulting from the collaboration, and it will
pay royalties to Sankyo.
(j) Sepracor
On March 7, 1997, the Company entered into a Collaborative Research
Development and Commercialization Agreement with Sepracor. Under this agreement,
the parties will seek to discover and develop certain anti-infective agents and
anti-inflammatory agents. The Company and Sepracor will commit equal resources
to the program, including, among other things, access to all their respective
compound libraries and dedicated teams of research scientists. Generally, the
parties will share equally the commercialization rights throughout the world of
products derived from the program and will share equally the profits from sale
of such products, except that in the case of drugs that target two specified
microbes, Sepracor will receive 75% of such profits.
(k) Xenometrix
On June 27, 1997, the Company and Xenometrix, Inc. ("Xenometrix")
entered into an agreement pursuant to which they will jointly seek a corporate
partner to fund a technology collaboration for the development of automated
systems to generate and analyze certain data relating to toxicological,
metabolic and undesirable systemic effects of drug candidates. The parties have
cross-licensed certain of their respective assay technologies on a worldwide,
royalty-free nonexclusive basis. The agreement is for a period of nine months,
with automatic successive three-month renewal periods.
(l) Helicon
In July 1997, the Company, Cold Spring Harbor Laboratory and Hoffman-La
Roche Inc.("Roche") formed Helicon Therapeutics, Inc., a new Delaware
corporation. In exchange for approximately 28% of Helicon's outstanding capital
stock, the Company will contribute to Helicon molecular screening services and a
nonexclusive license with respect to certain screening technology. Such services
are to be performed within one year. Cold Spring Harbor Laboratory contributed a
royalty-free license to commercialize certain technology relating to genes
associated with long-term memory in exchange for a portion of Helicon's
outstanding capital stock. Roche contributed cash for a portion of Helicon's
outstanding capital stock. Certain individuals associated with Cold Spring
Harbor Laboratory hold the remaining outstanding capital stock of Helicon.
42
<PAGE> 43
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The parties have entered into various collaborative research and
license agreements pursuant to which they will jointly pursue the discovery,
development and commercialization of novel drugs for the treatment of long-term
memory disorders and other central nervous system dysfunctions. The Company and
Cold Spring Harbor Laboratory are to conduct research under the program, which
will be funded by Helicon (except for the molecular screening services that the
Company is contributing to Helicon). Helicon is to receive this funding from
Roche for the first two years of the program. If the program is not previously
terminated, Roche is to continue to provide funding for the third year of the
program, with the actual amount to be determined by a research committee
established to oversee the collaborative program. Helicon has granted to Roche a
worldwide license to commercialize pharmaceutical products resulting from the
collaborative program in exchange for certain milestone payments and royalties
on Roche's sales of such products.
As of September 30, 1997, the Company has expended approximately
$180,000 which has been capitalized as the cost of the Company's 28% interest in
Helicon. This capitalized cost has been offset by approximately $56,000 which
represents the Company's estimated interest in the loss of Helicon as of
September 30, 1997. The Company's net investment in Helicon at September 30,
1997 of $124,000 is included in other assets in the accompanying consolidated
balance sheet.
(m) Other
Under the terms of aforementioned collaborative research agreements,
the collaborative partners will pay the Company royalties ranging from 2% to 8%
of net sales of products resulting from these research programs. To date, the
Company has not received any royalties pursuant to these agreements. The Company
or its collaborative partners may terminate each of the collaborative research
programs upon the occurrence of certain events.
The Company does not intend to conduct late-stage clinical trials,
manufacturing or marketing activities with respect to any of its product
candidates in the foreseeable future. The Company is dependent on the companies
with which it collaborates for the preclinical testing, clinical development,
regulatory approval, manufacturing and marketing of potential products developed
under its collaborative research programs. The Company's collaborative
agreements allow its collaborative partners significant discretion in electing
to pursue or not to pursue any of these activities. The Company cannot control
the amount and timing of resources its collaborative partners devote to the
Company's programs or potential products. If any of the Company's collaborative
partners were to breach or terminate its agreements with the Company or
otherwise fail to conduct its collaborative activities successfully in a timely
manner, the preclinical or clinical development or commercialization of product
candidates or research programs could be delayed or terminated. Any such delay
or termination could have a material adverse effect on the Company's business,
financial condition and results of operations.
43
<PAGE> 44
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Total program research revenues under the aforementioned agreements are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Related Parties:
Pfizer .................................................................. $3,622,363 $3,208,077 $3,505,427
HMRI .................................................................... 5,136,257 2,439,358 3,405,335
Becton .................................................................. -- 1,150,125 1,400,094
Anaderm ................................................................. 388,254 --
BioChem Pharma .......................................................... 517,888 -- --
----------- ---------- ----------
Total Related Parties ................................................... 9,664,762 6,797,560 8,310,856
Bayer ................................................................... 1,125,000 -- --
Sankyo .................................................................. 1,011,039 -- --
Wyeth ................................................................... 400,000 1,550,000 1,375,000
----------- ---------- ----------
Total ................................................................... $12,200,801 $8,347,560 $9,685,856
=========== ========== ==========
</TABLE>
(6) 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) 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Laboratory equipment................... 5-15 $9,073,179 $8,079,536
Office furniture and equipment......... 5-10 3,587,698 2,357,247
Automobile equipment................... 3 152,474 35,954
Leasehold improvements................. Life of lease 5,315,125 4,879,814
--------- ---------
18,128,476 15,352,551
Less: accumulated depreciation and
amortization......................... 10,376,190 8,857,439
---------- ---------
Net property, equipment and leasehold
improvements......................... $7,752,286 $6,495,112
========== ==========
</TABLE>
(7) INTANGIBLE ASSETS
The components of intangible assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Patents ...................................................... $6,410,614 $7,177,825
Goodwill ..................................................... 2,774,128 3,467,656
----------- -----------
$9,184,742 $10,645,481
========== ===========
</TABLE>
The above amounts reflect accumulated amortization of $8,721,613 and
$7,260,874 at September 30, 1997 and 1996, respectively. During fiscal 1996,
goodwill increased $3,467,656 in connection with the acquisition of Aston
Molecules Ltd. (See Note 2). As of September 30, 1996, the goodwill related to
the acquisition of Applied bioTechnology has been fully amortized.
44
<PAGE> 45
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at September 30, 1997 and 1996
are comprised of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Accounts payable....................................... $2,411,133 $2,081,031
Accrued future lease escalations....................... 448,137 417,614
Accrued payroll and employee benefits.................. 367,242 462,958
Accrued incentive compensation......................... 615,000 285,370
Accrued expenses....................................... 338,527 439,665
---------- ----------
$4,180,039 $3,686,638
========== ==========
</TABLE>
(9) STOCKHOLDERS' EQUITY
(a) Stock Redemption
On February 18, 1997, the Company repurchased all 1.25 million shares
of the Company's common stock held by Becton, Dickinson and Company ("Becton")
for an aggregate price of $8.75 million. The Company's collaborative research
agreement with Becton had ended on its scheduled expiration date of September
30, 1996. See Note 5(d).
(b) Stock Offering
In April 1996, the Company completed a public offering for 3,118,750
shares of common stock. The sale price was $9.125 per share. Concurrent with the
public offering, the Company sold 500,000 shares at $9.125 per share directly to
BioChem Pharma. The proceeds to the Company from these sales, net of
underwriting commissions and other costs, were approximately $30.3 million. The
net proceeds were added to the Company's general funds and are to be used for
research and development expenses, including funds for enhancing the Company's
drug discovery technologies, and for general corporate purposes.
(c) Stock Option Plans
The Company has established four 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 5,400,000.
45
<PAGE> 46
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The following table summarizes changes in the number of common shares
subject to options in the stock option plans:
<TABLE>
<CAPTION>
EXERCISE PRICE
---------------------------------------------------
WEIGHTED
SHARES LOW HIGH AVERAGE
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance September 30, 1994
Unexercised................................................................ 2,048,325 $1.75 $7.63 $4.05
Granted................................................................. 803,000 3.50 4.13 3.78
Exercised............................................................... (206,025) 1.75 5.63 2.68
Forfeited............................................................... (624,021) 4.00 7.63 4.98
-------------------------------------------------
Balance September 30, 1995
Unexercised................................................................ 2,021,279 $1.75 $5.63 $3.75
Granted................................................................. 776,000 7.88 9.32 8.98
Exercised............................................................... (491,544) 1.75 4.88 3.35
Forfeited............................................................... (87,678) 3.50 5.63 3.98
-------------------------------------------------
Balance September 30, 1996
Unexercised................................................................ 2,218,057 $1.75 $9.32 $5.67
Granted................................................................. 907,500 6.50 7.09 6.82
Exercised............................................................... (84,618) 2.50 9.25 4.32
Forfeited............................................................... (127,499) 3.50 9.00 5.19
-------------------------------------------------
Balance September 30, 1997
Unexercised................................................................ 2,913,440 $1.75 $9.32 $6.07
---------- ----- ----- -----
</TABLE>
At September 30, 1997, the Company has reserved 4,341,292 shares of its
authorized common stock for all shares issuable under option. At September 30,
1997, 1996, and 1995 options exercisable were 1,290,829, 872,513 and 952,883
respectively.
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.
Stock option grants are set at the closing price of the Company's
common stock on the date of grant and the related number of shares granted are
fixed at that point in time. Therefore under the principles of APB Opinion No.
25, the Company does not recognize compensation expense associated with the
grant of stock options. SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires the use of option valuation models to provide supplemental information
regarding options granted after 1995. Pro forma information regarding net income
and earnings per share shown below was determined as if the Company had
accounted for its employee stock options and shares sold under its stock
purchase plan under the fair value method of that statement.
The fair value of the options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest rates of 5.84%
and 6.26%; dividend yields of 0% and 0%; volatility factors of the expected
market price of the Company's common stock of 65.8% and 64.8% and expected life
of the options of 3.7 years and 3.7 years. These assumptions resulted in
weighted-average fair values of $3.61 and $4.75 per share for stock options
granted in 1997 and 1996, respectively.
46
<PAGE> 47
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma effect on
net income for 1997 and 1996 is not representative of the pro forma effect on
net income in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1996. Pro forma information
in future years will reflect the amortization of a larger number of stock
options granted in several succeeding years. The Company's pro forma information
is as follows (in thousands, except per share information):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Pro forma net loss ...... $(11,205) $(10,327)
Pro forma loss per share:
Primary ................. $ (0.51) $ (0.52)
</TABLE>
Information regarding stock options outstanding as of September 30,
1997, is as follow (options in thousands):
<TABLE>
<CAPTION>
----------------------
---------------------------------- Options
Options Outstanding Exercisable
----------------------------------------------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Shares Exercise Contractual Shares Exercise
Price Range (in thous) Price Life (in thous) Price
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $5.00 1,284 $3.87 6.32 years 938 $3.84
$5.00 - $7.00 879 $6.80 9.42 years 31 $6.33
Over $7.00 750 $8.89 8.24 years 321 $9.00
</TABLE>
(d) Sale of Common Stock and Warrant to Marion Merrell Dow
In December 1992, the Company entered into the common stock purchase
and common stock warrant purchase agreements with Marion. The Company issued
1,090,909 shares of common stock at $5.50 per share and a warrant to purchase up
to 500,000 additional shares at $5.50 per share which is exercisable during the
period December 1994 to December 1999. The proceeds to the Company were $6
million.
(e) Sale of Common Stock to Novartis
On April 19, 1995, Novartis purchased 909,091 shares of the Company's
common stock at $5.50 per share for an aggregate purchase price of $5 million.
(f) Employee Stock Purchase Plan
On May 1, 1993, the Company adopted an Employee Stock Purchase Plan
under which eligible employees may contribute up to 10% of their base earnings
toward the quarterly purchase of the Company's common stock. The employees
purchase price is derived from a formula based on the fair market value of the
common stock. No compensation expense is recorded in connection with the plan.
During fiscal 1997, 1996 and 1995, 12,388, 3,860 and 3,216 shares were issued
with 48, 34 and 18 employees participating in the plan, respectively.
47
<PAGE> 48
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(10) INCOME TAXES
There is no provision (benefit) for federal or state income taxes,
since the Company has incurred operating losses since inception and has
established a valuation allowance equal to the total deferred tax asset.
The tax effect of temporary differences, net operating loss carry
forwards and research and development tax credit carry forwards as of September
30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards .............................. $14,170,792 $12,252,652
Research and development credits ............................... 824,246 792,980
Intangible assets .............................................. 946,094 1,028,148
Other .......................................................... 1,750,156 678,849
------------ ------------
17,691,288 14,752,629
Valuation allowance ............................................ (17,691,288) (14,752,629)
------------ ------------
$ -- $ --
============ ============
</TABLE>
As of September 30, 1997, the Company has available federal net
operating loss carry forwards of approximately $42 million which will expire in
various years from 2000 to 2012, 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 2000 to 2012.
48
<PAGE> 49
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(11) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office, operating and laboratory space under various
lease agreements.
Rent expense was approximately $1,081,000, $727,000 and $750,000, for
the fiscal years ended September 30, 1997, 1996, and 1995, respectively.
The following is a schedule by fiscal years of future minimum rental
payments required as of September 30, 1997, assuming expiration of the lease for
the Uniondale facility on June 30, 2006, the Cambridge facility on December 31,
2003, the Durham facility on October 31, 2004, and the Birmingham facility on
May 31, 2002.
<TABLE>
<S> <C>
1998.......................................................................... $972,579
1999.......................................................................... 976,126
2000.......................................................................... 1,048,297
2001.......................................................................... 1,055,689
2002.......................................................................... 1,075,139
2003 and thereafter........................................................... 2,443,268
----------
$7,571,098
==========
</TABLE>
(b) Contingencies
The Company has received several letters from other companies and
universities advising the Company that various products being marketed and
research being conducted by the Company may be infringing on existing patents of
such entities. These matters are presently under review by management and
outside counsel for the Company. Where valid patents of other parties are found
by the Company to be in place, management will consider entering into licensing
arrangements with the universities and/or other companies or modify the conduct
of its research. The Company's royalties may be reduced by up to 50% if its
licensees or collaborative partners are required to obtain licenses from third
parties whose patent rights are infringed by the Company's products, technology
or operations. Management believes that the ultimate outcome of these matters
will not have a material adverse effect on the financial position of the
Company.
(12) RELATED PARTY TRANSACTIONS
Effective January 1, 1993, the Company compensates its independent
outside directors on a $1,000 retainer per month. This amount increased to
$1,500 effective January 1, 1995. For the years ended September 30, 1997, 1996
and 1995, such fees amounted to $126,000, $108,000 and $99,000, respectively.
The Company also has compensated four directors for consulting services
performed. Three directors have consulting agreements, the other two were paid
on a per diem basis. For the years ended September 30, 1997, 1996 and 1995,
consulting services in the amounts of $144,000, $100,000 and $90,000
respectively, were paid by the Company pursuant to these arrangements.
49
<PAGE> 50
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
One director is a partner in a law firm which represents the Company on
its patent and license matters. Fees paid to this firm for the years ended
September 30, 1997, 1996 and 1995 were approximately $404,000, $413,000 and
$260,000, respectively.
During fiscal 1997, the Board of Directors of the Company approved the
cashless excercise of certain stock options held by a director. The Company
recorded a charge of $126,750, which represents the fair market value of the
common stock issued.
A board member is an officer of Cold Spring Harbor Laboratory which was
a founder of Amplicon (which was recently acquired by Tularik) and Helicon. A
board member is the chief executive officer and director of Helicon and member
of the board of directors of Xenometrix. A board member is the chief executive
officer of NuGene. The Company's chief executive officer is a member of the
boards of directors of NuGene, Anaderm and Helicon, and may become the chairman
or co-chairman of Helicon and vice president of Anaderm. An executive officer of
the Company is vice president of Helicon. The Company has investments in
Tularik, Helicon, and NuGene and collaborative research agreements with Helicon
and Xenometrix.
(13) EMPLOYEE SAVINGS AND INVESTMENT PLAN
The Company sponsors an Employee Savings and Investment Plan under
Section 401(k) of the Internal Revenue Code. The plan allows employees to defer
from 2% to 10% of their income on a pre-tax basis through contributions into
designated investment funds. For each dollar the employee invests up to 6% of
his or her earnings, the Company will contribute an additional 50 cents into the
funds. For the years ended September 30, 1997, 1996, and 1995, the Company's
expenses related to the plan were approximately $233,000, $164,000 and $180,000,
respectively.
(14) EMPLOYEE RETIREMENT PLAN
On November 10, 1992, the Company adopted a plan which provides
postretirement medical and life insurance benefits to eligible employees, board
members and qualified dependents. Eligibility is determined based on age and
service requirements. These benefits are subject to deductibles, co-payment
provisions and other limitations.
The Company utilizes SFAS No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions" to account for the benefits to be
provided by the plan. Under SFAS No. 106 the cost of post retirement medical and
life insurance benefits is accrued over the active service periods of employees
to the date they attain full eligibility for such benefits. As permitted by SFAS
No. 106, the Company elected to amortize over a 20 year period the accumulated
postretirement benefit obligation related to prior service costs.
50
<PAGE> 51
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Net postretirement benefit cost for the years ended September 30, 1997,
1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost for benefits earned during the
period ........................................................ $194,900 $161,800 $107,175
Interest cost on accumulated postretirement
benefit obligation ............................................ 99,600 89,300 47,181
Amortization of unrecognized net loss .......................... 9,600 18,700 5,855
Amortization of initial benefits attributable to
past service .................................................. 17,500 17,500 17,549
-------- -------- --------
Net postretirement benefit cost ................................ $321,600 $287,300 $177,760
======== ======== ========
</TABLE>
The accrued postretirement benefit cost at September 30, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation-fully eligible
active plan participants.......................................... $1,672,500 $1,306,300
Unrecognized cumulative net loss................................... (460,400) (377,600)
Unrecognized transition obligation................................. (267,600) (285,200)
---------- ----------
Accrued postretirement benefit cost................................ $944,500 $643,500
========== ==========
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 7.5 percent in 1997 and 8 percent in 1996 and a health care
cost trend rate of approximately 8 percent in 1997, decreasing down to 5 percent
in year 2000. Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions constant would
increase the accumulated postretirement benefit obligation as of September 30,
1997 by approximately $322,100 and the net postretirement benefit cost by
approximately $61,200.
(15) NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share." This Statement establishes standards
for computing and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. This Statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. This Statement requires restatement of all
prior period EPS data presented. The adoption of this Statement will not have
any impact on the Company's EPS disclosure, as the Company's stock options and
warrants are anti-dilutive and will be excluded from the denominator of earnings
per share; thus, earnings (loss) per common share is equal to basic earnings
(loss) per share as computed under SFAS No. 128.
51
<PAGE> 52
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive
income and its components in annual financial statements. SFAS 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and selected
segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS 130 and SFAS 131,
respectively. Application of the Statements' disclosure requirements will have
no impact on the Company's consolidated financial position, results of
operations or earnings per share data as currently reported.
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
53
<PAGE> 54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this item is incorporated by reference to
the similarly named section of the Registrant's Proxy Statement for its 1998
Annual Meeting to be filed with the Securities and Exchange Commission not later
than 120 days after September 30, 1997 (the "1998 Proxy").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the similarly named section of the Registrant's 1998 Proxy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the similarly named section of the Registrant's 1998 Proxy.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the similarly named section of the Registrant's 1998 Proxy.
54
<PAGE> 55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements are
included in Part II, Item 8 of this report:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) All schedules are omitted as the required information
is inapplicable or the information is presented in
the financial statements or related notes.
(3) The exhibits listed in the Index to Exhibits on pages
58-60 hereof are attached hereto or incorporated
herein by reference and filed as a part of
this report.
(b) Reports on Form 8-K
None.
55
<PAGE> 56
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.
OSI PHARMACEUTICALS, INC.
By: /s/ GARY E. FRASHIER
------------------------
Gary E. Frashier
Chief Executive Officer
Date: December 29, 1997
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the days indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ GARY E. FRASHIER Chief Executive Officer and December 29, 1997
- ---------------------------------- Director
Gary E. Frashier
/s/ ROBERT L. VAN NOSTRAND Vice President and Chief December 29, 1997
- ------------------------------ Financial Officer
Robert L. Van Nostrand
/s/ G. MORGAN BROWNE Director December 29, 1997
- ------------------------------
G. Morgan Browne
/s/ JOHN H. FRENCH, II Director December 29, 1997
- ------------------------------
John H. French, II
/s/ EDWIN A. GEE, Ph.D. Director December 29, 1997
- ------------------------------
Edwin A. Gee, Ph.D.
/s/ DARYL K. GRANNER, M.D. Director December 29, 1997
- ------------------------------
Daryl K. Granner, M.D.
/s/ WALTER M. LOVENBERG, Ph.D. Director December 29, 1997
- ------------------------------
Walter M. Lovenberg, Ph.D.
/s/ STEVEN M. PELTZMAN Director December 29, 1997
- ------------------------------
Steven M. Peltzman
/s/ GARY TAKATA Director December 29, 1997
- ------------------------------
Gary Takata
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C> <C>
/s/ JOHN P. WHITE Director December 29, 1997
- ------------------------------
John P. White, Esquire
</TABLE>
57
<PAGE> 58
INDEX TO EXHIBITS
Exhibits
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws, as amended (1)
10.1 1985 Stock Option Plan (filed as an exhibit to the Company's
registration statement on Form S-1 (file no. 33-3148) and incorporated
herein by reference)
10.2 1989 Incentive and Non-Qualified Stock Option Plan (filed as an exhibit
to the Company's registration statement on Form S-8 (file no. 33-38443)
and incorporated herein by reference)
10.3 1993 Incentive and Non-Qualified Stock Option Plan, as amended (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 Stock Purchase Plan for Non-Employee Directors (filed as an exhibit to
the Company's registration statement on Form S-8 (file no. 333-06861)
and incorporated herein by reference)
10.5 1995 Employee Stock Purchase Plan (filed as an exhibit to the Company's
registration statement on Form S-8 (file no. 333-06861) and
incorporated herein by reference)
10.6 1997 Incentive and Non-Qualified Stock Option Plan (filed as an exhibit
to the Company's registration statement on Form S-8 (file no.
333-39509) and incorporated herein by reference)
10.7+ Collaborative Research Agreement dated April 1, 1996 between the
Company and Pfizer Inc. (2)
10.8+ License Agreement dated April 1, 1996 between the Company and Pfizer
Inc. (2)
10.9+ Stockholders' Agreement dated April 23, 1996 among Anaderm Research
Corp., the Company, Pfizer Inc., New York University and certain
individuals (2)
10.10+ Collaborative Research Agreement dated April 23,1996 amount the
Company, Pfizer Inc. and Anaderm Research Corp. (2)
10.11 Registration Rights Agreement dated April 11, 1996 among the Company
and the former stockholders of MYCOsearch, Inc. and their designees (2)
10.12 Form of Warrants issued by the Company to the former stockholders of
MYCOsearch, Inc. and their designees covering an aggregate of 100,000
shares of common stock (2)
10.13 Employment Agreement dated April 11, 1996 between the Company and Dr.
Barry Katz (2)
10.14+ Collaborative Research Agreement dated as of December 31, 1991 between
the Company and American Home Products Corporation (3)
10.15+ Amendatory Agreement dated as of December 31, 1993 between the Company
and American Home Products Corporation (3)
10.16* Common Stock Purchase Warrant granted to Marion Merrell Dow, Inc. dated
December 11, 1992
58
<PAGE> 59
10.17 Collaborative Agreement dated as of April 19, 1995 between the Company
and Novartis Pharma AG (4)
10.18 Letter Agreement dated as of April 19, 1995 between the Company and
Novartis Pharma AG (4)
10.19 Registration Rights Agreement dated as of April 19, 1995 between the
Company and Novartis Pharma AG (4)
10.20 Asset Purchase Agreement dated June 26, 1995 among the Company,
Calbiochem-Novabiochem International, Inc. and Calbiochem-Novabiochem
Corporation (5)
10.21 New Product License Right of First Refusal Agreement dated August 2,
1995 between the Company and Calbiochem-Novabiochem Corporation (5)
10.22 Employment Agreement dated as of February 9, 1990 between the Company
and Gary E. Frashier (6)
10.23 Form of Employment Agreement dated as of August 27, 1991, which is
substantially identical in all material respects to the Employment
Agreement dated as of April 28, 1993 between the Company and Colin
Goddard, Ph.D. (6)
10.24+ Agreement dated September 27, 1996 between the Company and Becton,
Dickinson and Company (6)
10.25+ Collaborative Research and License Agreement dated as of January 1,
1997 between the Company and Bayer Corporation (7)
10.26+ Collaborative Research, Development and Commercialization Agreement
dated as of May 1, 1996 between the Company and BioChem Pharma
(International) Inc. (7)
10.27+ EPO Collaborative Research and License Agreement dated as of January 1,
1997 between the Company and Hoechst Marion Roussel, Inc. (8)
10.28+ Collaborative Research, Development and License Agreement dated as of
February 12, 1997 by and among the Company, Sankyo Company, Ltd., and
MRC Collaborative Center (8)
10.29+ Collaborative Research, Development and Commercialization Agreement
dated as of March 7, 1997 between the Company and Sepracor, Inc. (8)
10.30+ License Agreement dated as of March 18, 1997 between the Company and
The Dow Chemical Company (8)
10.31 Amended and Restated Collaborative Research and License Agreement
effective as of April 1, 1997 by and among the Company, Hoechst Marion
Roussel, Inc. and Hoechst Aktiengesellschaft (9)
10.32*+ Stock Subscription Agreement dated as of July 17, 1997 by and between
the Company and Helicon Therapeutics, Inc.
10.33*+ License and Services Agreement dated as of July 17, 1997 by and between
the Company and Helicon Therapeutics, Inc.
10.34*+ Stockholders' Agreement dated as of July 17, 1997 by and among Helicon
Therapeutics, Inc. and certain stockholders of Helicon Therapeutics,
Inc.
10.35*+ Convertible Preferred Stock Purchase Agreement dated as of July 17,
1997 by and among Helicon Therapeutics, Inc., the Company, Hoffman-La
Roche, Inc. and Cold Spring Harbor Laboratory.
59
<PAGE> 60
10.36*+ Collaborative Research and License Agreement effective as of July 1,
1997 by and between Hoffman-La Roche, Inc. and Helicon Therapeutics,
Inc.
21* Subsidiaries of the Company
23* Consent of KPMG Peat Marwick, LLP, independent public accountants
27* Financial Data Schedule
99* Additional Exhibits: Risk Factors
- ------------------------------------
* Filed herewith.
+ Portions of this exhibit have been redacted and are subject to a
confidential treatment request filed with the Secretary of the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
(1) Filed as an exhibit to the Company's registration statement on Form S-3
(file no. 333-937) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the fiscal quarter ended March 31, 1996, as amended, and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the fiscal quarter ended December 31, 1995, as amended, 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, 1995, as amended, and incorporated
herein by reference.
(5) Filed as an exhibit to the Company's current report on Form 8-K dated
August 2, 1995 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended September 30, 1996 and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the fiscal quarter ended December 31, 1996 and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the fiscal quarter ended March 31, 1997 and incorporated herein by
reference.
(9) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the fiscal quarter ended June 30, 1997 and incorporated herein by
reference.
60
<PAGE> 1
ONCOGENE SCIENCE, INC.
COMMON STOCK PURCHASE WARRANT
GRANT DATE: December 11, 1992
In consideration of the purchase of shares of Common Stock described in
the Agreement, and as an inducement to make such purchase, the sufficiency of
which as consideration is hereby acknowledged, Oncogene Science, Inc., a
Delaware corporation (the "Company"), grants to Marion Merrell Dow Inc., a
Delaware corporation (the "Holder"), the right, subject to the terms of this
Warrant, to purchase at any time and from time to time during the period
commencing on the Grant Date and ending on the Expiration Date, unless extended
or terminated as provided herein, at prices set forth herein up to 500,000 fully
paid and nonassessable shares of the authorized but unissued Common Stock. The
Basic Exercise Price and the number of shares that may be purchased pursuant to
this Warrant are subject to adjustment as set forth hereinafter.
1. DEFINITIONS
As used in this Warrant, unless the context otherwise requires, the
following terms shall have the meanings set forth in this Section 1:
1.1. "Agreement" means that certain Stock Purchase Agreement dated
December 11, 1992 between the Company and the Holder.
1.2. "Basic Exercise Price" means $5.50 per share, the price at which a
Warrant Share may be purchased upon exercise of this Warrant prior to any
adjustment provided for herein.
1.3. "Blue Sky Application" means an application or other document
filed pursuant to a Blue Sky Law to register, qualify or obtain an exemption for
an offer or sale by or for the account of the Holder of all or part of this
Warrant or any of the Warrant Shares.
1.4. "Blue Sky Law" means the laws and regulations of any state or
other jurisdiction applicable to any sale by or for the account of the Holder of
all or part of this Warrant or any of the Warrant Shares.
1.5. "Common Stock" means the Common Stock of the Company, par value
$.01 per share.
1.6. "Exercise Date" means any date when this Warrant is exercised, in
whole or in part, in the manner indicated in Subsections 2.1 and 2.2.
1.7. "Exercise Price" means the Basic Exercise Price or, if an
adjustment is required under this Warrant, then "Exercise Price" means, after
each such adjustment, the price at
<PAGE> 2
which a Warrant Share may be purchased upon exercise of this Warrant immediately
following the last such adjustment.
1.8. "Expiration Date" means 11:59 p.m. Eastern Standard Time on the
day immediately preceding the seventh anniversary of the Grant Date or, if such
date falls on a Saturday, Sunday, or holiday, on the first business day
thereafter.
1.9. "Grant Date" means the date as of which this Warrant was first
granted as stated at the beginning of this Warrant.
1.10. "Prospectus" means a preliminary prospectus or final prospectus
(including any supplement), or any offering circular or similar offering
document, included in a Registration Statement.
1.11. "Registration Statement" means a registration or offering
statement, a pre-effective or post-effective amendment to a registration
statement, or any other document proposed for filing or filed by the Company
under the Securities Act which is or would be available under applicable laws,
rules and regulations to register a public offering or sale of any Warrant
Shares.
1.12. "Securities Act" means the Securities Act of 1933, as amended
from time to time, and all rules and regulations promulgated thereunder, or any
act, rules or regulations which replace the Securities Act or any such rules and
regulations.
1.13. "Underwriter" means any party who is an "underwriter" within the
meaning of the Securities Act with respect to any sale by or for the account of
the Holder of any of the Warrant Shares.
1.14. "Warrant" means this Common Stock Purchase Warrant and each
subsequently issued Common Stock Purchase Warrant, if any, for which this
Warrant has been exchanged.
1.15. "Warrant Shares" any shares of Common Stock or other securities
issued or subject to issuance upon exercise of this Warrant or upon exchange of
this Warrant for a Warrant or warrants of different denominations.
2. DURATION AND EXERCISE OF WARRANT
2.1. Exercise Period and Exercise Price. Subject to the provisions of
Section 7 hereof, this warrant shall be exercisable, in whole or in part, at any
time and from time to time beginning on the second anniversary of the Grant Date
and on or before the Expiration Date.
2.2. Method of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by (i) surrendering this Warrant to the Company, (ii)
tendering to the Company
2
<PAGE> 3
payment in cash of the Exercise Price for the Warrant Shares for which exercise
is made and (iii) executing and delivering to the Company the Exercise Form
attached hereto as Schedule 2.2. Upon proper exercise, subject to Subsection
2.4, the Holder shall be deemed to be the holder of record of the Warrant Shares
for which exercise is made, even though the stock register or transfer books of
the Company may then be closed or certificates representing such Warrant Shares
may not then be actually delivered to the Holder.
2.3. Certificates. Within a reasonable time, but no more than 20 days
after this Warrant has been duly exercised in compliance with Subsection 2.2,
certificates for such Warrant Shares shall be delivered to the Holder and,
unless this Warrant has expired, it shall be returned to Holder endorsed by an
officer of the Company to indicate the number of Warrant Shares previously
exercised and the number of Warrants remaining to be exercised or a new Warrant
or Warrants for such aggregate number of shares remaining shall be issued to the
Holder.
2.4. Securities Act Compliance. Unless the transfer of the Warrant
Shares shall have been registered under the Securities Act, as a condition of
its delivery of any Warrant or any certificate for Warrant Shares, the Company
may require the Holder (including any transferee of a Warrant or Warrant Shares
in whose name such Warrant or Warrant Shares are to be registered) to deliver to
the Company written representations regarding the purchaser's sophistication,
investment intent, acquisition for his own account and such other matters as are
reasonable and customary for purchasers of securities in an unregistered private
offering, and the Company may place conspicuously upon each such Warrant and
certificate representing Warrant Shares a legend, substantially in the following
form:
"The securities represented by this certificate have been issued
without registration or qualification under the Securities Act of 1933
(the "Securities Act") or the securities or Blue Sky laws of any
jurisdiction. Such securities may not be sold, assigned, transferred or
otherwise disposed of, beneficially or on the records of the Company,
unless such securities have first been registered or qualified under
the Securities Act and applicable securities or Blue Sky laws or there
has been delivered to the Company an opinion of counsel, satisfactory
to the Company, to the effect that such registration and qualification
is not required."
