<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File Number 0-14587
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GENETICS INSTITUTE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2718435
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
87 CambridgePark Drive, Cambridge, MA 02140
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (617) 876-1170
-----------------------------
None
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(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
----- -----
26,769,772 shares of Common Stock, par value $.01 (including 10,769,031 shares
represented by Depositary Shares) were outstanding on November 3, 1995.
<PAGE> 2
<TABLE>
GENETICS INSTITUTE, INC.
INDEX
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<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
<S> <C>
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
-2-
<PAGE> 3
<TABLE>
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited - in thousands)
<CAPTION>
September 30, December 31,
1995 1994
-------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 48,647 $ 21,793
Marketable securities 213,218 247,970
Accounts receivable 40,363 16,127
Inventories:
Materials and supplies 5,610 4,354
Work in progress 768 776
Finished goods 12,390 13,543
-------------- ---------------
18,768 18,673
Other current assets 5,773 5,275
-------------- ---------------
Total current assets 326,769 309,838
Property, plant and equipment 173,622 158,712
Less accumulated depreciation (63,073) (53,397)
-------------- ---------------
110,549 105,315
Other assets 6,847 6,440
-------------- ---------------
$ 444,165 $ 421,593
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 9,726 $ 11,544
Accrued expenses 25,182 21,045
-------------- ---------------
Total current liabilities 34,908 32,589
Shareholders' Equity:
Common stock, par value $.01 268 266
Additional paid-in capital 600,242 595,360
Accumulated deficit (191,253) (206,622)
-------------- ---------------
Total shareholders' equity 409,257 389,004
-------------- ---------------
$ 444,165 $ 421,593
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
<TABLE>
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE
Product sales $ 14,841 $ 10,716 $ 61,350 $ 34,452
Royalties 14,733 12,554 38,692 31,893
Collaborative research and development 2,920 27,920 30,133 36,582
----------- ----------- ----------- ------------
Total revenue 32,494 51,190 130,175 102,927
OPERATING EXPENSES
Cost of sales 4,260 7,675 31,140 22,066
Research and development 31,903 26,766 90,448 79,295
General and administrative 5,318 4,924 14,786 13,710
----------- ----------- ----------- ------------
Total operating expenses 41,481 39,365 136,374 115,071
----------- ----------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS (8,987) 11,825 (6,199) (12,144)
OTHER INCOME (EXPENSE), NET
Investment income 3,950 3,578 12,633 10,662
Income (loss) of affiliates, net (2,054) (1,991) 117 (3,410)
Other, net (92) (769) (2,865) (2,059)
----------- ----------- ----------- ------------
Total other income (expense), net 1,804 818 9,885 5,193
----------- ----------- ----------- ------------
NET INCOME (LOSS) $ (7,183) $ 12,643 $ 3,686 $ (6,951)
=========== =========== =========== ============
NET INCOME (LOSS) PER COMMON SHARE
Primary $ (.27) $ .46 $ .14 $ (.26)
=========== =========== =========== ============
Fully Diluted $ (.27) $ .45 $ .13 $ (.26)
=========== =========== =========== ============
Average shares outstanding
Primary 26,745 27,551 27,225 26,401
----------- ----------- ----------- ------------
Fully Diluted 26,745 28,206 27,624 26,401
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
<TABLE>
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,686 $ (6,951)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities -
Depreciation and amortization 13,386 9,141
Equity in (income) loss of affiliates (117) 3,410
Compensation related to incentive plans 535 520
Changes in assets and liabilities (22,510) (2,174)
-------------- --------------
Net cash provided by (used in) operating
activities (5,020) 3,946
-------------- --------------
INVESTING ACTIVITIES
Purchase of marketable securities (168,619) (136,435)
Proceeds from sale/maturity of
marketable securities 215,054 157,058
Additions to property, plant and
equipment (18,183) (29,849)
Investments in affiliates (1,720) (3,410)
Other investing activities 993 (127)
-------------- --------------
Net cash provided by (used in) investing
activities 27,525 (12,763)
-------------- --------------
FINANCING ACTIVITIES
Stock issuances 4,349 5,196
Proceeds from sale-leaseback - 987
-------------- --------------
Net cash provided by financing activities 4,349 6,183
-------------- --------------
Net increase (decrease) in cash and cash
equivalents 26,854 (2,634)
Cash and cash equivalents, beginning of
period 21,793 20,869
-------------- --------------
Cash and cash equivalents, end of period $ 48,647 $ 18,235
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
Basis of Presentation: The accompanying consolidated condensed financial
statements are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation. The consolidated
condensed financial statements should be read in conjunction with the
Company's audited consolidated financial statements and related footnotes for
the year ended December 31, 1994.
The consolidated condensed financial statements include all accounts of
Genetics Institute, Inc. and its wholly-owned subsidiaries. Investments in
50% owned joint ventures are accounted for on the equity method. Under
the equity method, investments in such affiliated joint ventures are recorded
at cost and adjusted by the Company's share of the income and losses of and
the investments in and distributions from such affiliates. All significant
intercompany balances and transactions have been eliminated in consolidation.
2. Transactions with American Home Products Corporation
On September 19, 1991, the Company and American Home Products Corporation
("AHP") entered into an Agreement and Plan of Merger (the "AHP Transaction")
that was consummated on January 16, 1992 through which AHP acquired a 60%
interest in the Company. In connection with the AHP Transaction, the Company
issued 9,466,709 new shares of Common Stock to AHP for an aggregate purchase
price of approximately $300.0 million and, for shares of common stock owned,
the Company's shareholders received a combination of cash and Depositary
Shares subject to a call option. Under the terms of the call option, AHP has
the right but not the obligation, to purchase the outstanding Depositary
Shares that it does not own, in whole but not in part, at any time until
December 31, 1996, at a call price of $77.63 per share for the period October
1, 1995 to December 31, 1995 and increasing by approximately $1.84 on a
quarterly basis to $85.00 per share for the quarter ending December 31, 1996.
Independent of its right to call the Depositary Shares, AHP is permitted by
the terms of the agreements with the Company to acquire additional Depositary
Shares through open market purchases or privately negotiated purchases,
provided that its aggregate holdings do not exceed 75% of the Company's
outstanding equity, subject to certain exceptions. As of September 30, 1995,
such transactions have brought AHP's total ownership position in the Company
to approximately 63%.
The Company is engaged in collaborations with AHP in the development and
commercialization of recombinant human interleukin-twelve (rhIL-12), an
immune system modulatory protein, and the commercialization of recombinant
human interleukin-eleven (rhIL-11), a blood cell growth factor. A
collaboration with AHP in the area of cellular adhesion discovery research
ended as scheduled during the second quarter of 1995. Collaborative research
and development revenue includes $0.9 million and $22.7 million for the three
month periods ended September 30, 1995 and 1994, respectively, and $8.7
million and $25.6 million for the nine month periods ended September 30, 1995
and 1994, respectively, relating to these collaborations with AHP. In July
1994, the Company and AHP entered into an agreement to form a joint venture
to develop and commercialize rhIL-12 on a worldwide basis except for Japan.
In connection with this agreement, the Company recognized $21.2 million of
collaborative research and development revenue in the third quarter of fiscal
1994. Losses of affiliates includes $0.1 million and $1.6 million,
respectively, for the three and nine month periods ended September 30, 1995
relating to these collaborations with AHP.
-6-
<PAGE> 7
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. Investments in Debt Securities
The Company's portfolio of debt securities consists of cash equivalents
classified as held-to-maturity and marketable securities classified as
available-for-sale. The fair value of cash equivalents approximated the
amortized cost of $48.3 million at September 30, 1995. Aggregate fair value,
amortized cost and average maturity for marketable securities held at
September 30, 1995 are presented below. The average maturities presented
below include estimates of the effective life for certain securities whose
actual maturities will differ from contractual maturities because the
borrowers have the right to call or prepay the obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Holding Gains and (Losses) Value
--------- -------------------------- --------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Government and Agency
securities (average maturity
of 3.5 years) $130,511 $1,256 $(824) $130,943
Corporate and other debt securities
(average maturity of 3.0 years) 82,196 610 (531) 82,275
-------- ------ ----- --------
$212,707 $1,866 $(1,355) $213,218
======== ====== ======== ========
</TABLE>
The decrease in the net unrealized loss on marketable securities for the
three and nine month periods ended September 30, 1995 was $.7 million
and $11.7 million, respectively. Gross realized gains and losses on sales of
marketable securities for the three and nine month periods ended September
30, 1995 and 1994 were not material.
4. Income (Loss) of Affiliates, Net
Income (loss) of affiliates, net consists of the Company's share of benchmark
payments or license fees received by the joint ventures, net of the Company's
share of research and development expenses incurred by affiliated joint
ventures (excluding any research and development or other services
provided by the Company to the joint ventures). The Company's share of the
joint ventures' revenues, which ranges from 50% to 62.5%, is generally
distributed when received by the joint venture. The Company's share of the
joint ventures' expenses, which ranges from 25% to 50%, is generally funded
as incurred. Investments in such affiliates are accounted for on the equity
method and amounted to $0.8 million and $0.4 million at September 30, 1995
and December 31, 1994, respectively.
The more significant of these affiliates are GI-Yamanouchi, Inc. (GYJ), the
GI-Yamanouchi European Partnership (GYEP) and IL-12 Partners. The GYJ and
the GYEP are joint ventures with Yamanouchi Pharmaceutical Co., Ltd.
