<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998 .
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 Boulevard, Uniondale, New York 11553
(Address of principal executive offices) (Zip Code)
516-222-0023
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report.)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 31, 1999 the registrant had outstanding 21,420,333 shares of common
stock, $.01 par value.
<PAGE> 2
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION................................................................................ 3
Item 1. Financial Statements
Consolidated Balance Sheets
- December 31, 1998 and September 30, 1998...................................................... 3
Consolidated Statements of Operations
- Three months ended December 31, 1998 and 1997................................................. 4
Consolidated Statements of Cash Flows
- Three months ended December 31, 1998 and 1997................................................. 5
Notes to Consolidated Financial Statements...................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................... 11
PART II - OTHER INFORMATION................................................................................... 13
Item 1. Legal Proceedings............................................................................... 13
Item 2. Changes in Securities........................................................................... 13
Item 3. Defaults Upon Senior Securities................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............................................. 13
Item 5. Other Information............................................................................... 13
Item 6. Exhibits and Reports on Form 8-K................................................................ 13
SIGNATURES.................................................................................................... 15
EXHIBIT INDEX................................................................................................. 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1998 1998
- ------ ---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,424,626 $11,315,166
Short-term investments 11,746,301 13,103,115
Receivables, including
trade receivables of $234,643 and
$258,905 at December 31, 1998 and
September 30, 1998, respectively 1,812,810 1,720,737
Interest receivable 234,621 283,908
Grants receivable 370,915 406,149
Prepaid expenses and other 725,515 788,496
----------- -----------
Total current assets 25,314,788 27,617,571
----------- -----------
Property, equipment and leasehold
improvements - net 7,743,436 7,996,555
Compound library assets - net 5,075,010 5,515,517
Loans to officers and employees 6,433 6,433
Other assets 1,548,182 1,557,903
Intangible assets - net 7,358,816 7,724,001
----------- -----------
$47,046,665 $50,417,980
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,018,485 $ 4,232,540
Unearned revenue 1,106,997 1,116,685
----------- -----------
Total current liabilities 4,125,482 5,349,225
----------- -----------
Other liabilities:
Loan payable 34,309 49,326
Deferred acquisition costs 680,947 670,916
Accrued postretirement benefits cost 1,349,267 1,289,267
----------- -----------
Total liabilities 6,190,005 7,358,734
----------- -----------
Stockholders' equity:
Common stock, $.01 par value;
50,000,000 shares authorized,
22,317,670 and 22,288,583 issued at
December 31, 1998 and September 30,
1998, respectively 223,177 222,886
Additional paid-in cap 105,067,422 104,963,082
Accumulated deficit (58,034,346) (55,842,181)
Accumulated other comprehensive
income (loss) (114,727) 325
Less: treasury stock, at cost; 897,838
shares at December 31, 1998 and
September 30, 1998 (6,284,866) (6,284,866)
------------ -------------
Total stockholders' equity 40,856,660 43,059,246
Commitments and contingencies
$ 47,046,665 $ 50,417,980
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Collaborative program revenues,
principally from related parties $ 3,992,278 $ 3,507,426
Sales 310,950 198,766
Other research revenue 300,915 480,431
Patent license fees 50,000 --
------------ ------------
4,654,143 4,186,623
------------ ------------
Expenses:
Research and development 4,478,100 4,645,542
Production and service costs 365,408 236,349
Selling, general and administrative 1,847,169 1,784,263
Amortization of intangibles 365,185 365,186
------------ ------------
7,055,862 7,031,340
------------ ------------
Loss from operations (2,401,719) (2,844,717)
Other income (expense):
Net investment income 231,318 401,237