2.5. Taxes. The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in connection with the
original issuance of this Warrant, or the issuance of any Warrant Shares upon
the exercise of this Warrant to the Holder thereof. The Company shall not,
however, be required to pay any taxes which may be payable in respect of any
subsequent transfer of this Warrant or of any Warrant Shares.
3
<PAGE> 4
3. VALIDITY AND RESERVATION OF WARRANT SHARES
The Company covenants that this Warrant and all shares of Common Stock
issued upon exercise of this Warrant will be validly issued, fully paid,
nonassessable, free of preemptive rights, subject to no liens or claims and free
of restrictions other than those set forth herein or placed thereon by the
Holder. The Company agrees that so long as this Warrant may be exercised, the
Company will have authorized and reserved for issuance upon exercise of this
Warrant a sufficient number of Warrant Shares to provide for exercise in full.
4. FRACTIONAL SHARES
No fractional Warrant Share shall be issued upon the exercise of this
Warrant. With respect to any fraction of a Warrant Share otherwise issuable upon
any such exercise, the Company shall pay to the Holder an amount in cash equal
to such fraction multiplied by the Exercise Price.
5. LIMITED RIGHTS OF THE WARRANT HOLDER
The Holder shall not, solely by virtue of being the Holder of this
Warrant, have any of the rights of a holder of Common Stock of the Company,
either at law or equity, until the Warrant shall have been exercised and the
Holder shall be deemed to be the holder of record of Warrant Shares, as provided
in this Warrant, at which time the person or persons in whose name or names the
certificate or certificates for Warrant Shares being purchased are to be issued
shall be deemed the holder or holders of record of such shares for all purposes.
6. EXCHANGE, TRANSFER OR LOSS OF WARRANT
6.1. Transfer. Subject to the provisions of Sections 2.4 and 10, upon
surrender of this Warrant to the Company with the attached Assignment Form duly
executed and the tender of funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant or Warrants to the
assignee(s) named in such Assignment Form, and a new Warrant or Warrants to the
Holder representing the portion of the original Warrant not so assigned, and
this Warrant shall be canceled concurrently with such issuance.
6.2. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company
of satisfactory evidence of the loss, theft, destruction or mutilation of this
warrant and either (in the case of loss, theft or destruction) reasonable
indemnification or (in the case of mutilation) the surrender of this Warrant for
cancellation, the Company will execute and deliver to the Holder, without
charge, a new Warrant of like denomination.
7. ANTI-DILUTION ADJUSTMENTS
7.1. Adjustment of Exercise Price. The number of Warrant Shares and
the Exercise Price are subject to change or adjustment as follows:
4
<PAGE> 5
(a) Recapitalization, Stock Split, Stock Dividend. If at any time
after the Grant Date and on or before the Expiration Date the Company effects or
declares a subdivision, combination, reclassification, split-up, reverse
split-up, or other recapitalization of its outstanding shares of Common Stock
into a greater or lesser number of shares of Common Stock, or a dividend payable
in shares of Common Stock, the number of Warrant Shares for which the Warrant is
exercisable immediately prior to such subdivision, combination,
reclassification, split-up, reverse split-up, or other recapitalization or
dividend shall thereafter be appropriately increased or decreased, as
appropriate, so that both immediately before and immediately after such event,
the number of Warrant Shares shall represent the right to purchase the same
percentage of the outstanding Common Stock. Upon any such adjustment of the
number of Warrant Shares, the Exercise Price shall be adjusted to the new
Exercise Price obtained by dividing (i) the product of the number of Warrant
Shares issuable immediately prior to such adjustment and the Exercise Price then
in effect by (ii) the number of Warrant Shares issuable immediately after such
adjustment.
(b) Dividend Payable in Security or Property Other Than Cash. If at
any time after the Grant Date and on or before the Expiration Date the Company
declares a dividend on its Common Stock payable in securities of the Company
(other than Common Stock) or in other property (other than cash), the Holder
shall, without additional cost, be entitled to receive upon the exercise of this
Warrant, in addition to the Warrant Shares to which such Holder is otherwise
entitled upon such exercise, the amount of securities or noncash property that
such Holder would have been entitled to receive with respect to the Warrant
Shares if such Holder had been a holder, on the record date for such dividend,
of the number of shares of Common Stock purchased upon such exercise of this
Warrant.
(c) Merger, Sale of Assets, Etc. If at any time after the Grant Date
and on or before the Expiration Date there occurs (i) a reorganization not
otherwise provided for herein, (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity or by virtue of which the outstanding Common Stock is converted into
securities, cash, or other property, or (iii) a sale or transfer of all or
substantially all of the Company's properties and assets, then the Holder shall
be entitled to receive, upon exercise of this Warrant and payment of the
Exercise Price, the number of shares or units of securities, cash, or other
property (or the cash value thereof, determined in good faith by the Company's
Board of Directors) that the Holder would have been entitled to receive as a
result of such event if this Warrant had been exercised immediately prior to the
record date (or, if none, the effective date) for such transaction, and
appropriate adjustment shall be made in the application of the provisions of
this Warrant after the transaction such that the rights and interests of the
Holder under this Warrant shall be preserved with respect to any shares or other
property deliverable to such Holder upon exercise of the Warrant after such
transaction.
(d) Other Offerings. If at any time after the Grant Date and on or
before the Expiration Date the Company completes a public or private offering of
additional shares of
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<PAGE> 6
Common Stock at an effective price or prices (after deducting any underwriting
discount or commission) ten percent or more below the low sales price of the
Common Stock on the NASDAQ-NMS on the closing date of such offering, the Holder
shall, without additional cost except payment of the exercise price defined
below, be entitled to purchase upon exercise of this Warrant or at any time
thereafter until the Expiration Date, in addition to the Warrant Shares to which
the Holder is otherwise entitled upon such exercise, that number of shares of
Common Stock required for the Holder to maintain the same percentage ownership
of the Company's Common Stock immediately following such offering (assuming full
exercise of this Warrant and the exercise or conversion of all exercisable or
convertible securities issued in such offering or previously outstanding) as
such Holder had (assuming full exercise of this Warrant and all other
exercisable or convertible securities) immediately prior to the closing date of
such offering or offerings. For purposes of this Section 7.1(d), an offering of
additional shares of Common Stock shall include any offering of any form of
stock option (other than employee stock options), stock warrant, or other
security convertible into, exchangeable for, or exercisable to acquire shares of
common Stock; provided that the purchase date of such Common stock shall be
deemed to be the date of original sale of such stock option, stock warrant or
convertible security rather than the date of exercise or conversion. The
exercise price per share payable by the Holder for such additional shares of
Common Stock shall be the average net selling price per share (after deducting
commissions and fees) received or to be received by the Company as a result of
such offering and upon the full exercise or conversion of the securities issued
therein; provided, however that if either the price at which or the number of
shares of Common Stock into which any securities issued in such offering are
exercisable or convertible is not fixed at the time of the offering, the
issuance of such securities shall, for purposes of this subsection 7.1(d), be
deemed a separate offering that is completed on the first date both the price
and the number of shares become fixed.
(e) Minimum Adjustment Not Required. Anything in this Section 7.1 to
the contrary notwithstanding, the Company shall not be required, except as
hereinafter provided, to make any adjustment of the Exercise Price in any case
in which the amount by which such Exercise price would be increased or reduced,
in accordance with the foregoing provisions, would be less than $.05 per share,
but in such a case, any adjustment that would otherwise be required to be made
will be carried forward and made at the time and together with the next
subsequent adjustment which, together with any and all such adjustments so
carried forward, shall amount to not less than $.05 per share; provided,
however, that adjustments in the Exercise Price shall be required and made in
accordance with the provisions of this Subsection 7.1 (other than this
subparagraph) not later than such time as may be necessary in order to preserve
the tax-free nature of any distribution (within the meaning of Section 305 of
the United States Internal Revenue Code of 1986, as amended) to the Holder or
the holders of Common Stock.
(f) Employee Stock Options. Notwithstanding anything to the contrary
contained in this Section 7, no adjustment shall be made with respect to the
granting to employees of options to purchase shares of Common Stock of the
Company or the subsequent
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<PAGE> 7
exercise or modification thereof in connection with employee stock option plans
of the Company.
(g) Other Adjustments. The Company shall make such other or
additional equitable adjustments to the number of Warrant Shares and the
Exercise Price as may be necessary to protect the Holder against dilution of
this Warrant, as contemplated in this Subsection 7.1, except that the issuance
of additional shares of Common Stock in satisfaction of the Company's
obligations under this Warrant shall not give rise to any such adjustment.
(h) Term "Common Stock" When used in this Section 7.1, the term
"Common Stock" shall include any stock of any class of the Company other than
preferred stock with a fixed limit on dividends and with no rights of conversion
into "Common Stock" and without a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company.
7.2. Shares Deemed Warrant Stock. Shares of Common Stock issued or
issuable pursuant to Section 7.1 shall be deemed Warrant Shares for all purposes
of this Warrant, and the Holder shall have the same rights with respect to such
shares as such Holder has or would have with respect to any other Warrant
Shares.
7.3. Notice of Adjustment. Whenever the Exercise Price or the number of
Warrant Shares is required to be adjusted under Section 7.1, the Company shall
promptly mail by certified mail to the Holder, a certificate of its chief
financial officer showing the adjusted number of Warrant Shares and Exercise
Price, setting forth in reasonable detail the facts requiring such adjustment,
and stating such other facts as shall be necessary to show the manner and
figures used to compute such adjustment.
If, within 45 days of the mailing of such certificate, the Holder notifies
the Company in writing of its disagreement with the computation of the adjusted
number of Warrant Shares or Exercise Price contained in the Company certificate,
then the Company will promptly obtain a certificate of a firm of independent
certified public accountants of recognized standing selected by the Company's
Board of Directors (who may be the regular auditors of the Company) covering the
same items required by the Company certificate and mail a copy of such
certificate to the Holder. The certificate of the firm of independent public
accountants will be conclusive evidence of the correctness of the computations
with respect to any adjustment of the number of Warrant Shares or the Exercise
Price.
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<PAGE> 8
8. NOTICE TO HOLDER
So long as this Warrant is outstanding, whenever the Company shall expect
to (i) pay any dividend or distribution upon Common Stock, (ii) offer to the
holders of Common Stock any right to subscribe for or to purchase any other
securities of the Company, (iii) effect any recapitalization, merger,
consolidation, reorganization, transfer, sale, lease or conveyance as referred
to in Section 7, or (iv) be involved in any voluntary or involuntary
dissolution, liquidation or winding up of the Company, at least thirty days
before the proposed action or any applicable record date, the Company, by
certified mail, shall give the Holder written notice describing the proposed
action and stating the date on which (x) a record date is to be fixed for the
purposes of such dividend, distribution or right or (y) such recapitalization,
merger, consolidation, reorganization, transfer, sale, lease, conveyance,
dissolution, liquidation or winding up is to take place and when, if any date is
to be fixed, the record holders of Common Stock shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such recapitalization, merger, consolidation, reorganization, transfer, sale,
lease, conveyance, dissolution, liquidation or winding up.
9. REGISTRATION OF THE WARRANT SHARES
9.1. Registration Rights.
(a) Piggy-back Registration. The Company shall advise each Holder
of this Warrant or Warrant Shares, by written notice at least four weeks in
advance thereof, of the intended filing of any Registration Statement which is
filed after the Grant Date and within two years after the Expiration Date.
Subject to the restrictions imposed by any underwriter, as set forth below, the
Company shall, upon the request of any Holder, include in any such Registration
Statement such information as may be required to permit a public offering of
such Holder's Warrant Shares. If any such Registration Statement is being filed
by the Company in connection with an underwritten public offering of securities
of the Company, all the proceeds of which are to be received by the Company, the
number of shares included in such Registration Statement shall be limited to
such number, if any, as the underwriter in good faith determines would not have
a material adverse effect on the marketing of the Company's securities, and the
marketing of the Company's securities shall have priority over the marketing of
securities for the accounts of the Holder or any other person requesting
registration. If any such Registration Statement is being filed by the Company
for the benefit of selling security holders, the Company will permit the Holder
to include in such Registration Statement at least a pro rata portion (based
upon the ratio of the number of shares which such selling security holders
desire to sell to the number of shares which Holder desires to sell) of the
total shares of Common Stock being registered.
(b) Demand Registration. If at any time after the Grant Date and
within two years following the Expiration Date the Holder notifies the Company
that the Holder contemplates (i) the transfer of all or any part of the Warrant
or Warrant Shares, or (ii) the exercise of all or any part of the Warrant and
the transfer of all or any part of the Warrant
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<PAGE> 9
Shares, under such circumstances that a public offering (within the meaning of
the Securities Act) of such securities will be required, then the Company shall,
as promptly as practicable after receipt of such notice, if any of such
securities may not then be sold publicly within three months after the date of
such notice otherwise than in a public offering under the Securities Act, file a
Registration Statement pursuant to the Securities Act, to the end that such
securities may be sold under the Securities Act as promptly as practicable from
the date of receipt of such notice by the Company; provided that (w) no more
than two such demands may be made upon the Company during the period beginning
with the Grant Date and ending within two years following the Expiration Date
and (x) any demand by the Holder for the filing of a Registration Statement
pursuant to the Securities Act shall relate to the registration of at least
150,000 shares of the Company's Common Stock or shares having an aggregate
market value at the time of such notice of not less than $1,500,000 (which
conditions may be met by aggregating the shares or value of shares of the Holder
with those of other persons having registration rights or otherwise
participating in such registration), (y) no more than one demand may be made
upon the Company during any period of twelve consecutive months, and (z) the
Holder shall not require of the Company, in order to register the Warrant
Shares, any audit other than the usual audit at the close of the Company's
fiscal year unless the Holder bears the cost of such audit.
(c) General Provisions. The following provisions shall also
be applicable to any such Registration Statement:
(1) The Holder shall furnish the Company with such appropriate
information (relating to the Holder's intentions) in connection
therewith as the Company shall reasonably request in writing.
Following the effective date of such Registration Statement, the
Company shall, upon the request of the Holder, forthwith supply such
number of Prospectuses or offering circulars meeting the
requirements of the Securities Act as shall reasonably be requested
by the Holder to conduct a public offering pursuant to the
Registration Statement. The Company shall file such Blue Sky
Applications and use its best efforts to qualify securities included
therein for sale in such states as the Holder shall reasonably
designate.
(2) Except for the first registration under Subsection 9.1(b),
all expenses of which, except for any underwriting commission
attributable to securities offered by sellers other than the
Company, shall be borne by the Company, the Holder shall bear the
Holder's pro rata share of the cost and expense directly relating to
any registration of securities pursuant to this Section 9.1 (not
including Company salaries and expenses), and shall be required to
pay the Holder's share of any underwriting commission due in
connection with any such sale; the pro rata share of such costs and
expenses shall be equal to that percentage of the total securities
covered by the Registration Statement represented by the Holder's
sale.
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<PAGE> 10
(3) The Company shall indemnify and hold harmless the Holder
and each Underwriter who purchases from or sells for the Holder any
Warrant Shares from and against any and all losses, claims, damages
and liabilities attributable to any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any Prospectus included therein, required to be filed
or furnished by reason of this Section 9.1, or attributable to any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages or
liabilities are attributable to any such statement, omission, or
alleged omission based on information furnished or required to be
furnished in writing to the Company by and about the Holder or
Underwriter expressly for use therein, which indemnification shall
include each person, if any, who controls the Holder or any such
Underwriter within the meaning of the Securities Act; provided,
however, that the Company shall not be obliged so to indemnify the
Holder or any such Underwriter or controlling person (i) insofar as
such losses, claims, damages or liabilities are the result of any
underwriter's failure to deliver a current prospectus, if the reason
for such failure is that the prospectus made available by the
Company is not then current and the Company did not, prior to such
failure, notify such underwriter in writing that such prospectus was
then no longer current; and (ii) unless the Holder or such
underwriter shall at the same time indemnify the Company, its
directors, each officer signing a Registration Statement, and each
person, if any, who controls the Company within the meaning of the
Securities Act, from and against any and all losses, claims, damages
and liabilities attributable to any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement or any Prospectus or offering circular required to be
filed or furnished by reason of this Subsection 9.1, or attributable
to any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages or
liabilities are attributable to any untrue statement or alleged
untrue statement or omission or alleged omission based on
information furnished in writing to the Company by and about the
Holder or any such Underwriter expressly for use therein. The
procedures with respect to indemnification set forth in the
Agreement shall, to the extent not expressly inconsistent with the
provisions herein, govern the handling of claims for indemnification
hereunder.
(4) The Company shall, or will use its best efforts to (i)
prepare and file with the Securities and Exchange Commission (the
"Commission") a Registration Statement with respect to the Warrant
Shares to be registered or qualified and cause such Registration
Statement to become and remain effective; provided, that in the case
of an underwritten public offering, the Company shall
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<PAGE> 11
not be required to keep the Registration Statement effective, or to
prepare and file any amendments or supplements, later than 90 days
after the date on which the Registration Statement becomes effective
under the Securities Act, and in the case of a registration for a
nonunderwritten shelf offering, the Company shall not be required to
register such an offering unless the Company is eligible to use a
Form S-3 registration statement and need not maintain the
effectiveness of such registration statement after all Warrant
Shares covered thereby become eligible for public sale without
registration and are no longer subject to the volume and timing
limitations of the Commission's Rule 144; and (ii) prepare and file
with the Commission amendments and supplements to the Registration
Statement and the prospectus or offering circular as may be
necessary to keep the Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the
disposition of all Warrant Shares covered by the Registration
Statement whenever the Holder wishes to dispose of the same,
subject, however, to the provision contained in (i) above.
Notwithstanding the foregoing, in the case of a registration request
pursuant to Section 9.1(a), the Company's best efforts obligation
shall in no way limit the Company's right to determine not to file a
registration statement or to determine to withdraw any such
registration statement if the Company's Board of Directors believes
that it is no longer in the best interest of the company to continue
with the registration of Shares.
(5) The Company shall, in case of a registration or
notification, furnish to the Holder, at the time of each disposition
of Warrant Shares, an opinion of counsel for the Company acceptable
to the Holder to the effect that a Registration Statement covering
the Warrants and Warrant Shares has been filed with the Commission
under the Securities Act and has become effective, that a prospectus
or offering circular complying in form with the requirements of the
Securities Act is available for delivery, that no stop order has
been issued by the Commission suspending the effectiveness of the
Registration Statement or suspending the availability of the
offering exemption and that, to the best of counsel's knowledge, no
proceedings for the issuance of a stop order are threatened or
contemplated.
9.2. Exchange Listing. Prior to the issuance of any Warrant Shares,
the Company shall use its best efforts to secure the listing of any such shares
upon any securities exchange upon which shares of the Company's Common Stock are
listed; the costs of such listing shall be paid by the Company.
9.3. No Obligation to Sell. Neither the giving of any notice nor
the making of any request hereunder shall impose any obligation on the selling
Holder to sell any Warrant or Warrant Shares.
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<PAGE> 12
9.4. Registration Rights Survive Exercise. The Company's obligations
under this Section 9 shall continue in effect, regardless of the exercise or
surrender of this Warrant, and shall inure to the benefit of each Holder of any
of the Warrants or Warrant Shares. The Company's obligations under this Section
9 shall expire, however, with respect to a Warrant or Warrant Share which shall
have been sold in a public offering registered under the Securities Act or in a
sale exempt from such registration if thereafter such Warrant Shares are
eligible for resale to the public without restriction.
10. TRANSFER RESTRICTION
10.1. General. Anything contained herein to the contrary notwithstanding,
this Warrant may not be partially or fully assigned, transferred, hypothecated
or sold except that it may be assigned in whole or in part to (a) any subsidiary
or other affiliated company of Holder, (b) partnerships in which the general
partners are Holder or parties described in (a) above, (c) successors to Holder,
whether by merger, consolidation, liquidation, dissolution or otherwise, (d) a
purchaser of substantially all of the assets of Holder, or (e) to an investment
banking brokerage firm of Holder's choice which is reasonably acceptable to the
Company, and except that
(i) transfers of this Warrant in the manner contemplated by
Subsection 10.2 or by operation of law shall be permitted
and
(ii) in the event that Holder desires to assign this Warrant in
accordance with paragraph 10.1(e) hereof, it shall first
grant to the Company the right, exercisable within 60 days
of Holder's notice to the Company of its intention to so
assign, to purchase all of the shares which are to be the
subject of the assignment to an investment
banking/brokerage firm, on the same terms and conditions as
to both purchase price and timing of closing as Holder has
received from such investment banking/brokerage firm.
Any such assignment or transfer shall be made by surrender of this
Warrant to the Company or at the office of its transfer agent, if any, with the
Form of Assignment annexed hereto as Schedule 10. I duly executed and funds
sufficient to pay any transfer tax, whereupon the Company shall, without charge,
execute and deliver a new warrant in the name of the assignee, and this Warrant
shall promptly be canceled.
10.2. Securities Law Compliance. Except as provided in Subsection 10.
1 above, this Warrant and the Warrant Shares may not be sold or otherwise
disposed of except as follows:
(i) in a transaction which, in the opinion, satisfactory in form
and substance to the Company, of counsel reasonably
satisfactory to the Company, is a transaction in which this
Warrant or the Warrant Shares may legally be
12
<PAGE> 13
transferred without registration and without the delivery of a
current prospectus or offering circular with respect thereto;
or
(ii) as to the Warrant Shares, to any person upon delivery of a
prospectus or offering circular then meeting the requirements
of the Securities Act relating to such securities (as to which
a Registration Statement under the Securities Act shall then
be in effect) and the offering thereof for such sale or
disposition.
11. WARRANTIES AND REPRESENTATIONS
(a) The Company hereby makes the following representations and
warranties, each of which is true and correct on the date hereof and each of
which the Company acknowledges may be relied upon by Holder.
11.1. Corporate Existence and Qualification of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to own and use its properties and to transact the business in which the Company
is engaged, holds all franchises, licenses and permits necessary and required
therefor.
11.2. Approval of Agreements. The execution and delivery of the Agreement
and this Warrant was authorized and approved by the Company's board of directors
at a meeting held on September 25, 1992. Following such authorization and
approval, the Company has full power and authority to enter into the Agreement
and this warrant and to perform its obligations thereunder, and neither the
execution or the performance of the Agreement or the Warrant nor the
consummation of the transactions contemplated thereby will result in the breach
of- any statute or regulation of the United States or the State of Delaware or
will conflict with or result in the breach of or default by the Company of the
terms or provisions of, or constitute a default under the Certificate of
Incorporation or Bylaws of the Company or will result in the acceleration of any
obligation of the Company under any material agreement, instrument, decree,
order, judgment or other restriction to which the Company is a party or by which
it is bound.
(b) The Holder makes the following representations and warranties,
each of which is true and correct on the date hereof, and each of which the
Holder acknowledges may be relied upon by the Company.
11.3. Investment Intent. Holder is purchasing this Warrant and, upon
exercise of this Warrant, the Warrant Shares, for its own account and not for
the account of others, for investment purposes only and not with a view to the
distribution thereof; and Holder is a sophisticated investor, able to bear the
economic risk of loss or lack of liquidity of its investment, and has had access
to such information concerning the Company as was or would be available in a
Registration Statement.
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<PAGE> 14
11.4. Corporate Authority. Holder has full power and corporate authority
to enter into this Agreement, without conflict or breach of any of the terms or
provisions of its Certificate of Incorporation or Bylaws, or any other express
obligation to which Holder is a party or by which it is bound.
12. MISCELLANEOUS
12.1. Successor and Assigns. The covenants and provisions of this
Warrant shall bind and inure to the benefit of successors and permitted
assigns of the parties.
12.2. Notice. Notice or demand pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by registered or certified mail, return receipt requested, postage prepaid,
addressed, until another address is designated in writing by the Company, as
follows:
Oncogene Science, Inc.
106 Charles Lindbergh Boulevard
Uniondale, N.Y. 11553
Attention: President
Notice or demand pursuant to this Warrant to be given or made by the Company to
or on Holder shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed, until another is designated in writing by Holder, as
follows:
Marion Merrell Dow Inc.
9300 Ward Parkway
Kansas City, Missouri 64114
Attention: Vice President and General Counsel
12.3. Applicable Law. The validity, interpretation and performances
of this Warrant shall be governed by the laws of the State of Delaware.
12.4. Nonredeemability. This Warrant shall not be redeemable by the
Company without the Holder's prior written consent.
12.5. Headings. The Article headings herein are for convenience only
and are not part of this warrant and shall not affect the interpretation
thereof.
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<PAGE> 15
12.6. Schedules. The Schedules attached hereto are incorporated
herein by this reference as though fully set forth in this Common Stock
Warrant.
ONCOGENE SCIENCE, INC.
By: ________________________________
Title: _____________________________
MARION MERRELL DOW INC.
By: ________________________________
Title:______________________________
15
<PAGE> 16
SCHEDULE 2.2
EXERCISE FORM
(To Be Executed by the Warrant Holder If He
Desires to Exercise the Warrant in Whole
Or In Part)
TO: Oncogene Science, Inc.
______________________
______________________
The undersigned, Marion Merrell Dow Inc., hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant for, and to purchase
thereunder _______________ shares of Common Stock provided for therein and
tenders payment herewith to the order of Oncogene Science, Inc. in the amount of
$ _______________________.
The undersigned requests that certificates for such shares of Common Stock be
issued as follows:
Name: _________________________
Address: _________________________
Deliver to: _________________________
Address: _________________________
and, if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that the Warrant be endorsed to indicate the
balance remaining of the shares of Common Stock purchasable under the Warrant
and the Warrant as so endorsed then be returned to Marion Merrell Dow Inc. at:
Address: 9300 Ward Parkway
Kansas City, Missouri 64114
Attention: Vice President and General Counsel
MARION MERRELL DOW INC.
By: ________________________________
Title:______________________________
Date: ______________________________
16
<PAGE> 17
SCHEDULE 10.1
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
______________________________________ the right to purchase ________ shares of
Common Stock evidenced by the within Warrant, and appoints
__________________________ to transfer the same on the books of Oncogene
Science, Inc. with the full power of substitution in the premises.
MARION MERRELL DOW INC.
By: ________________________________
Title:______________________________
Date: ______________________________
Signature Guaranteed:
_____________________________
17
<PAGE> 1
Portions of this Exhibit 10.32 have been redacted and are the subject of a
confidential treatment request filed with the Secretary of the Securities and
Exchange Commission.
<PAGE> 2
STOCK SUBSCRIPTION
Helicon Therapeutics, Inc.
July 17, 1997
To Helicon Therapeutics, Inc.:
The undersigned hereby subscribes for ** shares of Series A Preferred
Stock, $.001 par value per share, of Helicon Therapeutics, Inc. (the "Company")
and agrees to contribute as total consideration therefor to the Company **
pursuant to the License and Services Agreement between the Company and Oncogene
Science, Inc. ("OSI") attached hereto as Exhibit A (the "License and Services
Agreement"), (ii) a non-exclusive, royalty-free license, pursuant to the License
and Services Agreement, to use certain screening technology and commercialize
products which are the subject of an OSI patent application covering a method of
screening and modulation transcription and (iii) ** in cash.
- -----------------------
** This portion has been redacted pursuant to a request for confidential
treatment.
<PAGE> 3
The undersigned hereby agrees, represents, and warrants that:
(1) It is acquiring such shares for its own account (and not for the
account of others) for investment and not with a view to the distribution or
resale thereof;
(2) It has access to the same kind of information which would be available
in a registration statement filed under the Securities Act of 1933;
(3) It is a sophisticated investor;
(4) It understands that it may not sell or otherwise dispose of such
shares in the absence of either a registration statement under the Securities
Act of 1933 or an exemption from the registration provisions of the Securities
Act of 1933; and
(5) The certificates representing such shares may contain a legend to the
effect of (4) above.
Very truly yours,
Oncogene Science, Inc.
By: _____________________________
Name: Robert L. Van Nostrand
Title: Vice President and
Chief Financial Officer
Accepted and Accepted:
Helicon Therapeutics, Inc.
By: _______________________________
Name: Arthur M. Bruskin, Ph.D.
Title: Vice President
<PAGE> 1
Portions of this Exhibit 10.33 have been redacted and are the subject of a
confidential treatment request filed with the Secretary of the Securities and
Exchange Commission.
<PAGE> 2
EXHIBIT A TO
SUBSCRIPTION AGREEMENT
LICENSE AND SERVICES AGREEMENT
This LICENSE AND SERVICES AGREEMENT, made the 17th day of July, 1997,
by and between Oncogene Science, Inc. ("OSI"), a Delaware corporation having its
principal place of business at 106 Charles Lindbergh Boulevard, Uniondale, New
York 11553, and Helicon Therapeutics, Inc. ("Company"), a Delaware corporation,
having its principal place of business at 106 Charles Lindbergh Boulevard,
Uniondale, New York 11553.
WHEREAS, the Company was organized to discover, develop and market
pharmaceutical products; and
WHEREAS, OSI is engaged in research relating to molecular screening and
modulation transcription; and
WHEREAS, the Company wishes to obtain the use of certain proprietary
technology controlled by OSI for identifying the effect of compounds on genes
and gene expression which is useful in the process of developing products for
the treatment and prevention of human disease; and
WHEREAS, the Company wishes to obtain the services of OSI in molecular
screening;
NOW, THEREFORE, in consideration of the agreements and covenants herein
and for other valuable consideration, receipt of which is hereby acknowledged,
it is mutually agreed and covenanted by and among the parties to this Agreement
that:
1. Licenses.
a. OSI hereby grants to the Company a world-wide, ** ,
non-exclusive license for a period of ten years, beginning as
of the date of the issuance of Preferred Stock, $.01 par value
per share, of the Company ("Preferred Stock") to OSI pursuant
to paragraph 6 of this Agreement, in the Field ("long term
memory and modulation of CREB** activity in synaptic
plasticity"), to use the technology and to commercialize the
products which are the subject of patent
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** This portion has been redacted pursuant to a confidential treatment
request.
<PAGE> 3
applications with numbers as set forth in Exhibit 1 hereto
("Applications") [and certain other technology, all] covering
a method of screening and modulation transcription. However,
if any patent or patents ("Patents") are issued as the result
of the Applications, the rights granted under this paragraph
1(a) will terminate as to the territory within the scope of
the Patents and the provisions of paragraph 1(b) below shall
apply.
b. OSI hereby grants to the Company a ** , non-exclusive license,
for a period beginning on the date of the first issuance of
the Patents and terminating on the date of the last expiration
of the Patents, in the Field, to use and commercialize the
"Patent Rights," which are (i) all Patents issued from the
Applications or from divisionals or continuations of the
Applications, (ii) all claims of United States and foreign
continuation-in-part applications and patents which are
directed to subject matter specifically described in the
Applications, (iii) all claims of all foreign patent
applications and patents which are directed to subject matter
specifically described in the United States patents and/or
patent applications described in (i) or (ii), and (iv) any
reissues or reexaminations or United States patents described
in (i), (ii) or (iii).
c. The licenses granted in paragraphs 1(a) and 1(b) may by mutual
agreement be extended on a case by case basis.
2. The Company recognizes that the Applications contain highly valuable
proprietary, confidential information ("Confidential Information") and
agrees that, until the Applications have been finally processed by the
applicable governmental entity, it will (i) keep confidential, and
cause its employees to keep confidential, all Confidential Information,
and (ii) not use Confidential Information except as expressly permitted
in this Agreement. The Company also agrees that disclosure of the
Confidential Information to any officer, employee, agent or consultant
shall be made only if and to the extent necessary to carry out the
Company's responsibilities under, first, the Collaborative Research and
License Agreement ("Collaboration Agreement") by and between
Hoffmann-La Roche Inc. and the Company, to be entered, and, second, the
Funded Research and License Agreement ("Research Agreement") by and
between CSHL and the Company, heretofore or hereafter entered, and
shall be limited to the maximum extent possible consistent with such
responsibilities. The Company agrees not to disclose Confidential
Information to any third party under any circumstance without written
permission. The Company shall take such action to preserve the
confidentiality of the Confidential Information as it would customarily
take to preserve the confidentiality of its own confidential
information. The Company represents that all of its employees which
shall have access to the Confidential Information are bound by
agreement to maintain such information in confidence. Confidential
Information will be so designated by OSI in writing at the time of
disclosure
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** This portion has been redacted pursuant to a confidential treatment
request.
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<PAGE> 4
to the Company, and will include that information which as of the date of
disclosure to the Company is not (a) known to the Company other than by
virtue of a prior confidential disclosure to the Company by OSI, or (b)
disclosed in the published literature, or otherwise generally known to the
public, or (c) obtained from a third party that has no obligation of
confidentiality to OSI.