(Yamanouchi) formed to develop and commercialize certain of the Company's
product candidates in Japan and Europe, respectively. IL-12 Partners is a
joint venture with AHP formed to develop and commercialize rhIL-12 worldwide
except Japan.
-7-
<PAGE> 8
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
The Company's income (loss) of affiliates, net for the three and nine months
ended September 30, 1995 and 1994 was as follows (in millions):
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
--------- --------- --------- --------
<S> <C> <C> <C>
Combined net income (loss) of affiliated
joint ventures $ (7.5) $ (11.7) $ (14.4) $ (21.5)
========= ========= ========= ========
Company share of joint ventures' net income
(loss) based on ownership percentage
share of revenues and expenses (3.5) (5.4) (6.1) (11.5)
Elimination of Company share of joint venture
expenses attributable to services provided
by or benchmarks paid to the Company 1.4 3.4 6.2 8.1
--------- --------- --------- --------
Income (loss) of affiliates, net $ (2.1) $ (2.0) $ 0.1 $ (3.4)
========= ========= ========= ========
</TABLE>
5. Contingencies
The Company has been engaged in legal proceedings relating to the amount of
damages payable by the Company as a result of the holding of the U.S. Court
of Appeals for the Federal Circuit ("CAFC") that the Company infringed a
U.S. patent of Amgen Inc. ("Amgen") relating to recombinant erythropoietin
("EPO"). In May 1993, the Company and Amgen agreed to settle all then
outstanding claims of Amgen against the Company in the United States
relating to recombinant EPO.
In August 1991, Ortho Pharmaceutical Co., Ltd. and its affiliates ("Ortho"),
a licensee of Kirin-Amgen, Inc.'s ("Kirin- Amgen") recombinant EPO patents,
initiated infringement proceedings against the Company in the U.S. District
Court in Massachusetts. Ortho moved to consolidate the case with the
infringement suit brought by Amgen. Upon motion by the Company and Amgen,
the District Court dismissed Ortho's claims and the CAFC affirmed the
District Court's decision in April 1995. In October 1995, Ortho's request
for a review of the CAFC decision by the U.S. Supreme Court was denied.
In June 1994, the Company sued Ortho in the U.S. District Court in
Delaware. The Company's suit claimed that Ortho's manufacture, use and
sale of EPO in the U.S. infringes a patent covering pharmaceutical
compositions containing homogeneous EPO that was issued to the Company in
June 1994 (the '837 patent). In September 1994, Amgen sued the Company
in U.S. District Court in Massachusetts and Ortho intervened in the
Amgen suit. Amgen's suit asked the court to declare that the Company's
'837 patent is invalid and not infringed by Amgen and to declare that any
dispute over the patent was resolved by the prior litigation. The Company
has filed counterclaims against Amgen and Ortho for infringement of the
'837 patent, and the Company's suit against Ortho in Delaware has been
stayed. In February 1995, the Massachusetts court granted a motion by
Amgen for summary judgment. The court ruled that the CAFC decision in the
prior litigation invalidating an earlier U.S. EPO patent of the Company
precluded the assertion of the '837 patent. The Company has appealed the
decision. The Company can provide no assurances as to the outcome of these
disputes with Ortho and Amgen.
The Company and its licensees are engaged in various patent litigation
proceedings in Europe related to EPO. Beginning in 1991, Ortho and certain
Ortho affiliates initiated patent infringement litigation in Europe against
Boehringer Mannheim GmbH ("Boehringer Mannheim"), the Company's European EPO
licensee, based on a European recombinant EPO patent issued to Kirin-Amgen,
its licensor.
-8-
<PAGE> 9
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
The suits have included requests for damages and/or injunctive relief.
Boehringer Mannheim filed suits against Ortho and/or certain of its
affiliates in Europe claiming infringement of the Company's European EPO
patents. This litigation has expanded into many of the European Community
countries in Boehringer Mannheim's licensed territory. In some countries,
where the patentee is a legally necessary party to a suit to enforce a
patent, the Company has joined as a plaintiff. The Company is also a
defendant in suits in the United Kingdom, Germany, Italy and the Netherlands
brought by an Ortho affiliate seeking to invalidate and revoke the Company's
EPO patents in the United Kingdom, the former East Germany, Italy and the
Netherlands, respectively. The revocation suit in Germany was dismissed in
May 1994. However, this decision has been appealed.
In June 1994, a claim in the Company's European patent covering homogeneous
EPO compositions (the '539 patent) was upheld by the Opposition Division of
the European Patent Office. This decision has been appealed. In September
1994, an appellate hearing was held before the Board of Technical Appeals of
the European Patent Office relating to the oppositions to Kirin-Amgen's
European recombinant EPO patent. The Board ruled that a modified version of
certain of Kirin-Amgen's original claims in the patent was valid, however, it
is uncertain whether Kirin-Amgen's claims cover the making, using or selling
of Boehringer Mannheim's recombinant EPO.
The Company can provide no assurance as to the outcome of these European
proceedings. If the courts ultimately rule in Ortho's favor in these
European proceedings, including issuing an injunction against the
future manufacture or sale of recombinant EPO by Boehringer Mannheim, or if
this litigation is otherwise concluded in a manner adverse to Boehringer
Mannheim or the Company, future royalty income from EPO in Europe, which
totaled $11.3 million in fiscal 1994, could be reduced or eliminated.
In August 1995, in a patent interference proceeding among the Company,
Genentech, Inc. ("Genentech") and Chiron Corporation concerning Factor VIII
patent rights, the U.S. Patent Office ruled that Genentech is the first
inventor of the Factor VIII gene and the use of the gene to make recombinant
Factor VIII. Genentech will be awarded a patent based on this decision. The
Company and Baxter (the Company's licensee) hold a royalty-free license under
Genentech's patent rights.
The Company is engaged in a patent interference proceeding with Stryker
Corporation, the assignee of Creative BioMolecules, Inc., concerning one
of the Company's U.S. patents covering recombinant BMP-2, which is currently
in the clinical development stage. The Company can provide no assurance as
to the outcome of this proceeding.
6. SciGenics Tender Offer
On October 12, 1995 the Company successfully completed, through a
wholly-owned subsidiary, its $14.00 per share, all cash tender offer (the
"Offer") for the outstanding shares of callable common stock of SciGenics,
Inc. ("SciGenics"). Approximately 1.4 million shares were tendered and
accepted for payment, which resulted in total ownership by the Company
and its affiliates of approximately 66.7% of the outstanding callable common
stock of SciGenics. The Offer was made pursuant to a previously announced
agreement entered into by the Company and SciGenics on September 7, 1995.
The agreement provides that, subject to the fulfillment of certain
conditions, a wholly-owned subsidiary of the Company will be merged with and
into SciGenics, each outstanding share of callable common stock of SciGenics
not held by the Company or its affiliates will be converted into the right to
receive $14.00 per share in cash, and SciGenics will become a wholly-owned
subsidiary of the Company (the "Merger"). The Offer and Merger are expected
to result in a charge of approximately $25 million to the Company's
operations for the fourth quarter of 1995, principally relating to the
portion of the acquisition price representing acquired research.
-9-
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Genetics Institute, Inc. is principally engaged in discovering, developing and
commercializing protein-based therapeutic products using recombinant DNA and
related technologies. Significant volatility has been associated with the
business and operations of biopharmaceutical companies. Developments involving
the Company or its competitors concerning technological innovations, new
commercial products, results of clinical trials, patents, proprietary rights
and related infringement disputes, results of litigation and the expense and
time associated with obtaining requisite government approvals may have a
significant impact on the Company's business.
The Company's consolidated results of operations have fluctuated from period to
period and may continue to fluctuate in the near- term as a result of the
timing of production and shipment of bulk protein products, changes in the
timing and composition of funding under its collaborative research and
development agreements, the ability to consummate new collaborative agreements,
royalty income (and the impact of infringement litigation on royalty income),
investment income and the amount of expenditures committed to research and
development programs.
During the first half of 1995, five of the Company's proprietary product
candidates were in phase I or phase II human clinical trials. On June 9, 1995,
the Company announced that it had suspended its clinical trials of recombinant
human interleukin-twelve (rhIL-12) in oncology and HIV after receiving reports
of unexpected serious adverse events in its phase II advanced kidney cancer
study. The Company conducted an investigation into the cause of these events
and consulted with the Food and Drug Administration regarding the results of
its investigation. Subsequently, in November 1995 the Company initiated
enrollment of patients in phase I/II clinical trials of rhIL-12 in oncology and
HIV. In July 1995, recombinant Factor IX entered phase III testing and
recombinant IL-11 is proceeding toward a phase III trial in the fourth quarter
of 1995. Phase I and phase II data are preliminary measurements of a product's
safety and efficacy and do not assure positive phase III data or ultimate
regulatory approval for commercial sale. The Company's market valuation could
be subject to volatility as investors interpret the results of the Company's
current and future clinical trials.
The Company and American Home Products Corporation ("AHP") entered into a
transaction (the "AHP Transaction") through which AHP acquired a majority
interest in the Company effective January 16, 1992 (see Note 2 of Notes to
Consolidated Condensed Financial Statements).