Other expense - net (21,764) (25,250)
------------ ------------
Net loss $ (2,192,165) $ (2,468,730)
============ ============
Weighted average number of shares
of common stock outstanding 21,402,121 21,366,603
============ ============
Basic loss per weighted average share $ (.10) $ (.12)
of common stock outstanding ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,192,165) $(2,468,730)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 467,726 450,243
Amortization of library assets 440,507 450,739
Amortization of intangibles 365,186 365,186
Amortization of deferred acquisition costs 10,030 10,030
Foreign exchange (gain) loss (81,392) 34,053
Changes in assets and liabilities:
Receivables (92,073) (641,592)
Interest receivable 49,287 123,948
Grants receivable 35,234 (81,254)
Prepaid expenses and other 62,981 21,257
Other assets 9,721 (146,570)
Accounts payable and accrued expenses (1,214,055) (923,880)
Unearned revenue (9,688) 474,507
Accrued postretirement benefits cost 60,000 50,296
----------- -----------
Net cash used by operating activities $(2,088,701) $(2,281,767)
----------- -----------
Cash flows from investing activities:
Additions to short-term investments $(5,039,816) $(2,916,655)
Maturities and sales of short-term investments 6,362,970 5,153,800
Additions to library assets -- (147,235)
Additions to property, equipment
and leasehold improvements (214,607) (460,296)
----------- -----------
Net cash provided by investing activities $ 1,108,547 $ 1,629,614
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options
and employee stock purchase plan $ 104,631 $ 21,276
Net change in loans payable (15,017) (17,722)
------------ ------------
Net cash provided by financing activities $ 89,614 $ 3,554
------------ ------------
Net decrease in cash and cash equivalents $ (890,540) $ (648,599)
Cash and cash equivalents at beginning of period 11,315,166 8,636,634
------------ ------------
Cash and cash equivalents at end of period $ 10,424,626 $ 7,988,035
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of OSI
Pharmaceuticals, Inc. and its subsidiaries (the "Company") as of December 31,
1998 and September 30, 1998, its results of operations for the three months
ended December 31, 1998 and 1997 and its cash flows for the three months ended
December 31, 1998 and 1997. Certain reclassifications have been made to the
prior period financial statements to conform them to the current presentation.
It is recommended that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto in
the Company's annual report on Form 10-K for the fiscal year ended
September 30, 1998.
Results for interim periods are not necessarily indicative of results for the
entire year.
Net loss per share of common stock outstanding is based on the weighted average
number of shares outstanding. Common share equivalents (stock options) are not
included in the computation for the three months ended December 31, 1998 and
1997 since their inclusion would be anti-dilutive.
(2) Comprehensive Income (Loss)
In October 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of SFAS 130 had no impact on the Company's net loss or
stockholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income (loss).
Total comprehensive loss was ($2,307,217) and ($2,420,877) for the three months
ended December 31, 1998 and 1997, respectively.
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<PAGE> 7
The components of comprehensive loss are as follows:
<TABLE>
<CAPTION>
For the three months ended
December 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Net loss (2,192,165) (2,468,730)
Other comprehensive income (loss):
Foreign currency translation adjustments (81,392) 34,053
Unrealized holding gains (losses) arising
during period (33,660) 13,800
---------- ----------
(115,052) 47,853
---------- ----------
Total comprehensive loss (2,307,217) (2,420,877)
========== ==========
</TABLE>
The components of accumulated other comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---- ----
<S> <C> <C>
Cumulative foreign currency translation (100,147) (18,755)
Unrealized gain (loss) on short-term investments (14,580) 19,080
-------- --------
Accumulated other comprehensive income (loss) (114,727) 325
======== ========
</TABLE>
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues for the three months ended December 31, 1998 were approximately $4.7
million, an increase of $468,000 or 11%, compared to revenues of $4.2 million
for the three months ended December 31, 1997. The Company has funded research
and development alliances with Pfizer Inc. ("Pfizer"), Anaderm Research Corp.