3. OSI represents and warrants to the Company that (a) it is the holder of
the Applications, (b) it has the right to grant the licenses granted in
this Agreement, (c) there are no claims made against the Applications, and
that (d) the licenses granted do not conflict with or violate the terms of
any agreement between CSHL and any third party.
4. Protection of Rights.
a. Each party shall promptly notify the other party in writing of
any alleged or threatened infringement of the Patents of which it
becomes aware. OSI shall have the right but not the obligation
to bring, at its own expense and in its sole control, an
appropriate action against any person or entity infringing the
Patents. The Company shall be entitled to separate
representation in the matter by counsel of its own choice and at
its own expense, and shall fully cooperate with OSI in
prosecuting the action.
b. If OSI or the Company is sued by a third party for infringement
of a patent because of the Company's exercise of the rights
granted in this Agreement, the party which has been sued shall
promptly notify the other party in writing of the institution of
the suit. The Company shall give to OSI all authority (including
the right to exclusive control of the defense of any such suit,
action, or proceeding and the exclusive right to compromise,
litigate, settle or otherwise dispose of any such suit, action or
proceeding), information and assistance necessary to defend or
settle any such suit, action or proceeding. OSI shall bear the
expenses for defending against any alleged infringement due to
the exercise of the rights granted in this Agreement. OSI agrees
to defend, protect, indemnify and hold harmless the Company from
and against any loss or expense arising from any claim of a third
party that it has been granted rights by OSI and that the Company
in exercising its rights granted to it by OSI pursuant to this
Agreement, has infringed upon the rights granted to such third
party by OSI.
5. OSI will provide, during a one year period beginning as of the date of the
issuance of the Preferred Stock by the Company to OSI pursuant to
paragraph 6 of this Agreement, ** . OSI's collaborative rate is based
upon**, allocated in the same manner as OSI does in its other
collaborative research programs; an
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** This portion has been redacted pursuant to a confidential treatment
request.
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<PAGE> 5
example of OSI's collaborative rate calculations is set forth in the
initial budget for the Company. Initially, the collaborative rate for
the Services is as set forth in Schedule A to this Agreement. The
Services will be provided according to a Work Plan which will be
established by the parties on a quarterly basis. For the first three
month period, beginning as of the date of the issuance of the Preferred
Stock by the Company to OSI pursuant to paragraph 6 of this Agreement,
the Work Plan is set forth in Schedule B to this Agreement.
6. In consideration for the rights granted herein, the Company will issue
to OSI ** shares of its Preferred Stock within two days of the date of
this Agreement as more fully set forth in the Subscription Agreement.
7. Should ownership or control of the Company change due to a transaction
or related series of transactions which result in more than fifty
percent of the Company's voting stock being transferred to a single
entity or related group of entities within a six month period, or in
the sale of all or substantially all of the assets of its business, the
Company shall inform OSI in writing of the relevant event within thirty
days of its occurrence. If the acquiring entity does not agree in
writing to assume and be bound by the obligations of this Agreement by
providing written notice thereof to OSI within thirty days of the date
the written notice of the occurrence of the event is provided to OSI,
OSI may, at any subsequent time but not later than ninety days
following receipt of notice of occurrence of the event, terminate the
licenses and the Services provided pursuant to this Agreement upon
giving three months prior written notice.
8. OSI may terminate the licenses and the Services provided pursuant to
this Agreement upon thirty days written notice if, at any time, the
Company files a petition in bankruptcy or insolvency before the courts
or applies for the appointment of a receiver or trustee for all of its
assets or any part thereof, or if the Company proposes a written
agreement of consolidation or extension of debts, or if the Company is
served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition is not dismissed within sixty days after
its filing, or if the Company proposes or is a party to any dissolution
or liquidation, or if the Company makes an assignment for the benefit
of creditors.
9. The parties each represents and warrants that:
a. It is an entity duly organized, validly existing and is in
good standing under the laws of its domicile, is qualified to
do business and is in good standing as a corporation in each
jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification and
has all requisite power and authority to conduct its business
as now being conducted, to own, lease and operate its
properties and to execute, deliver and perform this Agreement.
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** This portion has been redacted pursuant to a confidential treatment
request.
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<PAGE> 6
b. The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary action and do not and
will not (i) require any consent or approval of its stockholders
(other than that which has been obtained), (ii) violate any
provision of any law, rule, regulation, writ, judgment,
injunction, decree, determination or award presently in effect
having applicability to it or any provision of its charter,
organization agreement or by-laws or (iii) result in a breach of
or constitute a default under any material agreement, mortgage,
lease, license, permit or other instrument or obligation to which
it is a party or by which it or its properties may be bound or
affected.
c. This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws,
from time to time in effect, affecting creditor's rights generally.
10. All notices shall be mailed via certified mail, return receipt requested,
or courier addressed as follows, or to such other address as may be
designated from time to time:
If to OSI: At its address as set forth at the
beginning of this Agreement
Attn.: Arthur Bruskin, Ph.D.
Oncogene Science, Inc.
106 Charles Lindbergh Boulevard
Uniondale, NY 11553
If to the Company: At its address as set forth at the
beginning of this Agreement
Attn.: Walter Lovenberg, Ph.D.
Helicon Therapeutics, Inc.
106 Charles Lindbergh Boulevard
Uniondale, NY 11553
Notices shall be deemed given as of the date of receipt.
11. This Agreement shall be construed in accordance with the laws of the
State of New York.
12. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and
permitted assigns. This Agreement may not be assigned by either party,
except that the parties may assign this Agreement and their rights and
interest, in whole or in part, to any of their affiliates, any
purchaser of all
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<PAGE> 7
or substantially all of its assets or to any successor corporation
resulting from any merger or consolidation with or into such corporation.
13. This Agreement may be amended, modified, superseded or canceled, and any
of its terms may be waived, only by a written instrument executed by each
party or, in the case of waiver, by the party or parties waiving
compliance. The delay or failure of any party at any time or times to
require performance of any provision shall in no manner affect the rights
at a later time to enforce the same.
14. No person not a party to this Agreement shall have or acquire any rights
by reason of this Agreement. Nothing contained in this Agreement shall be
deemed to constitute the parties partners with each other or any other
person or entity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.
Oncogene Science, Inc.
By:__________________________________
Title:_______________________________
Helicon Therapeutics, Inc.
By:__________________________________
Title:_______________________________
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<PAGE> 1
Portions of this Exhibit 10.34 have been redacted and are the subject of a
confidential treatment request filed with the Secretary of the Securities and
Exchange Commission.
<PAGE> 2
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT, dated July 17, 1997 is entered into by and
among Helicon Therapeutics, Inc., a Delaware corporation (the "Corporation") and
those stockholders of the Corporation listed on Schedule 1 hereto (hereinafter
referred to collectively as the "Investors").
W I T N E S S E T H:
WHEREAS, the Corporation was organized to discover, develop and market
pharmaceutical products; and
WHEREAS, the Corporation and certain of the Investors entered into a
Convertible Preferred Stock Purchase Agreement dated of even date herewith (the
"Series A Stock Purchase Agreement") in connection with which the Corporation
sold shares of its Series A Convertible Preferred Stock, par value $.001 per
share, and the Corporation granted to such Investors certain registration and
other rights with respect to such shares; and
WHEREAS, OSI, in consideration of the issuance of ** shares of Preferred
Shares of the Corporation to OSI pursuant to the Series A Stock Purchase
Agreement, has contributed to the Corporation (i) ** , (ii) a non-exclusive,
royalty-free license to use screening technology (as defined herein) and
commercialize products which are the subject of an OSI patent application
covering a method of screening and modulation transcription and (iii) ** and
WHEREAS, CSHL, in consideration of the issuance of ** shares of Preferred
Shares of the Corporation pursuant to the Series A Stock Purchase Agreement, has
contributed to the Corporation (i) an exclusive royalty free license to
commercialize technology which is the subject of a CSHL patent application
covering a method of cloning and characterizing genes associated with long-term
memory, under which CSHL shall be entitled to reimbursement from the Corporation
for patent and related expenses and (ii) ** and
WHEREAS, an aggregate of ** shares of Senior Common Stock, par value $.001
per share, and Ordinary Common Stock, par value $.001 per share, of the
Corporation has been issued to certain CSHL individuals, as more fully set forth
on Schedule 1, subject to vesting as provided thereon; and
WHEREAS, the parties to this Agreement believe it is in their mutual best
interests to provide for continuity and harmony in the management and the
policies of the Corporation; and
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** This portion has been redacted pursuant to a request for confidential
treatment.
<PAGE> 3
WHEREAS, the parties hereto, inter alia, are entering into this Agreement
for the mutual purposes of (a) providing for the management of the Corporation
and (b) providing for certain restrictions on transfer of the Preferred Stock or
Common Stock, as the case may be.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and undertakings of the Corporation and the Investors hereunder and
under the Series A Stock Purchase Agreement, as the case may be, the parties
hereto do hereby agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following respective meanings:
"Board" shall mean the Board of Directors of the Corporation.
"Budget" shall have the meaning set forth in Section 2.9 hereof.
"Certificate" shall mean the Certificate of Incorporation of the
Corporation, as filed with the Secretary of State of the State of Delaware on
July 10, 1997, as amended from time to time.
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Common Stock" shall mean the Senior Common Stock, par value $.001 per
share, and Ordinary Common Stock, par value $.001 per share, of the Corporation.
"CSHL" shall mean Cold Spring Harbor Laboratory, a New York corporation.
"Environmental Laws" shall mean all applicable federal, state and local
laws, ordinances, rules and regulations that regulate, fix liability for, or
otherwise relate to, the handling, use (including use in industrial processes,
in construction, as building materials, or otherwise), storage and disposal of
hazardous and toxic wastes and substances, and to the discharge, leakage,
presence, migration, threatened release or release (whether by disposal, a
discharge into any water source or system or into the air, or otherwise) of any
pollutant or effluent. Without limiting the preceding sentence, the term
"Environmental Laws" shall specifically include the following federal and state
laws, as amended:
FEDERAL
Comprehensive Environmental Response,
Compensation and Liability Act of 1980,
42 U.S.C. 9601 et seq.;
Resource Conservation and Recovery Act of 1976,
42 U.S.C. 6901 et seq.;
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<PAGE> 4
Federal Water Pollution Control Act,
33 U.S.C. 1251 et seq.; and
Clean Air Act, 42 U.S.C. 7401 et seq.
STATE
NEW YORK ENVIRONMENTAL STATUTES
Environmental Conservation Law 1-0101 et seq.
"Equity Percentage" shall mean, as to any Investor, that percentage figure
which expresses the ratio that (a) the number of shares of issued and
outstanding Common Stock then owned by such Investor bears to (b) the aggregate
number of shares of issued and outstanding Common Stock then owned by all
Investors. For purposes solely of the computation set forth in clauses (a) and
(b) above, all issued and outstanding securities held by the Investors that are
convertible into or exercisable or exchangeable for shares of Common Stock
(including any issued and issuable shares of Preferred Stock) or for any such
convertible, exercisable or exchangeable securities, shall be treated as having
been so converted, exercised or exchanged at the rate or price at which such
securities are convertible, exercisable or exchangeable for shares of Common
Stock in effect at the time in question (which, for purposes of Section 2.3 of
this Agreement, shall be at the time of delivery by the Corporation of the
notice of the Offer contemplated by Section 2.3(b), whether or not such
securities are at such time immediately convertible, exercisable or
exchangeable.
"Excess Securities" shall have the meaning set forth in Section 2.3(d)
hereof.
"Excess Securities Notice" shall have the meaning set forth in Section
2.3(d) hereof.
"Excess Securities Period" shall have the meaning set forth in Section
2.3(d) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Act Registration Statement" shall have the meaning set forth in
Section 2.6 hereof.
"Excluded Forms" shall have the meaning given such term in Section 3.5
hereof.
"Excluded Securities" shall mean, collectively:
(i) the Reserved Shares;
(ii) Common Stock issued or issuable to officers, directors or
employees of or consultants or independent contractors to the Corporation,
pursuant to any written agreement, plan
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<PAGE> 5
or arrangement, to purchase, or rights to subscribe for, such Common Stock, that
has been approved in form and in substance by the holders of a majority of the
voting power of the Series A Preferred Shares then outstanding;
(iii) any securities issued upon the exercise of any rights, options
or warrants to purchase such capital stock or exchange of any convertible or
exchangeable securities;
(iv) any securities issued pursuant to the acquisition of another
corporation by the Corporation by merger or purchase of all or substantially all
assets of that corporation whereby the Corporation owns not less than fifty-one
percent (51%) of the voting power or assets of such corporation following such
merger or purchase of all or substantially all of such corporation's assets
which acquisition has been approved in accordance with the Certificate; or
(v) any securities issued as a stock dividend or upon any stock
split or other subdivision of shares of Common Stock.
"Fixed Royalty Payments" shall mean the fixed royalty payments referred to
in the Roche Research Agreement.
"Hazardous Materials" shall include without limitation, any flammable
explosives, petroleum products, petroleum byproducts, radioactive materials,
hazardous wastes, hazardous substances, toxic substances or other similar
materials regulated by Environmental Laws.
"Investors" shall mean each of the persons listed on Schedule 1 hereto,
severally but not jointly and severally.
"Large Stockholders" shall mean (i) ** and (ii) **
"Notice of Acceptance" shall have the meaning set forth in Section 2.3(c)
hereof.
"Offer" shall have the meaning set forth in Section 2.3(b) hereof.
"Offered Securities" shall mean, except for Excluded Securities, (i) any
shares of Common Stock, Preferred Stock or any other equity security of the
Corporation, (ii) any debt security or capitalized lease with any equity feature
with respect to the Corporation (except as may be issued to banks or leasing
companies in order to obtain financing or secure leases of equipment), or (iii)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any such equity security, debt security or capitalized lease (except as
may be issued to banks or leasing companies in order to obtain financing or
secure leases of equipment).
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 6
"OSI" shall mean Oncogene Science, Inc., a Delaware corporation.
"Other Shares" shall have the meaning set forth in Section 3.5(e) hereof.
"Preferred Shares" shall mean the Series A Preferred Shares.
"Preferred Shares Investors" shall mean Roche, OSI and CSHL.
"Preferred Stock" shall mean the Preferred Stock, par value $.001 per
share, of the Corporation.
"Property" shall include, without limitation, land, buildings and
laboratory facilities owned or leased by the Corporation or as to which the
Corporation now has any duties, responsibilities (for clean-up, remedy or
otherwise) or liabilities under any Environmental Laws, or as to which the
Corporation or any subsidiary of the Corporation may have such duties,
responsibilities or liabilities because of past acts or omissions of the
Corporation or any such subsidiary or their predecessors, or because the
Corporation or any such subsidiary or their predecessors in the past was such an
owner or operator of, or bore some other relationship with, such land, buildings
and/or laboratory facilities.
"Refused Securities" shall have the meaning set forth in Section 2.3(f)
hereof.
"Reserved Shares" shall mean the shares of Common Stock reserved by the
Corporation for issuance upon the conversion of the Series A Preferred Shares.
"Restricted Securities" shall mean any of (a) the Series A Preferred
Shares and the Common Stock issued or issuable upon the conversion of the Series
A Preferred Shares, (b) all shares of Common Stock issued or issuable in respect
thereof by way of stock splits, stock dividends, stock combinations,
recapitalizations or like occurrences, and (c) any other shares of Common Stock
or other securities of the Corporation which are convertible into or exercisable
for (i) shares of Common Stock or (ii) securities convertible into or
exercisable for shares of Common Stock (including, without limitation, other
classes or series of Convertible Preferred Stock, warrants, options or other
rights to purchase Common Stock or convertible debentures or other convertible
debt securities) and the Common Stock issued or issuable upon such conversion or
exercise of such other securities, which may be issued hereafter to any of the
Investors, have not been sold (A) in connection with an effective registration
statement filed pursuant to the Securities Act, or (B) pursuant to Rule 144 or
Rule 144A promulgated by the Commission under the Securities Act.
"Restricted Shares" shall mean the shares of Common Stock issued or
issuable upon the conversion or exchange of the Restricted Securities or
otherwise constituting a portion of the Restricted Securities.
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<PAGE> 7
"Roche" shall mean **
"Roche Research Agreement" means the Collaborative Research and Licensing
Agreement, of even date herewith, between the Corporation and Roche.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Shares" shall mean shares of Series A Preferred Stock
issued pursuant to the Series A Stock Purchase Agreement.
"Series A Preferred Stock" shall mean Series A Convertible Preferred
Stock, par value $.001 per share, of the Corporation.
"Series A Stock Purchase Agreement" shall mean the Convertible Preferred
Stock Purchase Agreement, among the Corporation and certain of the Investors
listed on Schedule 1 thereto.
"Stockholders" shall mean all holders of capital stock of the Corporation.
"Target Month" shall have the meaning set forth in Section 2.8(a) hereof.
"Termination Date" shall have the meaning set forth in Section 5.5 hereof.
"30-Day Period" shall have the meaning set forth in Section 2.3(b) hereof.
"Transfer" shall include any disposition of any Restricted Securities or
of any interest therein which would constitute a sale thereof within the meaning
of the Securities Act.
SECTION 2. Certain Covenants of the Corporation.
2.1 Meetings of the Board of Directors. The Corporation shall call, and
use its best efforts to have, regular meetings of the Board not less often than
quarterly. The Corporation shall pay all reasonable and appropriately documented
travel expenses and other out-of-pocket expenses incurred by directors who are
not employed by the Corporation in connection with attendance at meetings to
transact the business of the Corporation or attendance at meetings of the Board
or any committee thereof.
2.2 Reservation of Shares of Common Stock and Preferred Stock, Etc.
The Corporation shall at all times have authorized and reserved out of its
authorized but unissued shares of Common Stock, a sufficient number of shares
of Common Stock to provide for the conversion
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 8
of the Series A Preferred Shares. Neither the issuance of the Series A Preferred
shares, nor the shares of Common Stock issuable upon the conversion of the
Series A Preferred Shares, shall be subject to a preemptive right of any other
Stockholder.
2.3 Right of First Refusal.
(a) The Corporation shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, any
Offered Securities unless in each case the Corporation shall have first offered
to sell to the Preferred Shares Investors all of such Offered Securities on the
terms set forth herein. Each Preferred Shares Investor shall be entitled to
purchase up to its pro rata share of the Offered Securities based upon its
relative Equity Percentage (the "Equity Percentage").
(b) The Corporation shall deliver to each Preferred Shares Investor
written notice of the offer to sell the Offered Securities, specifying the price
and terms and conditions of the offer (the "Offer"). The Offer by its terms
shall remain open and irrevocable for a period of 30 days from the date of its
delivery to such Preferred Shares Investor (the "30-Day Period"), subject to
extension to include the Excess Securities Period (as such term is hereinafter
defined).
(c) Each Preferred Shares Investor shall evidence its intention to accept
the Offer by delivering a written notice signed by the Preferred Shares Investor
setting forth the number of shares that the Preferred Shares Investor elects to
purchase (the "Notice of Acceptance"). The Notice of Acceptance must be
delivered to the Corporation prior to the end of the 30-Day Period.
(d) If any Preferred Shares Investor fails to exercise its right hereunder
to purchase its Equity Percentage of the Offered Securities, the Corporation
shall so notify the other Preferred Shares Investors in a written notice (the
"Excess Securities Notice"). The Excess Securities Notice shall be given once by
the Corporation with respect to all Preferred Shares Investors promptly after it
learns of the intention of one or more Preferred Shares Investors not to
purchase all of its or their Equity Percentage of the Offered Securities, but in
no event later than ten (10) days after the expiration of the 30-Day Period. The
Preferred Shares Investors who or which have agreed to purchase their Equity
Percentage of the Offered Securities shall have the right to purchase the
portion not purchased by such other Preferred Shares Investors (the "Excess
Securities"), in amounts based on the relative stock ownership in the
Corporation of each purchasing Preferred Shares Investor, by giving written
notice within ten (10) days after receipt of the Excess Securities Notice from
the Corporation. The twenty (20) day period during which (i) the Corporation
must give the Excess Securities Notice to the other Preferred Shares Investors,
and (ii) each of the other Preferred Shares Investors must give the Corporation
notice of its intention to purchase all or any portion of its pro rata share of
the Excess Securities, is hereinafter referred to as the "Excess Securities
Period."
(e) If the Preferred Shares Investors tender their Notice of Acceptance
prior to the end of the 30-Day Period indicating their intention to purchase all
of the Offered Securities or, if
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<PAGE> 9
prior to the termination of the Excess Securities Period, the Preferred Shares
Investors tender Excess Securities Notices to purchase all of the Excess
Securities, the Corporation shall schedule a closing of the sale of all such
Offered Securities. Upon the closing of the sale of the Offered Securities to be
purchased by the Preferred Shares Investors, each Preferred Shares Investor
shall (i) purchase from the Corporation that portion of the Offered Securities
(including the Excess Securities) for which it tendered a Notice of Acceptance
and an Excess Securities Notice, if applicable, upon the terms specified in the
Offer, and (ii) execute and deliver an agreement further restricting transfer of
such Offered Securities substantially as set forth in Section 3.1, 3.2 and 3.3
of this Agreement. In addition, with respect to the Offered Securities being
purchased by the Preferred Shares Investors, the Corporation shall provide each
such Preferred Shares Investor with the rights and benefits set forth in this
Agreement. The obligation of the Preferred Shares Investors to purchase such
Offered Securities is further conditioned upon the preparation of a purchase
agreement embodying the terms of the Offer, which shall be reasonably
satisfactory in form and substance to such Preferred Shares Investor and the
Preferred Shares Investor's counsel.
(f) The Corporation shall have ninety (90) days from the expiration of the
30-Day Period, or the Excess Securities Period, if applicable, to sell the
Offered Securities (including the Excess Securities) refused by the Preferred
Shares Investors (the "Refused Securities") to any other person or persons, but
only upon terms and conditions which are in all material respects (including,
without limitation, price and interest rate) no more favorable to such other
person or persons, and no less favorable to the Corporation, than those set
forth in the Offer. Upon and subject to the closing of the sale of all of the
Refused Securities (which shall include full payment to the Corporation), each
Preferred Shares Investor shall (i) purchase from the Corporation those Offered
Securities (including the Excess Securities) for which it tendered a Notice of
Acceptance and an Excess Securities Notice, if applicable, upon the terms
specified in the Offer, and (ii) execute and deliver an agreement restricting
transfer of such Offered Securities (including the Excess Securities)
substantially as set forth in Sections 3.1, 3.2 and 3.3 of this Agreement. In
addition, with respect to the Offered Securities being purchased by the
Preferred Shares Investors, the Corporation shall provide each such Preferred
Shares Investor with the rights and benefits set forth in this Agreement. The
obligation of the Preferred Shares Investor to purchase such Offered Securities
(including the Excess Securities) is further conditioned upon the preparation of
a purchase agreement embodying the terms of the Offer, which shall be reasonably
satisfactory in form and substance to such Preferred Shares Investor and the
Preferred Shares Investor's counsel. The Corporation shall not make any purchase
of Offered Securities utilizing the funds of the Corporation.
(g) In each case, any Offered Securities not purchased either by the
Preferred Shares Investors or by any other person in accordance with this
Section 2.3 may not be sold or otherwise disposed of until they are again
offered to the Preferred Shares Investors under the procedures specified in
Paragraphs (a), (b), (c), (d), (e) and (f) hereof.
(h) Each Preferred Shares Investor may, by prior written consent, waive
its rights under this Section 2.3. Such a waiver shall be deemed a limited
waiver and shall only apply to the extent specifically set forth in the written
consent of such Preferred Shares Investor.
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2.4 Purchase of Common Stock or Other Securities. Roche shall have the
right to purchase additional shares of Common Stock or other securities (as
provided below, if an initial public offering of any securities of the
Corporation has not yet taken place) within sixty (60) days of its making of
each Fixed Royalty Payment pursuant to the Collaboration Agreement between it
and the Corporation.
The number of such new shares shall equal the Fixed Royalty Payment
divided by (a) if prior to the Termination Date, the lowest price per share at
which the Corporation issued shares of Common Stock or other securities (based
in good faith on the convertibility of such other securities into Common Stock)
within the six (6) months prior to the purchase by Roche (or within the twelve
(12) months prior to the purchase by Roche if no shares of Common Stock or other
securities (if an initial public offering of any securities of the Corporation
has not yet taken place) were issued within such six (6) month period; or if no
shares of Common Stock or other securities (if an initial public offering of any
securities of the Corporation has not yet taken place) were issued within such
twelve (12) month period, the fair market value of the shares of Common Stock or
other securities (if an initial public offering of any securities of the
Corporation has not yet taken place) as determined in good faith by the Board of
Directors) (excluding any Excluded Securities) and (b) if after the Termination
Date, ** of the market price of Common Stock for investment at the time of the
Fixed Royalty Payment.
"Market price" per share of Common Stock shall be deemed to be the
average of the daily closing prices for the thirty (30) consecutive trading days
immediately preceding the Fixed Royalty Payment date and the closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the NASDAQ National Market System) on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the highest reported bid price
for the Common Stock as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If on any such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is not quoted by
NASDAQ or any similar organization, the fair value of a share of Common Stock on
such date, as determined in good faith by the Board of Directors of the
Corporation, whose determination shall be conclusive absent manifest error,
shall be used.
Upon any such sale to Roche, each other Preferred Shares Investor
shall have the right to proportionally increase its percentage of the
outstanding capital stock, pari passu with Roche's proportional increase in its
percentage of the outstanding capital stock, by subscribing for and purchasing
such number of additional shares of Common Stock or other securities at the
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** This portion has been redacted pursuant to a request for confidential
treatment.
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same price as paid by Roche as is necessary to proportionally increase the
percentage of outstanding shares of capital stock owned by such other Preferred
Shares Investor immediately prior to the sale to Roche by the same proportional
increase in Roche's percentage of outstanding shares of capital stock as a
result of the sale to Roche.
Roche's right to purchase additional shares of Common Stock shall
expire only upon the expiration of its Collaboration Agreement entered into as
of July 1, 1997 with Hoffman-La Roche Inc.
2.5 Negative Covenants.
(a) Required Approvals. The Corporation shall not, directly or
indirectly, take any of the actions specified in Article III, Section A.5(c) of
the Certificate without the prior written consent or vote of the holders of
seventy percent (70%) of the then outstanding Preferred Shares, determined in
accordance with Section A.5(a) of the Certificate. In addition, the Corporation
shall not, directly or indirectly, take any of the actions specified in Article
V, Section A.2 of the Certificate without the written approval of the Board,
including Series A Preferred Directors as that term is used in the Certificate.
(b) Stock and Option Agreements. Without the prior written consent or
vote of the holders of a majority of the then outstanding Preferred Shares,
determined in accordance with Section A.5(a) of Article III of the Certificate
(including, in such calculation, any outstanding Restricted Shares held by such
holders), the Corporation shall not issue any shares of Common Stock or options,
warrants or other rights to acquire Common Stock or other securities of the
Corporation to any employee, officer, director, consultant, independent
contractor or other person or entity except for Excluded Securities.
(c) Registration Rights. The Corporation shall not hereafter grant to
any persons any rights to register or qualify stock of the Corporation under
federal or state securities laws, unless it shall have first obtained the
written consent of the holders of a majority of the voting power of the
Preferred Shares then outstanding, determined in accordance with Section A.5(a)
of Article III of the Certificate (including, in such calculation, any
outstanding Restricted Shares held by such holders).
2.6 Filing of Reports Under the Exchange Act.
The Corporation shall give prompt notice to the holders of Preferred
Shares, and ** of (i) the filing of any registration statement or other
appropriate approved form (an "Exchange Act Registration Statement") pursuant to
the Exchange Act, relating to any class of equity securities of the Corporation,
(ii) the effectiveness of such Exchange Act Registration Statement, and (iii)
the number of shares of such class of equity securities outstanding, as reported
in such Exchange Act Registration Statement, in order to enable the Investors to
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** This portion has been redacted pursuant to a request for confidential
treatment.
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comply with any reporting requirements under the Exchange Act or the Securities
Act. Upon the written request of a majority in interest of the holders of
Preferred Shares, the Corporation shall, at any time after the Corporation has
registered any shares of Common Stock under the Securities Act, file an Exchange
Act Registration Statement relating to any class of equity securities of the
Corporation then held by the holders of Preferred Shares or issuable upon
conversion or exercise of any class of debt or equity securities or warrants or
options of the Corporation then held by the Investors, whether or not the class
of equity securities with respect to which such request is made shall be held by
the number of persons which would require the filing of a registration statement
under Section 12(g)(1) of the Exchange Act.
(a) If the Corporation shall have filed an Exchange Act Registration
Statement or a registration statement (including an offering circular under
Regulation A promulgated under the Securities Act) pursuant to the requirements
of the Securities Act, which shall have become effective (and in any event, at
all times following the initial public offering of any of the securities of the
Corporation), then the Corporation shall comply with all of the reporting
requirements of the Exchange Act (whether or not it shall be required to do so)
and shall comply with all other public information reporting requirements of the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any of the Restricted Securities by any holder of
Restricted Securities (including any such exemption pursuant to Rule 144 or Rule
144A thereof, as amended from time to time, or any successor rule thereto or
otherwise).
The Corporation shall cooperate with each holder of Restricted
Securities in supplying such information as may be necessary for such holder of
Restricted Securities to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act (under Rule 144 or Rule
144A thereunder or otherwise) for the sale of any of the Restricted Securities
by any holder of Restricted Securities. In particular, the Corporation shall
furnish to any holder of Restricted Securities upon request, (i) a written
statement by the Corporation as to its compliance with the reporting
requirements of Rule 144 (at any time after 90 days after the effective date of
the Exchange Act Registration Statement), the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements) or
as to whether it qualifies as a registrant whose securities may be sold on a
registration statement on Form S-3, and (ii) a copy of the most recent annual or
quarterly report of the Corporation and such other reports and documents filed
by the Corporation with the Commission.
2.7 Access to Records. The Corporation shall afford to each of the
Investors and such Investor's employees, counsel and other authorized
representatives, free and full access, at all reasonable times and for
reasonable periods of time, to all of the books, records and properties of the
Corporation and to all officers of the Corporation, subject to the limitations
set in Section 2.16.
2.8 Financial Reports. Until such time that the Corporation has a class of
its equity securities registered under the Exchange Act and is required to file
reports thereunder pursuant to Sections 13 or 15(d) of the Exchange Act, except
with respect to the obligation set forth in
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Section 2.8(e) hereunder which shall survive such time, the Corporation shall
furnish each of the Investors with the financial information described below,
subject to the limitations set forth in Section 2.16 below:
(a) Upon receipt of a request from any of the Large Stockholders prior to
the end of a monthly accounting period, the Corporation shall deliver to such
Large Stockholders, within 30 days after the last day of each month (the "Target
Month") (or such other calendar period as is approved by the Board), unaudited
financial statements, including a balance sheet as of the last date of such
Target Month, a statement of income (or monthly operating expenses) for such
month, together with a cumulative statement of income from the first day of the
current year to the last day of such month, which statements shall be prepared
from the books and records of the Corporation, a cash flow analysis, together
with cumulative cash flow analyses from the first day of the current year to the
last day of such month, and a comparison between the actual monthly operating
expenses and the projected figures for such month and the comparable figures for
the prior year, subject to the provisions of Section 2.9 hereof.
(b) Upon receipt of a request from any of the Investors prior to the end
of a quarterly accounting period, the Corporation shall deliver to such
Investors, within 45 days after the end of such quarterly accounting period,
unaudited financial statements for such quarterly account period, certified by
the Chief Financial Officer or the Treasurer of the Corporation, as presenting
fairly the financial condition and results of operations of the Corporation and
as having been prepared on a basis consistent with the accounting principles
reflected in the Corporation's annual audited financial statements, accompanied
by a report, signed by the Chief Financial Officer or the Treasurer of the
Corporation, summarizing the operating and financial highlights of the
Corporation for such quarterly accounting period, which report shall include (a)
a comparison between the actual quarterly operating and financial results, the
Budget (as defined in Section 2.9 hereof) and the results of the similar
quarterly accounting period for the prior fiscal year of the Corporation,
together with an explanation of material variances from the Budget and such
similar quarterly accounting period, as the case may be, and (b) a narrative
analysis of operations and trends in the business of the Corporation during such
quarterly accounting period.
(c) Within 120 days after the end of each fiscal year of the Corporation,
audited financial statements of the Corporation, which shall include an income
statement and a statement of cash flow for such fiscal year and a balance sheet
as of the last day thereof, each prepared in accordance with generally accepted
accounting principles consistently applied, and accompanied by the report of
such independent certified public accountants as shall have been approved by the
Board.