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1995 and 1994. The Company reported
a net loss of $7.2 million for the third quarter ended September 30, 1995
compared with net income of $12.6 million for the three months ended September
30, 1994. Net income of $3.7 million was reported for the nine months ended
September 30, 1995 compared with a net loss of $7.0 million for the first nine
months of 1994. The net loss for the 1995 third quarter as compared with the
net income for the 1994 third quarter is primarily due to $21.2 million of
collaborative research and development revenue recognized in the third quarter
of 1994 in connection with a newly formed joint venture with AHP. The net
income for the first nine months of 1995 as compared with the net loss for the
first nine months of 1994 is primarily due to increases in revenues and income
of affiliates as discussed below.
The Company's revenues include product revenue from the supply of recombinant
human antihemophilic factor concentrate ("rhAHF") to Baxter Healthcare
Corporation ("Baxter"), royalties on sales of products by marketing partners,
and collaborative research and development revenue for license fees and
activities conducted under the Company's agreements with its various
collaborative partners. Revenues for the 1995 third quarter of $32.5 million
decreased 37%, or $18.7 million, from the third quarter of fiscal 1994. Nine
month revenues of $130.2 million increased 26% from prior year levels. Product
sales increased 38%, or $4.1 million to $14.8 million for the 1995 third
quarter and increased 78%, or $26.9 million to $61.4 million, for the first
nine months of 1995. The increase in product sales for the third quarter of
1995 was due to an increase in the unit volume of rhAHF shipped to Baxter,
which was
-10-
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
partly offset by an adjustment recorded by the Company as a result of a change
in the estimated unit manufacturing costs of rhAHF for the 1995 production
year. Under the Company's supply agreement with Baxter, product sales includes
reimbursement of the manufacturing costs relating to shipments of rhAHF, as
well as manufacturing profit. Due to the change in estimated rhAHF unit costs,
the Company recorded an adjustment which decreased third quarter product sales
by $3.0 million and decreased cost of sales by $4.6 million. Unit volume of
rhAHF shipped to Baxter increased 123% for the first nine months of 1995, while
unit manufacturing costs decreased 39% from the prior year nine month period.
Royalties increased 17%, or $2.2 million to $14.7 million for the 1995 third
quarter and increased 21% for the nine month period, principally due to
increases in collaborative partners' sales of finished drug products.
Collaborative research and development revenue decreased $25.0 million for the
1995 third quarter and $6.4 million for the first nine months of 1995.
Collaborative research and development revenue includes $0.9 million and $22.7
million, respectively, for the third quarters of 1995 and 1994 and $8.7
million and $25.6 million, respectively, for the first nine months of 1995 and
1994, relating to collaborations with AHP in the development and
commercialization of recombinant human interleukin-twelve (rhIL-12), an immune
system modulatory protein, the commercialization of recombinant human
interleukin-eleven (rhIL-11), a blood cell growth factor, and in the area of
cellular adhesion discovery research. In July 1994, the Company and AHP
entered into an agreement to form a joint venture to develop and commercialize
rhIL-12 on a worldwide basis except for Japan. In connection with this
agreement, the Company recognized $21.2 million of collaborative research and
development revenue in the third quarter of fiscal 1994 of which $20.0 million
represented initial milestone and signature payments and $1.2 million
represented funding of certain development costs incurred during the quarter.
AHP's discovery research funding commitment relating to the cellular adhesion
collaboration ended as scheduled during the second quarter of 1995.
Cost of sales includes royalties payable to third parties upon the receipt of
certain royalty revenues from collaborative partners. Such third party
royalties totaled $2.0 million and $1.0 million in the third quarters of 1995
and 1994, respectively. Cost of sales, excluding such third party royalties,
as a percentage of product sales was 15% and 62% for the third quarters of 1995
and 1994, respectively, and 43% and 56% for the first nine months of 1995 and
1994, respectively. The decrease in cost of sales as a percentage of product
sales for the three month period was due to lower unit rhAHF manufacturing
costs and the adjustment to product sales and cost of sales relating to the
change in the estimated unit costs of rhAHF as discussed above. Excluding this
adjustment, cost of sales as a percentage of product sales for the three months
ended September 30, 1995 was 39%. Unit manufacturing costs of rhAHF have
decreased 39% from the prior year nine month period. Research and development
expenses increased $5.1 million for the 1995 third quarter to $31.9 million and
increased 14% for the nine month period, due primarily to increases in
facilities and clinical studies costs. General and administrative expenses
increased 8% for both the third quarter and the first nine months of 1995 due,
in part, to increases in market development activities.
Investment income increased 10% in the 1995 third quarter and 18% for the nine
month period as the impact of higher current interest rates more than offset a
lower average balance of cash and marketable securities between periods.
The Company's share of the loss of its joint venture affiliates, net, was $2.1
million and $2.0 million for the third quarters of 1995 and 1994, respectively.
The Company recorded income from its joint venture affiliates, net, of $0.1
million for the first nine months of 1995, compared with a loss of affiliates,
net, of $3.4 million for the prior year period. Certain of the Company's
product development activities in Japan are being conducted through
GI-Yamanouchi, Inc. (GYJ), a joint venture with Yamanouchi Pharmaceutical Co.,
Ltd. In the second quarter of 1995, the GYJ assigned its rights to the
development and commercialization of rhBMP-2 in Japan to Yamanouchi, effective
January 1, 1995,
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in return for an initial payment and a future benchmark payment. The Company
recognized income of affiliates of $7.3 million in connection with this
transaction. Excluding this transaction, the increase in losses of affiliates,
net, for the first nine months of 1995 was primarily due to expansion of
rhIL-11 and rhIL-12 product development activities in Japan by the GYJ and
expansion of rhIL-12 product development activities that are being conducted
through IL-12 Partners, a joint venture with AHP.
Other expense, net, for the first nine months of 1995 increased by $0.8 million
to $2.9 million due, in part, to increased foreign withholding taxes relating
to an increase in certain royalties.
On October 12, 1995 the Company successfully completed, through a wholly-owned
subsidiary, its $14.00 per share, all cash tender offer (the "Offer") for the
outstanding shares of callable common stock of SciGenics, Inc. ("SciGenics").
Approximately 1.4 million shares were tendered and accepted for payment, which
resulted in total ownership by the Company and its affiliates of approximately
66.7% of the outstanding callable common stock of SciGenics. The Offer was
made pursuant to a previously announced agreement entered into by the Company
and SciGenics on September 7, 1995. The agreement provides that, subject to
the fulfillment of certain conditions, a wholly-owned subsidiary of the Company
will be merged with and into SciGenics, each outstanding share of callable
common stock of SciGenics not held by the Company or its affiliates will be
converted into the right to receive $14.00 per share in cash, and SciGenics
will become a wholly-owned subsidiary of the Company (the "Merger"). The Offer
and Merger are expected to result in a charge of approximately $25 million to
the Company's operations for the fourth quarter of 1995, principally
relating to the portion of the acquisition price representing acquired
research.
LEGAL PROCEEDINGS
The Company is engaged in a number of legal proceedings. See Note 5 of Notes
to Consolidated Condensed Financial Statements which is incorporated by
reference herein.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities totaled $261.9 million at September 30, 1995, a
decrease of $7.9 million from December 31, 1994, (net of a non-cash decrease in
the unrealized loss on marketable securities of $11.7 million). The use of
cash and marketable securities of $19.6 million for the nine month period is
principally due to capital expenditures of $18.2 million and, to a lesser
extent, the use of $5.0 million for operating activities offset by $4.3 million
of cash proceeds from stock issuances. Accounts receivable from Baxter for
shipments of rhAHF increased by $23.1 million over the December 31, 1994
balance, of which $2.9 million is due to increased product sales volume and
$20.2 million results from a change in the contractual terms for the payment of
rhAHF product revenue to the Company by Baxter. As discussed above, on October
12, 1995 the Company completed its $14.00 per share, all cash tender offer for
SciGenics. The Company's aggregate cash payment for the 1.4 million shares
tendered, (representing 66.7% of SciGenics' outstanding callable common stock),
was $19.5 million. If the Merger is consummated, the Company's additional cash
payment to acquire the shares not tendered pursuant to the Offer will be
approximately $9.8 million. Cash and marketable securities held by SciGenics
at September 30, 1995 totaled $10.0 million.
The Company expects that its available cash and marketable securities, together
with investment income, operating revenues and lease and debt financing
arrangements, will be sufficient to finance its research and development
programs, capital requirements and other foreseeable future needs. Over the
next several years, the Company's cash requirements will be subject to change
depending upon numerous factors including the level of capital expenditures,
the amount of expenditures committed to self-funded research and development
programs, the results of research and development activities, competitive and
technological developments, the levels of resources which the Company devotes
to the expansion of its clinical testing, manufacturing and marketing
capabilities and the timing and cost of obtaining required regulatory approvals
for new products.
-12-
<PAGE> 13
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
See Note 5 of Notes to the Consolidated Condensed Financial Statements
provided in Part I of this Quarterly Report on Form 10-Q, which Note
is hereby incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) The Exhibits filed as part of this Form 10-Q are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
(b) No reports were filed on Form 8-K during the quarter ended
September 30, 1995.
-13-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENETICS INSTITUTE, INC.
------------------------
(Registrant)
Date: November 8, 1995 By: /s/ Garen G. Bohlin
---------------- ----------------------------------
Garen G. Bohlin,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
-14-
<PAGE> 15
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C>
10.1 Option/License Agreement between Bristol-Myers Squibb Company and the Company
dated as of May 24, 1995 and related Letter Agreements of September 21, 1995
and October 5, 1995 1
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR)
</TABLE>
__________________________________
1
Confidential treatment requested as to certain portions which are
indicated by an asterisk and filed separately with the Securities and Exchange
Commission with an Application for Confidential Treatment pursuant to Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as amended.