("Anaderm"), Hoechst Marion Roussel, Inc. ("HMRI"), Sankyo Company Ltd., Bayer
Corporation ("Bayer"), and Hoffman-La Roche Inc. ("Roche"). Collaborative
research and development revenues of approximately $4.0 million increased
approximately $485,000 or 14%. This increase was largely due to increased
funding in collaborative programs with: (1) Pfizer and Anaderm for the discovery
and development of novel compounds to treat conditions such as baldness,
wrinkles and pigmentation disorders; (2) HMRI for lead discovery activities,
which focus on the Company's live-cell assay technology; and (3) Roche and
Helicon Therapeutics, Inc. (which is in a phase that is fully funded). The
increase in revenues was partially offset by the conclusion in September 1998 of
the Company's funded collaborative program with HMRI relating to the discovery
and development of orally active drugs for the treatment of chronic anemia.
Sales revenues derived from the pharmaceutical division of the Company's Aston
Molecules Ltd. subsidiary and diagnostic sales, increased approximately $112,000
or 56%. Other research revenues, representing primarily government and other
research grants, decreased approximately $180,000 or 37%. The decrease was
primarily related to the completion of the funded phase of the Company's
collaborative program with the French Muscular Dystrophy Association. License
revenues of $50,000 were related to a license issued for the right to use
certain of the Company's technology relating to research of the retinoblastoma
("Rb") gene.
EXPENSES
The Company's operating expenses increased by approximately $25,000 or less than
1% for the three months ended December 31, 1998, compared to the three months
ended December 31, 1997. Research and development expenses decreased
approximately $167,000 or 4%. The decrease was related to the completion of the
aforementioned collaborative program with HMRI. This decrease was partially
offset by increases in the HMRI program focusing on live-cell assay technology,
the Pfizer and Anaderm collaboration, and certain other of the Company's
proprietary programs.
Production and service costs increased approximately $129,000 or 55% for the
three months ended December 31, 1998. The increase was primarily related to
increases in diagnostic costs in preparation for launching the Company's new
serum based cancer diagnostic products.
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<PAGE> 9
Selling, general and administrative expenses increased approximately $63,000 or
4% for the three months ended December 31, 1998. The increase was primarily
related to the expenses associated with the Company's corporate development
activities, as well as investments in the sales and marketing resources of
Oncogene Science Diagnostic, Inc., a wholly owned subsidiary of the Company, in
preparation for launching its new serum based cancer diagnostic products.
OTHER INCOME AND EXPENSE
Investment income decreased approximately $170,000 or 42% for the three months
ended December 31, 1998, compared to the three months ended December 31, 1997.
The decrease relates to the decrease in the principal balance of cash invested.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, working capital (representing primarily cash, cash
equivalents and short-term investments) aggregated approximately $21.2 million.
The Company is dependent upon revenues derived principally from collaborative
research development alliances, 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 operating within its current business plan even if no
milestone or royalty payments 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 or royalty payments, and the time and expense
required to obtain governmental approval of products, some of which factors are
beyond the Company's control.
The Company's strategic objective is to manage its financial resources to
support the growth of its drug discovery and development programs by balancing
its proprietary efforts with its funded collaborations. In pursuing this
objective, the Company has expanded the scope of its discovery and development
activities while controlling its 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 and pursue
internal proprietary drug discovery programs. There can be no assurance that
scheduled payments will be made by third parties, that current agreements will
not be 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
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<PAGE> 10
material adverse effect on the Company's business, financial condition and
results of operations.
YEAR 2000 COMPLIANCE
The Company is aware of the challenges associated with the inability of certain
systems to properly format information after December 31, 1999 (the "Year 2000
problem"). The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define an applicable year. The
Company is currently working to resolve the potential impact of the Year 2000
problem on the processing of date-sensitive information by the Company's
computerized information systems. Substantially all of the Company's biology and
chemistry databases are stored on Oracle tables and ISIS chemical structure
databases, which are Year 2000 compliant, as are its Novell network servers. The
Company has essentially completed the conversion of its financial records to an
Oracle based system which is Year 2000 compliant. The Company expects this
system to be operational by the quarter ended March 31, 1999. The Company does
not anticipate any material disruption in its operations as the result
of any failure of its internal Year 2000 compliance. Based on current
information, the cost of addressing remaining potential Year 2000 problems
associated with the Company's internal systems and operations are not expected
to have a material adverse impact to the Company's financial position, results
of operations, or cash flows in future periods.