(d) If for any period the Corporation shall have any subsidiary or
subsidiaries whose accounts are consolidated with those of the Corporation, then
the financial statements delivered for such period pursuant to paragraphs (a),
(b) and (c) of this Section 2.8 shall be the consolidated and consolidating
financial statements of the Corporation for all such consolidated subsidiaries.
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(e) Promptly upon becoming available:
(i) copies of all financial statements, reports, press releases,
notices, proxy statements and other documents sent by the Corporation to its
Stockholders or released to the public and copies of all regular and periodic
reports, if any, filed by the Corporation with the Commission or any securities
exchange or self-regulatory organization; and
(ii) any other financial or other information available to
management of the Corporation that any of the Investors shall have reasonably
requested on a timely basis.
2.9 Budget and Operating Forecast. The Corporation shall prepare and
submit to the Board and each of the Investors an operating plan with quarterly
breakdowns (the "Budget") for each fiscal year at least 45 days prior to the
beginning of each fiscal year of the Corporation. The Budget shall be deemed
accepted as the Budget for such fiscal year only when it has been approved by
the Board. The Budget shall be reviewed by the Corporation periodically and all
changes therein, and all material deviations therefrom, shall be reviewed by the
Board on at least a quarterly basis.
2.10 System of Accounting. The Corporation shall maintain, and cause each
of its subsidiaries, when and if any shall exist, to maintain, its books of
accounts, related records and system of accounting in accordance with good
business practices and generally accepted accounting principles, and shall cause
the matters contained therein to be appropriately and accurately reflected in
the financial reports (which shall be prepared in accordance with generally
accepted accounting principles) furnished pursuant to this Agreement.
2.11 Restriction on Transfer Rights; Confidentiality. The rights granted
to each of the Investors pursuant to Sections 2.7 through 2.9 hereof shall not
be transferred or assigned by any Investor to, and shall not inure to the
benefit of, any successor, transferee or assignee of any Investor, which is
engaged in any line of business directly competitive with the Corporation;
provided that such prohibition shall not apply to any transfer or assignment to
any successor, transferee or assignee of any Investor which is an affiliate of
such Investor, including any trusts of which the Investor is the settlor or any
family member of such Investor. Each Investor shall hold in confidence the terms
of this Agreement, and all information regarding the Corporation which such
Investor receives pursuant to this Agreement, unless such information has
already been disclosed to the public or as otherwise required by law.
2.12 Confidentiality and Non-Competition Agreements for Key Employees.
Subject to the rules of the Cold Spring Harbor Laboratories, the Corporation
shall cause each person who is presently an employee of or a consultant or
independent contractor to the Corporation or who becomes an employee of or a
consultant to the Corporation subsequent to the date hereof and who shall have
or be proposed to have access to confidential or proprietary information of the
Corporation to execute a confidentiality and non-competition agreement in form
and substance attached hereto or otherwise approved by the Board prior to the
commencement of such person's employment by the Corporation in such capacity.
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2.13 Stock Restriction Acknowledged by Directors, Officers, Employees and
Consultants who are or become Stockholders. The Corporation shall cause each of
its directors, officers, employees consultants or independent contractors who
own any shares of capital stock of the Corporation, or has been issued any
options, warrants or other rights to purchase any shares of such capital stock,
or who may own in the future any such shares, or options, warrants or other
rights to purchase any shares of such capital stock, or who may own in the
future any such shares, or options, warrants or other rights to purchase such
shares, in each case other than Refused Securities purchased in accordance with
Section 2.3(f) hereof, to execute an acknowledgment that they are aware of and
understand the restrictions on the transfer of such shares, under the
Certificate of Incorporation of the Corporation, this Stockholders' Agreement
and any other contractual agreement to which they are a party, prior and as a
condition to the acquisition of such shares, or options, warrants or rights, by
such person.
2.14 Marketing and Promotional Material. Each of the Investors will have
the right to review and approve, in advance of publication, distribution or
dissemination, any reference to such Investor or any entity affiliated with such
Investor (other than the Corporation), contained in any document, instrument,
report or filing or in any advertising, marketing, promotional and similar
materials.
2.15 Environmental Matters. The Corporation shall promptly advise the
Investors in writing of any pending or threatened claim, demand or action by any
governmental authority or third party relating to any Hazardous Materials
affecting the Property of which it has knowledge. The Corporation shall not
discharge, place, release, spill or dispose of any Hazardous Materials or any
other pollutants or effluents upon the Property or elsewhere (including, but not
limited to, underground injection of such substances), and the Corporation shall
not discharge into the air any emission which would require a permit under the
Clean Air Act or its state counterparts or any other Environmental Laws, except
in compliance with the Environmental Laws. The Stockholders of the Corporation
shall have no control over, or authority with respect to, the waste disposal
operations of the Corporation.
The Corporation hereby indemnifies, defends and holds harmless the
Investors from and against any and all manner of actions, causes of action,
suits, debts, accounts, controversies, judgments, claims, demands, losses or
liabilities of any nature (including reasonable attorneys' fees) directly or
indirectly arising out of or attributable to (a) any misrepresentation or breach
of the representations and covenants set forth in Section 5.17 of the Stock
Purchase Agreement, or (b) the use, generation, storage, release, threatened
release, discharge, disposal or presence of Hazardous Materials on, under or
about the Property by any person during the period that the Corporation was the
legal or equitable owner of the Property or which occurred prior to such time
and was otherwise actually known by, or should have been known by, the
Corporation. The obligation of the Corporation to indemnify the Investors shall
specifically cover and include, without limitation, all fines and penalties
imposed by federal, state or local authorities, costs of removing or
neutralizing the Hazardous Materials, injury to the property adjoining the
Property, injury to persons living or working on or about the Property or
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adjoining or otherwise affecting property, and all other indirect or
consequential damages incurred by the Investors.
2.16 Limitations and Roche Rights. Notwithstanding the provisions of
Sections 2.7, and 2.8(e)(ii), the Corporation shall not be required to provide
Roche with access to information set forth in such Sections (a) to the extent
that the Board of Directors determines in good faith that the Corporation and
Roche, as the case may be, have conflicting interests relating to such
information, or (b) to the extent that such information relates to potential or
actual licensing, development, joint venture or similar transactions between the
Corporation and a third party; provided that the Corporation shall act
reasonably in determining whether to provide such access to information.
2.17 Duration of Section. With the exception of Section 2.4, this Section
2 and the rights and obligations of the parties hereunder shall automatically
terminate on the consummation of a firm commitment underwritten public offering
of Common Stock registered under the Securities Act pursuant to which (X) Common
Stock is offered to the public at a price of at least ** per share (subject to
adjustment for stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences) and (Y) the net proceeds to the
Corporation are at least ** (the "Termination Date"). Prior to the Termination
Date the rights and obligations of any Investor under this Section 2 shall
terminate upon the date on which such Investor no longer owns any Preferred
Shares or Common Stock.
SECTION 3. Transfer of Securities.
3.1 Restriction on Transfer. The Restricted Securities shall not be
transferable, except upon the conditions specified in this Section 3, which
conditions are intended solely to ensure compliance with the provisions of the
Securities Act in respect of the Transfer thereof.
3.2 Restrictive Legend. Each certificate evidencing any Restricted
Securities and each certificate evidencing any such securities issued to
subsequent transferees of any Restricted Securities shall (unless otherwise
permitted by the provisions of Section 3.3 or 3.10 hereof) be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAW OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. ADDITIONALLY, THE TRANSFER
OF THESE SECURITIES IS SUBJECT TO THE
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** This portion has been redacted pursuant to a request for confidential
treatment.
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CONDITIONS SPECIFIED IN A STOCKHOLDERS' AGREEMENT DATED JUNE 1, 1997, AMONG THE
CORPORATION AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF SUCH
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION.
3.3 Notice of Transfer. By acceptance of any Restricted Securities, the
holder thereof agrees to give prior written notice to the Corporation of such
holder's intention to effect any Transfer and to comply in all other respects
with the provisions of this Section 3.3.
Each such notice shall describe the manner and circumstances of the
proposed Transfer and shall be accompanied by:
(a) the written opinion of counsel for the holder of such Restricted
Securities, or, at such holder's option, a representation letter of such holder,
addressed to the Corporation (which opinion of counsel, or representation
letter, as the case may be, shall be reasonably acceptable to the Corporation),
as to whether, in the case of a written opinion, in the opinion of such counsel,
such proposed Transfer involves a transaction requiring registration of such
Restricted Securities under the Securities Act and applicable state securities
laws or an exemption thereunder is available, or, in the case of a
representation letter, such letter sets forth a factual basis for concluding
that such proposed transfer involves a transaction requiring registration of
such Restricted Securities under the Securities Act and applicable state
securities laws or that an exemption thereunder is available; or
(b) if such registration is required and if the provisions of Section 3.4
hereof are applicable, a written request addressed to the Corporation by the
holder of such Restricted Shares pursuant to the terms and provisions of Section
3.4 hereof;
provided, however, that in the case of any holder of Restricted Securities that
is a partnership, no such opinion of counsel or representation letter of the
holder shall be necessary for a Transfer by such holder to a partner of such
holder, or a retired partner if, with respect to such Transfer by a partnership,
(i) such Transfer is made in accordance with the partnership agreement of such
partnership, and (ii) the transferee agrees in writing to be subject to the
terms of Sections 3.1, 3.2, 3.3 and 3.10 hereof to the same extent as if such
transferee were originally a signatory to this Agreement.
If in such opinion of counsel or as reasonably concluded from the
facts set forth in the representation letter of the holder (which opinion and
counsel, or representation letter, as the case may be, shall be reasonably
acceptable to the Corporation), the proposed Transfer may be effected without
registration under the Securities Act and any applicable state securities laws
or "blue sky" laws, then the holder of Restricted Securities shall thereupon be
entitled to effect such Transfer in accordance with the terms of the notice
delivered by it to the Corporation.
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Each certificate or other instrument evidencing the securities
issued upon such Transfer (and each certificate or other instrument evidencing
any such securities not Transferred) shall bear the legend set forth in Section
3.2 hereof unless:
(a) in such opinion of such counsel or as can be concluded from the
representation letter of such holder (which opinion and counsel or
representation letter shall be reasonably acceptable to the Corporation) the
registration of future Transfers is not required by the applicable provisions of
the Securities Act and state securities laws, or
(b) the Corporation shall have waived the requirement of such
legend; provided, however, that such legend shall not be required on any
certificate or other instrument evidencing the securities issued upon such
Transfer in the event such Transfer shall be made in compliance with the
requirements of Rule 144 (as amended from time to time or any similar or
successor rule) promulgated under the Securities Act.
The holder of Restricted Securities shall not effect any Transfer
until such opinion of counsel or representation letter of such holder has been
given to and accepted by the Corporation (unless waived by the Corporation),
which acceptance shall not be unreasonably withheld, or until registration of
the Restricted Shares involved in the above-mentioned request has become
effective under the Securities Act. In the event that an opinion of counsel is
required by the registrar or transfer agent of the Corporation to effect a
transfer of Restricted Securities in the future, the Corporation shall seek and
obtain such opinion from its counsel, and the holder of such Restricted
Securities shall provide such reasonable assistance as is requested by the
Corporation (other than the furnishing of an opinion of counsel) to satisfy the
requirements of the registrar or transfer agent to effectuate such transfer.
3.4 Required Registration. If the Corporation shall be requested (i) by
holders of at least ** of the outstanding Restricted Securities (based on the
underlying Common Stock for which the Restricted Securities are convertible or
exercisable) to effect the registration under the Securities Act of Restricted
Shares, or (ii) after the first registration pursuant to this Section 3.4, by
one or more of the holders of Restricted Securities to effect the registration
under the Securities Act of Restricted Shares having a proposed aggregate
offering price equal to or greater than ** then the Corporation shall promptly
give written notice of such proposed registration to all holders of Restricted
Securities, and thereupon the Corporation shall promptly use its best efforts to
effect the registration under the Securities Act of the Restricted Shares that
the Corporation has been requested to register for disposition as described in
the request of such holders of Restricted Securities and in any response
received from any of the holders of Restricted Securities within 30 days after
the giving of the written notice by the Corporation; provided, however, that the
Corporation shall not be obligated to effect any registration under the
Securities Act except in accordance with the following provisions and Section
3.6:
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** This portion has been redacted pursuant to a request for confidential
treatment.
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(a) Subject to Section 3.6, the Corporation shall not be obligated
to file and cause to become effective more than two (2) registration statements
requested by Roche, in which Restricted Shares are registered under the
Securities Act pursuant to this Section 3.4, if all of the Restricted Shares
offered pursuant to such registration statements are sold thereunder upon the
price and terms offered.
(b) Notwithstanding the foregoing, the Corporation may include in
each such registration requested pursuant to this Section 3.4 any authorized but
unissued shares of Common Stock (or authorized treasury shares) for sale by the
Corporation or any issued and outstanding shares of Common Stock for sale by
others; provided, however, that, if the number of shares of Common Stock so
included pursuant to this clause (b) exceeds the number of Restricted Shares
requested by the holders of Restricted Shares requesting such registration, then
such registration shall be deemed to be a registration in accordance with and
pursuant to Section 3.5; and provided further, however, that the inclusion of
such previously authorized but unissued shares by the Corporation or issued and
outstanding shares of Common Stock by others in such registration does not
adversely affect, in the sole opinion of the holders of Restricted Securities
requesting such registration, the ability of the holders of Restricted
Securities requesting such registration to market the entire number of
Restricted Shares requested by them.
3.5 Piggyback Registration.
(a) Each time the Corporation proposes for any reason to register any
of its securities under the Securities Act, other than pursuant to a
registration statement on Form S-4 or Form S-8 or similar or successor forms
(collectively, "Excluded Forms"), the Corporation shall promptly give written
notice of such proposed registration to all holders of Restricted Securities,
which shall offer such holders the right to request inclusion of any Restricted
Shares in the proposed registration.
(b) Each holder of Restricted Securities shall have 30 days from the
receipt of such notice to deliver to the Corporation a written request
specifying the number of Restricted Shares such holder intends to sell and the
holder's intended method of disposition.
(c) In the event that the proposed registration by the Corporation is,
in whole or in part, an underwritten public offering of securities of the
Corporation, any request under section 3.5(b) may specify that the Restricted
Shares by included in the underwriting (i) on the same terms and conditions as
the shares of Common Stock, if any, otherwise being sold through underwriters
under such registration, or (ii) on terms and conditions comparable to those
normally applicable to offerings of common stock in reasonably similar
circumstances in the event that no shares of Common Stock other than Restricted
Shares are being sold through underwriters under such registration.
(d) Upon receipt of a written request pursuant to Section 3.5(b), the
Corporation shall promptly use its best efforts to cause all such Restricted
Shares to be registered under the
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Securities Act, to the extent required to permit sale or disposition as set
forth in the written request.
(e) Notwithstanding the foregoing, if the managing underwriter of any such
proposed registration determines and advises in writing that the inclusion of
all Restricted Shares proposed by the holders thereof to be included in the
underwritten public offering, together with any other issued and outstanding
shares of Common Stock proposed to be included therein by holders other than the
holders of Restricted Securities (such other shares hereinafter collectively
referred to as the "Other Shares"), would materially interfere with the
successful marketing of the Corporation's securities, then the total number of
such securities proposed to be included in such underwritten public offering
shall be reduced, (i) first by the shares requested to be included in such
registration by the holders of Other Shares, and (ii) second, if necessary, (A)
one-half (1/2) by the securities proposed to be issued by the Corporation, and
(B) one-half (1/2) by the Restricted Shares proposed to be included in such
registration by the holders thereof, on a pro rata basis, based upon the number
of Restricted Shares sought to be registered by each such holder. The shares of
Common Stock that are excluded from the underwritten public offering pursuant to
the preceding sentence shall be withheld from the market by the holders thereof
for a period, not to exceed 180 days from the closing of such underwritten
public offering, that the managing underwriter reasonably determines as
necessary in order to effect such underwritten public offering.
3.6 Registrations on Form S-2 and S-3. At such time as the Corporation
shall have qualified for the use of Form S-2 or Form S-3 (or any successor form
promulgated under the Securities Act), each holder of Restricted Securities
shall have the right to request in writing an unlimited number (but not more
than two (2) annually) of registrations on Form S-2 or Form S-3. Each such
request by a holder shall: (a) specify the number of Restricted Shares which the
holder intends to sell or dispose of, (b) state the intended method by which the
holder intends to sell or dispose of such Restricted Shares, and (c) request
registration of Restricted Shares having a proposed aggregate offering price of
at least ** . Upon receipt of a request pursuant to this Section 3.6, the
Corporation shall use its best efforts to effect such registration or
registrations on Form S-2 or Form S-3.
3.7 Preparation and Filing. If and whenever the Corporation is under an
obligation pursuant to the provision of this Section 3 to use its best efforts
to effect the registration of any Restricted Shares, the Corporation shall, as
expeditiously as practicable:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective in accordance with Section 3.7(b)
hereof;
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 21
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until the
earlier of (i) the sale of all Restricted Shares covered hereby or (ii) nine
months, and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Restricted Shares covered by such
registration statement;
(c) furnish to each holder whose Restricted Shares are being registered
pursuant to this Section 3 such number of copies of any summary prospectus or
other prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such holder may
reasonably request in order to facilitate the public sale or other disposition
of such Restricted Shares;
(d) use its best efforts to register or qualify the Restricted Shares
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as each holder whose Restricted Shares are being registered
pursuant to this Section 3 shall reasonably request and do any and all other
acts or things which may be necessary or advisable to enable such holder to
consummate the public sale or other disposition in such jurisdictions of such
Restricted Shares; provided, however, that the Corporation shall not be required
to consent to general service of process for all purpose in any jurisdiction
where it is not then subject to process, qualify to do business as a foreign
corporation where it would not be otherwise required to qualify or submit to
liability for state or local taxes where it is not otherwise liable for such
taxes;
(e) at any time when a prospectus covered by such registration statement
and relating thereto is required to be delivered under the Securities Act within
the appropriate period mentioned in Section 3.7(b) hereof, notify each holder
whose Restricted Shares are being registered pursuant to this Section 3 of the
happening of any event as a result of which the prospectus included in such
registration, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing and, at the request of such holder, prepare, file and furnish to
such holder a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(f) if the Corporation has delivered preliminary or final prospectuses to
the holders of Restricted Shares that are being registered pursuant to this
Section 3 and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Corporation shall promptly notify such
holders and, if requested, such holders shall immediately cease making offers of
Restricted Shares and return all prospectuses to the Corporation. The
Corporation shall promptly provide such holders with revised prospectuses
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<PAGE> 22
and, following receipt of the revised prospectuses, such holders shall be
free to resume making offers of the Restricted Shares; and
(g) furnish, at the request of any holder whose Restricted Shares are
being registered pursuant to this Section 3, on the date that such Restricted
Shares are delivered to the underwriters for sale in connection with a
registration pursuant to this Section 3, if such securities are being sold
through underwriters, or, on the date that the registration statement with
respect to such securities becomes effective, if such securities are not being
sold through underwriters, (i) an opinion, dated such date, of the counsel
representing the Corporation for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the holder or holders
making such request, and (ii) a letter dated such date, from the independent
certified public accountants of the Corporation, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering , addressed to the underwriters, if any, and to
the holder or holders making such request.
3.8 Expenses. The Corporation shall pay all expenses incurred by the
Corporation in complying with the Section 3, including, without limitation, all
registration and filing fees (including all expenses incident to filing with the
National Association of Securities Dealers, Inc.), fees and expenses of
complying with the securities and blue sky laws of all such jurisdictions in
which the Restricted Shares are proposed to be offered and sold, printing
expenses and fees and disbursements of counsel (including with respect to each
registration effected pursuant to Sections 3.4, 3.5 and 3.6, the reasonable fees
and disbursements of counsel for the holders of Restricted Shares that are being
registered pursuant to this Section 3); provided, however, that all underwriting
discounts and selling commissions applicable to the Restricted Shares covered by
registrations effected pursuant to Section 3.4, 3.5 or 3.6 hereof shall be borne
by the seller or sellers thereof, in proportion to the number of Restricted
Shares sold by each such seller or sellers.
3.9 Indemnification.
(a) Indemnity by the Corporation. In the event of any registration under
the Securities Act of any Restricted Shares pursuant to this Section 3 or
otherwise, or registration or qualification of any Restricted Shares pursuant to
Section 3.7(d) hereof, the Corporation shall:
(i) indemnify and hold harmless any seller of such shares (the
"Seller"), any underwriter, any officer, director, employee or agent of any
Seller or underwriter, and each other person or entity, if any, who controls any
Seller or underwriter within the meaning of Section 15 of the Securities Act,
against any losses, claims, damages or liabilities, joint or several ("Claims"),
to which each such indemnified party may become subject, under the Securities
Act or otherwise, insofar as any Claims (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or preliminary prospectus
(if used prior to the effective date of the registration statement) or summary
or final prospectus or any amendment or supplement
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<PAGE> 23
thereto (if used during the period the Corporation is required to keep the
registration statement current) or any document filed under a state securities
or blue sky law (collectively, "Registration Documents") or insofar as any
Claims (or actions in respect thereof) arise out of or are based upon the
omission or alleged omission to state in any Registration Document a material
fact required to be stated therein or necessary to make the statements made
therein not misleading or insofar as any Claims (or actions in respect thereof)
arise out of or are based upon any violation by the Corporation of any Federal,
state or common law rule or regulation applicable to the Corporation; and
(ii) reimburse each indemnified party for all legal or other
expenses reasonably incurred by it in connection with investigating or defending
any Claim or action, including any amounts paid in settlement of any litigation,
commenced or threatened, if such settlement is effected with the written consent
of the Corporation (which consent shall not unreasonably be withheld); provided,
however, that the Corporation shall not be liable to a particular indemnified
party to the extent that any Claim or expense arises out of or is based upon any
untrue statement or omission made in any Registration Document in reliance upon
and in conformity with written information furnished to the Corporation by or on
behalf of such indemnified party through an instrument duly executed by such
indemnified party specifically stating that it is for use in the preparation of
the Registration Document.
(b) Indemnity by the Sellers. In the event of any registration under the
Securities Act of any shares of Common Stock pursuant to this Agreement, each
Seller severally shall:
(i) indemnify and hold harmless the Corporation, each of its
directors, each of its officers who have signed the registration statement, each
other person, if any, who controls the Corporation within the meaning of Section
15 of the Securities Act, and each underwriter and each other person, if any,
who controls such underwriter within the meaning of Section 15 of the Securities
Act against any Claims to which each such indemnified party may become subject
under the Securities Act or otherwise, insofar as such Claims (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Document, or
arise out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading; and
(ii) reimburse each indemnified party for all legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such Claim or action, including any amounts paid in settlement of any
litigation, commenced or threatened, if such settlement is effected with the
prior written consent of the Seller (which consent shall not unreasonably be
withheld); provided, however, that such indemnification or reimbursement shall
be payable only if, and to the extent that, any Claim or expense arises out of
or is based upon an untrue statement or omission made in any Registration
Document in reliance upon and in conformity with written information furnished
to the Corporation through an instrument duly executed by the Seller
specifically stating that it is for use in the preparation thereof; and provided
further that the liability of such Seller shall be limited to an amount equal to
the net
22
<PAGE> 24
proceeds to such Seller of shares of Common Stock sold by such Seller pursuant
to such registration as contemplated herein.
(c) Procedure for Indemnification. Promptly after receipt by an
indemnified party, under Section 3.9(a) or 3.9(b), of notice of the commencement
of any action, the indemnified party shall notify the indemnifying party in
writing of the commencement thereof, if a claim in respect thereof is to be made
against an indemnifying party under any of these Sections; but the omission of
such notice shall not relieve the indemnifying party from liability which it may
have to the indemnified party under this Section 3.9, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice and
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise than under this Section 3.9.
In case any action is brought against the indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and to the extent that it chooses, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party that it so chooses, the indemnifying party shall not be liable
for any legal or other expenses subsequently incurred by the indemnified party
in connection with the defense thereof; provided however, that (i) if the
indemnifying party fails to take reasonable steps necessary to defend diligently
the claim within 20 days after receiving notice from the indemnified party that
the indemnified party believes it has failed to do so, or (ii) if the
indemnified party who is a defendant in any action or proceeding which is also
brought against the indemnifying party reasonably shall have concluded that
there may be legal defenses available to the indemnified party which are not
available to the indemnifying party, or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, the indemnified party shall have the right to assume or
continue its own defense as set forth above (but with no more than one firm of
counsel for all indemnified parties in each jurisdiction, except to the extent
any indemnified party or parties reasonably shall have concluded that there may
be legal defenses available to such party or parties which are not available to
the other indemnified parties or to the extent representation of all indemnified
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct) and the indemnifying party shall be liable
for any expenses therefor.
(d) Non-Exclusive Indemnity. Any indemnity agreements contained herein
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party.
(e) Contribution. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses:
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<PAGE> 25
(i) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and the indemnified party on the
other (determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the indemnifying
party or the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission); or
(ii) if the allocation provided by clause (i) above is not permitted
by applicable law or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative fault of the indemnifying party and the indemnified party,
but also the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other (taking into consideration the fact
that the provision of the registration rights hereunder is a material inducement
to the Investors to acquire shares of Common Stock), as well as any other
relevant equitable considerations.
No person or entity found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person or entity who was not found guilty of such
fraudulent misrepresentation. Notwithstanding anything to the contrary in this
Section 3.9(e), no indemnifying party (other than the Corporation) shall be
required, pursuant to this Section 3.9(e), to contribute any amount in excess of
the net proceeds received by such indemnifying party from the sale of shares of
Common Stock in the offering to which the losses, claims, damages, liabilities
or expenses of the indemnified party relate.
(f) Notwithstanding any of the foregoing, if, in connection with an
underwritten public offering of any Restricted Shares, the Corporation, the
holders of such Restricted Shares and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
substantially similar provisions covering indemnification among the parties,
then the indemnification provision of this Section 3.9 shall be deemed
inoperative for purposes of such offering.
3.10 Removal of Legends, Etc. Notwithstanding the foregoing provisions of
this Section 3, the restrictions imposed by this Section 3 upon the
transferability of any Restricted Securities shall cease and terminate when (a)
any such Restricted Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in a registration statement or such other method contemplated by Section
3.3 hereof that does not require that the securities transferred bear the legend
set forth in Section 3.2 hereof, including a Transfer pursuant to Rule 144 or a
successor rule thereof (as amended from time to time), or (b) the holder of
Restricted Securities has met the requirements for transfer of such Restricted
Securities pursuant to subparagraph (k) of Rule 144 or a successor rule thereof
(as amended from time to time) promulgated by the Commission under the
Securities Act. Whenever the restrictions imposed by this Section 3 have
terminated, a holder of a certificate for Restricted Securities as to which such
restrictions have terminated shall be entitled to receive from the Corporation,
without expense and the Corporation shall use its reasonable best efforts to
provide such holder with, a new certificate
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<PAGE> 26
not bearing the restrictive legend set forth in Section 3.2 hereof and not
containing any other reference to the restrictions imposed by this Section 3.
SECTION 4. Securities Act Registration Statements. Except for securities
of the Corporation registered on Forms S-2 or S-3, or successor approved forms,
of the Securities and Exchange Commission, the Corporation shall not file any
registration statement under the Securities Act covering any securities unless
it shall first have given each holder of Restricted Securities written notice
thereof. The Corporation further covenants that each holder of Restricted
Securities shall have the right, at any time when it may be deemed to be a
controlling person of the Corporation, within the meaning of the Securities Act,
to participate in the preparation of such registration statement and to request
the insertion therein of material furnished to the Corporation in writing which
in such holder's judgment should be included. In connection with any
registration statement referred to in this Section 4, the Corporation shall
indemnify, to the extent permitted by law, each holder of Restricted Securities,
its officers, partners and directors and each person, if any, who controls any
such holder within the meaning of the Securities Act in the same manner and to
the same extent as the Corporation is required to indemnify a seller of
Restricted Securities in Section 3.9 hereof. If, in connection with any such
registration statement, any holder of Restricted Securities shall furnish
written information to the Corporation expressly for use in the registration
statement, then such holder shall indemnify the Corporation, each director of
the Corporation, each officer of the Corporation who signs such registration
statement and each person, if any, who controls the Corporation within the
meaning of the Securities Act to the same extent as a seller of Restricted
Securities is required to indemnify such persons in Section 3.9 hereof.
SECTION 5. Election of Directors.
5.1 Voting for Directors. At each annual meeting of the stockholders of
the Corporation and at each special meeting of the stockholders of the
Corporation called for the purposes of electing directors of the Corporation,
and at any time at which stockholders of the Corporation shall have the right
to, or shall, vote for or consent to the election of directors, then, in each
such event, each Investor shall vote all Preferred Shares and any other shares
of voting stock of the Corporation then owned (or controlled as to voting
rights) by it, whether by purchase, exercises of rights, warrants or options,
stock dividends or otherwise:
(a) to fix and maintain the number of directors on the Board of Directors
of the Corporation at no more than ** ;
(b) to elect to the Board ** designated by Roche (the ** ) for so long as
Roche owns at least ** of the shares of Series A Preferred Stock originally
issued to it by the Corporation (subject to adjustment for stock splits, stock
dividends, stock combinations, recapitalizations and like occurrences) ** ; and
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 27
(c) to elect to the Board ** designated by OSI (the ** ) and ** designated
by Cold Spring Harbor Laboratory (the ** ) for so long as OSI and Cold Spring
Harbor Laboratory, respectively, owns at least ** of the shares of Series A
Preferred Stock originally issued to it by the Corporation (subject to
adjustment for stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences).
The ** and ** and the ** shall be the Series A Directors (as defined in
the Certificate) under the Certificate.
5.2 Cooperation of the Corporation. The Corporation shall use its best
efforts to effectuate the purposes of this Section 5, including promoting the
adoption of any necessary amendment of the By-Laws of the Corporation and the
Certificate.
5.3 Notices. The Corporation shall provide the Investors with at least
twenty (20) days' prior notice in writing of any intended mailing by the
Corporation of notice to the Investors of a meeting at which directors are to be
elected, and such notice shall include the names of the persons designated
pursuant to Section 5.1 hereof. Roche, OSI and Cold Spring Harbor Laboratory,
respectively, shall each notify the Corporation in writing at least three (3)
days prior to such mailing, of the persons designated by Roche, OSI and Cold
Spring Harbor Laboratory pursuant to Section A.5.1 hereof, as nominees for
election to the Board. In the absence of any notice from Roche, OSI and Cold
Spring Harbor Laboratory, as the case may be, the director(s) then serving and
previously designated shall be renominated.
5.4 Removal. Except as otherwise provided in this Section 5, no Investor
shall vote to remove any member of the Board designated in accordance with the
foregoing provisions of this Section 5 unless the party that designated such
director (the "Designating Party") shall so vote or otherwise consent, and, if
the Designating Party shall so vote or otherwise consent, then the
non-designating party shall likewise so vote. Except as otherwise provided in
this Section 5, any vacancy on the Board created by the resignation, removal,
incapacity or death of any person designated under the foregoing provisions of
this Section 5 shall be filled by another person designated by the original
Designating Party. Each Investor shall vote all shares of voting stock of the
Corporation owned or controlled by such Investor in accordance with each such
new designation, and no such vacancy shall be filled in the absence of a new
designation by the original Designating Party.
5.5 Duration of Section. This Section 5 and the rights and obligations of
the parties hereunder shall automatically terminate on the consummation of a
firm commitment underwritten public offering of Common Stock registered under
the Securities Act pursuant to which (X) Common Stock is offered to the public
at a price of at least ** per share (subject to adjustment for stock splits,
stock dividends, stock combinations, recapitalizations and like
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 28
occurrences) and (Y) the net proceeds to the Corporation are at least ** (the
"Termination Date"). Prior to the Termination Date the rights and obligations of
any Investor under this Section 5 shall terminate upon the date on which such
Investor no longer owns any Preferred Shares, whereupon the obligations of the
remaining Investors to vote in favor of the designee, if any, of any such
Investor shall also terminate.
5.6 Observation Rights. In the event that Roche elects (or is deemed to
elect) not to designate ** to attend all meetings of the Board of Directors of
the Corporation, and shall, upon the written request of the Roche Observer,
provide such ** with such notice and other information with respect to such
meetings as are delivered to the directors of the Corporation. The foregoing
observation rights shall be conditioned upon the ** executing and delivering to
the Corporation a customary confidentiality agreement pursuant to which such **
agrees to hold in confidence the confidential information of the Corporation.
Notwithstanding the foregoing, the Corporation shall not be required to
permit the ** to attend all or any portion of a meeting, or to provide
to such ** information with respect to a meeting, (a) to the extent that the
Board of Directors determines in good faith that the Corporation and Roche have
conflicting interests relating to a matter to be discussed, or (b) to the extent
that a matter to be discussed at such meeting and information related thereto
relates to potential or actual licensing, development, joint venture or similar
transactions between the Corporation and a third party, provided that the
Corporation shall act reasonably in determining whether to permit such
attendance or provide such information.