-15-
<PAGE> 1
Exhibit 10.1
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
OPTION/LICENSE AGREEMENT
-------------------------
AGREEMENT ("Agreement") dated as of May 24, 1995 between BRISTOL-MYERS
SQUIBB COMPANY, a Delaware corporation having a principal place of business at
Route 206 and Province Line Road, Princeton, NJ 08540 ("BMS"), and GENETICS
INSTITUTE, INC., a Delaware corporation having its principal place of
business at 87 CambridgePark Drive, Cambridge, MA 02140 ("GI").
WHEREAS, GI has invented a certain improved plasminogen activator
protein; and
WHEREAS, BMS is desirous of obtaining from GI, and GI is desirous of
granting to BMS, an exclusive license to such protein on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, the
parties hereto agree as follows:
Article I. DEFINITIONS
-----------------------
As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the following meanings:
1.1 "Confidential Information" means (a) all proprietary information
------------------------
and materials, patentable or otherwise, of a party which is disclosed by or on
behalf of such party to the other party, including DNA sequences, vectors,
cells, substances, formulations, techniques, methodology, equipment, data,
reports, know-how, preclinical and clinical trials and the results thereof,
patent positioning and business plans, including any negative developments, and
(b) any other information designated by the disclosing party to the other
party as confidential or proprietary, related to NPA or otherwise disclosed in
furtherance of the purposes of this Agreement.
1.2 "Effective Date" means May 15, 1995.
--------------
1.3 "Improvement" means any information, patentable or otherwise, of
-----------
BMS relating to the identification, characterization, expression, use or
production of NPA which is reasonably useful or necessary or is required to
develop, use, register, produce, formulate, fill and finish, distribute and/or
sell bulk NPA or products containing NPA as an ingredient, including, without
limitation, scientific discoveries, developments, preclinical data, clinical
data, and marketing approval and regulatory filings and records related
thereto.
1.4 "Know-How" means any information, patentable or otherwise, of GI
--------
(including that
<PAGE> 2
licensed to GI by a third party as to which GI has the right to sublicense BMS)
relating to the identification, characterization, expression, use or
production of NPA which is reasonably useful or necessary or is required to
develop, use, register, produce, formulate, fill and finish, distribute
and/or sell bulk NPA or products containing NPA as an ingredient, including,
without limitation, scientific discoveries, developments, preclinical data,
clinical data, and marketing approval and regulatory filings and records
related thereto.
1.5 "Licensed Products" means any product containing NPA as an
-----------------
ingredient and any and all formulations, mixtures or compositions thereof
which, or the making, use or sale of which, is covered by a Valid Claim of any
of the Patent Rights and/or embodies any Know- How.
1.6 "Net Sales" means the aggregate United States Dollar equivalent of
---------
gross revenues derived by or payable to BMS, its affiliates and sublicensees
from or on account of the sale of Licensed Products to third parties, less (a)
credits, allowances, discounts, chargebacks or refunds, if any, actually
granted on account of quantity, cash or trade discounts, recalls, price
reductions, rejection or return of items previously sold, (b) excises, sales
taxes, value added taxes, consumption taxes, duties or other taxes imposed
upon and paid with respect to such sales (excluding income or franchise taxes
of any kind), (c) separately itemized insurance and transportation costs that
are incurred in shipping Licensed Products to such third parties and (d)
rebates or price reductions or adjustments required by law, regulation or
contract. Net Sales shall not include any transfer between BMS and any of its
affiliates or sublicensees for resale. In the event that BMS or any of its
affiliates or sublicensees shall make any transfer of Licensed Products to a
third party for other than monetary value, such transfer shall be considered a
sale for royalty purposes. Net Sales for any such transfers shall be the
average price of "arms length" sales in the relevant country during the
royalty reporting period in which such transfers occur. If no "arms length"
sales shall have occurred in the relevant country during such period, the
relevant reference factor shall be the last royalty reporting period in which
such "arms length" sales occurred. If no "arms length" sales shall have
occurred in the relevant country, the relevant reference factor shall be the
average price of "arms length" sales in all countries. Notwithstanding the
foregoing, no transfer of Licensed Products for test or developmental purposes
or as free samples shall be considered a sale for royalty purposes. In the
event that BMS or any of its affiliates or sublicensees shall sell Licensed
Products together with other products and the price attributable to Licensed
Products is less than the average price of "arms length" sales of Licensed
Products for the relevant country for the royalty reporting period in which
such sales occur (such sales to be excluded from the calculation of "arms
length" sales), Net Sales for any such sales shall be the average price of
"arms length" sales of Licensed Products in the relevant country during the
royalty reporting period in which such sales occur. If no "arms length" sales
shall have occurred in the relevant country during such period, the relevant
reference factor shall be the last royalty reporting period in which such "arms
length" sales occurred. If no "arms length" sales shall have occurred in the
relevant country, the relevant reference factor shall be the average price of
"arms length" sales in all countries.
1.7 "NPA" means the protein identified on Schedule A to this
---
Agreement.
1.8 "Patent Rights" means all patents and patent applications (which
-------------
for purposes of this
<PAGE> 3
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Agreement shall be deemed to include certificates of invention and applications
for certificates of invention and priority rights), of GI (including those
licensed to GI by a third party as to which GI has the right to sublicense
BMS), including any reissues, extensions or other governmental acts which
effectively extend the period of exclusivity by the patent holder,
substitutions, confirmations, registrations, revalidations, additions,
continuations, continuations- in-part, or divisions of or to any of the
foregoing, which relate to NPA and are reasonably useful or necessary or are
required to develop, use, register, produce, formulate, fill and finish,
distribute and/or sell bulk NPA or products containing NPA as an ingredient.
1.9 "Territory" means all countries of the world other than Japan, the
---------
People's Republic of China (including Hong Kong once Hong Kong reverts to the
People's Republic of China in 1997), South Korea and Taiwan.
1.10 "Valid Claim" means (a) a claim of an unexpired patent which shall
-----------
not have been withdrawn, canceled or disclaimed, nor held invalid or
unenforceable by a court of competent jurisdiction in an unappealed or
unappealable decision or (b) a claim of a patent application which has not
been on file for more than seven years, provided that the foregoing seven-year
period shall be tolled during any period in which such claim is the subject of
a pending patent interference proceeding.
Article II. OPTION
-------------------
2.1 Grant of Option. GI hereby grants to BMS the option (the
---------------
"Option"), exercisable by written notice to GI at any time on or prior to
******************, subject to extension as set forth in Section 2.2 of this
Agreement (the "Option Period"), to enter into a definitive agreement (the
"License Agreement") in implementation of the licenses of the Patent Rights and
Know-How in the Territory granted to BMS in this Agreement.
2.2 Option/License Fee. In consideration of the Option and the
------------------
licenses granted to BMS in this Agreement, BMS shall make the following
payments to GI within thirty (30) days of the dates set forth below (the
"Option/License Fees"):
<TABLE>
<CAPTION>
Date Payment
---- -------
<S> <C>
Effective Date $*********
***************** or the date of $*********
completion of BMS's ************
*******************, whichever occurs first
******************, the date of $*********
commencement of BMS's *****************
or the effective date of the License Agreement,
whichever occurs first
</TABLE>
3
<PAGE> 4
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Notwithstanding the foregoing, in the event that BMS shall fail to receive, on
or before ******************, sufficient initial supply of bulk and formulated
and finished NPA to meet its reasonable requirements for the commencement of
its ***************************** in ****** or sufficient data as contemplated
by Section 3.1(b) of this Agreement and the last sentence of Section 3.1 of
this Agreement for the commencement of its ********************* *************
in ******, the foregoing payment dates and Option Period shall be extended as
follows, provided that BMS shall have specified its reasonable needs with
respect to such supply and data on or prior to *************:
<TABLE>
<CAPTION>
Receipt Date Extended Payment Dates Extended Option Period
- ------------ ---------------------- ----------------------
<S> <C>
After **************, but on **************** or the date Until ****************
or prior to **************** of completion of BMS's *****
*************************
whichever occurs first
****************, the date of
commencement of BMS's ******
******** or the effective date of
the License Agreement, whichever
occurs first
After ***************, but on ***************** or the date Until ************,
or prior to ***************** of completion of BMS's ***** ****
*************************,
whichever occurs first
*****************, the date of
commencement of BMS's ******
********* or the effective date of
the License Agreement, whichever
occurs first
After ***************** ***************** or the date Until ************,
of completion of BMS's ***** ****
**************************,
whichever occurs first
*****************, the date of
commencement of BMS's *******
********** or the effective date of
the License Agreement, whichever
occurs first
</TABLE>
4
<PAGE> 5
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Other than the three payments specified in this Section 2.2, there shall be no
license, milestone or other like fees payable by BMS to GI under this Agreement
or the License Agreement.