The Company has not conducted an evaluation of the extent to which the
operations of the material third parties with whom it regularly deals may be
disrupted by any Year 2000 non-compliance of any of their systems. These third
parties include the Company's collaborative partners and its suppliers and
vendors. Disruption of the operations of any of its partners could delay or halt
important research and development programs, cause the loss of data, or have
other unforeseen consequences. The Company is currently planning to contact all
significant collaborators, suppliers, vendors and financial institutions in
order to identify potential areas of concern. It is anticipated that this
inquiry will be completed during the second quarter of fiscal 1999. Year 2000
problems experienced by the Company's suppliers and vendors could cause a
disruption of the Company's operations. The Company currently is unable to
estimate the likelihood of any of these risks being realized, or if realized,
the impact they may have on the Company. Any such occurrence could have a
material adverse effect on the Company's business, financial condition and
results of operations.
If necessary, the Company intends to create a remediation and contingency plan
to identify and document potential business disruptions and continuity planning
procedures. The focus of this activity would be on potential failures of
external systems required to carry out normal business operations including
services provided by the public infrastructure such as, but not limited to,
power, electric, transportation and telecommunications. The Company expects this
activity to be an on-going process throughout fiscal 1999.
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<PAGE> 11
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for all quarters of
fiscal year beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In
accordance with SFAS 133, an entity is required to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gain and losses to offset related results on the hedged
item in the income statement and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company does not believe that the implementation of SFAS 133
will have a material effect on its results of operations and financial position.
FORWARD LOOKING STATEMENTS
Certain of the matters and subject areas discussed in this report that are not
statements of current or historical fact are "forward-looking statements" that
convey information about potential future circumstances and developments. These
forward-looking statements are necessarily based on various assumptions, involve
known and unknown risks and generally are subject to the inherent risks and
uncertainties surrounding expectations regarding future occurrences. As a
result, the Company's actual future experience may differ materially from the
results, achievements or performance described or implied in such statements.
Factors that might cause the Company's actual future experience to differ
materially from the forward-looking statements include, but are not limited to,
(i) the Company's absence of commercialized drug products, (ii) the Company's
dependence on third parties for clinical development and commercialization of
potential products, (iii) the potential failure of the Company's lead compound
currently in clinical trials to progress successfully through clinical
development, (iv) the potential failure of any drug candidates that emerge from
the Company's discovery operations to progress successfully to or through
clinical development, (v) competition, (vi) government regulation, (vii)
pharmaceutical pricing and (viii) the effect of any internal or external Year
2000 problems. Certain of these and additional factors that may cause the
Company's actual future experience to differ materially from the forward-looking
statements contained in this report are discussed in the Company's annual report
on Form 10-K for the fiscal year ended September 30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash flow and earnings are subject to fluctuations due to changes
in interest rates in its investment portfolio of debt securities, to the fair
value of equity instruments held, and, to an immaterial extent, to foreign
currency exchange rates. The Company maintains an investment portfolio of
various issuers, types and maturities. These securities are generally classified
as
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<PAGE> 12
available-for-sale and, consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a separate component of
stockholders' equity. The Company's investments in certain biotechnology
companies are carried on either the equity method of accounting or at cost for
equity securities that do not have readily determinable fair values.
Other-than-temporary losses are recorded against earnings in the same period the
loss was deemed to have occurred. The Company does not currently hedge this
exposure and there can be no assurance that other-than-temporary losses will not
have a material adverse impact on the Company's results of operations in the
future.