SECTION 6. Employee Stock Option Plan. The Investors shall vote in favor
of the establishment of a stock option plan, and from time to time shall vote in
favor of any amendments thereto, in such form and substance as recommended by
the Board of Directors (the "Stock Plan"), to provide for stock options (the
"Options") being granted to eligible officers, employees, consultants, Board
members and scientific advisers, providing for the purchase of an amount of
shares of Common Stock not to exceed ** of the shares of capital stock
outstanding. This Section 6 shall terminate upon the Termination Date.
SECTION 7. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by any party
hereto, the party or parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce its or their rights, either by
suit in equity and/or action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement. The
rights, powers and remedies of the parties under this Agreement are cumulative
and not exclusive of any other right, power or remedy which such parties may
have under any other agreement or law. No single or partial assertion or
exercise of any right, power or remedy of a party hereunder shall preclude any
other or further assertion or exercise thereof.
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 29
SECTION 8. Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall bind and inure to the benefit of the Corporation
and each of the Investors and the respective successors and assigns of the
Corporation and each of the Investors. Subject to the provisions of Sections
3.1, 3.2, 3.3 and 3.10 hereof, which are intended solely to ensure compliance
with the provisions of the Securities Act, this Agreement and the rights and
duties of the Investors set forth herein may be assigned, in whole or in part,
by each Investor with the prior written consent of the Large Stockholders. Any
transferee (other than an Investor) to whom rights under Section 3 are
transferred shall, as a condition to such transfer, deliver to the Corporation a
written instrument by which such transferee identifies itself, gives the
Corporation notice of the transfer of such rights, identifies the securities of
the Corporation owned or acquired by it and agrees to be bound by the
obligations imposed hereunder to the same extent as if such transferee were an
Investor hereunder. A transferee to whom rights are transferred pursuant to this
Section 8 will be thereafter deemed to be an Investor for the purpose of the
execution of such transferred rights and may not again transfer such rights to
any other person or entity, other than as provided in this Section 8. Neither
this Agreement nor any of the rights or duties of the Corporation set forth
herein shall be assigned by the Corporation, in whole or in part, without having
first received the written consent of the Investors holding a majority in voting
power of the outstanding Preferred Shares, with each such holder entitled to the
number of votes for each such share of Preferred Stock as equals the number of
shares of Common Stock (including fractional shares) into which each such share
of Preferred Stock is then convertible, rounded up to the nearest one-tenth of a
share.
SECTION 9. Duration of Agreement. The rights and obligations of the
Corporation and each Investor set forth herein shall survive indefinitely,
unless and until, by their respective terms, they are no longer applicable.
SECTION 10. Entire Agreement. This Agreement, together with the other
writings referred to herein or delivered pursuant hereto which form a part
hereof, contains the entire agreement among the parties with respect to the
subject matter hereof and amends, restates and supersedes all prior and
contemporaneous arrangements or understandings with respect thereto. This
Agreement may not be amended except in writing by the holders of at least
two-thirds (2/3) of the outstanding capital stock of the Corporation inclusive
of the Large Stockholders.
SECTION 11. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by first
class registered, certified or overnight mail, postage prepaid, or telecopies
with a confirmation copy by regular mail, addressed or telecopied, as the case
may be, to such party at the address or telecopier number, as the case may be,
set forth on Schedule 2 hereto or such other address or telecopier number, as
the case may be, as may hereafter be designated in writing by the addressee to
the addressor.
SECTION 12. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any
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<PAGE> 30
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding choice
of law rules thereof.
SECTION 14. Interpretation. When the context in which words are used in
this Agreement indicates that such is the intent, words in the singular number
shall include the plural, and vice versa. Headings contained herein are inserted
only as a matter of convenience and in no way define, limit, extend or interpret
the scope of this Agreement or any Section hereof. Pronouns stated in either the
masculine, the feminine or the neuter gender shall include the masculine,
feminine and the neuter.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
HELICON THERAPEUTICS, INC.
By:___________________________________
Name:
Title:
**
By:___________________________________
Name:
Title:
ONCOGENE SCIENCE, INC.
By:___________________________________
Name:
Title:
COLD SPRING HARBOR LABORATORY
By:___________________________________
Name:
Title:
__________________________________
**
__________________________________
**
__________________________________
**
- --------------------
** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 32
Other CSHL Individuals*
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
- ----------
* The Other CSHL Individuals shall be determined at a later closing date at
which time Ordinary Common Stock shall be issued to such persons pursuant
to the terms and conditions of this Agreement.
31
<PAGE> 1
Portions of this Exhibit 10.35 have been redacted and are the subject of a
confidential treatment request filed with the Secretary of the Securities and
Exchange Commission.
<PAGE> 2
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS AGREEMENT, dated this 17th day of July, 1997 is entered into by
and among Helicon Therapeutics, Inc., a Delaware corporation (the
"Corporation"), ** ("Roche"), Oncogene Science, Inc. ("OSI") and Cold Spring
Harbor Laboratory ("CSHL", and collectively with Roche and OSI, the
"Investors").
The Corporation and the Investors are desirous of providing for the
issuance of shares of Preferred Stock (as hereinafter defined) by the
Corporation and to the Investors, as more specifically set forth hereinafter.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. Filing of Certificate. Prior to the Closing (as defined in
Section 4 hereof), the Corporation shall have filed a Certificate of
Incorporation of the Corporation (the "Certificate") in the form attached hereto
as Exhibit A. Pursuant to the Certificate, the Corporation shall be authorized
to issue up to ** shares of Common Stock, par value $.001 per share
("Common Stock"), of which ** shares of Common Stock shall have been
designated as Ordinary Common Stock ("Ordinary Common Stock") and ** shares
of Common Stock shall have been designated Senior Common Stock, and up to
** shares of Preferred Stock, par value $.001 per share (the "Preferred
Stock"), of which ** shares of Preferred Stock shall have been designated
as Series A Convertible Preferred Stock.
SECTION 2. Authorization of Issuance and Sale of Preferred Shares;
Reservation of Reserved Shares; Use of Proceeds.
2.1 Authorization of Issuance. Subject to the terms and
conditions hereof, the Corporation has authorized the sale and issuance to the
Investors on the Closing Date (as defined in Section 4 hereof) the number of
shares of Preferred Stock (such shares of Preferred Stock being sometimes
hereinafter referred to as the "Preferred Shares") as set forth on Schedule 1
hereof.
2.2 Reservation of Reserved Shares. Prior to the Closing, the
Corporation shall have reserved for issuance ** shares of Ordinary Common
Stock for issuance upon conversion of the Preferred Shares (such reserved
Ordinary Common Stock being sometimes collectively hereinafter referred to as
the "Reserved Shares").
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** This portion has been redacted pursuant to a request for confidential
treatment.
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2.3 Use of Proceeds. The Corporation shall use the net cash
proceeds from the sale of the Preferred Shares hereby for research and product
development and other working capital purposes.
SECTION 3. Delivery of Preferred Shares.
3.1 Agreement to Sell and Purchase Preferred Shares.
(a) Subject to the terms and conditions set forth herein,
including, but not limited to, the conditions precedent set forth in Section 7
below, at the Closing, the Corporation shall sell and issue to Roche, and Roche
shall purchase and receive from the Corporation, the number of Preferred Shares
set forth opposite its name on Schedule 1 at the purchase price of ** per share
(the "Purchase Price").
(b) Subject to the terms and conditions set forth herein,
including, but not limited to, the conditions precedent set forth in Section 7
below, at the Closing, the Corporation shall sell and issue to OSI, and OSI
shall purchase and receive from the Corporation, the number of Preferred Shares
set forth opposite its name on Schedule 1 and in consideration therefor OSI
shall contribute to the Corporation (i) ** , (ii) a non-exclusive, royalty-free
license to use screening technology (as defined herein) and commercialize
products which are the subject of an OSI patent application covering a method of
screening and modulation transcription and ** .
(c) Subject to the terms and conditions set forth herein,
including, but not limited to, the conditions precedent set forth in Section 7
below, at the Closing, the Corporation shall sell and issue to CSHL, and CSHL
shall purchase and receive from the Corporation, the number of Preferred Shares
set forth opposite its name on Schedule 1 and in consideration therefor CSHL
shall contribute to the Corporation (i) an exclusive royalty free license to
commercialize technology which is the subject of a CSHL patent application
covering a method of cloning and characterizing genes associated with long-term
memory, under which CSHL shall be entitled to reimbursement from the Corporation
for patent and related expenses and (ii) ** .
3.2 Delivery of Shares; Form of Consideration. At the Closing,
the Corporation shall deliver to the Investors certificate(s), registered in the
name of the Investors, representing their respective Preferred Shares. Delivery
of certificate(s) representing the Preferred Shares shall be made to Roche
against payment by Roche of the Purchase Price by wire transfer in immediately
available funds to an account designated by the Corporation.
SECTION 4. The Closing. The closing (the "Closing") hereunder with
respect to the transactions contemplated by Sections 2 and 3 hereof is taking
place by facsimile transmission of executed copies of the documents contemplated
hereby delivered on the date hereof at the offices of Squadron, Ellenoff,
Plesent & Sheinfeld, LLP, New York, New York (the date hereof sometimes
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** This portion has been redacted pursuant to a request for confidential
treatment.
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being referred to herein as the "Closing Date") and confirmed by overnight
delivery of originally executed copies of such documents.
SECTION 5. Representations and Warranties of the Corporation to the
Investor.
The Corporation hereby represents and warrants to the Investors as
follows:
5.1 Organization. The Corporation is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own and lease
its property and to carry on its business as presently conducted. The
Corporation does not own or lease property or engage in any activity in any
other jurisdiction which would require its qualification in such jurisdiction
and in which the failure to be so qualified would have a material adverse effect
on the financial or any other business condition of the Corporation.
5.2 Capitalization. As more fully described in the
capitalization table set forth in Exhibit B attached hereto, the authorized
capital stock of the Corporation immediately following the Closing shall consist
of:
(a) ** shares of Common Stock, of which ** shares
of Ordinary Common Stock shall have been duly reserved for issuance upon
conversion of the issued and outstanding shares of Series A Preferred Stock;
(b) ** shares of Preferred Stock, of which **
shares shall be designated as Series A Convertible Preferred Stock, of which
** shares shall be validly issued and outstanding.
Except pursuant to the terms of this Agreement, the Certificate, the
By-laws of the Corporation (the "By-laws"), the Stockholders' Agreement dated as
of the date hereof among the Corporation and the other signatories thereto
attached hereto as Exhibit C (the "Stockholders' Agreement"), the Collaborative
Research and License Agreement entered into as of July 1, 1997, by and between
Hoffmann-La Roche Inc. and the Corporation, the additional shares which may be
purchased by the holders of the Common Stock, there are, and immediately
following the Closing, there will be: (1) no outstanding warrants, options,
rights, agreements, convertible securities or other commitments or instruments
pursuant to which the Corporation is or may become obligated to issue, sell,
repurchase or redeem any shares of capital stock or other securities of the
Corporation; (2) no preemptive, contractual or similar rights to purchase or
otherwise acquire shares of capital stock of the Corporation pursuant to any
provision of law or any agreement to which the Corporation is a party or may
otherwise by bound; (3) no restrictions on the transfer of capital stock of the
Corporation imposed by any agreement to which the Corporation is a party or, to
the best of the Corporation's knowledge, any order of any court or any
governmental agency to which the Corporation is subject, other than with respect
to any applicable statutes, laws, rules or regulations; (4) no cumulative voting
rights for any of the Corporation's capital stock; (5) no registration rights
under the Securities Act of 1933, as amended ("Securities Act"), with respect to
shares of the Corporation's capital stock; (6) to the best of the Corporation's
knowledge, no options or other rights to purchase shares of capital stock from
stockholders of the Corporation granted by such stockholders; and (7) no
agreements, written or oral, between the Corporation and any holder
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** This portion has been redacted pursuant to a request for confidential
treatment.
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of its securities, or, to the best of the Corporation's knowledge, among holders
of its securities, relating to the acquisition, disposition or voting of the
securities of the Corporation.
5.3 Authorization of this Agreement. The execution, delivery and
performance by the Corporation of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of the Corporation. This Agreement has been duly executed and
delivered by the Corporation and constitutes a valid and binding obligation of
the Corporation, enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement, the filing of the Certificate and
the compliance with the provisions hereof and thereof by the Corporation, will
not:
(a) violate any provision of law, statute, ordinance, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body;
(b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under (i) any agreement, document, instrument, contract,
understanding, arrangement, note, indenture, mortgage or lease to which the
Corporation is a party or under which the Corporation or any of its assets is
bound or affected, (ii) the Certificate, or (iii) the By-laws; or
(c) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Corporation.
5.4 Authorization of Preferred Shares and Reserved Shares.
(a) The issuance, sale and delivery of the Preferred Shares
have been duly authorized by all requisite action of the Corporation, and, when
issued, sold and delivered in accordance with this Agreement, the Preferred
Shares will be validly issued and outstanding, fully paid and non-assessable,
with no personal liability attaching to the ownership thereof, and, except as
may be set forth in the Stockholders' Agreement, not subject to preemptive or
any other similar rights of the stockholders of the Corporation or others.
(b) The reservation, issuance, sale and delivery by the
Corporation of the Reserved Shares have been duly authorized by all requisite
action of the Corporation, and the Reserved Shares have been duly reserved in
accordance with Section 2.2 of this Agreement. Upon the issuance and delivery of
the Reserved Shares in accordance with the terms of this Agreement, the Reserved
Shares will be validly issued and outstanding, fully paid and non-assessable,
with no personal liability attaching to the ownership thereof, and not subject
to preemptive or any other similar rights of the stockholders of the Corporation
or others.
5.5 Consents and Approvals. No authorization, consent, approval
or other order of, or declaration to or filing with, any governmental agency or
body (other than filings required to be made under applicable federal and state
securities laws) or any other person, entity or association is required for: (a)
the valid authorization, execution, delivery and performance by the Corporation
of this Agreement; (b) the valid authorization, issuance, sale and delivery of
the
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<PAGE> 6
Preferred Shares; or (c) the valid authorization, reservation, issuance,
sale and delivery of the Reserved Shares. The Corporation has obtained all other
consents that are necessary to permit the consummation of the transactions
contemplated hereby and thereby.
5.6 Business of Corporation.
(a) Except as set forth in Schedule 5.6(a) attached hereto:
(i) the Corporation has not entered into and is not a
party to and is not otherwise bound or affected by any written or oral contract,
agreement, understanding, arrangement, lease, guaranty or other obligation or
series of related obligations or transactions in excess of Twenty Five Thousand
Dollars ($25,000), other than this Agreement, the transactions contemplated by
the Stockholders' Agreement and the stock option agreements relating to the Plan
Shares;
(ii) the Corporation is not a party to, or, directly or
indirectly bound by, any indenture, mortgage, deed of trust or other agreement
or instrument relating to the borrowing of money, the guarantee of indebtedness
or the granting of any security interest, negative pledge or other encumbrance
on the assets of the Corporation; and
(iii) the Corporation has not incurred and is not subject
to any liabilities or obligations, fixed or contingent, matured or unmatured or
otherwise, that, individually or in the aggregate, could have a material adverse
effect upon the business, operation, conditions or prospects of the Corporation.
(b) The unaudited financial statements described in Section
5.6(k) hereof, including any notes thereto, reflect all liabilities of the
Corporation as of the date of such financial statements. Since the date of the
Balance Sheet (as such term is hereinafter defined), the Corporation has not
incurred any obligation (or series of related obligations) or liability,
contingent or otherwise, in excess of One Hundred Thousand Dollars ($100,000)
except as set forth in Schedule 5.6(b) attached hereto.
(c) Except as provided in Schedule 5.6(c) attached hereto: (i)
there are no actions, suits, arbitrations, claims, investigations or legal or
administrative proceedings pending or, to the best of the Corporation's
knowledge, threatened, against the Corporation, whether at law or in equity;
(ii) there are no judgments, decrees, injunctions or orders of any court,
government department, commission, agency, instrumentality or arbitrator entered
or existing against the Corporation or any of its assets or properties for any
of the foregoing or otherwise; and (iii) the Corporation has not admitted in
writing its inability to pay its debts generally as they become due, filed or
consented to the filing against it of a petition in bankruptcy or a petition to
take advantage of any insolvency act, made an assignment for the benefit of
creditors, consented to the appointment of a receiver for itself or for the
whole or any substantial part of its property, or had a petition in bankruptcy
filed against it, been adjudicated bankrupt, or filed a petition or answer
seeking reorganization or arrangement under the federal bankruptcy laws or any
other laws of the United States or any other jurisdiction.
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(d) The Corporation is in compliance in all material respects
with all obligations, agreements and conditions contained in any evidence of
indebtedness or any loan agreement or other contract or agreement (whether or
not relating to indebtedness) to which the Corporation is a party or is subject
(collectively, the "Obligations"), the lack of compliance with which could
afford to any person the right to accelerate any indebtedness or terminate any
right of or agreement with the Corporation. To the best of the Corporation's
knowledge, all other parties to such Obligations are in compliance with the
terms and conditions of such Obligations.
(e) Except for employment and consulting agreements set forth
on Schedule 5.6(a) attached hereto, agreements and arrangements relating to the
Plan Shares or the Scientist Shares and except as provided in Schedule 5.6(e)
attached hereto, this Agreement and the Stockholders' Agreement, there are no
agreements, understandings or proposed transactions between the Corporation and
any of its employees, officers, directors or other affiliates (as defined in
Rule 405 promulgated under the Securities Act) or any affiliates of such
employees, officers, directors or other affiliates.
(f) Each current employee of or consultant to the Corporation
who has or is proposed to have access to confidential and/or proprietary
information of the Corporation is a signatory to, and is bound by, an agreement
with the Corporation relating to noncompetition, nondisclosure, proprietary
information and/or assignment of patent, copyright and other intellectual
property rights substantially in a form previously approved by the Board of
Directors of the Corporation.
(g) To the best of the Corporation's knowledge, no employee of
or consultant to the Corporation is in violation of any term of any employment
contract, patent disclosure agreement or any other contract or agreement
including, but not limited to, those matters relating (i) to the relationship of
any such employee with the Corporation or to any other party as a result of the
nature of the Corporation's business as currently conducted, or (ii) to unfair
competition, trade secrets or proprietary information.
(h) The Corporation does not have any employee benefit plans,
except as disclosed in Schedule 5.6(h) attached hereto.
(i) The Corporation's employees are not represented by any
labor unions nor, to the Corporation's knowledge, is any union organization
campaign in progress. The Corporation is not aware that any of its officers or
key employees intends to terminate his or her employment with the Corporation,
nor does the Corporation have a present intention to terminate the employment of
any of its officers or key employees, which termination of employment would have
a material adverse effect on the operations, condition (financial or otherwise),
business or research prospects of the Corporation.
(j) The Corporation is not in violation of or default under
any provision of its By-Laws or Certificate, or, in any material respect under
any contract, instrument, judgment, order, writ or decree to which it is a party
or by which it or any of its properties are bound, and, to the best of the
Corporation's knowledge, the Corporation is not in violation of any material
provision of any federal or state statute, rule or regulation applicable to the
Corporation.
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<PAGE> 8
(k) Included in Schedule 5.6(k) attached hereto is the
Unaudited Balance Sheet dated as June 30, 1997 and Statements of Operation,
Stockholders' Equity and Cash Flow as June 30, 1997 (collectively, the
"Unaudited Financial Statements"). The Unaudited Financial Statements are
complete and correct, are in accordance with the books and records of the
Corporation and present fairly the financial condition and results of operations
of the Corporation, as at the dates and for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles
consistently applied, except that the Unaudited Financial Statements have been
prepared for the internal use of management and may not be in accordance with
generally accepted accounting principles because of the absence of footnotes
normally contained therein and are subject to normal year-end audit adjustments
which, individually, and in the aggregate, will not be material.
(l) Except as set forth in Schedule 5.6(l), there has not been
since June 30, 1997:
(i) any change in the assets, liabilities, financial
condition or operating results of the Corporation from that reflected in the
Unaudited Financial Statements, except changes in the ordinary course of
business which individually or in the aggregate do not have a material adverse
effect on the operations or financial condition of the Corporation;
(ii) any damage, destruction or loss, whether or not
covered by insurance, which individually or in the aggregate might have a
material adverse effect on the operations or financial condition of the
Corporation;
(iii) any waiver by the Corporation of a material
valuable right or a material debt owed to it;
(iv) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Corporation, except in the
ordinary course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Corporation, as such
business is presently conducted and as it is presently proposed to be conducted;
(v) any materially adverse change or amendment to a
material contract or arrangement by which the Corporation or any of its assets
or properties is bound or subject;
(vi) any material change to the terms or conditions
in any compensation arrangement or agreement with any employee of the
Corporation, other than clerical and non-managerial employees of the
Corporation, such as secretaries, laboratory technicians and laboratory
assistants;
(vii) any resignation or termination of employment of
any key officer of the Corporation;
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(viii) any mortgage, pledge, transfer of a security
interest in, or lien created by the Corporation, with respect to any of its
material properties or assets, except for liens for taxes not yet due or
payable;
(ix) any declaration, setting aside or payment or
other distribution in respect of any of the Corporation's capital stock, or any
direct or indirect redemption, purchase or other acquisition of any of such
stock by the Corporation; or
(x) to the best of Corporation's knowledge, any other
event or condition of any character which, individually or in the aggregate,
might have a material adverse effect on the operations or financial condition of
the Corporation, other than events affecting the global, national or local
economy generally, the financial markets generally or the Corporation's industry
generally.
(m) Except as set forth in Schedule 5.6(m), each employee and
director of or consultant to the Corporation who has been issued shares of the
Corporation's Common Stock or options to purchase shares of the Corporation's
Common Stock is a signatory to, and is bound by, a Stock Restriction Agreement
and/or a Stock Option Agreement, as the case may be, all with stock transfer
restrictions and rights of first offer in favor of the Corporation in a form
previously approved by the Board of Directors. In addition, each such Agreement
contains a vesting schedule previously approved by the Board of Directors.
5.7 Disclosure. This Agreement (including the Schedules hereto),
and the Unaudited Financial Statements, taken individually and as a whole, do
not contain any untrue statement of material fact, fairly represent the
business, properties, assets and condition, financial or other, of the
Corporation and do not fail to state a material fact necessary in order to make
the statements contained therein and herein, when taken as a whole, not
misleading.
5.8 Payment of Taxes. The Corporation has accurately prepared
and filed within the time prescribed by law all federal, state and local income,
excise or franchise tax returns, real estate and personal property tax returns,
sales and use tax returns, payroll tax returns and other tax returns required to
be filed by it, and has paid or made provision for the payment of all accrued
and unpaid taxes and other charges to which the Corporation is subject and which
are not currently due and payable. The Corporation has not elected to be treated
as a Subchapter S corporation pursuant to Section 1362 of the Internal Revenue
Code of 1986, as amended (the "Code"), or as a collapsible corporation pursuant
to Section 341(f) of the Code. The Corporation has never had any tax deficiency
proposed or assessed against it and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax or governmental
charge. The federal income tax returns of the Corporation have never been
audited by the Internal Revenue Service. Neither the Internal Revenue Service
nor any other taxing authority is now asserting nor is threatening to assert
against the Corporation any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith, and the Corporation does not know
of any such deficiency or basis for such deficiency or claim.
5.9 Intellectual Property Rights. All patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, trade names, registered copyrights and all licenses
owned or possessed by the Corporation are listed on Schedule
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<PAGE> 10
5.9 attached hereto (collectively, the "Listed Rights"). To the best of the
Corporation's knowledge, except as set forth on Schedule 5.9, the Listed Rights
comprise all of the patents, patent rights, patent applications, registered
trademarks and service marks, trademark rights, trademark applications, trade
names, registered copyrights and all licenses that are necessary for the conduct
of the business of the Corporation as now being conducted and as currently
proposed to be conducted. Except as set forth on Schedule 5.9, to the best of
the Corporation's knowledge, the Corporation owns and possesses all of the
proprietary rights and trade secrets not included in the Listed Rights
(hereinafter collectively referred to as "Intellectual Property") necessary for
the Corporation's business as now being conducted and as currently proposed to
be conducted. Except as set forth on Schedule 5.9, to the best of the
Corporation's knowledge, the Listed Rights and Intellectual Property are valid
and enforceable rights and do not infringe or conflict with the rights of any
third party. There is neither pending nor threatened, or, to the best of the
Corporation's knowledge, any basis for, any claim or litigation against the
Corporation contesting the validity or right to use any of the Listed Rights or
Intellectual Property, and the Corporation has not received any notice of
infringement upon or conflict with any asserted right of others nor, to the best
of the Corporation's knowledge, is there any basis for such a notice. To the
best of the Corporation's knowledge, no person, corporation or other entity is
infringing the Corporation's rights to the Listed Rights or Intellectual
Property. Except as otherwise provided in Schedule 5.9, the Corporation has no
obligation to compensate others for the use of any Listed Right or any
Intellectual Property, nor has the Corporation granted any license or other
right to use, in any manner, any of the Listed Rights or Intellectual Property,
whether or not requiring the payment of royalties.
5.10 Securities Laws. Neither the Corporation nor anyone acting
on its behalf has offered securities of the Corporation for sale to, or
solicited any offers to buy the same from, or sold securities of the Corporation
to, any person or organization, in any case so as to subject the Corporation,
its promoters, directors and/or officers to any liability under the Securities
Act, the Securities Exchange Act of 1934, as amended, or any state securities or
"blue sky" law (collectively, the "Securities Laws"). The offer, grant, sale
and/or issuance of the Preferred Shares and the Common Stock issuable upon the
conversion of the Preferred Shares were not, are not, or, as the case may be,
will not be, in violation of the Securities Laws when offered, sold and issued
in accordance with the operative documents relating to their issuance.
5.11 Title to Properties. Except as provided on Schedule 5.11
attached hereto, the Corporation has good, legal and merchantable title to all
of its assets, including all properties and assets reflected on the Balance
Sheet and the Unaudited Balance Sheet, free and clear of all liens, restrictions
or encumbrances, except those assets disposed of since the date of such Balance
Sheet in the ordinary course of business. All machinery and equipment included
in such properties which are material to the business of the Corporation are in
good condition and repair, and each lease of real or personal property to which
the Corporation is a party is fully effective, affords the Corporation peaceful
and undisturbed possession of the subject matter of the lease, and such lease is
free of any liens, claims or encumbrances. Each such lease constitutes a valid
and binding obligation of, and is enforceable in accordance with its terms
against, the respective parties thereto. The Corporation has in all respects
performed the obligations required to be performed by it to date under such
leases and is not in default thereunder in any respect, and there has not
occurred any event which (whether with or without the passage of time or the
giving of notice) would constitute such a default. The Corporation does not own
any real property.
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5.12 Investments in Other Persons. Except as indicated in
Schedule 5.12 attached hereto, (a) the Corporation has not made any loan or
advance to any person or entity which is outstanding on the date hereof, nor is
it committed or obligated to make any such loan or advance, and (b) the
Corporation has never owned or controlled and does not currently own or control,
directly or indirectly, any subsidiaries and has never owned or controlled and
does not currently own or control any capital stock or other ownership interest,
directly or indirectly, in any corporation, association, partnership, trust,
joint venture or other entity.
5.13 ERISA. The Corporation has not made contributions to any
pension, defined benefit or defined contribution plans for its employees which
are subject to the Federal Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The Corporation is in compliance in all respects with all
material provisions of ERISA to the extent that the Corporation's pension,
defined benefit or defined contribution plans (if any) are subject to ERISA.
5.14 Permits and Other Rights; Compliance with Laws. The
Corporation has all franchises, permits, licenses and other rights and
privileges necessary to permit it to own its properties and to conduct its
business as presently conducted. The Corporation is in compliance in all
material respects under each, and the transactions contemplated by this
Agreement will not cause a violation under any of such franchises, permits,
licenses and other rights and privileges. The Corporation is in compliance in
all respects with all material provisions of the laws and governmental rules and
regulations applicable to its businesses, properties and assets, and to the
products and services sold by it, including, without limitation, all such rules,
laws and regulations relating to fair employment practices and public or
employee safety. The Corporation is in compliance with the Clinical Laboratories
Improvement Act of 1967, as amended.
5.15 Insurance. Schedule 5.15 attached hereto lists all insurance
policies carried by the Corporation covering its properties and business, which,
to the best of the Corporation's knowledge, are in such amounts and with such
coverages as are customarily carried by similarly situated companies are
adequate for the Corporation's operations. The Corporation is not in default
with respect to its obligations under any insurance policy maintained by it.
5.16 Board of Directors. Except as provided in the Stockholders'
Agreement and in Schedule 5.16 attached hereto, the Corporation has not extended
any offer or promise or entered into any agreement, arrangement, understanding
or otherwise, whether written or oral, with any person or entity by which the
Corporation has agreed to allow such person or entity to participate, in any
way, in the affairs of the Board of Directors of the Corporation, including
without limitation, appointment or nomination as a member, or right to appear
at, or receive the minutes of, a meeting of the Board of Directors of the
Corporation.
5.17 Environmental Matters.
(a) The Corporation has not used, generated, manufactured,
refined, treated, transported, stored, handled, disposed, transferred, produced,
processed or released (together defined as Release) any Hazardous Materials (as
hereinafter defined) in any manner or by any means in violation of any
Environmental Laws (as hereinafter defined). To the best of the Corporation's
knowledge, except as described in Schedule 5.17(a), the Corporation and any
prior owner or tenant of the Property (as hereinafter defined) have not Released
any Hazardous Material
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or other pollutant or effluent into, on or from the Property in a way which can
pose a risk to human health or the environment, nor is there a threat of such
Release.
As used herein, the term Property shall include, without
limitation, land, buildings and laboratory facilities owned or leased by the
Corporation or as to which the Corporation now has any duties, responsibilities
(for clean-up, remedy or otherwise) or liabilities under any Environmental Laws,
or as to which the Corporation or any subsidiary of the Corporation may have
such duties, responsibilities or liabilities because of past acts or omissions
of the Corporation or any such subsidiary or their predecessors, or because the
Corporation or any such subsidiary or their predecessors in the past was such an
owner or operator of, or bore some other relationship with, such land, buildings
and/or laboratory facilities, all as more fully described in Schedule 5.17(a)
attached hereto. The term "Hazardous Materials" shall include, without
limitation, any flammable explosives, petroleum products, petroleum by-products,
radioactive materials, hazardous wastes, hazardous substances, toxic substances
or related materials as defined by the Environmental Laws.
(b) No notice of lien under any Environmental Laws has been
filed against any Property of the Corporation.
(c) The use of the Property, and any future development,
construction and operation of property purchased, leased or otherwise acquired
by the Corporation shall, in all respects, comply with, and are, or if such
property has not yet been purchased, leased or otherwise acquired by the
Corporation, shall be, lawful, permitted and conforming uses in all material
respects under all applicable building, fire, safety, subdivision, zoning,
sewer, environmental, securities, health, insurance and other laws, ordinances,
rules, regulations and plan approval conditions of any governmental or public
body or authority.
(d) Except as described in Schedule 5.17(d) attached hereto,
to the best of the Corporation's knowledge, the Property does not contain: (i)
asbestos in any form; (ii) urea formaldehyde foam insulation; (iii) transformers
or other equipment which contain dialectic fluid containing levels of
polychlorinated biphenyls; (iv) radon; or (v) any other chemical, material or
substance, the exposure to which is prohibited, limited or regulated by a
federal, state or local government agency, authority or body, or which, even if
not so regulated, to the best of the Corporation's knowledge after reasonable
investigation, may or could pose a hazard to the health and safety of the
occupants of the Property or the owners or occupants of property adjacent to or
in the vicinity of the Property.
(e) The Corporation has not received written notice that the
Corporation is a potentially responsible party for costs incurred at a cleanup
site or corrective action under any Environmental Laws. The Corporation has not
received any written requests for information in connection with any inquiry by
any Governmental Authority (as defined hereinafter) concerning disposal sites or
other environmental matters. As used herein, "Governmental Authority" shall mean
any nation or government, any federal, state, municipal, local, provincial,
regional or other political subdivision thereof, and any entity or person
exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, government. Schedule 5.17(e) attached hereto
identifies all locations where Hazardous Materials used in whole or in part by
the businesses
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of the Corporation or resulting from the businesses, facilities or Property of
the Corporation have been stored or disposed of by or on behalf of the
Corporation.
As used herein, "Environmental Laws" shall mean all applicable
federal, state and local laws, ordinances, rules and regulations that regulate,
fix liability for, or otherwise relate to, the handling, use (including use in
industrial processes, in construction, as building materials, or otherwise),
storage and disposal of hazardous and toxic wastes and substances, and to the
discharge, leakage, presence, migration, threatened Release or Release (whether
by disposal, a discharge into any water source or system or into the air, or
otherwise) of any pollutant or effluent. Without limiting the preceding
sentence, the term "Environmental Laws" shall specifically include the following
federal and state laws, as amended:
FEDERAL
Comprehensive Environmental Response,
Compensation and Liability Act of 1980,
42 U.S.C. 9601 et seq.;
Resource Conservation and Recovery Act of 1976,
42 U.S.C. 6901 et seq.;
Federal Water Pollution Control Act,
33 U.S.C. 1251 et seq.; and
Clean Air Act, 42 U.S.C. 7401 et seq.