2.3 Refund. The Option/License Fees shall not be refundable except as
------
follows. BMS shall be entitled, by delivering written notice to GI at
any time on or prior to ***************, to receive from GI a refund of the
******************************* payment due on the Effective Date in the event
that, on or prior to *****************, (a) GI shall fail to have in place the
written agreement called for by Sections 3.1(a)-(d) of this Agreement, (b) BMS
shall fail to receive sufficient supply of bulk and formulated and finished
NPA to meet its reasonable requirements for its *****************************
in ******, provided that BMS shall have specified its reasonable needs with
respect to such supply on or prior to ************, (c) BMS shall fail to
receive the data called for by Section 3.1(b) of this Agreement, provided that
BMS shall have specified its reasonable needs with respect to such data on or
prior to *************, (d) BMS shall fail to receive the data in GI's
possession as of June 30, 1995 called for by the last sentence of Section 3.1
of this Agreement, provided that BMS shall have specified its reasonable needs
for such data on or prior to *************, (e) the data delivered to BMS in
accordance with the agreement contemplated by Section 3.1(b) of this Agreement
and in GI's possession as of June 30, 1995 in accordance with the last
sentence of Section 3.1 of this Agreement prove to be deficient in any
material respect for the ****** of ****** in the ************ covering the ***
of *** as a ****************, (f) the ********** that the ********* **********
contemplated by BMS as described in Section 3.2 of this Agreement is not
******* for ************, or (g) BMS reasonably determines that the
***************** used by GI's existing licensee of NPA, Suntory Limited
("Suntory"), to ********************** of *** or that proposed to be used to
************************* of *** (if a **************) is likely to ********
any ************************ not identified on ********* to this Agreement.
2.4 Agreement Not to License. For the avoidance of doubt, in
------------------------
consideration of the payment of the Option/License Fees to GI and in
recognition of BMS's exclusive rights under the licenses granted to BMS in
this Agreement, GI acknowledges that it has no right to enter into any license
agreement with any third party granting rights to market NPA in the Territory.
2.5 Option/License Termination. The failure of BMS to make any of the
--------------------------
payments set forth in Section 2.2 of this Agreement when due or to exercise the
Option within the Option Period in accordance with Section 2.1 of this
Agreement shall not be deemed to be a breach of this Agreement by BMS.
However, in the event that BMS shall fail to make any of the payments set
forth in Section 2.2 of this Agreement when due or shall fail to exercise the
Option within the Option Period in accordance with Section 2.1 of this
Agreement, the Option, the licenses granted to BMS in this Agreement and this
Agreement shall terminate immediately. Further, in the event that BMS shall
exercise any of its rights to receive a refund of the
************************** payment due on the Effective Date in accordance with
the terms of Section 2.3 of this Agreement, the Option, the licenses granted
to BMS in this Agreement and this Agreement shall terminate immediately. In
the event of any termination of the Option, the licenses granted to BMS in
this Agreement and this Agreement, GI shall have no further obligation to
license the Patent Rights or Know-How to BMS in the Territory and GI shall be
5
<PAGE> 6
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
free to license or otherwise utilize or dispose of the Patent Rights and
Know-How in the Territory in any manner it deems appropriate.
2.6 Exercise of Option. In the event that BMS exercises the Option,
------------------
the parties agree to negotiate in good faith the terms of the License
Agreement with the goal of executing such an agreement within one hundred
twenty (120) days of the exercise of the Option by BMS. The License Agreement
shall incorporate all of the terms and conditions provided herein for the
licenses granted in this Agreement, contain additional customary and
commercially reasonable terms and conditions and otherwise be consistent with
the intent and purpose of this Agreement. The parties further agree that any
failure to finalize the License Agreement shall not affect the continued
validity, effectiveness and enforceability of the licenses granted in this
Agreement.
Article III. RIGHTS AND OBLIGATIONS DURING OPTION PERIOD
---------------------------------------------------------
3.1 Obligations of GI. Upon execution of this Agreement, GI shall use
-----------------
commercially reasonable and diligent efforts to obtain from Suntory a
written agreement, in form and substance reasonably satisfactory to BMS,
to (a) supply BMS with its reasonable preclinical and clinical requirements
of bulk and formulated and finished NPA ******* the ******** of
***************** in ****** and ************************* to *****
the ********************* to ***********************, (b) grant BMS access to
such laboratory, preclinical, clinical, manufacturing and other scientific and
technical data in Suntory's possession as of June 30, 1995 and as shall be
reasonably useful or necessary or required in order for BMS to file an IND in
the United States covering the use of NPA as a thrombolytic agent or
otherwise, it being understood that such data shall be furnished to BMS in the
same form possessed by Suntory, (c) transfer and license to BMS all biological
materials and manufacturing technology of Suntory as shall be reasonably
useful or necessary or required in order for BMS to produce its further
preclinical and clinical and commercial requirements of bulk and formulated
and finished NPA and (d) exchange with BMS on a reciprocal basis future
scientific and technical data which BMS and Suntory may develop or acquire.
The terms of the agreement contemplated by the foregoing clauses shall include
financial and other terms reasonably acceptable to BMS, it being specifically
understood that *** will be ********** for ***************** with its
*****************, the ******************, and the ***************** of
*********, and that access to Suntory's data existing as of June 30, 1995 shall
be **** of ****** to ***. GI shall also furnish BMS with all laboratory,
preclinical, clinical, manufacturing and other scientific and technical data in
GI's possession from time to time and as shall be reasonably useful or
necessary or required in order for BMS to file an IND in the United States
covering NPA as a thrombolytic agent or otherwise, it being understood that
such data shall be furnished to BMS in the same form possessed by GI.
3.2 Obligations of BMS. As soon as practicable, BMS shall contact the
------------------
*** to determine whether the ************************ contemplated by BMS, a
**************** involving ************************************* and
*********************, will be ******** for *********. For purposes of
facilitating GI's meeting the time lines called for in this Agreement for the
entering into of the agreement with Suntory and the furnishing of BMS,
6
<PAGE> 7
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
either directly or through Suntory, with supply and data, on or prior to
*************, BMS shall furnish GI with an estimate of its reasonable
preclinical and clinical requirements of bulk and formulated and finished NPA
******* the ********** of its ************************* ***** in ****** and
shall furnish GI with a written list of the data specifically requested by it
to be furnished for the commencement of its *************************** in
****** and for the ****** of its *** in the ***********. Upon receipt of the
data called for by Section 3.1(b) of this Agreement and the data in GI's
possession as of June 30, 1995 called for by the last sentence of Section 3.1
of this Agreement, BMS shall, as soon as practicable, use commercially
reasonable and diligent efforts to procure an *** and
********************************* and, in addition thereto, upon receipt of
sufficient initial supply of bulk and formulated and finished NPA, BMS shall,
as soon as practicable, use commercially reasonably and diligent efforts to
************************ in ****** and the *************.
3.3 License to BMS. Subject to the reservations set forth in this
--------------
Section 3.3, during the Option Period, BMS shall have the
exclusive right to practice the Patent Rights in the Territory and to use the
Know-How in the Territory for the sole and exclusive purpose of performing its
obligations under Section 3.2 of this Agreement and for the purpose of
developing a commercial manufacturing process for producing bulk NPA. GI
reserves the right to practice the Patent Rights in the Territory and to use
the Know-How in the Territory for the purpose of conducting research and
development to support either BMS or Suntory.
3.4 Patent Prosecution and Infringement. During the Option Period, GI
-----------------------------------
shall have the exclusive right, at its own expense, to seek, obtain and
maintain patents in the Territory and to initiate litigation against infringers
in the Territory. GI shall keep BMS informed of its activities in these areas.
3.5 License to Improvements. BMS hereby grants to GI a non-exclusive,
-----------------------
royalty-free license to all Improvements, including the right to grant
sublicenses, for the sole and exclusive purpose of (a) producing bulk NPA both
within and outside the Territory, but only for distribution and sale outside
the Territory, (b) developing, using, registering, formulating, filling and
finishing, distributing and/or selling Licensed Products outside the Territory
and (c) in the event that the Option, the licenses granted to BMS in this
Agreement and this Agreement expire or terminate for any reason without BMS
having exercised the Option, distributing and selling bulk NPA within the
Territory and developing, using, registering, formulating, filling and
finishing, distributing and/or selling Licensed Products within the Territory.
3.6 Data Exchange. BMS acknowledges that GI has licensed, and may
-------------
further license, NPA outside the Territory. During the Option Period, BMS
agrees to provide GI with a summary of BMS's preclinical and clinical testing
results and other data related to the testing and approval of Licensed
Products which GI may provide to any GI licensee outside the Territory which
is under a similar contractual obligation to GI to provide summaries of such
licensee's corresponding results and data to BMS, either directly or through
GI. In the event that a licensee of GI does not provide to BMS such summaries
of preclinical and clinical testing results and other data, GI shall not make
BMS's summaries available to such licensee except to
7
<PAGE> 8
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
the extent necessary to disclose any adverse effects of a Licensed Product or
as otherwise required by law. In the event that a licensee requests more
detailed information than that provided in a summary, but on which the summary
was based, BMS agrees to comply with such request, provided that such
licensee is under a similar contractual obligation to GI to provide such
information to BMS, either directly or through GI.
Article IV. TERMS OF LICENSE
-----------------------------
4.1 General. In the event that BMS exercises the Option, the License
-------
Agreement shall contain such terms and conditions as are described in this
Article IV and such other terms and conditions as are agreed upon by the
parties in accordance with Section 2.6 of this Agreement. In the event that
BMS shall fail to exercise the Option in accordance with the terms of Section
2.1 of this Agreement, the terms and conditions described in this Article IV
shall cease to be effective.
4.2 Exclusive License. GI hereby grants to BMS an exclusive license
-----------------
in the Territory under the Patent Rights and an exclusive license in the
Territory to use the Know-How, including the right to grant sublicenses, for
the sole and exclusive purpose of producing bulk NPA and developing, using,
registering, formulating, filling and finishing, distributing and/or selling
Licensed Products. The exclusive license under the Patent Rights shall be for
the life of the Patent Rights and the exclusive license to use the Know-How
shall be for a period of twelve (12) years from the first commercial sale in
each country of a Licensed Product. Thereafter, the license to use the
Know-How in the Territory shall become a perpetual, paid-up, non- exclusive
license.