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<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On January 6, 1999, the Board of Directors of the Company adopted
certain amendments to the Company's By-Laws. The By-Law amendments (1) provide
exclusive authority to the Board of Directors to call a special meeting of
stockholders of the Company (see Article I, Section 1.2 of the Amended and
Restated By-Laws), and (2) create advance notice requirements and procedures for
the submission by stockholders of nominations for the Board of Directors and
stockholder proposals (see Article I, Section 1.8 of the Amended and Restated
By-Laws). The full text of the Amended and Restated By-Laws is attached as
Exhibit 99.1 to the Company's current report on Form 8-K filed on January 8,
1999 and incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Certificate of Incorporation, as amended (1)
3.2 Amended and Restated By-Laws (2)
10.1 Consulting Agreement, dated as of October 1, 1998,
between the Company and Gary E. Frashier
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<PAGE> 14
27 Financial Data Schedule
------------------------
(1) Included as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended December
31, 1997, filed on February 17, 1998, and
incorporated herein by reference.
(2) Included as an exhibit to the Company's current
report on Form 8-K, filed on January 8, 1999, and
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
The Company did not file current reports on Form 8-K during
the quarter ended December 31, 1998.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OSI PHARMACEUTICALS, INC.
----------------------------------------------
(Registrant)
Date: February 12, 1999 /s/ Colin Goddard, Ph.D.
----------------------------------------------
Colin Goddard, Ph.D.
President and Chief Executive Officer
Date: February 12, 1999 /s/ Robert L. Van Nostrand
---------------------------------------------
Robert L. Van Nostrand
Vice President and Chief Financial Officer
(Principal Financial Officer)
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<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation, as amended (1)
3.2 Amended and Restated By-Laws (2)
10.1 Consulting Agreement, dated as of October 1, 1998, between the
Company and Gary E. Frashier
27 Financial Data Schedule
-------------------------
(1) Included as an exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1997, filed on
February 17, 1998, and incorporated herein by reference.
(2) Included as an exhibit to the Company's current report on Form
8-K, filed on January 8, 1999, and incorporated herein by
reference.
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<PAGE> 1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") dated as of October 1,
1998, is made and entered into by and between OSI PHARMACEUTICALS, INC., a
Delaware corporation (the "Company"), and GARY E. FRASHIER (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Consultant has served as a director and Chief
Executive Officer of the Company since 1990 and was elected Chairman of the
Board in December, 1997;
WHEREAS, pursuant to the Company's plan of senior management
succession, the Consultant has today retired as Chief Executive Officer and will
continue to serve as Chairman of the Board;
WHEREAS, the Company has derived great value from the
Consultant's services as Chief Executive Officer, and the Company desires to
obtain consulting services from the Consultant in furtherance of the Company's
interests in addition to the services which the Consultant will continue to
provide as Chairman of the Board; and
WHEREAS, the Consultant desires to provide consulting
services to the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises hereinafter set forth, the parties, intending to be legally
bound, hereby agree as follows:
1. ENGAGEMENT. The company hereby retains the Consultant and the
Consultant hereby agrees to provide consulting services to the Company upon the
terms and conditions set forth herein.
2. COMPENSATION.
(a) The Company shall pay to the Consultant a fee at the rate
of $295,400 per year for the period commencing October 1, 1998, and ending
December 31, 1998, and at the rate of $140,000 per year for the period
commencing January 1, 1999, and ending December 31, 1999, payable in monthly
installments on the first day of each month commencing October 1, 1998.
(b) Commencing January 1, 1999, the Consultant shall be
entitled to receive all compensation payable to outside directors in addition to
the compensation provided in this Section 2. Although in accordance with
policies adopted by the Company's Compensation Committee of the Board of
Directors, the Consultant will not be entitled to receive automatic grants of
options to purchase the Company's Common Stock pursuant to the Company's
<PAGE> 2
"formula plan" for outside directors, the Consultant will be eligible for
special grants of stock options from time to time as determined in the sole
discretion of the Compensation Committee.