STATE
NEW YORK ENVIRONMENTAL STATUTES
Environmental Conservation Law 1-0101 et seq.
(f) The Corporation has maintained all environmental and
operating documents and records substantially in the manner and for the time
periods required by the Environmental Laws and any other laws, regulations or
orders and has never conducted an environmental audit except as disclosed in
Schedule 5.17(f) attached hereto. For purposes of this Section 5.17(f), an
environmental audit shall mean any evaluation, assessment, study or test
performed at the request of or on behalf of a Governmental Authority, including,
but not limited to, a public liaison committee, but does not include normal or
routine inspections, evaluations or assessments which do not relate to a
threatened or pending charge, restraining order or revocation of any permit,
license, certificate, approval, authorization, registration or the like issued
pursuant to the Environmental Laws and any other law, regulation or order.
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<PAGE> 14
(g) To the best of the Corporation's knowledge, no part of the
Property of the Corporation is (i) located within any wetlands area, (ii)
subject to any wetlands regulations, or (iii) included in or proposed for
inclusion in, or abuts any property included in or proposed for inclusion in,
the National Priority List or any similar state lists.
The Corporation understands that the foregoing representations and
warranties shall be deemed material and to have been relied upon by the
Investor. As used herein, the term "to the best of the Corporation's knowledge"
shall mean and include, (a) with respect to matters relating directly to the
Corporation and its operations, actual knowledge or that knowledge which a
prudent business person reasonably would have discovered in the management of
his or her business affairs after making reasonable inquiry and exercising due
diligence with respect thereto, and (b) with respect to external events or
conditions, actual knowledge.
5.18 Books and Records. The minute books of the Corporation
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and committees thereof.
The stock ledger of the Corporation is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Corporation.
5.19 Real Property Holding Company. The Corporation is not a
"real property holding company" within the meaning of Section 897 of the Code.
SECTION 6. Representations and Warranties of the Investor to the
Corporation.
Each of the Investors hereby represents and warrants to the Corporation
as follows:
(a) It is duly organized and validly existing and has the
power and authority to enter into this Agreement, and has not been organized,
reorganized or recapitalized specifically for the purpose of acquiring the
securities of the Corporation.
(b) It has adequate net worth and means of providing for its
current needs and personal contingencies to sustain a complete loss of its
investment in the Corporation.
SECTION 7. Closing Conditions.
7.1 Conditions Precedent to the Closing. The obligation of the
Investors to purchase and pay for their respective Preferred Shares at the
Closing is subject to the satisfaction of the following conditions precedent:
(a) All proceedings to have been taken and all waivers and
consents to be obtained in connection with the transactions contemplated by this
Agreement shall have been taken or obtained, and all documents incidental
thereto shall be satisfactory to the Investors and its counsel, and the
Investors and their respective counsel shall have received copies (executed or
certified, as may be appropriate) of all documents which the investor or counsel
may reasonably have requested in connection with such transactions.
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<PAGE> 15
(b) All legal matters incident to the purchase of the
Preferred Shares shall be satisfactory to the respective Investor's counsel, and
the Investors shall have received from Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, counsel for the Corporation, such firm's opinion addressed to the Investors
and dated the date of the Closing in substantially the form of Exhibit D hereto.
(c) All consents, permits and approvals, qualifications and/or
registrations required to be obtained or effected under any applicable
securities or "Blue Sky" laws of any jurisdiction shall have been obtained or
effected, and the Investors shall have received from Squadron, Ellenoff, Plesent
& Sheinfeld, LLP a Blue Sky Memorandum or other confirmation to that effect in
form reasonably satisfactory to counsel for each such Investor.
(d) The representations and warranties of the Corporation
contained herein shall be true and correct on and as of the date of such Closing
with the same force and effect as though such representations and warranties had
been made on and as of such date.
(e) A duly executed Certificate in the form of Exhibit A
hereto shall have been filed with and accepted by the Secretary of State of
Delaware and shall be effective under the laws of the State of Delaware.
(f) The Corporation shall have delivered to the Investors a
certificate or certificates, dated the Closing Date, of the Secretary or
Assistant Secretary of the Corporation certifying as to (i) the resolutions of
the Corporation's Board of Directors and stockholders authorizing the execution
and delivery of this Agreement and the Certificate, the issuance to the
Investors of their respective Preferred Shares, the execution and delivery of
such other documents and instruments as may be required by this Agreement, and
the consummation of the transactions contemplated hereby, and certifying that
such resolutions were duly adopted and have not been rescinded or amended as of
said date, and (ii) the name and the signature of the officers of the
Corporation authorized to sign, as appropriate, this Agreement and the other
documents and certificates to be delivered pursuant to this Agreement by either
the Corporation or any of its officers.
(g) The Corporation shall have delivered to the Investors a
certificate or certificates, dated the Closing Date, of the Chairman of the
Corporation certifying as to the accuracy and completeness of the
representations and warranties made by the Corporation pursuant to this
Agreement and as to the fulfillment of the conditions specified in paragraphs
(c), (e) and (f) of this Section 7.1.
(h) The Corporation shall have executed and delivered (i) the
Collaborative Research and License Agreement, of even date herewith, between the
Corporation and Roche in substantially the form of Exhibit E hereto (the "Roche
Collaboration Agreement"), (ii) the Funded Research and License Agreement, of
even date herewith, between the Corporation and CSHL in substantially the form
of Exhibit F hereto (the "CSHL Research Agreement"), (iii) the License
Agreement, of even date herewith, between the Corporation and CSHL in
substantially the form of Exhibit G hereto (the "CSHL License Agreement, (iv)
the License and Services Agreement, of even date herewith, between the
Corporation and OSI in substantially the form of Exhibit H hereto (the "OSI
License Agreement") and (v) the Stockholders' Agreement, and shall
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<PAGE> 16
have complied with its obligations under this Agreement required to be performed
by it prior to the Closing.
7.2 Conditions to Obligations of the Corporation. It shall be
conditions precedent to the obligations of the Corporation hereunder to be
performed at the Closing that:
(a) The representations and warranties contained herein of the
Investors hereunder shall be true and correct as of the date of the Closing with
the same force and effect as though such representations and warranties had been
made on and as of such date.
(b) Each of the Investors, as the case may be, shall have duly
executed and delivered the Roche Collaboration Agreement, the CSHL Research
Agreement, the CSHL License Agreement, the OSI License Agreement and the
Stockholders' Agreement, and shall have complied with its obligations under this
Agreement required to be performed by it prior to the Closing.
SECTION 8. Public Offering.
The Corporation agrees to use all reasonable effort to arrange for
its underwriters to offer each of (a) Roche or its designated affiliate, (b)
OSI, and (c) CSHL, the opportunity to purchase in the Corporation's initial
underwritten public offering Common Stock pursuant to an effective registration
statement under the Securities Act a number of shares representing an aggregate
investment of ** for each of Roche, OSI and CSHL. Such shares will be offered,
if at all, on the same terms offered to others purchasing in such public
offering. Roche, OSI and CSHL shall be under no obligation to purchase any or
all of such securities.
SECTION 9. Brokers or Finders.
The Corporation represents and warrants to the Investors, and each
of the Investors represents and warrants to the Corporation, that no third party
has or will have, as a result of the transactions contemplated by this
Agreement, any unsatisfied right, interest or valid claim against or upon the
Corporation or such respective Investors, respectively, for any commission, fee
or other compensation as a finder or broker because of any act or omission by
the Corporation or such respective Investor, respectively, or any agent of the
Corporation or such respective Investor, respectively.
SECTION 10. Exchanges; Lost, Stolen or Mutilated Certificates
Upon surrender by any Investor to the Corporation of Preferred
Shares or Reserved Shares purchased or acquired by such Investor hereunder, the
Corporation, at its expense, will issue in exchange therefor, and deliver to the
Investor, a new certificate or certificates representing such shares in such
denominations as may be requested by the Investor. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
any certificate
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 17
representing any shares of Common Stock or Preferred Stock purchased or acquired
by the Investor hereunder and, in case of any such loss, theft or destruction,
upon delivery of any indemnity agreement satisfactory to the Corporation, or in
case of any such mutilation, upon surrender and cancellation of such
certificate, the Corporation, at its expense, will issue and deliver to the
Investor a new certificate for such shares of Common Stock or Preferred Stock,
as applicable, of like tenor, in lieu of such lost, stolen or mutilated
certificate.
SECTION 11. Survival of Representations and Warranties.
The representations and warranties set forth in Sections 5 and 6
hereof shall survive the Closing indefinitely except as set forth on Schedule
11.
SECTION 12. Successors and Assigns.
Except as otherwise expressly provided herein, this Agreement
shall bind and inure to the benefit of the Corporation and the Investors and the
respective permitted successors and assigns of the Investors and the permitted
successors and assigns of the Corporation. Subject to the provisions of Sections
3.1, 3.2, 3.3 and 3.10 of the Stockholders' Agreement, which are intended solely
to ensure compliance with the provisions of the Securities Act, this Agreement
and the rights and duties of any Investor set forth herein may be freely
assigned, in whole or in part, by such Investor with the prior written consent
of the other Investors. Neither this Agreement nor any of the rights or duties
of the Corporation set forth herein shall be assigned by the Corporation, in
whole or in part, without having first received the written consent of the
Investors.
SECTION 13. Entire Agreement.
This Agreement, together with the other writings referred to
herein or delivered pursuant hereto which form a part hereof, contains the
entire agreement among the parties with respect to the subject matter hereof and
amends, restates and supersedes all prior and contemporaneous arrangements or
understandings, whether written or oral, with respect thereto.
SECTION 14. Notices.
All notices, requires, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or duly sent by first class registered,
certified or overnight mail, postage prepaid, or telecopied with confirmation
copy by regular mail, addressed or telecopied, as the case may be, to such party
at the address or telecopier number, as the case may be, set forth on Schedule 1
hereto or such other address or telecopier number as the case may be, as may
hereafter be designated in writing by the addressee to the addressor.
All such notices, requests, consents and other communications
shall be deemed to have been received: (a) in the case of personal delivery, on
the date of such delivery; (b) in the case of mailing, on the third business day
following the date of such mailing; (c) in the case of overnight mail, on the
first business day following the date of such mailing; and (d) in the case of
facsimile transmission, when confirmed by facsimile machine report.
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<PAGE> 18
SECTION 15. Changes.
The terms and provisions of this Agreement may not be modified or
amended, or any of the provisions hereof waived, temporarily or permanently,
except pursuant to a writing executed by a duly authorized representative of the
Corporation and each of the Investors.
SECTION 16. Counterparts.
This Agreement may be executed in any number of counterparts,and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
SECTION 17. Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
SECTION 18. Nouns and Pronouns.
Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of names and pronouns shall include the plural and vice-versa.
SECTION 19. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 20. Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, excluding choice of laws rules thereof.
SECTION 21. Indemnification.
The Corporation shall indemnify, defend and hold each of the
Investors (and its respective partners, directors, officers, employees, agents
and affiliates and the directors, officers, employees and agents of such
affiliates) harmless against any and all liabilities, loss, cost or damage,
together with all reasonable costs and expenses related thereto (including
reasonable legal and accounting fees and expenses), arising from, relating to,
or connected with (i) the untruth, inaccuracy or breach of any statement,
representations, warranties or covenants of the Corporation contained herein,
including, but not limited to, all statements, representations, warranties or
covenants concerning environmental matters, and/or (ii) the Investor's
involvement or association with the Corporation and/or any actions or inactions
of the Investor in connection with its investment in or its association
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with the Corporation(other than matters relating to the Collaboration
Agreement), except such actions or inactions resulting from gross negligence,
willful misconduct or bad faith.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
HELICON THERAPEUTICS, INC.
By:
---------------------------------------
Name:
Title:
**
By:
---------------------------------------
Name:
Title:
ONCOGENE SCIENCE, INC.
By:
---------------------------------------
Name:
Title:
COLD SPRING HARBOR LABORATORY
By:
---------------------------------------
Name:
Title:
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 1
Portions of this Exhibit 10.36 have been redacted and are the subject
of a confidential treatment request filed with the Secretary of the Securities
and Exchange Commission.
<PAGE> 2
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
This COLLABORATIVE RESEARCH AND LICENSE AGREEMENT is entered into by
and between Hoffmann-La Roche Inc., a corporation having its principal offices
at 340 Kingsland Street, Nutley, New Jersey 07110 ("Roche") and Helicon
Therapeutics, Inc. ("Helicon"), a Delaware corporation having its principal
place of business at 106 Charles Lindbergh Boulevard, Uniondale, New York 11553,
founded by Oncogene Science, Inc. ("OSI"), a Delaware corporation having its
principal place of business at 106 Charles Lindbergh Boulevard, Uniondale, New
York 11553, and Cold Spring Harbor Laboratory ("CSHL"), a not for profit
corporation incorporated under the laws of the State of New York and having its
principal place of business at Hershey Building, One Bungtown Road, Cold Spring
Harbor, New York 11724.
WHEREAS, Helicon has control of certain OSI proprietary technology
through a license from OSI which license is for identifying the effect of
compounds on genes and gene expression which is useful in the process of
developing products for the treatment and prevention of human disease and which
will be utilized hereunder; and
WHEREAS, Helicon has control of certain CSHL proprietary technology
through a license from CSHL which license is for identifying the effect of
compounds on genes and gene expression which is useful in the process of
developing products for the treatment and prevention of human disease and which
will be utilized hereunder; and
WHEREAS, Roche has the capability to undertake research for the
discovery and evaluation of agents for treatment of disease and also the
capability for clinical analysis, manufacturing and marketing of such agents;
and
WHEREAS, Roche and Helicon wish to collaborate in research to identify
and develop human drug products;
<PAGE> 3
NOW, THEREFORE, the parties agree as follows:
1. Definitions
Whenever used in this Agreement, the capitalized terms defined in this
Article 1 shall have the meanings specified.
1.1 "Affiliate" means any corporation or other legal entity owning,
directly or indirectly, fifty percent or more of the voting capital shares or
similar voting securities of Roche or Helicon; any corporation or other legal
entity fifty percent or more of the voting capital shares or similar voting
rights of which is owned, directly or indirectly, by Roche or Helicon or any
corporation or other legal entity fifty percent or more of the voting capital
shares or similar voting rights of which is owned, directly or indirectly, by a
corporation or other legal entity which owns, directly or indirectly, fifty
percent or more of the voting capital shares or similar voting securities of
Roche or Helicon or any corporation or other legal entity which is directly or
indirectly under common control by Roche or Helicon through common share
holdings.
The term Affiliate does not include Genentech Inc., 460 Point San Bruno
Boulevard, South San Francisco, California USA, unless Roche explicitly opts for
such inclusion by giving written notice to Helicon.
1.2 "Allocated Overhead" for CSHL means its indirect cost allocated to the
Research Program, which allocated indirect cost shall be ** for each dollar of
allowable direct cost; and for Helicon and OSI means the amount of overhead,
including general and administrative costs, determined in accordance with
Generally Accepted Accounting Principles, incurred by Helicon and OSI and
allocated to the Research Program. Such allocation by Helicon, OSI and CSHL, as
the case may be, shall be in the same
- --------------------
** This portion has been redacted pursuant to a request for confidential
treatment.
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proportion that the total man-hours of work performed in the Research Program
bears to the total man-hours of work performed in the respective research
programs of Helicon, OSI and CSHL, or such other appropriate allocation basis or
overhead recovery basis that may be agreed in writing between the parties.
1.3 "Research Program" has the meaning set forth in Sections 2.1 and 2.2.
1.4 "Effective Date" is July 1, 1997, provided that the licenses referred
to hereinabove from OSI to Helicon and from CSHL to Helicon are then in effect
and the Research Plan under Section 2.1 has been approved by the parties.
1.5 "Contract Period" means the period beginning at the Effective Date and
continuing for three (3) years, unless earlier terminated as hereinafter in this
Agreement provided.
1.6 "Compound" shall mean any compound, the use of which has been
identified or discovered or developed by means of the Initial Identified Target
(hereinafter Section 1.9) and/or an Additional Target (hereinafter Section 1.10)
either (a) in the course of the Research Program or (b) by Roche within five (5)
years after termination of the Research Program, as well as any other compound
derived therefrom.
1.7 "CREB" means those **
1.8 "Target" means the positive or negative modulation of synaptic
plasticity via CREB.
1.9 "Initial Identified Target" means the CREB protein which is the subject
of the initial research to be carried out under the Research Program.
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** This portion has been redacted pursuant to a request for confidential
treatment.
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1.10 "Additional Targets" shall mean any ** their isoforms or homologues
which modulate synaptic plasticity and which are discovered during the course of
research carried out under the Research Program.
1.11 "Technology" means all technology used to identify and develop a
Compound as a pharmaceutical within the course of the Research Program and
includes all tangible or intangible know-how, inventions (whether or not
patentable), data, clinical and preclinical results and any physical, chemical
or biological materials that pertain to the development of human therapeutic
products, including all laboratory notebooks, research plans, cultures, strains,
vectors, genes and gene fragments and their sequences, cell lines, hybridoma
cell lines, monoclonal and polyclonal antibodies, proteins and protein
fragments, non-protein chemical structures and methods for synthesis,
structure-activity relationships, computer models of chemical structures,
computer software, assay methodology, processes, materials and methods for
production, recovery and purification of natural products, formulas, plans,
specifications, characteristics, equipment and equipment designs, marketing
surveys and plans, business plans, experience and trade secrets, provided
however, that Technology shall not include any of the robotics technology of
Oncogene or Helicon.
1.12 "Helicon Technology" means Technology with regard to Target, Initial
Identified Target and Additional Target, if any, owned or controlled by Helicon
at any time prior to the termination of the Research Program as well as
Technology which is developed during the Research Program including such
Technology which is or was:
(a) developed by employees of or consultants to Helicon alone or
jointly with third parties (including OSI and CSHL), other than Roche, in the
course of activities not related to the Research Program but only to the extent
that Helicon is legally entitled to disclose such acquired Technology and use it
in the Research Program; or
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** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 6
(b) acquired by purchase, license, assignment or other means from third
parties (including OSI and CSHL), by Helicon that would not otherwise be part of
Joint Technology, but only to the extent that Helicon is legally entitled to
disclose such acquired Technology and use it in the Research Program.
1.13 "Roche Technology" means Technology with regard to Target, Initial
Identified Target and Additional Target, if any, owned or controlled by Roche
during the course of the Research Program and Technology which is developed
during the Research Program including such Technology which is:
(a) developed by employees of or consultants to Roche alone or jointly
with third parties, other than Helicon, in the course of activities not related
to the Research Program but only to the extent that Roche is legally entitled to
disclose such acquired Technology and use it in the Research Program; or
(b) acquired by purchase, license, assignment or other means from third
parties by Roche that would not be otherwise part of Joint Technology, but only
to the extent that Roche is legally entitled to disclose such acquired
Technology and use it in the Research Program.
1.14 "Joint Technology" shall mean Technology developed by either or both
parties during the course of the Research Program.
1.15 "Helicon Confidential Information" means all information about any
element of the Helicon Technology which is disclosed by Helicon to Roche and
designated "Confidential" in writing by Helicon at the time of disclosure to
Roche to the extent that such information as of the date of disclosure to Roche
is not (i) known to Roche other than by virtue of a prior confidential
disclosure to Roche by Helicon, or (ii) disclosed in the published literature,
or otherwise generally known to the public, or (iii) obtained from a third party
that has no obligation of confidentiality to Helicon, or (iv) can be shown by
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<PAGE> 7
Roche to have been developed independently by Roche after disclosure hereunder.
Confidential Information shall also include all Helicon Improvements.
1.16 "Roche Confidential Information" means all information about any
element of Roche Technology which is disclosed by Roche to Helicon and
designated "Confidential" in writing by Roche at the time of disclosure to
Helicon to the extent that such information as of the date of disclosure to
Helicon is not (i) known to Helicon other than by virtue of a prior confidential
disclosure to Helicon by Roche, or (ii) disclosed in the published literature,
or otherwise generally known to the public, or (iii) obtained from a third party
that has no obligation of confidentiality to Roche, or (iv) can be shown by
Helicon to have been independently developed by Helicon after disclosure
hereunder. Roche Confidential Information shall also include all Roche
Improvements.
1.17 "Roche Patents" mean the rights conferred upon Roche from the patents
and patent applications owned and/or controlled by Roche, both foreign and
domestic, covering inventions resulting from the Research Program including
those inventions which are directed to or result from using the Initial
Identified Target and any Additional Target licensed by Roche under Section 5.1
and which inventions were made during the course of Research Program and for
five (5) years thereafter.
1.18 "Helicon Patents" mean the rights conferred upon Helicon from the
patents and patent applications owned and/or controlled by Helicon both foreign
and domestic (i) covering inventions resulting from the Research Program and/or
(ii) any invention made prior to the beginning of Research Program including
those inventions which are directed to or result from using the Initial
Identified Target and any Additional Target.
1.19 "Joint Patents" shall mean those patents and patent applications
included within either or both the Roche Patents or Helicon Patents which are
jointly owned by both Roche and Helicon and shall include all rights under said
patents and patent applications both foreign and domestic.
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<PAGE> 8
1.20 "Valid Claim" means a claim of an issued Roche Patent, Helicon Patent
or Joint Patent so long as such claim shall not have been disclaimed by both
Roche and Helicon or shall not have been held invalid in a final decision
rendered by a tribunal of competent jurisdiction from which no appeal has been
or can be taken.
1.21 "Improvements" shall mean any and all improvements to Technology
whether patentable or not or subject to other forms of protection, which
improvements are owned or controlled by Helicon during Research Program and for
five (5) years after termination of Research Program.
1.22 "Product" means any product containing or consisting of Compound, which
product is sold for the prevention, treatment or management of any disease state
in a human patient or any other human therapeutic indication which relates to
the Initial Identified Target and/or any Additional Target licensed to Roche
under Section 5.1.
1.23 "Event of Termination" has the meaning set forth in Section 10.2.
1.24 "Funding Payments" has the meaning set forth in Article 3.
1.25 "Person" means any individual, estate, trust, partnership, joint
venture, association, firm, corporation, company, or other entity.
1.26 "Research Committee" has the meaning specified in Section 2.4.
1.27 "Net Sales" means the gross amount invoiced by Roche or any Affiliate
or sublicensee of Roche for arm's length sales to a third party or parties of
Products, less deduction of returns (including withdrawals and recalls), rebates
(price reductions, including Prime Vendor, Medicaid and similar types of rebates
e.g. chargebacks), volume (quantity) discounts, discounts granted at the time of
invoicing, sales taxes and other taxes directly linked to and included in the
gross sales amount as computed on a
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<PAGE> 9
product by product basis for the countries concerned (hereinafter "Adjusted
Gross Sales").
In addition, from Adjusted Gross Sales, there shall be a lump sum
deduction of 6 % (six percent) for those sales related to deductions which are
not accounted for on a product-by-product basis (e.g. outward freights, postage
charges, transportation insurance, packaging material for dispatch of goods,
custom duties, discounts granted later than at the time of invoicing, and cash
discounts).
1.28 In the terms defined herein, the singular shall include the plural
and vice versa.
2. Collaborative Research Program
2.1 Research Plan
The plan for the first year of Research Program will be approved by the
parties prior to the Effective Date. The plan for the following year shall be
prepared and approved by the Research Committee prior to the end of the first
year and the plan for each successive year shall be prepared and approved by the
Research Committee prior to the end of the last year covered by any then
existing plan.
2.2. Term of Research Program
(a) The Research Program shall last for a period of three years
beginning at the Effective Date. The Research Program can be prolonged on a
yearly basis upon mutual written agreement. Either party can announce its
intention of prolongation by giving written notice to the other party at least
six months prior to the end of the three year period of the Research Program.
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<PAGE> 10
(b) At the end of a two-(2)-year-period from the beginning of the
Research Program Roche shall have the option to terminate the Research Program
by giving written notice to Helicon at least six (6) months prior to the end of
said two-year period.
In addition, if the milestones agreed to by the Research
Committee have not been achieved by Helicon by the date required in the Research
Program for a reason not attributable to Roche, then Roche shall have the right
to terminate the Agreement by giving ninety (90) days prior written notice.
(c) At the end of the Research Program Roche shall have the right to
terminate this Agreement at any time, provided however, that such termination
shall not affect any and all rights and royalty obligations by Roche hereunder.
2.3. Exclusivity
(a) Helicon agrees that during the Contract Period neither Helicon nor
any of its Affiliates shall conduct research itself or sponsor any other
research, or engage in any research sponsored by any Person not a party to this
Agreement, if the research relates to the Initial Identified Target or any
Additional Target licensed by Roche under Section 5.1, unless agreed to by the
Research Committee. If Helicon becomes aware during the Contract Period of an
opportunity to sponsor other research having any of the objectives of the
Research Program or to engage in such research sponsored by a Person that is not
a party to this Agreement, it shall promptly notify Roche of such opportunity,
and Roche and Helicon shall consider whether such opportunity can be
incorporated into the Research Program or otherwise used to further the purposes
of the Research Program to their mutual advantage.
(b) If Roche becomes, during the Contract Period, aware of Roche and/or
its Affiliates conducting or sponsoring research or engaging in research
sponsored by any person not a party to this Agreement and, if the research
relates to the Initial Identified Target or any Additional Target, Roche shall
notify Helicon of such research and
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<PAGE> 11
Helicon and Roche shall consider whether such research can be incorporated into
the Research Program or otherwise used to further the purpose of the Research
Program to their mutual advantage. If Roche becomes aware during the Contract
Period of an opportunity to sponsor other research having any of the objectives
of the Research Program or to engage in such research sponsored by a Person that
is not a party to this Agreement, it shall promptly notify Helicon of such
opportunity, and Roche and Helicon shall consider whether such opportunity can
be incorporated into the Research Program or otherwise used to further the
purposes of the Research Program to their mutual advantage.
If it is decided that such other research, which relates to the Initial
Identified Target or any Additional Target, shall not be incorporated into
Research Program, Roche agrees that said other research shall not be carried out
by anyone with or under the direct supervision of anyone with access to Helicon
Confidential Information.
2.4 Research Committee
2.4.1 Purpose
The parties shall establish a Research Committee for the following
purposes:
(a) to review and evaluate progress under the plan for the
Research Program;
(b) to direct the implementation of the Research Plans as defined
in Section 2.1;
(c) to modify the Research Plans as appropriate, and to coordinate
and monitor publication of research results obtained from the exchange of
information and materials that relate to the Research Program;
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(d) to develop each yearly research plan, to establish and review
budgets and use of research funds, and to decide the amount of any additional
Funding Payment under Section 3.1.6;
(e) to identify from time to time Roche Patents, Helicon Patents
and Joint Patents.
2.4.2 Membership
Roche and Helicon each shall appoint, in its sole discretion, four
members to the Research Committee. Substitutes may be appointed at any time.
The members initially shall be:
Roche Appointees: Helicon Appointees:
** **
2.4.3 Chair
The Research Committee shall be co-chaired by one of the members
appointed by Roche and by one of the members appointed by Helicon. The co-chairs
shall work together to establish the agenda for meetings and to coordinate the
Research Program and follow-up actions.
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** This portion has been redacted pursuant to a request for confidential
treatment.
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2.4.4 Meetings
The Research Committee shall meet at least four times per year, at
places and on dates selected by each party in turn. Representatives of Roche or
Helicon or both, in addition to members of the Research Committee, may attend
such meetings at the invitation of either party.
2.4.5 Minutes
The Research Committee shall keep accurate minutes of its deliberations
which record all proposed decisions and all actions recommended or taken. The
minutes shall be delivered to all Research Committee members within five (5)
working days after each meeting. The party hosting the meeting shall be
responsible for the preparation of the minutes. Draft minutes shall be edited by
the co-chairs and shall be issued in final form only with the co-chairs'
approval and agreement.
2.4.6 Decisions
Each member of the Research Committee shall have one vote and decisions
by the Research Committee shall be made by consensus. Any disagreement which
cannot be resolved by consensus of the Research Committee shall be referred to
appropriate heads of research of Roche and Helicon. If a disagreement is still
unsolved, Roche shall make the final decision in its sole discretion and in good
faith.
2.4.7 Expenses
Roche and Helicon shall each bear all expenses of their respective
members related to the participation on the Research Committee.
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2.4.8 Subcommittees
The Research Committee shall have authority to appoint subcommittees
and delegate to such subcommittees powers and duties determined by the Research
Committee.
2.5 Reports and Materials
2.5.1 Reports
During the Research Program, Helicon shall furnish to the Research
Committee:
(a) written summary reports within fifteen (15) days after the end of
each three-month period, commencing on the Effective Date, describing its
progress under the Research Program; and
(b) comprehensive written reports within thirty (30) days after the end
of each calendar year, describing in detail the work accomplished by it under
the Research Program during the year and discussing and evaluating the results
of such work.
2.5.2 Materials
Helicon and Roche shall, during the Contract Period as a matter of
course as directed by the Research Committee or upon each other's oral or
written request, furnish to each other samples of biochemical, biological or
synthetic chemical materials (hereafter "Materials") which are part of the Joint
Technology and which are necessary for each party to carry out its
responsibilities under the Contract Period Research. To the extent that the
quantities of Materials requested by either party exceed the quantities set
forth in the Contract Period Research plan, the requesting party
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shall reimburse the other party for the reasonable costs of such Materials if
they are furnished and if reimbursement is requested.
2.6 Laboratory Facilities and Personnel
Helicon and/or OSI and Cold Spring Harbor shall provide suitable
laboratory facilities, equipment and personnel for the work to be done by
Helicon in carrying out the Research Program.
2.7 Diligent Efforts
Roche and Helicon each shall use diligent efforts to achieve the
objectives of the Research Program.
2.8 Abandonment of Initial Identified Target and Additional Targets
(a) In the event that Roche within five years after termination of the
Research Program does not identify, discover or develop any Compound using
either the Initial Identified Target or an Additional Target licensed by Roche
under Section 5.1 then the Initial Identified Target and all such Additional
Targets shall be deemed abandoned and ROCHE shall grant to Helicon a
non-exclusive license to use such abandoned Initial Identified Target and
Additional Targets for its own purposes. In the event that Helicon identifies a
Compound using an abandoned Initial Identified Target or Additional Target,
Roche and Helicon shall use their best efforts to negotiate an agreement
granting Helicon an exclusive license to said abandoned Initial Identified
Target or Additional Target.
(b) In the event ROCHE identifies, discovers or develops a
Compound but does not make, use, import or sell any Product, then ROCHE shall
grant to Helicon a right of first refusal for an exclusive license with the
right to
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sublicense for such Compound under the terms and conditions as otherwise would
have been applied to Roche.
3. Funding of the Sponsored Research Program
3.1 Contract Period Funding
Roche shall pay Helicon's total actual research costs less OSI's
contribution of services worth ** during the first year (including those
incurred by OSI and CSHL), in carrying out plan for the Research Program, plus
Allocated Overhead (the "Funding Payments"); provided, however, that the total
amount of Funding Payments for the first and second years after the Effective
Date (including those incurred by OSI and CSHL) shall be determined according to
section 3.1.1 and shall not exceed ** and ** respectively. Total amounts of
funding for year three will be determined according to Section 3.1.1 but in no
case will such funding be less than ** and shall not be greater than the amount
agreed by Research Committee as set forth in Section 3.1.1.
3.1.1 Prior to the beginning of each calendar year (or part thereof) during the
term of Research Program, the Research Committee shall approve a budget which
shall set forth the work to be accomplished during each calendar quarter and the
Funding Payments to be made. The budget so created will be in a form and detail
as the Research Committee shall determine and shall be delivered to both parties
in time to be included in each party's internal budgeting process.
3.1.2 All Funding Payments shall be made quarterly in advance for work scheduled
to be performed by Helicon during any calendar quarter, against Helicon's
invoice for such budgeted amount which shall provide a pool of resources to be
utilized on the Research Program as directed by the Research Committee.
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** This portion has been redacted pursuant to a request for confidential
treatment.
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Within thirty (30) days of the close of a calendar quarter, Helicon
shall invoice Roche for the amount due for the next quarter. If actual
expenditures as approved in advance by the Research Committee exceed the
prepayment, Roche shall pay Helicon the difference within thirty (30) days upon
the date of the invoice. If the prepayment as approved in advance by the
Research Committee for a given calendar quarter is in excess of actual
expenditures incurred for the corresponding calendar quarter, then the excess of
amount shall be taken into account when identifying the prepayment due and
invoiced in advance for the next calendar quarter.