4.3 License to Improvements. The License Agreement shall contain
-----------------------
provisions comparable to those set forth in Section 3.5 of this Agreement,
provided that the provisions of Section 3.5(c) of this Agreement shall apply
to any termination of the License Agreement not due to GI's breach of the
License Agreement.
4.4 Royalties. BMS shall pay GI earned royalties at the initial rate
---------
of ********************************** on Net Sales by BMS and its affiliates
and sublicensees of Licensed Products until such time as the Net Sales in the
Territory for any one calendar year exceed **** *************************.
Upon the attainment of such sales threshold, (a) two (2) royalty rates shall
apply with respect to the Net Sales during the calendar year in which the sales
threshold is met, namely, ******************************* for the first
*********************** of such Net Sales and fifteen percent (15%) for the
portion of such Net Sales in excess of ******************************* and (b)
the royalty rate shall be adjusted for all Net Sales in subsequent calendar
years to equal fifteen percent (15%) of Net Sales by BMS and its affiliates
and sublicensees of Licensed Products. Notwithstanding the foregoing, where
the manufacture, use or sale of a Licensed Product is not covered by a Valid
Claim of any Patent Right and where a generic form of NPA is being
commercially sold by a third party in a particular country in the Territory,
the earned royalties payable by BMS in respect of such Licensed Product in
such country in the Territory shall be reduced to *************** of the
8
<PAGE> 9
amount that would otherwise be payable by BMS to GI. Royalties shall be
payable on a country-by-country basis in the Territory for the life of the
Patent Rights in the case of each Licensed Product the manufacture, use or
sale of which is covered by a Valid Claim of the Patent Rights, or, in the
absence of such Patent Rights, twelve (12) years from the first commercial
sale in each country of a Licensed Product embodying any Know-How. There shall
be no minimum or other unearned royalties due GI. BMS shall also be
responsible for and pay all license fees or royalties, should there be any,
which may be due third parties in connection with the production of bulk NPA,
the formulation of NPA and the filling and finishing of Licensed Products.
4.5 Other Terms. The License Agreement shall contain customary
-----------
diligence (namely, commercially reasonable and diligent efforts on BMS's part
to continue to develop NPA and to commercialize Licensed Products), royalty
reporting, patent prosecution, infringement and claimed infringement, adverse
event reporting, confidentiality, product liability indemnity and termination
(including BMS's right to terminate at will subject to transfer to GI of all
data, licenses and approvals, trademarks and similar items) provisions.
Article V. CONFIDENTIALITY
---------------------------
Each party agrees (a) to maintain the Confidential Information of the
other party and not to use it for any purpose except for the purposes set
forth in this Agreement and (b) not to disclose the Confidential Information
of the other party to others (except to employees and consultants of a party
who reasonably require the Confidential Information for the purposes of this
Agreement and who are bound by an obligation of confidentiality to the
receiving party) without the express written permission of the other party,
except that a party shall not be prevented from using or disclosing
Confidential Information which (i) was known or used by the receiving party
prior to its date of disclosure to the receiving party, as demonstrated by
legally admissible evidence available to the receiving party, (ii) either
before or after its date of disclosure to the receiving party is lawfully
disclosed to the receiving party by an independent, unaffiliated third party
rightfully in possession of the Confidential Information (but only to the
extent of the rights obtained from such third party), (iii) either before or
after its date of disclosure to the receiving party becomes published or
otherwise part of the public domain through no fault or omission on the part of
the receiving party or (iv) is required to be disclosed by the receiving party
to comply with applicable laws or regulations or to defend or prosecute
litigation, provided that the receiving party provides prior written notice of
such disclosure to the other party and takes all reasonable action s to avoid
and/or minimize the degree of such disclosure. In addition, nothing in this
Article V shall be construed as precluding BMS from disclosing or using the
Confidential Information of GI in connection with conducting preclinical and
clinical trials, pursuing product registrations, sublicensing its rights
hereunder or any other transaction contemplated by this Agreement.
Article VI. MISCELLANEOUS
--------------------------
6.1 Survival. The provisions of Section 3.5 of this Agreement shall
--------
survive any
9
<PAGE> 10
expiration or termination of the Option and this Agreement without BMS having
exercised the Option. The provisions of Article V of this Agreement shall
survive for five (5) years following any expiration or termination of the
Option and this Agreement, provided that the provisions of Article V shall be
perpetual with respect to any and all data supplied by Suntory to BMS that is
conspicuously marked as "confidential."
6.2 Publicity. Except as is otherwise required by law, neither party
---------
shall originate any publicity, news release or public announcement, written or
oral, relating to this Agreement without the prior written approval of the
other party, which approval shall not be unreasonably withheld.
6.3 Notices. Any notice or other communication in connection with
-------
this Agreement must be in writing and if by mail, by certified mail,
return-receipt requested, and shall be effective when delivered to the
addressee at the address listed below or at such other address as the
addressee shall have specified in a notice sent in accordance with this Section
6.3. Notice by facsimile shall constitute valid notice if delivered to the
facsimile number listed below or at such other facsimile number as the
addressee shall have specified in a notice sent in accordance with this
Section 6.3, provided that the receipt of such facsimile is confirmed by the
addressee in writing and further provided that such notice shall be effective
only when receipt of such facsimile is confirmed.
BMS: Bristol-Myers Squibb Company GI: Genetics Institute, Inc.
P.O. Box 4000 87 CambridgePark Drive
Route 206 and Province Line Road Cambridge, MA 02140
Princeton, NJ 08543-4000 Attn: General Counsel
Attn: Mark L. Lee, Vice President Fax: (617) 876-5851
Licensing
Fax: (609) 252-3630
6.4 Assignment. This Agreement, and the rights and obligations
----------
hereunder, may not be assigned or transferred by either party without the
prior written consent of the other party, except that a party may assign this
Agreement to an affiliated company or in connection with such party's merger,
consolidation or sale of all or substantially all of its assets.
6.5 Entire Agreement and Modification. This Agreement constitutes the
---------------------------------
entire agreement of the parties with regard to its subject matter and
supersedes all previous written or oral representations, agreements and
understandings between the parties. This Agreement may be amended only by a
writing signed by the parties.
6.6 Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
6.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same
10
<PAGE> 11
instrument.
IN WITNESS WHEREOF, the parties hereto have set their hand and seal as
of the date first above written.
BRISTOL-MYERS SQUIBB COMPANY
By: /s/ Charles Linzner
----------------------------------------
Name: Charles Linzner
-----------------------------------------
Title: Vice President and Senior Counsel
---------------------------------
GENETICS INSTITUTE, INC.
By: /s/ Jack Morgan
-----------------------------------
Name: Jack Morgan
---------------------------------
Title: Vice President, Corporate
----------------------------------
Development
----------------------------------
11
<PAGE> 12
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Schedule A
----------
NPA
- ---
NPA is a tissue plasminogen activator protein variant known at GI as
FEIX and defined as the plasminogen activating material produced by expression
in a mammalian host cell of a DNA sequence encoding the peptide sequence for
tPA (published Figure 1 of United States Patent 4,740,461 (Kaufman)) modified
in the following respects: (1) delete codons Cys 6 through Ile 86; and (2)
replace the Asn codon at position 117 with a Gln codon, where the codons are
numbered with Ser-1 of the mature protein.
Third Party Patents
- -------------------
************************ *************************
*************************
*************************
****************** *************************
*************** *************************
*************************
*************************
<PAGE> 13
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Genetics Institute, Inc.
87 CambridgePark Drive
Cambridge, MA 02140
September 21, 1995
Bristol-Myers Squibb Company
Route 206 and Province Line Road
Princeton, New Jersey 08540
Re: Option/License Agreement between Bristol-Myers Squibb Company
and Genetics Institute, Inc. dated May 24, 1995 and Supply, Data
Exchange and Manufacturing Technology License Agreement BETWEEN
Genetics Institute, Inc. and Suntory Limited dated September 21,1995
--------------------------------------------------------------------
Gentlemen:
Reference is made to the Option/License Agreement between Bristol-Myers Squibb
Company ("BMS") and Genetics Institute, Inc. ("GI") dated May 24, 1995 (the
"Agreement") and the related Supply, Data Exchange and Manufacturing
Technology License Agreement between GI and Suntory Limited ("Suntory") of
even date herewith (the "Suntory Agreement"). The purpose of this letter is
to set forth certain supplemental terms to the Agreement which relate to the
Suntory Agreement. Capitalized terms used herein and not otherwise defined
shall have the meanings given them in the Agreement.
1. You hereby agree to purchase the quantities and form of NPA set
forth in Section 1.1 of the Suntory Agreement for the purchase price set
forth in Sections 1.4 and 1.5 of the Suntory Agreement, provided that the
condition under Section 1.6 of the Suntory Agreement has been met and the
NPA supplied by Suntory meets the specifications called for by Section 1.3
of the Suntory Agreement. This obligation shall survive any termination
of the Agreement. Further, for purposes of Section 1.3 of the Suntory
Agreement, we hereby agree that, as between BMS and GI, all discussions and
decisions pertaining to the specifications applicable to the NPA to be
supplied by Suntory shall be under your exclusive reasonable control.