(c) The Company shall provide the Consultant with the use of
an automobile and shall reimburse the Consultant for his reasonable and
necessary expenses in connection with the use of such vehicle in furtherance of
the business of the Company, provided that the Consultant properly accounts for
such expenses in accordance with Company policy.
(d) The Company shall provide the Consultant with the use of
an office and secretarial support at the Company's headquarters in Uniondale,
New York.
(e) The compensation and benefits expressly provided in this
Section 2 shall constitute the totality of compensation and benefits to which
the Consultant shall be entitled; provided that the Consultant shall be entitled
to be reimbursed for any expenses reasonably incurred by him in connection with
the performance of services under this Agreement pursuant to the Company's
regular established procedures for this purpose.
(f) The compensation and benefits provided in this Section 2
shall continue in effect through December 31, 1999. No later than September 30,
1999 (and each September 30 thereafter if this Agreement continues in accordance
with Section 4), the Company's Compensation Committee will determine the
compensation and benefits to be provided to the Consultant for the following
year.
3. CONSULTING SERVICES.
(a) During the term of this Agreement, the Consultant shall
perform such consulting services within his competence and expertise as shall be
reasonably requested by the Company. The Consultant commits to devote
approximately one-half of his working time to such consulting services.
(b) During the term of this Agreement, the Consultant shall
not, without the prior written consent of the Company, provide consulting
services for or to any other person or entity engaged in the same business as
the Company.
4. TERM. The term of this agreement will commence on October 1, 1998,
and shall continue until December 31, 1999. This agreement shall automatically
be extended for one or more additional one-year terms unless written notice of
termination is provided by either party to the other at least sixty (60) days
prior to the end of the then current term of this Agreement.
2
<PAGE> 3
5. CONFIDENTIAL AND PROPRIETARY INFORMATION.
(a) All information concerning the Company (whether written or
oral) disclosed in connection with this Agreement shall be received and retained
by the Consultant as strictly confidential. Notwithstanding the foregoing, there
shall be no obligation to retain as confidential information which (i) is in the
public domain at the time of receipt or comes into the public domain without
breach of this Section; (ii) can be shown to have been known by the Consultant
prior to receipt; (iii) becomes known to the Consultant through a third source
whose own knowledge was acquired entirely independent of the Consultant; or (iv)
is approved for disclosure by the Company in writing.
(b) All business or technical information identified by the
Company or reasonably identifiable as proprietary to the Company and which the
Consultant was put in a position to discover in the conduct of his duties
hereunder shall be and remain the exclusive property of the Company at all times
and shall be returned to the Company upon its request or upon termination of
this Agreement.
(c) The Consultant hereby agrees that any and all information,
inventions and discoveries, whether or not patentable, that he conceives and/or
creates during the term of this Agreement and any extensions thereof, and which
are a direct or indirect result of work performed hereunder, shall be the sole
and exclusive property of the Company. The Consultant hereby assigns to the
Company any and all right, title and interest which he has or may acquire in the
same. The Consultant further agrees that he will promptly execute any and all
applications, assignments or other instruments which an officer of the Company
or the Board of Directors of the Company shall deem necessary or useful in order
to apply for and obtain Letters Patent in the United States and all foreign
countries for said information, inventions and discoveries and in order to
assign and convey to the Company the sole and exclusive rights, title and
interest in and to said information, inventions, discoveries, patents
applications and patents thereon. The Company will bear the cost of preparation
of all such patent applications and assignments and the cost of prosecution of
all such patent applications in the United State Patent Office and in the patent
offices of foreign countries.
(d) The Consultant acknowledges that by reason of the
uniqueness of the Company's business that the covenants set forth in this
Section are reasonable and necessary for the protection of the Company's
legitimate business interests.