3.1.3 The amount of the Funding Payment for each quarter shall be based on
the work in progress pursuant to the Contract Period Research plan any residual
Funding Payment from the previous calendar quarter and the associated annual
budget; provided, however, that the aggregate amount of Funding Payments made in
any calendar year shall not exceed the amounts set forth in Section 3.1.
3.1.4 Each Funding Payment shall be paid on the first day of the quarter or
thirty (30) days after receipt of invoice, whichever is later.
3.1.5 Helicon shall keep for three (3) years from the expiration of this
Agreement complete and accurate records of its expenditures of Funding Payments
received by it. The records shall conform to generally accepted accounting
principles as applied to a similar company similarly situated. Roche shall have
the right at its own expense during the term of this Agreement and during the
subsequent three-year period to obtain from the independent certified public
accountant employed by Helicon an audit of said records to verify the accuracy
of such expenditures, pursuant to the Research Program. Helicon shall make its
records available for inspection by the independent certified public accountant
during regular business hours at the place or places where such records are
customarily kept, upon reasonable notice from Roche to the extent reasonably
necessary to verify the accuracy of the expenditures and required reports. This
right of inspection shall not be exercised more than once in any calendar year
and not more than once with respect to records covering any specific period of
time.
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Roche agrees to hold in strict confidence all information concerning such
expenditure, other than their total amounts, and all information learned in the
course of any audit or inspection, except to the extent that it is necessary for
Roche to reveal the information in order to enforce any rights it may have
pursuant to this Agreement or if disclosure is required by law. The failure of
Roche to request verification of any expenditures before or during the
three-year period shall be considered acceptance of the accuracy of the invoices
for such expenditures, and Helicon shall have no obligation to maintain any
records pertaining to such report or statement beyond the three-year period.
3.1.6. In the event Roche should exercise its right to select any Additional
Target according to Section 5.1(c), in such a case there shall be an additional
Funding Payment by Roche the amount of which shall be decided in good faith by
the Research Committee.
4. Treatment of Confidential Information
4.1 Confidentiality
4.1.1 Roche and Helicon recognize that the other's Confidential Information
constitutes highly valuable proprietary, confidential information. Subject to
the disclosure obligations set forth in Sections 4.3 and 4.4 and publication
rights set forth in Section 4.2, (i) Roche agrees that during the period of the
Research Program and for five (5) years thereafter, it will keep confidential,
and will cause its Affiliates to keep confidential, all Helicon Confidential
Information, nor shall Roche or any of its Affiliates use Helicon Confidential
Information except as expressly permitted in this Agreement and (ii) Helicon
agrees that for the longer of (a) the period of the Research Program and five
(5) years thereafter or (b) five (5) years from the date of disclosure to
Helicon, it will keep confidential, and will cause its Affiliates to keep
confidential, all Roche Confidential Information, nor shall Helicon or any of
its Affiliates use Roche Confidential Information except as expressly permitted
in this Agreement.
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4.1.2 Roche and Helicon acknowledge that the Roche and Helicon Confidential
Information is highly valuable, proprietary, confidential information, and each
party agrees that disclosure of the other party's Confidential Information to
any officer, employee, agent, consultant or to any of its Affiliates shall be
made only if and to the extent necessary to carry out its responsibilities under
this Agreement and shall be limited to the maximum extent possible consistent
with such responsibilities. Each party agrees not to disclose the other's
Confidential Information to any third parties (other than consultants) under any
circumstance without written permission. Both parties shall take such action,
and shall cause its Affiliates to take such action, to preserve the
confidentiality of each other's Confidential Information as they would
customarily take to preserve the confidentiality of their own confidential
information.
4.1.3 Each party represents that all of its employees participating in the
Research Program who shall have access to the other party's Confidential
Information are bound, by agreement to maintain such information in confidence.
Consultants must be similarly bound.
4.2 Publication
Section 4.1 to the contrary notwithstanding, the results obtained in
the course of the Research Program may be submitted for publication following
scientific review by the Research Committee, Roche's and Helicon's management.
Either party including CSHL shall provide the Research Committee,
Roche's and Helicon's management, as the case may be with manuscripts regarding
the work in progress or completed projects under the Research Program at least
thirty (30) days prior to submission of such manuscripts for publication to
enable Roche and Helicon to take appropriate action regarding patent protection
for any inventions or improvements described in such manuscripts.
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Roche and Helicon shall notify each other or CSHL, as the case may be
within thirty (30) days of receipt of such manuscripts whether Roche or Helicon
desire to file patent applications on any inventions contained in the
manuscripts. In the event of such notification any submission for publication or
other disclosure containing the details of such invention will be withheld for
an additional sixty (60) days to ensure that such filings are made before
publication or other disclosure. Submission for publication or other disclosure
shall not be delayed more than ninety (90) days from receipt of said
manuscripts.
In any case Roche shall have the right to delete Roche Confidential
Information prior to submission for publication.
4.3 Publicity
Except as required by law, neither party may disclose the existence of
this Agreement nor the research described in it except with the written consent
of the other party, which consent shall not be unreasonably withheld.
4.4 Disclosure of Inventions
Each party shall promptly inform the other about all inventions
concerning the Initial Identified Target and/or any Additional Target that are
conceived, made or developed in the course of carrying out the Research Program
by employees of, or consultants to, either of them solely, or jointly with
employees of, or consultants to the other. This Agreement shall not be construed
to obligate either party to disclose to the other any invention which is not
part of Joint Technology.
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4.5 Restrictions on Transferring Materials
Roche and Helicon recognize that the Materials which are part of
Helicon Technology, or Joint Technology, represent valuable commercial assets.
Therefore, throughout the Contract Period and for five (5) years thereafter,
Helicon and Roche agree not to transfer to any third party any such Materials
which constitute Technology owned solely by the other party. Additionally,
throughout the Contract Period and for six (6) months thereafter, Helicon and
Roche agree not to transfer to any third party any Materials which are part of
Joint Technology, unless prior consent for any such transfer is obtained from
the other, which consent shall not be unreasonably withheld, and unless such
third party agrees as a condition of any such transfer not to transfer the
Materials further and to use the Materials only for research purposes not
directed toward the development of Products.
4.6 Permitted Use of Confidential Information
Nothing contained herein will in any way restrict or impair each
party's right to use, disclose or otherwise deal with any Confidential
Information which:
(a) at the time of disclosure is properly in the public domain or
thereafter becomes part of the public domain by publication or otherwise through
no breach of this Agreement by the party receiving such information;
(b) the party receiving such information can establish by competent
evidence was properly in its possession prior to the time of the disclosure;
(c) is independently and properly made available as a matter of right
to the party receiving such information by a third party who is not thereby in
violation of a confidential relationship with the other party;
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(d) is information which is required to be included in Patent
applications filed under Article 6 or required to be provided to a government
agency in order for Roche to obtain approvals to market a Product or for Helicon
to make a Product for Roche hereunder; provided, however, that no Roche or
Helicon Confidential Information shall be disclosed in any such Patent
application or otherwise without the prior written consent of the other party
which consent shall not be unreasonably withheld;
(e) is information which is required to be disclosed to customers,
users and prescribers of a Product or which is reasonably necessary to disclose
in connection with the ethical marketing of a Product; provided, however, that
no Helicon Confidential Information will be so disclosed without the prior
written consent of Helicon, which consent will not be unreasonably withheld; or
(f) is information required to be disclosed by law or by a court order,
in each of which cases the disclosing party shall timely inform the other and
use its best efforts to limit the disclosure and maintain confidentiality to the
extent possible and will permit the other party to limit such disclosure.
5. Licenses and Royalties
5.1 Grant of Licenses
Helicon hereby grants to Roche a worldwide license including the right
to sublicense under the Helicon Patents, the Helicon Technology, the Helicon
Improvements, and the Helicon rights in the Joint Technology to make, have made,
use, import and sell Products and to use the Initial Identified Target and
Additional Targets to identify, discover and develop Compounds in accordance
with the following:
(a) Products which include Compounds the use of which has been
identified, developed or discovered by means of the Initial Identified Target,
which license shall
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be sole and exclusive for so long as Roche is obligated to pay a royalty under
Sections 6.8.1 or 6.8.2, and use of the Initial Identified Target to identify,
discover and develop Compounds which license shall be sole and exclusive subject
to the provisions of Section 2.8; and
(b) Products which include Compound the use of which has been
identified, developed or discovered by means of the first two (2) Additional
Targets discovered in the course of the Research Program, which license shall be
sole and exclusive for so long as Roche is obligated to pay a royalty under
Sections 6.8.1 or 6.8.2., and use of the first two (2) Additional Targets to
identify, discover and develop Compounds which license shall be sole and
exclusive subject to the provisions of Section 2.8; provided, however, that
Roche shall have advised Helicon in writing of its intent to acquire a license
related to such Additional Target pursuant to this Section 5.1(b) within one (1)
year of the date on which such Additional Target is sequenced sufficiently to
reasonably imply function as determined by the Research Committee. Upon
expiration of such one (1) year period, Roche's rights to obtain a license with
respect to such Additional Target shall expire and Helicon alone shall
thereafter own the entire right, title and interest to such Additional Target.
In the event that the Research Committee is initially unable to make a
determination as to functionality of the first Additional Target ("Deadlock"),
commencement of the aforementioned one (1) year period shall be extended until
the earlier of the next scheduled Research Committee meeting or 90 days from the
date of Deadlock. If for any reason Roche does not obtain a license to such
first Additional Target, Roche's right to license an Additional Target pursuant
to this Section 5.1(b), upon the same terms and conditions set forth herein,
shall apply to each successive Additional Target discovered in the course of the
Research Program until such time as Roche has obtained two (2) licenses pursuant
hereto.
(c) Helicon hereby further grants to Roche the first right to license
any Additional Target subsequent to the first two Additional Targets licensed by
Roche under Section 5.1(b) including the right to sublicense under the Helicon
Patents, the Helicon Technology, the Helicon Improvements, and the Helicon
rights in the Joint
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Technology to identify, discover and develop Compounds and to develop,
make, have made, use, import and sell Products which include Compound the use of
which has been identified, developed or discovered by means of any Additional
Targets discovered in the course of the Research Program. Any such additional
licenses shall be granted to Roche under the same conditions as licenses granted
under Section 5.1(a) and 5.1(b); provided, however, that in order to exercise
such right to select any such Additional Targets there shall be an additional
Funding Payment by Roche in accordance with Section 3.1.6 and Roche shall have
advised Helicon in writing of its intent to acquire a license related to such
Additional Target pursuant to this Section 5.1(b) within ninety (90) days of the
date on which such Additional Target is sequenced sufficiently to reasonably
imply function as determined by the Research Committee.
6. Sourcing statement
6.1 Roche further agrees that the packaging and promotional materials for
Products marketed by Roche and on which Roche is obligated to pay royalties
shall identify Helicon as a licensor, wherever such identification is not
prohibited by law.
Helicon hereby agrees to indemnify and hold Roche harmless from any use
hereunder of the Helicon name which occurs with the consent of Helicon, provided
that Roche provides Helicon with prompt notice of any such claim and grants to
Helicon the exclusive ability to defend (with reasonable cooperation of Roche)
and settle such claim. If only one name is allowed to be on any specific item of
packaging or promotional material pursuant to governmental laws or regulations,
then Roche may use its name alone on such item, without identifying Helicon as
licensor.
6.2 Grants of Research Licenses
Helicon and Roche each grants to the other a nonexclusive, irrevocable,
worldwide, royalty-free, perpetual license, including the right to grant
sublicenses to
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Affiliates, to make and use its Improvements for all research purposes other
than the sale or manufacture for sale of products or processes.
6.3 Paid-Up License
(a) Provided that Roche has satisfied all of its obligations to make
Funding Payments hereunder, then subject to Section 2.8(a) and this Section
6.3(a) Roche shall have a paid-up exclusive license to use the Initial
Identified Target and any Additional Target licensed by Roche under Section 5.1
to identify, discover and develop Compounds and Roche shall pay royalties in
accordance with Section 6.8 for each Product containing such Compounds. If
Roche's efforts after the end of the Research Program to identify, discover, and
develop Compounds is: (i) less than **, and (ii) less than the equivalent of **
full-time researchers, and (iii) if Roche is not diligently developing a Product
under Section 6.4, then Helicon shall have the right to terminate the license
granted to Roche under this Section 6.3(a) by giving ninety (90) days prior
written notice. Commencing at the end of the Research Program Roche shall
furnish to Helicon written summary reports within fifteen (15) days after the
end of each six-month period describing its efforts and progress under this
Section 6.3(a). Such summary reports shall contain the chemical structure of
each Compound which Roche is developing into a Product.
(b) Provided that Roche has satisfied all of its obligations to pay
royalties hereunder, Roche shall have a paid-up license permitting royalty-free
manufacture, use, and sale of each Product in each country after the expiration
of Roche's last obligation to pay royalties on Net Sales of each such Product in
each such country.
6.4 Roche Obligations
Roche shall use reasonably diligent efforts to develop Products to its
commercialization. This requirement shall be deemed satisfied if Roche uses the
same degree of diligence it uses with respect to products having similar
potential developed
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** This portion has been redacted pursuant to a request for confidential
treatment.
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by Roche outside of this Agreement. If Roche elects to discontinue either itself
or through a sublicense development of a Compound, it shall so notify Helicon.
6.5 Sublicenses
If Roche grants a sublicense pursuant to Article 5.1, Roche shall
guarantee that any sublicensee fulfills all of Roche's obligations under this
Agreement. In the event Roche or Helicon grants sublicenses under Article 5 to
others to make, use, or sell products, such sublicenses shall include an
obligation of the sublicensees to account for and report all Net Sales of such
Products on the same basis as if such sales were Net Sales of Products by Roche,
and Roche shall pay royalties to Helicon under this Agreement as if the Net
Sales of the sublicensee were Net Sales of the sublicensor.
6.6 Rights to Improvements
For a period of five (5) years from the termination of the Research
Program, Roche shall acquire an exclusive (non-exclusive in the countries of the
world in which this Section might otherwise be deemed to violate restrictive
trade practices laws), worldwide, royalty-free license to any Improvements made
by Helicon, but only to the extent necessary to guarantee that Roche can fully
enjoy all the rights granted to it pursuant to Article 5. Helicon shall promptly
and fully notify Roche of any such Improvements made by Helicon, including
costs. All such Improvements shall be included within the scope of this
Agreement.
6.7 Technical Assistance
Helicon shall provide to Roche or any Affiliate or sublicensee of
Roche, at Roche's request and expense, any assistance reasonably necessary to
enable Roche or such Affiliate or sublicensee to manufacture, use, or sell each
Product and to enjoy fully all the rights granted to Roche pursuant to this
Agreement.
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6.8 Royalties, Payments of Royalties, Accounting for Royalties, Records
6.8.1 Patented Product
Roche shall pay Helicon a royalty on Net Sales at a rate of
** for a Product containing a Compound derived/synthesized
either by Helicon, Roche or jointly by both parties and covered either by a
Helicon Patent, a Roche Patent or a Joint Patent.
(a) In the event that Roche is faced with substantial generic
competition in a given country, the amount of royalties otherwise payable to
Helicon in such country shall be reduced by ** for so long as such competition
continues. 'Substantial generic competition' for Product in a given country is
the existence of generic competition of a product which captures 20% twenty
percent or more of the sales of Product in a given country (calculated on the
basis of units sold), where the Product and the generically competing product
have as a pharmaceutical active agent the same Compound.
(b) Roche shall pay such royalty on a country-by-country basis on sales
of each Product in a given country for ten (10) years after Product having been
launched in such country by Roche or until the expiration of the Helicon patent
with respect to each Product in such country, whichever is longer. Helicon will
not receive royalties with respect to Compounds that originated from research
under research programs of Roche or its Affiliates which occurred prior to the
Effective Date unless Helicon performs work on such Compounds pursuant to this
Agreement.
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** This portion has been redacted pursuant to a request for confidential
treatment.
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6.8.2 Technology
For each Product sold in a given country which is not covered by a
Valid Claim of a Roche Patent, Helicon Patent or Joint Patent based on any
activity under this Agreement, Roche shall pay a royalty of ** of the royalty
rate according to Section 6.8.1.
6.8.3 Single Royalty
The parties acknowledge that only one royalty rate, the highest one
applicable, under Section 6.8.1 or Section 6.8.2 will be applicable to Net Sales
of each Product.
6.8.4 Fixed Royalty Payments
In addition to any royalties due under Sections 6.8.1 and 6.8.2 related
to Product, Roche shall pay Helicon the following fixed royalty payments, upon
occurrence of the following:
- Upon filing of any IND **
- Upon commencement of
any Phase III trial **
- Upon filing of any "NDA" in a
European country or Japan **
- Upon filing of any NDA in the US **
- Upon approval of NDA in a
European country or Japan **
- Upon approval of NDA in the US **
**
Each such fixed royalty is only due once for a given Product.
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** This portion has been redacted pursuant to a request for confidential
treatment.
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6.8.5 Third Party Royalties
Any royalty payable to any third party including but not limited to
royalties paid for licensed Compounds (other than royalties arising out of
Helicon Technology or Roche Technology) shall be paid by Roche, provided that **
of such third party royalty may be offset against any royalties due Helicon
under Section 6.8.1 or 6.8.2 provided that in no event royalties payable to
Helicon shall be reduced by more than ** of the total royalty that would
otherwise be due to Helicon under Section 6.8.1. or 6.8.2. for the relevant
period.
Any royalty payable to any third party arising out of Helicon
Technology or Roche Technology shall be payable solely by Helicon or Roche,
respectively.
6.8.6 Payment Dates
Royalties on Net Sales shall be calculated quarterly as of March 31,
June 30, September 30 and December 31 (each as being the last day of an
"Accounting Period") and shall be paid by Roche quarterly within ninety (90)
days after the end of such Accounting Period in which Net Sales occur. Such
payments shall be accompanied by a statement showing the Net Sales of each
Product by Roche in each country, the applicable royalty rate for such Product,
and a calculation of the amount of royalty due.
6.8.7 Accounting
The Net Sales used for computing the royalties payable to Helicon by
Roche shall be computed and paid in US Dollars. For purposes of determining the
amount of royalties due with respect to Net Sales in any foreign currency, the
amount shall be computed generally by converting the foreign currency amount
into US Dollars using
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** This portion has been redacted pursuant to a request for confidential
treatment.
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for each month's calculation the foreign currency exchange rate on the last day
of the preceding month or such other method as is consistent with Roche's
internal foreign currency translation procedures, in any case, as actually used
by Roche on a consistent basis in preparing its audited financial statement.
Royalties on Net Sales shall be paid by Roche in US Dollars. Whenever
for the purpose of calculating royalties conversion from any foreign currency
shall be required, such conversion shall be made as follows:
i) for Roche and its Affiliates: When calculating the Adjusted Gross
Sales, the amount of such sales in foreign currencies shall be converted into
Swiss Francs as computed in the central Roche's Swiss Francs Sales Statistics
for the countries concerned, using the average monthly rate of exchange at the
time for such currencies as retrieved from Reuters System. When calculating the
royalties on Net Sales, such conversion shall be at the average rate of Swiss
Francs to the United States currency as retrieved from Reuters System for the
applicable Accounting Period.
ii) for a Licensee in a country: When calculating the Adjusted Gross
Sales, the amount of such sales shall be reported by the Licensee to Roche
within thirty (30) days from the end of an Accounting Period, after having
converted each applicable monthly sales in foreign currency into the United
States currency using the average rate of exchange published in the Wall Street
Journal (or some other source agreed upon in writing by the parties for any
particular country) for the last business day of each respective month of the
applicable Accounting Period.
6.8.8 Records
Roche shall keep for three (3) years from the date of each payment of
royalties complete and accurate records of sales by Roche of each Product in
sufficient detail to allow the accruing royalties to be determined accurately.
Helicon shall have the right for a period of three (3) years after receiving any
report or statement with respect to
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royalties due and payable to obtain at its expense from the independent
certified public accountant used by Roche for public reporting an audit of the
relevant records of Roche to verify such report or statement. Roche shall make
its records available for inspection by such independent certified public
accountant during regular business hours at such place or places where such
records are customarily kept, upon reasonable notice from Helicon, to the extent
reasonably necessary to verify the accuracy of the reports and payments. Such
inspection right shall not be exercised more than once in any calendar year nor
more than once with respect to sales in any given period. Helicon agrees to hold
in strict confidence all information concerning royalty payments and reports,
and all information learned in the course of any audit or inspection, except to
the extent necessary for Helicon to reveal such information in order to enforce
its rights under this Agreement or disclosure is required by law. The failure of
Helicon to request verification of any report or statement during said
three-year period shall be considered acceptance of the accuracy of such report,
and Roche shall have no obligation to maintain records pertaining to such report
or statement beyond said three-year period. The results of the inspection shall
be binding on both parties.
6.8.9 Withholding Taxes
All amounts owing to Helicon specified in this Agreement shall be paid
net of all applicable taxes, fees, and other charges excluding only taxes on
Roche's income. In particular, any taxes required to be withheld by Roche under
the laws of any country for the account of Helicon, shall be promptly paid by
Roche for and on behalf of Helicon to the appropriate governmental authority,
and Roche shall furnish Helicon with proof of payment of such taxes. Any such
tax actually paid on Helicon's behalf shall be deducted from royalty payments
due to Helicon. Roche will assist Helicon in minimizing the withholding tax
applicable to any payment made by Roche hereunder and in claiming tax refunds at
Helicon's request.
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6.9 Representation and Warranty
Helicon and Roche represent and warrant to each that they have the
right to grant to each other the licenses granted to them pursuant to this
Agreement, and that the licenses so granted do not conflict with or violate the
terms of any agreement between either of them and any third party.
7. Provisions Concerning the Filing, Prosecution and Maintenance of
Patent Rights
The following provisions relate to the filing, prosecution and
maintenance of Helicon Patents, Joint Patents, and Roche Patents:
7.1 Helicon Filing; Prosecution and Maintenance
Helicon shall have the exclusive right and obligation:
(a) to file applications for letters patent on any patentable invention
included in Helicon Patents or in Joint Patents which relate to cell lines,
cloning of cell lines and methodologies for determining the effect of Compounds
on biochemical processes; provided, however, that Helicon shall provide to Roche
copies of all patent applications prior to filing for the purpose of obtaining
substantive comment of Roche patent counsel and consult with Roche regarding
countries in which such patent applications should be filed and shall file
patent applications in those countries where Roche requests that Helicon file;
and further provided, that Helicon, at its option and expense, may file in
countries where Roche does not request that Helicon file;
(b) to prosecute all pending and new patent applications included
within Helicon Patents or Joint Patents those which relate to cell lines,
cloning of cell lines and methodologies for determining effect of Compounds on
biochemical processes and to respond to oppositions filed by third parties
against the grant of letters patent
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<PAGE> 33
for such applications, provided that Helicon shall also provide to Roche copies
of essential documents relating to prosecution of all patent applications in a
timely manner for the purpose of obtaining substantive comment of Roche patent
counsel;
(c) to maintain in force any patent applications and letters patent
included in Helicon Patents or Joint Patents which Helicon has filed and is
prosecuting by duly filing all necessary papers and paying any fees required by
the patent laws of the particular country in which such letters patent were
granted;
(d) to notify Roche in a timely manner of any decision to abandon a
pending patent application or an issued patent included in Helicon Patents or
Joint Patents which Helicon has filed and is prosecuting. Thereafter, Roche
shall have the option, at its expense, of continuing to prosecute any such
pending patent application or of keeping the issued patent in force; and
(e) to provide to Roche every six (6) months with a report detailing
the status of all patent applications that are part of Helicon Patents or Joint
Patents with Helicon being responsible for prosecution.
7.2 Roche Filing, Prosecution and Maintenance
Roche shall have the exclusive right and obligation:
(a) to file applications for letters patent on any patentable invention
included in Roche Patents or in Joint Patents other than those under Section
7.1.(a) which relate to new Compounds and new therapeutic uses or manufacturing
processes of known Compounds; provided, however, that Roche provide to Helicon
copies of all patent applications prior to filing for the purpose of obtaining
substantive comment of Helicon patent counsel and shall consult with Helicon
regarding countries in which such patent applications should be filed and shall
file patent applications in those countries where Helicon requests that Roche
file; and further provided, that Roche, at
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<PAGE> 34
its option and expense, may file in countries where Helicon does not request
that Roche file;
(b) to prosecute all pending and new patent applications included
within Roche Patents or Joint Patents which relate to new Compounds and new
therapeutic uses of known Compounds and to respond to oppositions filed by third
parties against the grant of letters patent for such applications; provided that
Roche shall also provide to Helicon copies of essential documents relating to
prosecution of all patent applications in a timely manner for the purpose of
obtaining substantive comment of Helicon patent counsel;
(c) to maintain in force any patent applications and letters patent
included in Roche Patents or Joint Patents which Roche has filed and is
prosecuting by duly filing all necessary papers and paying any fees required by
the patent laws of the particular country in which such letters patent were
granted.
(d) to notify Helicon in a timely manner of any decision to abandon a
pending patent application or an issued patent included in Roche Patents or
Joint Patents which Roche has filed and is prosecuting. Thereafter, Helicon
shall have the option, at its expense, of continuing to prosecute any such
pending patent application or of keeping the issued patent in force. If Helicon
exercises said option, then Roche shall be granted a royalty free non-exclusive
license under such patent.
(e) to provide to Helicon every six (6) months with a report detailing
the status of all patent applications that are part of Roche Patents or Joint
Patents with Roche being responsible for prosecution.
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<PAGE> 35
7.3 Reimbursement of Expenses
a) Either party bears the costs for filing, prosecution, issuing,
maintenance and extension of the patent applications and the patents for which
it has responsibility under Section 7.1 or 7.2.
b) With respect to Joint Patents each party shall bear 50% of the
reasonable out of pocket costs for filing, prosecution, issuing, maintenance and
extension of such patent applications and of such patents.
7.4 Legal Action
7.4.1 Actual or Threatened Disclosure or Infringement
Each party shall promptly notify the other party in writing of any
alleged or threatened infringement of Helicon's Patent Rights, Roche's Patent
Rights or Joint Patent Rights of which it becomes aware.
(a) Helicon Patent Rights:
Helicon shall have the right but not the obligation to bring,
at Helicon's expense and in its sole control an appropriate action against any
person or entity infringing Helicon's Patent. If Helicon does not bring such
action within forty-five (45) days of notification thereof to or by Roche, Roche
shall have the right, but not the obligation, to bring at Roche's expenses and
in its sole control, such appropriate action. Helicon Patents shall not include
Joint Patents.
(b) Roche Patent Rights:
Roche shall have the right but not the obligation to bring at
Roche's expense and in its sole control an appropriate action against any person
or entity infringing Roche's Patent. If Roche does not bring such action within
forty-five (45) days of notification thereof to or by Helicon, Helicon shall
have the right, but not the
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<PAGE> 36
obligation to bring at Helicon's expenses and in its sole control, such
appropriate action. Roche Patents shall not include Joint Patents.
(c) The party not bringing an action under this paragraph shall be
entitled to separate representation in such matter by counsel of its own choice
and at its own expense, but such party shall full cooperate with the party
bringing such action.
(d) Joint Patent Rights:
With respect to third party infringement of Joint Patents the
parties shall confer and take such action and allocate expenses and recoveries
in such manner, as they may agree. In the absence of agreement, the rules
applicable to Patents solely owned by Roche shall apply to Joint Patent in
question accordingly.
(e) Costs and Awards:
The party which is not in control of any action brought
pursuant to the above paragraphs may elect to contribute 50% (fifty percent) of
the costs of litigation against such third party infringer by providing written
notice to the controlling party within ninety (90) days after such action is
first brought. If the non-controlling party elects to bear 50% (fifty percent)
of such litigation costs it shall receive 50 % (fifty percent) of any damage
award or settlement resulting from such action. If the non-controlling party
does not elect to share such litigation costs it shall not participate in any
damage award or settlement resulting from such action.
7.4.2 Defense of Infringement Claims
If Helicon or Roche, any of their respective licensees or their
customers shall be sued by a third party for infringement of a patent because of
the research, development, manufacture, use or sale of Products, the party which
has been sued shall promptly notify the other party in writing of the
institution of such suit. Helicon and Roche agree to consult with each other, to
attempt to agree on which defense should be taken and also to establish the
proportion in which they will participate in the costs
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<PAGE> 37
and expenses of the agreed defense. In the event that Helicon shall give Roche
all authority to exclusively control the defense, Helicon shall give to Roche
all reasonable assistance necessary to defend or settle such suit, action or
proceeding. In the event that Helicon does not give Roche exclusive control of
the defense, Roche shall have the right to participate in any lawsuit.
7.4.3 Third Party Licenses
If Roche should determine the manufacture, use, or sale by Roche of a
Product in any country would infringe a patent owned by a third party or if a
Product is subject matter to an infringement claim according to Section 7.4.2.
above, then Roche shall be entitled to obtain a license under such patent. If
Roche obtains a license under such patent, ** of any payments made by Roche to
such third party shall be deductible from royalty payments due from Roche to
Helicon pursuant to this Agreement; provided, however, that in no event shall
royalties payable to Helicon be reduced by more than ** as a result of all such
deductions in any year. All such computations, payments, and adjustments shall
be on a country by country and patent by patent basis.
8. Hold Harmless
Roche agrees to defend, protect, indemnify, and hold harmless Helicon,
its employees and its consultants who have entered into an Exclusive Consultancy
Agreement with Helicon in accordance with Exhibit A of the initial Stock
Subscription Agreement, from and against any liability, claim, loss, cost, or
expense arising from any claim for product liability based upon Roche's
manufacture, use, or sale of any Product, except where such liability is caused
through negligence by Helicon, its employees or consultants.
- --------------------
** This portion has been redacted pursuant to a request for confidential
treatment.
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<PAGE> 38
9. Acquisition of Rights from Third Parties
During the Contract Period, Helicon and Roche shall promptly notify
each other in writing of any and all opportunities to acquire in any manner from
third parties, technology or patents which may be useful in, or may relate to
the Research Program. The Research Committee shall decide if such rights should
be acquired and if so, whether by Helicon or Roche. If acquired, such rights
shall become part of Joint Technology.
10. Term, Extension, Termination and Disengagement
10.1 Term
Unless sooner terminated or extended, this Agreement shall expire on
the later of the end of Research Program or the last to expire of any obligation
to pay royalties.
10.2 Events of Termination
The following events shall constitute events of termination ("Events of
Termination"):
Failure by one party to comply with any of its respective obligations
contained in this Agreement shall entitle the other party to give the party in
default written notice in order to make good such default. If such default is
not remedied within sixty (60) days after receipt of such notice, the notifying
party shall be entitled without prejudice to any and all rights conferred to it
by this Agreement, to terminate this Agreement by giving notice with immediate
effect. The right of either party to terminate this Agreement as provided
hereinabove shall not be affected in any way by its waiver of or failure to take
actions with respect to any previous default.
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<PAGE> 39
10.3 Termination
If Roche terminates this Agreement pursuant to Section 10.2, the
license and the obligation to pay royalties as provided in Articles 5 and 6
shall continue, provided Roche wishes to continue with the license. If Helicon
terminates this Agreement pursuant to Section 10.2, the license and the
obligation to pay royalties as provided in Articles 5 and 6 shall also
terminate.
10.4 Termination by Roche
(a) At the end of a two-(2)-year-period from the beginning of the
Research Program Roche shall have the option to terminate the Research Program
by giving six (6) months prior written notice to Helicon.
In addition, if the milestones set forth in Section 6.8.4 have
not been achieved by Helicon for reasons not attributable to Roche, then Roche
shall have the right to terminate the Agreement by giving ninety (90) days prior
written notice.
(b) Upon receipt of such notice, Helicon may, at its sole option,
terminate all work under the Research Plan unless otherwise agreed with Roche.
If Roche terminates this Agreement pursuant to this Section, it will make the
Funding Payments which would otherwise have been due for such notice period. No
funding payments shall be executed, if the milestones set forth in Section 6.8.4
have not been achieved for reasons not attributable to Roche.
(c) At the end of the Research Program Roche shall have the right to
terminate this Agreement either in whole or with respect to single Targets
(Initial Identified Target and/or any Additional Target) licensed by Roche under
Section 5.1 at any time, provided, however, that such termination shall not
affect any and all rights and royalty obligations by Roche hereunder.
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<PAGE> 40
10.5 Change of Ownership
Should ownership or control of Helicon change due to a transaction or
related series of transactions which result in the sale of more than fifty
percent (50%) of Helicon's voting stock or stock equivalents being transferred
to a single entity or related group of entities within six-(6)-months-period, or
a sale of all or substantially all of the assets of its business or the assets
to which this Agreement relates, Helicon shall inform Roche in writing of the
relevant event within thirty (30) days of its occurrence. If the acquiring
entity, on behalf of itself and its Affiliates, does not agree in writing to
assume and be bound by the obligations of this Agreement by providing written
notice thereof to Helicon within thirty (30) days of the date of written notice
of the occurrence of the event is provided to Roche, Roche may, at any
subsequent time but not later than ninety (90) days following receipt of notice
of occurrence of the event, terminate this Agreement upon giving three (3)
months prior written notice. However, if Roche does not terminate and the
acquiring entity does not agree in writing to assume and be bound by the
obligations of this Agreement, all the licenses and rights already granted to
Roche shall be vested in Roche without any further consideration on the part of
Roche.