2. You hereby acknowledge that, with respect to your reasonable requirements
for the commencement of your ***************************** in ******, you
have elected
<PAGE> 14
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
to purchase from Suntory a custom filled and finished form of NPA that
cannot be delivered by Suntory on or before ******************.
Accordingly, the second sentence of Section 2.2 of the Agreement is hereby
amended to read in its entirety as follows:
"Notwithstanding the foregoing, in the event that BMS shall fail to
receive, on or before ****************** (the date of receipt being
referred to in the table below as the "Data Receipt Date"), sufficient
data as contemplated by Section 3.1(b) of this Agreement and the last
sentence of Section 3.1 of this Agreement for the commencement of its
******************************* in ******, the foregoing payment dates and
Option Period shall be extended as follows, provided that BMS shall have
specified its reasonable needs with respect to such data on or prior to
*************:
<TABLE>
<CAPTION>
Data Extended Extended
Receipt Date Payment Dates Option Period
------------ ------------- -------------
<S> <C> <C>
After *********** ************** or the date Until *******
****, but on or of completion of BMS's ********
prior to *********, *********************
**** **************, whichever
occurs first
****************, the date of
commencement of BMS's *****
************** or the effective
date of the License Agreement,
which ever occurs first
After **********, ***************** or the date Until ********
****, but on or of completion of BMS's ***** ********
prior to ******** *************************
******** *****, whichever occurs first
*****************, the date
of commencement of BMS's
********************* or the
effective date of the License
Agreement, whichever
occurs first
After ******** ***************** or the date Until ********
******** of completion of BMS's ***** ********
*************************
</TABLE>
2
<PAGE> 15
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
*****, whichever occurs first
*****************, the date
of completion of BMS's
********************* or the
effective date of the License
Agreement, whichever
occurs first
As used in this Agreement, Suntory Agreement means the Supply, Data
Exchange and Manufacturing Technology License Agreement between GI and
Suntory dated September 21, 1995."
In addition, you hereby agree that the refund provisions of Section 2.3 of
the Agreement shall not apply with respect to clause (b) thereof unless you
shall fail to receive the supply of NPA called for by Section 1.1 of the
Suntory Agreement on or prior to *****************. If such failure
occurs, you shall be entitled, as otherwise provided in Section 2.3(b) of
the Agreement, by delivering written notice to GI at any time on or prior
to **************, to receive from GI a refund of the ******************
************ payment due on the Effective Date.
3. With respect to Section 1.1 of the Suntory Agreement, you agree to
advise us in writing as to the additional stability studies you desire to
have Suntory conduct. You further agree to pay the reasonable costs for
the additional stability tests requested by you.
4. With respect to Section 1.1 of the Suntory Agreement, you agree to pay
the costs for the preparation of the drug master file if required in
order for you to conduct your dose- ranging Phase II clinical trial or any
subsequent clinical trial involving NPA supplied by Suntory.
5. With respect to Section 1.2 of the Suntory Agreement, you agree to
advise us in writing on or before *************** as to any preclinical,
clinical and/or proof of equivalency requirements of NPA that you desire
to have Suntory supply in calendar years 1996 and 1997. You further
acknowledge that, ************** the ********************** of ***********
of the *****************, our ********** to you set forth in ******* of
*********** of the Agreement shall remain unaltered.
6. With respect to Sections 1.3 and 1.5 of the Suntory Agreement, you
agree that any rejection by you of any shipment of NPA as not meeting the
warranted specifications for such NPA shall be made by you within ** days
of your receipt of the applicable invoice; otherwise you shall be deemed
to have accepted the shipment for purposes of Section 1.5 of the Suntory
Agreement.
7. With respect to Section 1.5 of the Suntory Agreement, you agree to pay
us for each
3
<PAGE> 16
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
accepted shipment of NPA within ** days of your receipt of the
applicable invoice. In addition, if we so request, in each case where the
related purchase order was submitted by you directly to Suntory, you agree
to make such payments directly to Suntory on behalf of us.
8. For purposes of Sections 1.3 and 1.5 of the Suntory Agreement, you
agree that the following notification procedures shall apply. Upon
receipt of the applicable invoice from Suntory, GI shall send a copy of
the applicable invoice to you by facsimile to facsimile number (908)
519-3962 to the attention of Alistar J. Thomson and shall send a
confirmatory copy of the applicable invoice to you by overnight express
mail to the attention of Alistar J. Thomson, Bristol-Myers Squibb Company,
P. O. Box 191, New Brunswick, New Jersey 08903-0191. So long as GI
complies with the foregoing confirmatory notice procedure, the applicable
invoice shall be deemed to be received by you on the day the facsimile of
the applicable invoice is sent to you. In addition, if we so request, you
agree to confirm in writing your receipt of the applicable invoice within
two business days of your deemed receipt of the applicable invoice.
9. You agree to the use restrictions on the documentation furnished to GI
pursuant to Section 2.1 of the Suntory Agreement set forth in Section 2.2
of the Suntory Agreement. You further agree to the right of review and
consent granted to Suntory in Section 2.2 of the Suntory Agreement and
agree to comply with the provisions set forth in Section 2.2 of the
Suntory Agreement pertaining to the preparation and review of translations
and summaries.
10. With respect to Section 2.3 of the Suntory Agreement, you agree to
directly disclose to both us and Suntory all data and information regarding
the adverse effects and any other adverse events which occur in
association with any product (either for development or commercial use)
which contains NPA as an ingredient that you obtain subsequent to June 30,
1995. You further agree to enter into a separate written agreement with
Suntory under which the exchange of such data and information shall be
stipulated in reasonable detail.
11. With respect to Article III of the Suntory Agreement, you agree to
advise us in writing on or before **************** as to the manufacturing
improvements made by Suntory that you desire to have transferred and
licensed to you, if any. In addition, you agree to negotiate in good
faith the terms of any such transfer and license with the goal of GI's
reaching a final agreement with Suntory as soon as practicable.
Recognizing the fact that you will not be obligated to notify GI until
***************** as to the manufacturing improvements that you desire to
have transferred and licensed to you, with respect to the requirements of
Section 3.1(c) of the Agreement (but not the requirements of Sections 3.1
(a), (b) and (d) of the Agreement), you hereby agree that the refund
provisions of Section 2.3 of the Agreement shall not apply with respect to
clause (a) thereof unless GI shall fail to have in place the written
agreement called for by Section 3.1(c) of the Agreement on or prior to
*****************. If such failure occurs, you shall be
4
<PAGE> 17
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
entitled, as otherwise provided in Section 2.3(a) of the Agreement, by
delivering written notice to GI at any time on or prior to **************,
to receive from GI a refund of the ****************************** payment
due on the Effective Date. You further agree that any failure by you to
so notify us by ***************** shall release us from our foregoing
***************** obligation to you. Lastly, anything to the contrary
notwithstanding, in the event that Suntory agrees to enter into a two-way
agreement with you regarding the transfer and license of its manufacturing
improvements and, in connection therewith, directly deal with you without
substantial involvement of GI as intermediary, you agree to release us
from our foregoing ***************** obligation to you.
12. With respect to Article III of the Suntory Agreement, you agree to
make all payments related to any transfer and license of biological
materials and manufacturing technology directly to Suntory if so requested
by GI or if you enter into a two-way agreement with Suntory. You further
agree to cooperate in any direct payment arrangement between you and
Suntory in order to assist Suntory in obtaining a foreign tax credit in
Japan against any tax withholding required to be made by you or your
affiliates or sublicensees. For the avoidance of doubt, any other payments
to Suntory related to any such transfer and license will be for your sole
account. Notwithstanding the contemplation under Article III of the
Suntory Agreement of an agreement between GI and Suntory, both BMS and GI
hereby agree to use commercially reasonable and diligent efforts to seek to
replace such agreement with a direct agreement between BMS and Suntory in
implementation of such transfer and license. In any event, we hereby agree
that, as between BMS and GI, all discussions and decisions pertaining to
such transfer and license shall be under your exclusive reasonable control.
13. You agree that the License Agreement shall contain provisions
sufficient in order for us to meet our obligations to Suntory set forth in
Sections 4.2, 4.3, 4.4 and 4.5 of the Suntory Agreement.
14. You agree to the warranty limitations set forth in Article V of the
Suntory Agreement.
15. You agree that the License Agreement shall contain appropriate
provisions for effecting the assumption by BMS of (a) GI's indemnification
obligations to Suntory under Section 6.1 of the Suntory Agreement to the
extent that such obligations arise out of the development, manufacture,
commercialization, marketing, sale or use by BMS and its affiliates and
sublicensees and (b) the benefit of Suntory's indemnification
obligations to GI under Section 6.2 of the Suntory Agreement.
16. You agree to the confidentiality provisions set forth in Article VII of the
Suntory Agreement.
17. In the event of any termination of the Agreement, you agree to cease
use of all data obtained by you from Suntory. In the event of a
termination of the Suntory Agreement
5
<PAGE> 18
by Suntory, you agree to cease use of the data obtained by you from Suntory
unless you shall have assumed GI's obligations under the Suntory
Agreement in accordance with the terms of the Suntory Agreement.
18. With respect to each Option/License Fee, you hereby agree that, upon
written inquiry from us within 10 business days of the putative payment
due date (as provided in Section 2.2 of the Agreement), you will send us a
written notice on or prior to the business day immediately preceding
such payment due date as to your conclusive determination of whether to pay
such Option/License Fee.