(e) The Consultant hereby acknowledges that irreparable harm
will result to the Company in the event of the breach of the covenants contained
in this Section. In the event that the Consultant breaches any of the covenants
contained in this Section, the Consultant agrees that in addition to all other
remedies or damages which may be available, the Company shall be entitled to
seek and obtain both temporary and permanent restraining orders or injunctions
issued by a court in order to prevent the violation of any of the covenants made
by the Consultant pursuant to this Agreement.
3
<PAGE> 4
(f) The Consultant expressly acknowledges and agrees that the
provisions of this Section shall survive the termination of this Agreement.
6. TERMINATION. Notwithstanding anything herein contained to the
contrary, if after the date hereof and prior to the end of the term of this
Agreement, (i) either (A) the consultant shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his duties
hereunder for a period of 90 consecutive days or for an aggregate of 90 days
within any period of twelve consecutive months, (B) the Consultant shall be
convicted of a felony or other crime involving moral turpitude, (C) the
Consultant shall commit any act or omit to take any action in bad faith and to
the detriment of the Company or any subsidiary or affiliate of the Company, or
(D) the Consultant shall breach any material term of this agreement and fail to
correct such breach within 10 days after receiving notice of the same, then, and
in each such case, the Company shall have the right to give notice of
termination of the Consultant's services hereunder as of a date to be specified
in such notice (which date may be the date such notice is given), and this
Agreement shall terminate on the date so specified; or (ii) the Consultant shall
die, then this Agreement shall terminate on the date of the Consultant's death.
7. EMPLOYMENT AGREEMENT. The Employment Agreement, dated February 9,
1990, between the Company and the Consultant is hereby terminated.
8. GOVERNING LAW. The validity, enforceability and interpretation of
this Agreement shall be determined in accordance with the laws of the State of
New York.
9. RELATIONSHIP CREATED. The relationship of the Consultant and the
Company is that of independent contractors. Nothing contained in this Agreement
shall be construed to place the Company and the Consultant in a relationship as
partners, joint venturers, employer and employee or principal and agent.
10. ASSIGNMENT. The Consultant shall not assign, convey or transfer
this Agreement or any part of his rights under this Agreement without the prior
written consent of the Company. Any such assignment, conveyance or transfer
without the Company's prior written consent shall be void.
11. NOTICES.
Any notice or other communication required or permitted to be
given pursuant to the provisions of this Agreement shall be deemed to have been
sufficiently given, if in writing and either delivered against receipt or sent
by registered or certified mail, with postage prepaid, addressed as indicated
and shall be deemed sent and delivered on the third day following the deposit
thereof in the United States mail:
4
<PAGE> 5
If to the Company:
OSI Pharmaceuticals, Inc.
106 Charles Lindbergh Blvd.
Uniondale, New York 11553-3649
Attn.: Robert L. Van Nostrand,
Vice President, Finance and Administration
If to the Consultant:
Gary E. Frashier
29314 Lawrence Way
Fair Oaks Ranch, TX 78015
Either party may, by notice as aforesaid, designate a different address
or addresses for notices or other communications intended for it.
12. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, administrators,
successors and permitted assigns.
13. MISCELLANEOUS.
(a) This Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and supersedes and
cancels any and all previous contracts or agreements between the parties with
respect to the subject matter hereof. It may not be altered, amended or modified
except by written instrument duly executed by the parties hereto. This Agreement
shall become binding only after the same is signed by an officer of the Company
at its general offices.
(b) The headings contained herein are inserted for convenience
only and shall not be deemed to have any substantive meaning.
5
<PAGE> 6
(c) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
OSI PHARMACEUTICALS, INC.
By: /s/ Colin Goddard
---------------------------------------------
Name: Colin Goddard, Ph.D.
Title: President and Chief Executive Officer
/s/ Gary E. Frashier
---------------------------------------------
GARY E. FRASHIER
6
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