10.6 Bankruptcy or Insolvency
All rights and licenses granted under or pursuant to this Agreement by
Helicon to Roche are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of Title 11, U.S. Code (the 'Bankruptcy Code'), licenses of
rights to 'intellectual property' as defined under Section 101(60) of the
Bankruptcy Code. The parties agree that Roche, as a licensee of such rights
under this Agreement, shall retain and may fully exercise all of its rights and
elections under the Bankruptcy Code. Helicon agrees during the term of the
Agreement to create and maintain current copies or, if not amenable to copying,
detailed descriptions or other appropriate embodiments, of all such intellectual
property. The parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against Helicon, Roche shall be
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<PAGE> 41
entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property, and same, if not already in its possession, shall be
promptly delivered to Roche i) upon any such commencement of a bankruptcy
proceeding upon written request therefore by Roche, unless Helicon elects to
continue to perform all of its obligations under this Agreement, or ii) if not
delivered under i) above, upon the rejection of this Agreement by or on behalf
of Helicon upon written request therefor by Roche.
11. Mutual Representations and Warranties
Helicon and Roche each represents and warrants as follows:
11.1 It is an entity duly organized, validly existing and is in good
standing under the laws of its domicile, is qualified to do business and is in
good standing as a corporation in each jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification and has
all requisite power and authority, corporate or otherwise, to conduct its
business as now being conducted, to own, lease and operate its properties and to
execute, deliver and perform this Agreement.
11.2 The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary action and do not and will not (a)
require any consent or approval of its stockholders or members, as the case may
be (other than that which has been obtained), (b) violate any provision of any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to it or any provision of its
charter, organization agreement or by-laws or (c) result in a breach of or
constitute a default under any material agreement, mortgage, lease, license,
permit or other instrument or obligation to which it is a party or by which it
or its properties may be bound or affected.
11.3 This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions, except as
such enforceability may be limited
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<PAGE> 42
by applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws, from time to time in effect, affecting creditor's rights generally,
provided such exceptions against enforceability are not in conflict with the
rights provided to Roche under Section 10.5 and 10.6.
11.4 It has at the time of execution of this Agreement and will
maintain during the duration of this Agreement good and marketable title to or
valid leases or licenses for, all of its properties, rights and assets necessary
for the fulfillment of its responsibilities and the Research Program, subject to
no claim of any third party other than the relevant lessors or licensors.
By their signatures hereto, OSI and CSHL agree to preserve all of the
properties, rights and assets transferred or licensed to Roche under this
Agreement.
11.5 Any breach of contract by OSI and CSHL shall be considered as a
breach of contract by Helicon.
11.6 Helicon warrants and represents that to the best of its knowledge
that it has at the time of the Effective Date no knowledge of the existence of
any patent or patent application owned or controlled by a third party, which
would be infringed as a result of Roche and/or any sublicensee exercising the
rights granted to Roche by Helicon.
12. Covenants of Helicon
12.1 Affirmative Covenants of Helicon Other Than Reporting Requirement
Throughout the Contract Period, Helicon shall:
(a) maintain and preserve its existence, rights, franchises and
privileges in the jurisdiction of its organization, and qualify and remain
qualified as a foreign limited liability company (or other appropriate entity)
in good standing in each jurisdiction in
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<PAGE> 43
which such qualification is from time to time necessary or desirable in view of
its business and operations or the ownership of its properties.
(b) comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any government authority to
the extent necessary to conduct the Research Program.
13. Notices
All notices shall be mailed via certified mail, return
receipt requested, or courier addressed as follows, or to such other address as
may be designated from time to time:
If to Roche:
Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, N.J. 07110
Telephone: (201) 235-2165
Fax: (201) 235-2363
Attention: Corporate Secretary
If to Helicon: Helicon Therapeutics, Inc.
106 Charles Lindbergh Boulevard
Uniondale, New York 11553
Attention: Chief Executive Officer
Notices shall be deemed given as of the date of receipt.
14. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of Delaware.
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<PAGE> 44
15. Miscellaneous
15.1 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and permitted
assigns.
15.2 Headings
Paragraph headings are inserted for convenience of reference only and
do not form a part of this Agreement.
15.3 Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15.4 Amendment; Waiver; etc.
This Agreement may be amended, modified, superseded or canceled, and
any of the terms may be waived, only by a written instrument executed by each
party or, in the cause of waiver, by the party or parties waiving compliance.
The delay or failure of any party at any time or times to require performance of
any provision shall in no manner affect the rights at a later time to enforce
the same.
15.5 No Third Party Beneficiaries
No person not a party to this Agreement, including any employee of any
party to this Agreement, shall have or acquire any rights by reason of this
Agreement. Nothing contained in this Agreement shall be deemed to constitute the
parties partners with each other or any Person.
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<PAGE> 45
15.6 Assignment and Successors
This Agreement may not be assigned by either party, except that the
parties may assign this Agreement and their rights and interests, in whole or in
part, to any of their Affiliates, any purchaser of all or substantially all of
its assets or to any successor corporation resulting from any merger or
consolidation with or into such corporation.
16. Extended Benefits
For obligations outside the United States of America, Helicon agrees
that, upon notice, Roche may extend any benefit and assign any right under this
Research Agreement to F.Hoffmann-La Roche Ltd, Grenzacherstrasse 24, 4070 Basel,
Switzerland (Roche-Basel), and Roche guarantees the performance of all
obligations imposed on Roche-Basel by a direct license. In no event shall such
direct license require Roche-Basel to make any Funding Payments such as those
described in Article 3 or any royalty payments to Helicon or any additional
consideration not provided in this Agreement, as long as Roche remains obligated
to make such payments.
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<PAGE> 46
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
ONCOGENE SCIENCE, INC. AND COLD SPRING HARBOR LABORATORY HAVE READ
THIS AGREEMENT AND CONSENT TO CARRY OUT ALL OF THEIR OBLIGATIONS UNDER THIS
AGREEMENT.
HOFFMANN-LA ROCHE INC. HELICON THERAPEUTICS, INC.
By:________________________ By: ________________________
Title:_______________________ Title: ________________________
ONCOGENE SCIENCE, INC. COLD SPRING HARBOR LABORATORY
By:________________________ By: ________________________
Title:_______________________ Title: ________________________
44735v2
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Aston Molecules, Inc.
MYCOsearch Inc.
Applied bioTechnology, Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
OSI Pharmaceuticals, Inc.
(formerly known as
Oncogene Science, Inc.)
We consent to incorporation by reference in the registration statement on Forms
S-3 (No. 333-12593 and No. 333-2451) and on Forms S-8 (No. 333-06861, No.
33-64713, No. 33-60182, No. 33-38443, No. 33-8980 and No. 333-39509) of OSI
Pharmaceuticals, Inc. (formerly known as Oncogene Science, Inc.) of our report
dated December 5, 1997, relating to the consolidated balance sheets of OSI
Pharmaceuticals, Inc. (formerly known as Oncogene Science, Inc.) and
subsidiaries as of September 30, 1997 and 1996, 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, 1997, which reports appear
in the September 30, 1997 annual report on Form 10-K of OSI Pharmaceuticals,
Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
December 22, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 8,636,634
<SECURITIES> 23,198,035
<RECEIVABLES> 1,303,646
<ALLOWANCES> 87,974
<INVENTORY> 0
<CURRENT-ASSETS> 34,526,032
<PP&E> 18,128,476
<DEPRECIATION> 10,376,190
<TOTAL-ASSETS> 59,585,565
<CURRENT-LIABILITIES> 4,913,416
<BONDS> 0
0
0
<COMMON> 222,622
<OTHER-SE> 52,722,246
<TOTAL-LIABILITY-AND-EQUITY> 59,585,565
<SALES> 1,408,918
<TOTAL-REVENUES> 14,777,323
<CGS> 635,768
<TOTAL-COSTS> 26,417,398
<OTHER-EXPENSES> 38,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,119
<INCOME-PRETAX> (9,586,237)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<PAGE> 1
EXHIBIT 99
CAUTIONARY FACTORS FOR CONSIDERATION IN
CONNECTION WITH FORWARD LOOKING STATEMENTS
The following risks and uncertainties, among others, could cause OSI
Pharmaceuticals, Inc.'s (the "Company's" or "OSI's") actual results to differ
materially from those described in forward looking statements made in this
report or presented elsewhere by management from time to time:
UNCERTAINTIES RELATED TO CLINICAL TRIALS
The Company has limited experience in conducting clinical trials and
intends to rely primarily on the pharmaceutical companies with which it
collaborates, including Novartis Pharma AG ("Novartis"), Pfizer Inc. ("Pfizer"),
Hoechst Marion Roussel, Inc. ("HMRI"), BioChem Pharma (International) Inc.
("BioChem Pharma"), Sankyo Company, Ltd. ("Sankyo"), and Sepracor, Inc.
("Sepracor") for clinical development and regulatory approval of its product
candidates. Before obtaining regulatory approvals for the commercial sale of its
products, the Company or its collaborative partners will be required to
demonstrate through pre-clinical studies and clinical trials that the proposed
products are safe and effective for use in each target indication. The results
from pre-clinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that the clinical trials conducted by the Company or its partners will
demonstrate sufficient safety and efficacy to obtain the required regulatory
approvals or will result in marketable products. In addition, clinical trials
are often conducted with patients having the most advanced stages of disease.
During the course of treatment, these patients can die or suffer other adverse
medical effects for reasons that may not be related to the pharmaceutical agent
being tested, but which can nevertheless affect clinical trial results. Various
companies in the pharmaceutical industry have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials. In
addition, clinical trials for the product candidates being developed by the
Company and its collaborators may be delayed by many factors. Any delays in, or
termination of, the clinical trials of any of the Company's product candidates
would have a material adverse effect on the Company's business, financial
condition and results of operations.
In the Company's small molecule drug discovery operations, only one
product candidate has entered clinical trials. Furthermore, none of the
compounds discovered using the Company's small molecule discovery technology
have not yet been proven safe or effective in humans. Moreover, the Company's
drug discovery assays are focused on several target genes, the functions of
which have not yet been fully elucidated. As such, the safety and efficacy of
drugs that alter the transcription of these genes have not yet been established.
No assurance can be given that any lead small molecule compounds or diagnostic
product candidates emerging from the Company's discovery and development
operations will successfully complete clinical trials or receive marketing
approval from the U.S. Food and Drug Administration ("FDA") or any foreign
regulatory authorities on a timely basis or at all.
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company does not intend to conduct late-stage clinical trials or
manufacturing or marketing activities with respect to any of its product
candidates in the foreseeable future. The Company has collaborations with
Novartis, Pfizer, HMRI, Sankyo, Sepracor, and BioChem Pharma for the development
of potential drug candidates, and to date, its most advanced programs are in
TGF-Beta3 with Novartis for wound healing and oral mucositis and an oncogene
inhibitor with Pfizer for the treatment of certain cancers. The Company is
dependent on the pharmaceutical companies with which it collaborates for the
pre-clinical testing, clinical development, regulatory approval, manufacturing
and marketing of its products. The Company's collaborative agreements allow its
collaborative partners significant discretion in electing to pursue or not to
pursue any of these activities. The Company cannot control the amount and timing
of resources its collaborative partners devote to the Company's programs or
potential products. If any of the Company's collaborative partners were to
breach or terminate its agreements with the Company or otherwise fail to conduct
its collaborative activities successfully in a timely manner, the pre-clinical
or clinical development or commercialization of product candidates or research
programs would be delayed or terminated. Any such delay or termination could
have a material adverse effect on the Company's business, financial condition
and results of operations.
<PAGE> 2
The Company has a collaborative research agreement with Novartis
relating to the clinical development, manufacturing and marketing of the
Company's recombinant protein TGF-Beta3 for various indications. Under this
agreement, Novartis has the right to manufacture TGF-Beta3 for clinical
development and commercial purposes for all indications. The Company and other
potential licensees of TGF-Beta3 are, and will be, dependent on Novartis as the
sole manufacturer of TGF-Beta3. No assurance can be given that Novartis will
supply TGF-Beta3 to the Company and its licensees as needed. In addition, a
substantial milestone payment to the Company by Novartis under this
collaboration is dependent on Novartis accomplishing certain clinical
development objectives, over which the Company has no control. Failure of
Novartis to complete clinical development and obtain regulatory approval for
TGF-Beta3 in one or more indications could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company relies on its collaborative partners to provide funding in
support of its research operations. As of September 30, 1997, the Company had
received or accrued an aggregate of $81.2 million in research funding and
milestone payments from its collaborative partners. The Company would be
required to devote additional internal resources to product development, or
scale back or terminate certain development programs or seek alternative
collaborative partners, if funding from one or more of its collaborative
programs were reduced or terminated.
Although the Company has worked to expand its proprietary compound
libraries (through acquisition of the fungi collection of MYCOsearch, Inc. and
the licensing of The Dow Chemical Company's library of approximately 140,000
small molecule compounds), the Company still owns or controls the rights to only
a relatively small number of the compounds that it tests in its drug discovery
operations. The Company is dependent on access to the compound libraries of its
collaborative partners and others in order to enhance the value of its drug
discovery platforms. Failure by the Company to gain access to the compound
libraries of its collaborative partners and others would restrict its ability to
exploit fully its high throughput screening capabilities and would have a
material adverse effect on its business, financial condition and results of
operations.
Disputes may arise in the future with respect to the ownership of
rights to any technology developed with third parties. These and other possible
disagreements between collaborators and the Company could lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in litigation or arbitration, which would
be time-consuming and expensive, and would have a material adverse effect on the
Company's business, financial condition and results of operations.
Generally, in its collaborative research agreements, the Company agrees
not to conduct independently, or with any third party, any research that is
competitive with the research conducted under its collaborative programs. The
Company's collaborative relationships may have the effect of limiting the areas
of research the Company may pursue. For example, under its collaborative
research agreements with its partners, the Company is prohibited during the term
of the agreements from pursuing or sponsoring research aimed at the discovery of
drugs which are the subject of the collaborations. However, the Company's
collaborative partners may develop, either alone or with others, products that
are similar to or competitive with the products or potential products that are
the subject of the Company's collaborations with such partners. Competing
products, either developed by the collaborative partners or to which the
collaborative partners have rights, may result in their withdrawal of support
for the Company's product candidates, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
All of the Company's collaborative programs with pharmaceutical
companies have terms of six or fewer years, which is generally less than the
period required for the discovery, clinical development and commercialization of
most drugs. The continuation of any of the Company's drug discovery and
development programs is dependent on the periodic renewal of the relevant
collaborative partnership. Furthermore, all of the Company's collaborative
research agreements are subject to termination under various circumstances.
Certain of the Company's collaborative research agreements provide that, upon
expiration of a specified period after commencement of the agreement, its
collaborative partners have the right to terminate the agreement on short notice
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without cause. The termination or nonrenewal of any collaborative relationship
could have a material adverse effect on the Company's business, financial
condition and results of operations.
There have been a significant number of consolidations among large
pharmaceutical and diagnostic companies. Such consolidations among these
companies with which the Company is engaged in collaborative research can result
in the diminution or termination of, or delays in, one or more of the Company's
collaborative programs. For example, in 1995, the pharmaceutical operations of
three companies with which the Company had collaborative research agreements,
Hoechst AG ("Hoechst"), Hoechst Roussel Pharmaceuticals, Inc. ("Hoechst
Roussel") and Marion Merrell Dow Inc. ("MMDI") were combined in one entity,
HMRI. This combination resulted in delays in the Company's collaborative
programs with each of the constituent companies and a reduction in the aggregate
funding received by the Company.
The Company's strategy for the discovery, development, clinical
testing, manufacturing and marketing of certain of its potential products
includes establishing additional collaborations. There can be no assurance that
the Company will be able to negotiate such collaborative arrangements on
acceptable terms, if at all, or that such collaborations will be successful.
UNCERTAINTIES RELATED TO THE EARLY STAGE OF DEVELOPMENT;
TECHNOLOGICAL UNCERTAINTIES
To date, the Company has generated no revenue from the sale of
pharmaceutical products. Except for CP-358,774, with respect to which Pfizer is
conducting Phase I safety and toxicity studies, all of the lead compounds in the
Company's small molecule drug discovery programs are either in the discovery or
the pre-clinical evaluation phase. TGF-Beta3, which is the Company's product
candidate most advanced in clinical development, remains subject to further
clinical evaluation. The Company has commercialized one diagnostic product,
which to date has not generated significant sales and is not expected to
generate significant sales in the future. Any products resulting from the
Company's development programs are not expected to be commercially available for
several years, if at all.
All of the Company's potential products will require significant
research and development and are subject to significant risks. Potential
products that appear to be promising at early stages of development may not
reach the market for a number of reasons. Potential products may be found
ineffective or cause harmful side effects during pre-clinical testing or
clinical trials, fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical to produce, fail to achieve market
acceptance or be precluded from commercialization by proprietary rights of third
parties. There can be no assurance that the Company's or its collaborative
partners' product development efforts will be successfully completed, that
required regulatory approvals will be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
The Company's live-cell assays are novel as a drug discovery method and
have not yet been shown to be successful in the development of any
commercialized drug. Furthermore, the Company's drug discovery assays are
focused on several target genes and other molecular targets, the functions of
which have not yet been fully elucidated. There can be no assurance that the
Company's live-cell assay technology will result in lead compounds that will be
safe and efficacious. Development of new pharmaceutical products is highly
uncertain, and no assurance can be given that the Company's drug discovery
technology will result in any commercially successful products.
UNCERTAINTY OF FUTURE PROFITABILITY
OSI has had net operating losses since its inception in 1983. At
September 30, 1997, the Company's accumulated deficit was approximately $45.7
million. The Company's losses have resulted principally from costs incurred in
research and development, and from general and administrative costs associated
with the Company's operations. These costs have exceeded the Company's revenues,
which to date have been generated principally from collaborative research
agreements. OSI expects to incur substantial additional operating expenses over
the next several years as a result of increases in its expenses for research and
development, including enhancements in its drug discovery technologies, and with
respect to its internal proprietary projects and co-ventures with pharmaceutical
companies. If the Company does not obtain additional third party funding for
such expenses, the
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Company expects that such expenses will result in increased losses from
operations. OSI does not expect to generate revenues from the sale of its small
molecule products for several years. The Company currently has limited sales of
only one diagnostic product. The Company's future profitability depends, in
part, on its collaborative partners obtaining regulatory approval for products
derived from its collaborative research efforts, the Company's collaborative
partners successfully producing and marketing products derived from technology
or rights licensed from the Company, and the Company's entering into agreements
for the development, commercialization, manufacture and marketing of any
products derived from the Company's internal proprietary programs. There can be
no assurance that the Company or its collaborative partners will obtain required
regulatory approvals, or successfully develop, commercialize, manufacture and
market product candidates or that the Company will ever achieve product revenues
or profitability.
NEED FOR ADDITIONAL FUNDING, UNCERTAINTY OF ACCESS TO CAPITAL
The Company will require substantial additional funding in order to
continue its research, product development, pre-clinical testing and clinical
trials of its product candidates. The Company's co-ventures with pharmaceutical
companies, internal proprietary programs and operations will require a
significant amount of funding that will not be provided by the Company's
existing collaborative partners. The Company's strategy includes, in addition to
its funded collaborations, (i) forming co-ventures with pharmaceutical companies
and (ii) developing product candidates in its internal proprietary programs
through early stage clinical development, before forming collaborations for the
further development of such product candidates. These activities will require
investment of significant funds by the Company. No assurance can be given that
the Company will have adequate resources to support such existing and future
activities or that the Company will be able to enter into collaborative
arrangements on acceptable terms, if at all.
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the size and complexity of these programs, progress with pre-clinical
testing and early stage clinical trials, the time and costs involved in
obtaining regulatory approvals for its product candidates, the costs involved in
filing, prosecuting and enforcing patent claims, competing technological and
market developments, the establishment of additional collaborative arrangements,
the cost of manufacturing arrangements, commercialization activities, and the
cost of product in-licensing and strategic acquisitions, if any. The Company
evaluates on an ongoing basis potential collaborative arrangements with third
parties and acquisitions of companies or technologies that may complement its
business.
The Company intends to seek additional funding through arrangements
with corporate collaborators and through public or private sales of the
Company's securities, including equity securities. There can be no assurance,
however, that additional funding will be available on reasonable terms, if at
all. Any additional equity financings would be dilutive to the Company's
stockholders. If adequate funds are not available, the Company may be required
to curtail significantly one or more of its research and development programs or
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies or
product candidates, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Generally, the Company's funding pursuant to any particular
collaborative research agreement is subject to reduction or termination under
various circumstances. 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.
There can be no assurance that the Company's cash reserves and other liquid
assets, including the net proceeds of this offering and funding that may be
received from the Company's collaborative partners and interest income earned
thereon, will be adequate to satisfy its capital and operating requirements for
the foreseeable future.
NO ASSURANCE OF PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY
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The Company's success will depend in part on its ability or the ability
of its collaborative partners to obtain patent protection for product
candidates, to maintain trade secret protection and operate without infringing
on the proprietary rights of third parties.
The Company is aware of several U.S. and foreign patents owned by
others who may allege infringement by TGF-Beta3, which the Company is seeking to
develop in collaboration within Novartis. Genentech, Inc. has U.S. patents
relating to certain recombinant materials and procedures for producing members
of the TGF-Beta family, including TGF-Beta3. In addition, the Company believes
that Genentech, Inc. has license rights under a U.S. Government patent relating
to work done at the National Institute of Health of the U.S. Department of
Health and Human Services involving the identification and isolation of
TGF-Beta1. Furthermore, Celtrix Pharmaceuticals, Inc. ("Celtrix") has been
granted a European patent relating to TGF-Beta2. There can be no assurance that
the activities or products of the Company or its collaborative partners do not
or will not infringe the claims of these or other issued patents held by third
parties or any other patent issued in the future. Furthermore, there can be no
assurance that any license required under any such patents would be made
available or, if available, would be available on acceptable terms. Failure to
obtain patent protection or a required license could prevent the Company and
Novartis from commercializing TGF-Beta3 products. The inability of the Company
and Novartis to commercialize TGF-Beta3 products could have a material adverse
effect on the Company's business, financial condition and results of operations.
In the cancer diagnostics area, the Company has an issued U.S. patent
and a granted European patent relating to an assay which the Company in
collaboration with Bayer, is seeking to develop for the detection of a protein
encoded by the neu oncogene ("neu") in serum. The U.S. Patent Office has
declared an interference between the Company's issued U.S. Patent and a pending
patent application owned by Chiron Diagnostics Inc. ("Chiron"). In addition,
Chiron has filed an opposition against the corresponding granted European
patent. These legal proceedings, if not settled, could result in substantial
legal expenses being incurred by the Company. Also, the Company cannot predict
whether it would prevail in these proceedings. If the Company does not prevail,
it may not be able to commercialize its assay for neu in serum without a license
from Chiron, which may not be available on acceptable terms or at all.
The patent positions of pharmaceutical, biopharmaceutical and
biotechnology companies, including OSI, are generally uncertain and involve
complex legal and factual questions. There can be no assurance that any of the
Company's pending patent applications will be approved, that the Company will
develop additional proprietary technologies that are patentable, that any
patents issued to the Company or its licensors will provide a basis for
commercially viable products or will provide the Company with any competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the ability of the Company to do
business. In addition, patent law relating to the scope of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights, therefore, is uncertain.
Furthermore, there can be no assurance that others will not independently
develop similar or alternative technologies, duplicate any of the Company's
technologies, or, if patents are issued to the Company, design around the
patented technologies developed by the Company. In addition, the Company could
incur substantial costs in litigation if it is required to defend itself in
patent suits brought by third parties or if it initiates such suits.
The extent to which efforts by other researchers have resulted or will
result in patents and the extent to which the issuance of patents to others
would have a material adverse effect on the Company or would force the Company
or its collaborative partners or other licensees to obtain licenses from others,
if available, is currently unknown. Generally, the Company's royalties on any
commercialized products could be reduced by up to 50% if its licensees or
collaborative partners are required to obtain such licenses. There can be no
assurance that the Company's products, operations or technology will not
infringe upon the rights of any third party.
The Company relies on trade secrets to protect technology where patent
protection is not believed to be appropriate or obtainable. The Company has
entered, and will continue to enter, into confidentiality agreements with its
employees, consultants, licensors and collaborative partners. There can be no
assurance, however, that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
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gain access to the Company's trade secrets, that such obligations of
confidentiality will be honored or that the Company will be able to effectively
protect its rights to proprietary information.
COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
The pharmaceutical, biotechnology and diagnostics industries are
intensely competitive, and the Company faces, and will continue to face, intense
competition from organizations such as large pharmaceutical companies,
diagnostic companies, biotechnology companies, academic and research
institutions and government agencies. The Company is subject to significant
competition from industry participants who are pursuing the same or similar
technologies as those which constitute the Company's technology platform and
from organizations that are pursuing pharmaceutical products or therapies or
diagnostic products that are competitive with the Company's potential products.
Most of the organizations competing with the Company have greater capital
resources, research and development staffs 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 Smith Kline Beecham, that have extensive drug
discovery efforts and are developing novel small molecule pharmaceuticals, as
well as numerous smaller companies.
The Company's technology platform consists principally of utilizing
genetically engineered live cells, gene transcription technologies and high
throughput drug screening. Pharmaceutical and biotechnology companies and others
are active in all of these areas, and there can be no assurance that other
organizations will not acquire or develop technology superior to that of the
Company. Ligand Pharmaceuticals Inc. and Aurora Biosciences, Inc., publicly
owned companies, employ live-cell assays, gene transcription, and high
throughput robotics in their 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.
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 either that
are more effective than those that may be developed by the Company and its
collaborators or that are marketed prior to any products developed by the
Company or its collaborators.
With respect to its efforts to develop TGF-Beta3 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 and in July 1997, an FDA advisory panel recommended
approval. Fibroblast growth factor ("FGF") for chronic dermal ulcers, under
development by Scios Nova Inc. and Kaken Pharmaceutical Co., Ltd., is in Phase
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III clinical trials in Japan. TGF-Beta2 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 Novartis will
successfully develop TGF-Beta3 for any indication, including wound healing.
Furthermore, if any of the competing growth factor product candidates listed
above or other growth factors prove to be effective for wound healing
indications, there can be no assurance that any TGF-Beta3 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.
Organogenesis, Inc. presently has an application for Apligraft(TM), a treatment
for wounds after autografting, pending premarket approval. No assurance can be
given that TGF-Beta3 will prove to be safe and effective or will compete
successfully against current and emerging therapies for any particular clinical
indication.
The Company will, for the foreseeable future, rely on its collaborative
partners for pre-clinical evaluation and clinical development of its potential
products and manufacturing and marketing of any products. In addition, the
Company relies on its collaborative partners for support in its drug discovery
operations. It is likely that all of the pharmaceutical companies with which the
Company has collaborations are conducting multiple product development efforts
within each disease area. Generally, the Company's collaborative research
agreements do not restrict a party from pursuing competing internal development
efforts based on reasonable commercial judgment and other factors. Any product
candidate of the Company, therefore, may be subject to competition with a
potential product under development by the pharmaceutical company with which the
Company is collaborating in connection with such product candidate.
Biotechnology and related pharmaceutical technology have undergone
rapid and significant change. The Company expects the technology associated with
the Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with developing such products.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing by a collaborative partner, any new drug discovered
by the Company must undergo an extensive regulatory approval process in the U.S.
and other countries. This regulatory process, which includes pre-clinical
testing and clinical trials, and may include post-marketing surveillance, of
each compound to establish its safety and efficacy, can take many years and
require the expenditure of substantial resources. Data obtained from
pre-clinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. In addition, delays or
rejections may be encountered based upon changes in FDA policies for drug
approval during the period of product development and FDA regulatory review of
each submitted new drug application ("NDA") in the case of new pharmaceutical
agents, or PLA in the case of a biologic, such as the Company's TGF-Beta3
product candidate. Similar delays may also be encountered in the regulatory
approval of any diagnostic product. Such delays may also be encountered in
obtaining regulatory approval in foreign countries. There can be no assurance
that regulatory approval will be obtained for any drugs discovered, or
diagnostic products developed, by the Company. Furthermore, regulatory approval
may entail limitations on the indicated use of the drug.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product of the Company or its manufacturer may have adverse
effects on the Company's business, financial condition and results of
operations, including withdrawal of
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the product from the market. Violations of regulatory requirements at any stage,
including pre-clinical testing and clinical trials, the approval process or
post-approval, may result in various adverse consequences to the Company,
including the FDA's delay in approving or its refusal to approve a product,
withdrawal of an approved product from the market and the imposition of criminal
penalties against the manufacturer and NDA holder. Although Pfizer submitted an
Investigational New Drug application ("IND") to the FDA with respect to the EGFR
inhibitor CP-358,774, the Company has not submitted an IND for any product
candidate, and no product candidate has been approved for commercialization in
the United States or elsewhere. The Company intends to file INDs for product
candidates in its internal proprietary programs, but to rely on its partners to
file INDs in its collaborative programs. No assurance can be given that the
Company or any of its collaborative partners will be able to conduct clinical
testing or obtain the necessary approvals from the FDA or other regulatory
authorities for any products. Failure to obtain required governmental approvals
will delay or preclude the Company's partners from marketing drugs discovered,
or diagnostic products developed, by the Company or limit the commercial use of
such products and will have a material adverse effect on the Company's business,
financial condition and results of operations.
NO MANUFACTURING CAPACITY, RELIANCE ON THIRD-PARTY MANUFACTURING
The Company does not intend to develop or acquire facilities for the
manufacture of drug candidates or diagnostic products for clinical trials or
commercial purposes, and has been, and will remain, dependent on its
collaborative partners or third parties for the manufacture of product
candidates for pre-clinical, clinical and commercial purposes.
The manufacture of the Company's candidate products for clinical trials
and the manufacture of resulting products for commercial purposes is subject to
current Good Manufacturing Practices ("GMP") regulations promulgated by the FDA.
The Company will rely on collaborative partners or outside contractors to
manufacture its products in their FDA approved manufacturing facilities. The
Company's products may be in competition with other products for priority of
access to these facilities. Consequently, the Company's products may be subject
to delays in manufacture, if collaborative partners or outside contractors give
other products greater priority than the Company's products. For this and other
reasons, there can be no assurance that the Company's collaborative partners
will manufacture such products in an effective or timely manner. If not
performed in a timely manner, the clinical trial development of the Company's
product candidates or their submission for regulatory approval could be delayed
and the Company's ability to deliver products on a timely basis could be
impaired or precluded. There can be no assurance that the Company will be able
to enter into any necessary third party manufacturing arrangements on acceptable
terms if at all. The Company's current dependence upon others for the
manufacture of its products may adversely affect its future profit margin, if
any, and its ability to commercialize products on a timely and competitive
basis.
UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products and diagnostic tests. Cost
control initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any drugs it may discover
or develop or diagnostic products it may develop in the future and have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, to the extent that cost control initiatives have
a material adverse effect on the Company's collaborative partners, the Company's
ability to commercialize its products and to realize royalties may be adversely
affected.
The Company's or any collaborative partner's or licensee's ability to
commercialize pharmaceutical or diagnostic products may depend in part on the
extent to which reimbursement for the products will be available from government
and health administration authorities, private health insurers and other
third-party payors.
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Significant uncertainty exists as to the reimbursement status of newly approved
health care products. Third-party payors, including Medicare, are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that any third-party insurance coverage will be available to
patients for any products discovered and developed by the Company and its
collaborative partners. Government and other third-party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels are not provided by government and other third-party payors
for the Company's products, the market acceptance of these products would be
adversely affected, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITY
The use of any of the Company's potential products in clinical trials
and the sale of any approved products may expose the Company to liability claims
resulting from the use of products or product candidates. These claims might be
made directly by consumers, pharmaceutical companies, including the Company's
collaborative partners or others. The Company is currently an additional named
insured under a clinical trials liability insurance policy carried by Novartis
with respect to its TGF-Beta3 clinical trials in the amount of $3 million. The
Company does not independently maintain product liability insurance coverage for
claims arising from the use of its products in clinical trials. Insurance
coverage is becoming increasingly expensive, and no assurance can be given that
the Company will continue to be a named insured with respect to trials underway
or obtain insurance in the future at a reasonable cost or in sufficient amounts
to protect the Company. The Company's inability to obtain adequate liability
insurance could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to obtain commercially reasonable product liability
insurance for any product approved for marketing in the future or that insurance
coverage and the resources of the Company would be sufficient to satisfy any
liability resulting from product liability claims. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on its business, financial condition and results of
operations.
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