If the foregoing is in conformity with your understanding of the supplemental
terms to the Agreement, please indicate your acceptance below.
Very truly yours,
GENETICS INSTITUTE, INC.
By: /s/ Jack Morgan
------------------------------
Agreed and accepted:
BRISTOL-MYERS SQUIBB COMPANY
By: /s/ Sol I. Rajfer
---------------------------------
6
<PAGE> 19
Genetics Institute, Inc.
87 CambridgePark Drive
Cambridge, MA 02140
October 5, 1995
Bristol-Myers Squibb Company
Route 206 and Province Line Road
Princeton, New Jersey 08540
Re: Option/License Agreement between Bristol-Myers Squibb Company
and Genetics Institute, Inc. dated May 24, 1995 and Letter Agreement
between Bristol-Myers Squibb Company and Genetics Institute, Inc.
dated September 21, 1995
--------------------------------------------------------------------
Gentlemen:
Reference is made to the Option/License Agreement between Bristol-Myers Squibb
Company ("BMS") and Genetics Institute, Inc. ("GI") dated May 24, 1995 (the
"Agreement") and the Letter Agreement between BMS and GI dated September 21,
1995 (the "Letter Agreement"). The purpose of this letter is to set forth
certain amendments to the Agreement and the Letter Agreement. Capitalized
terms used herein and not otherwise defined shall have the meanings given them
in the Agreement.
1. BMS and GI agree that, notwithstanding the definition of the term
Improvements set forth in Section 1.3 of the Agreement, the term Improvements
shall not include any biological materials or manufacturing technology owned,
developed or acquired (other than from GI) by BMS relating to the production of
bulk NPA or the formulation, filling or finishing of Licensed Products.
Further, BMS and GI agree that the license set forth in Section 3.5 of the
Agreement and the license called for by Section 4.3 of the Agreement shall not
include any license to any of such biological materials or manufacturing
technology of BMS relating to the production of bulk NPA or the formulation,
filling or finishing of Licensed Products.
2. Section 2.2 of the Agreement, as amended by Paragraph 2 of the
Letter Agreement, is hereby amended to read in its entirety as follows:
"2.2 Option/License Fee. In consideration of the Option and the
------------------
licenses granted to BMS in this Agreement, BMS shall make the following
payments to GI within thirty (30) days
<PAGE> 20
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Bristol-Myers Squibb Company
October 5, 1995
Page 2
<TABLE>
of the dates set forth below (the "Option/License Fees"):
<CAPTION>
Payment
Number Date Amount
- ------ ---- ------
<S> <C> <C>
1 Effective Date $*********
2 ****************** or the date of $*********
completion of BMS's ************
****************, whichever occurs first
3 ****************** or the date of $*********
completion of BMS's ************
****************, whichever occurs first
4 ********************, the date of $*********
commencement of BMS's ***************
or the effective date of the License Agreement,
whichever occurs first
</TABLE>
Notwithstanding the foregoing, in the event that BMS shall fail to receive, on
or before **************** (the date of receipt being referred to in the table
below as the "Data Receipt Date"), sufficient data as contemplated by Section
3.1(b) of this Agreement and the last sentence of Section 3.1 of this Agreement
for the commencement of its ************************** in ******, the foregoing
payment dates and Option Period shall be extended as follows, provided that
BMS shall have specified its reasonable needs with respect to such data on or
prior to ************:
<TABLE>
<CAPTION>
Data Payment Extended Extended
Receipt Date Number Payment Dates Option Period
- ------------ ------ ------------- -------------
<S> <C> <C> <C>
After ************ 2 ************** or the date Until *******
****, but on or of completion of BMS's ********
prior to ********** *********************
**** **************, whichever
occurs first
3 ************** or the date
of completion of BMS's
</TABLE>
<PAGE> 21
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Bristol-Myers Squibb Company
October 5, 1995
Page 3
<TABLE>
<CAPTION>
Data Payment Extended Extended
Receipt Date Number Payment Dates Option Period
- ------------ ------ ------------- -------------
<S> <C> <C> <C>
*********************
clinical trial, whichever
occurs first
4 ****************, the date of
commencement of BMS's *****
************** or the effective
date of the License Agreement,
which ever occurs first
After **********, 2 ***************** or the date Until ********
****, but on or of completion of BMS's ***** ********
prior to ******** *************************
******** *****, whichever occurs first
3 ***************** or the date
of completion of BMS's *****
*************************
*****, whichever occurs first
4 *****************, the date
of commencement of BMS's
******************** or the
effective date of the License
Agreement, whichever
occurs first
After ******** 2 *************** or the date Until ********
******** of completion of BMS's ***** ********
*************************
*****, whichever occurs first
3 ***************** or the date
of completion of BMS's *****
*************************
*****, whichever occurs first
</TABLE>
<PAGE> 22
Confidential Material Omitted and Filed Separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
Bristol-Myers Squibb Company
October 5, 1995
Page 4
<TABLE>
<CAPTION>
Data Payment Extended Extended
Receipt Date Number Payment Dates Option Period
- ------------ ------ ------------- -------------
<S> <C> <C> <C>
4 ****************, the date
of completion of BMS's
****************** or the
effective date of the License
Agreement, whichever
occurs first
</TABLE>
Other than the four payments specified in this Section 2.2, there shall be no
license, milestone or other like fees payable by BMS to GI under this Agreement
or the License Agreement."
3. BMS and GI agree that the obligation of BMS to make Payment Number
2 set forth in Section 2.2 of the Agreement, as amended by this Letter
Agreement ("Payment 2"), shall become guaranteed upon the occurrence of either
of the following situations on the following dates:
(a) in the event that all of the conditions set forth in Section 2.3
of the Agreement, as supplemented by Paragraphs 2 and 11 of the
Letter Agreement, shall have been met such that BMS shall have no
right to receive a refund from GI of Payment Number 1 set forth in
Section 2.2 of the Agreement ("Payment 1"), on ****************; or
(b) in the event that BMS shall have the right to receive a refund
from GI of Payment 1 as a result of the conditions set forth in
Section 2.3 of the Agreement, as supplemented by Paragraphs 2 and
11 of the Letter Agreement, not being satisfied, but BMS shall not
have delivered written notice to GI of its election to receive
such refund on or prior to **************, on **************.
Once either of the situations described in foregoing clauses (a) or (b) shall
have occurred, BMS and GI agree that Payment 2 shall become a guaranteed
payment to GI on the date set forth in the applicable clause, payable in
accordance with the provisions of Section 2.2 of the Agreement, as amended by
this Letter Agreement, and BMS's obligation to make Payment 2 shall survive
any termination of the Agreement in the interim.
4. BMS and GI agree that, unless BMS shall have been entitled to and
shall have duly elected to receive a refund of Payment 1 as a result of the
conditions set forth in Section 2.3 of the Agreement, as supplemented by
Paragraphs 2 and 11 of the Letter Agreement, not being
<PAGE> 23
Bristol-Myers Squibb Company
October 5, 1995
Page 5
satisfied, the first sentence of Section 2.5 of the Agreement shall not apply
to Payment 2 and that the failure of BMS to make Payment 2 when due shall be
deemed to be a breach of the Agreement by BMS.
5. BMS and GI agree that Paragraph 18 of the Letter Agreement shall
not apply to Payment 2.
If the foregoing is in conformity with your understanding of the
amendments to the Agreement and the Letter Agreement, please indicate your
acceptance below.
Very truly yours,
GENETICS INSTITUTE, INC.
By: /s/ Jack Morgan
-----------------------------
Agreed and accepted:
BRISTOL-MYERS SQUIBB COMPANY
By: /s/ Louis T. DiFazio
------------------------------
<PAGE> 1
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
EXHIBIT 11
Computation of Earnings Per Share
(unaudited-in thousands, except per share amounts)
Primary earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common
stock equivalents outstanding.
Common stock equivalents consist of stock options and warrants and are not
included in the calculation of earnings per share in loss periods because their
effect would be antidilutive.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary Earnings per Share
--------------------------
Weighted average number of shares
outstanding 26,745 26,474 26,690 26,401
Shares deemed outstanding from the
assumed exercise of stock options
and warrants reduced by the number
of shares purchased with proceeds - 1,077 535 -
----------- ----------- ----------- -----------
Total 26,745 27,551 27,225 26,401
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shares $ (7,183) $ 12,643 $ 3,686 $ (6,951)
----------- ----------- ----------- -----------
Primary earnings (loss) per common share $ (.27) $ .46 $ .14 $ (.26)
=========== =========== =========== ===========
Fully Diluted Earnings Per Share
--------------------------------
Weighted average number of shares
outstanding 26,745 26,474 26,690 26,401
Shares deemed outstanding from the
assumed exercise of stock options
and warrants reduced by the number
of shares purchased with proceeds - 1,732 934 -
----------- ----------- ----------- -----------
Total 26,745 28,206 27,624 26,401
----------- ----------- ----------- -----------
Net income (loss) applicable to common shares $ (7,183) $ 12,643 $ 3,686 $ (6,951)
----------- ----------- ----------- -----------
Fully diluted earnings (loss) per common share $ (.27) $ .45 $ .13 $ (.26)
=========== =========== =========== ===========
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF GENETICS INSTITUTE, INC. FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 48,647
<SECURITIES> 213,218
<RECEIVABLES> 40,363
<ALLOWANCES> 0
<INVENTORY> 18,768
<CURRENT-ASSETS> 326,769
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0
0
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</TABLE>
