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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from............. to ...........................
Commission file number 0-15609
Agouron Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
California 33-0061928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10350 North Torrey Pines Road, La Jolla, California 92037-1020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 622-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
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 and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No _____
On September 13, 1996, the aggregate market value of the voting stock
held by nonaffiliates totaled approximately $530,563,000 based on the
closing stock price as reported by The Nasdaq Stock Market.
On September 13, 1996, there were 13,500,134 shares of common stock,
without par value, of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement to be prepared pursuant to
Regulation 14A and filed in connection with solicitation of proxies for its
Annual Meeting of Stockholders, to be held on November 7, 1996, is
incorporated by reference into Part III of this Form 10-K.
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PART I
Item 1. BUSINESS
Except for the historical information contained herein, the following
"Business" section contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the
"Business" section and Exhibit 99 to this Form 10-K.
General
The Company was organized and incorporated in California in June 1984.
Agouron is a pioneer and leader in technologies that enable the atom-by-atom
design of novel synthetic drugs based upon the molecular structures of
target proteins which play key roles in human disease. The Company is
conducting phase II/III clinical trials of two drugs generated by these
design technologies: VIRACEPT (TM) (nelfinavir mesylate) for treatment of
HIV infection and THYMITAQ (TM) (AG337) for treatment of solid malignant
tumors.
In addition, eleven preclinical programs are in progress for discovery or
development of other new drugs in the fields of cancer, viral disease, and
inflammatory disease. The Company's business currently consists of one
business segment, the operations of which are described below.
Agouron's goal is to become profitable from the sale of differentiated
drugs generated principally from its own drug discovery and development
efforts. To augment its technical capabilities, to enhance the likelihood
of successful commercialization of its products and to offset some of its
operating costs, the Company has entered into collaborative research and
development arrangements with other companies. However, consistent with its
commercial goal, the Company has generally retained significant commercial
rights in drugs developed in its collaborative research and development
programs funded in whole or in part by other companies. The Company
anticipates that its successfully developed products will be commercialized
both through its own direct sales and marketing activities in certain
pharmaceutical markets, when appropriate, and through manufacturing and
marketing relationships with other pharmaceutical firms.
The Company's common stock account has evolved through a series of
public offerings and private placements of its common and preferred stock
and the exercise of various warrants and employee stock options. Five
public offerings (calendar 1987, 1989, 1991, 1995 and 1996) generated net
proceeds of approximately $212,400,000 through the issuance of approximately
9,894,000 shares. The most recent public offering raised approximately
$77,674,000 through the issuance of 2,735,000 shares. Private placements of
both common and preferred stock have generated approximately $17,090,000 in
net proceeds and the issuance of approximately 2,763,000 shares. Private
placements in fiscal 1993 generated $6,000,000 through the issuance of
approximately 312,000 shares. The exercise of warrants and employee stock
options (including employee stock purchase plan transactions) have generated
proceeds of approximately $7,190,000 and the issuance of approximately
810,000 shares.
Narrative Description of Business
Agouron is developing innovative drugs for treatment of cancer, HIV
infection and other serious diseases and has expended approximately
$191,000,000 on research and development since its inception.
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VIRACEPT, an orally administered inhibitor of the enzyme HIV protease,
is the subject of pivotal phase II/III clinical studies evaluating the anti-
HIV activity and safety of two alternative doses of the drug for six months
principally in combination with approved anti-HIV drugs in more
than 700 HIV-infected subjects in the United States. If successful, these
studies could lead to the submission of a New Drug Application ("NDA") to
the U.S. Food and Drug Administration ("FDA") for VIRACEPT in the first
quarter of calendar 1997. In a series of shorter, smaller, pilot phase II
studies, comparable doses of VIRACEPT taken alone or in combination with
other anti-HIV drugs produced profound reductions in the amount of HIV
detectable in the blood of patients and significant increases in their CD4+
T cell counts. VIRACEPT was reported to be safe and well tolerated in the
pilot studies. Agouron is presently preparing to market and sell VIRACEPT in
North America upon its approval by the FDA.
Agouron is developing VIRACEPT in collaboration with the pharmaceutical
division of Japan Tobacco Inc. ("JT"). In collaboration with JT, Agouron is
also engaged in the discovery of drugs for treatment of infections caused by
hepatitis C and by herpes viruses. Under agreements with JT, Agouron retains
exclusive commercial rights to these anti-viral products in the
United States, Canada and Mexico, generally subject to the payment either of
royalties or a share of profits to JT.
THYMITAQ, an inhibitor of the enzyme TS, is presently the subject of
phase II/III clinical studies evaluating the drug as a chemotherapeutic
agent for treatment of malignant solid tumors associated with cancer of the
liver (hepatocellular carcinoma) and cancer of the head/neck. Previously,
six small phase II clinical studies evaluated 5-day courses of treatment
with THYMITAQ administered intravenously in patients with malignant solid
tumors associated with cancer of the colon, lung, liver, pancreas, prostate
or head/neck. Tumor reductions of greater than 50% were observed in patients
with head/neck cancer, liver cancer, lung cancer and colon cancer.
Stabilization of disease was observed in a majority of the remaining
evaluable patients in all groups studied. An oral formulation of THYMITAQ is
also being developed by the Company. If successful, the phase II/III pivotal
clinical trials could lead to submission of a NDA for THYMITAQ late in
calendar 1997 or in calendar 1998. Agouron intends to engage in the sales
and marketing of THYMITAQ in North America upon its approval by the FDA.
In June 1996, Agouron signed a binding letter of intent with Hoffmann-
La Roche Inc. and F. Hoffmann-La Roche Ltd., subsidiaries of Roche Holdings
Ltd. ("Roche"), providing for the collaborative development and
commercialization of THYMITAQ and of the Agouron anti-cancer compound
designated AG3340 currently under preclinical development. Under provisions
of this letter of intent, Agouron is to receive initial license fees and
additional development milestone payments from Roche. Roche has agreed to
bear 80% of future costs of developing these drugs. Agouron and Roche will
cooperatively market the two compounds for cancer indications and share
profits in North America, while Roche has exclusive marketing rights for
cancer indications to these compounds outside of North America, subject to
the payment of royalties to Agouron. Roche also is to provide annual
research funding support and subsequent milestone payments to Agouron for
similar commercial rights for all indications in compounds which are
generated in a collaborative research program focused on cell cycle control.
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Research and Development Programs
Agouron's research and development programs concentrate in three areas
of human disease: cancer, viral disease and inflammatory disease. All of
Agouron's drug discovery programs apply the Company's core technologies for
the atom-by-atom design of small synthetic drug molecules based upon the
three dimensional molecular architecture of proteins that play key roles in
human disease. The following table outlines the Company's portfolio of
preclinical and clinical research and development programs. Some of these
programs are being pursued by Agouron independently while others are being
undertaken in collaboration with other companies.
<TABLE>
<CAPTION>
<S> <S> <S> <S> <S>
Program Indication Protein Target Development Stage Partner
- ------- ---------- -------------- ----------------- -------
Cancer
THYMITAQ-i.v. Solid Tumors TS Phase II/III Roche
THYMITAQ-oral Solid Tumors TS Phase I Roche
AG2034 Solid Tumors GART Phase I None
AG3340 Metastasis MMPs Preclinical Roche
AICART Solid Tumors AICART Research None
cdk4 Solid Tumors cdk4 Research Roche
VEGF Receptor Solid Tumors kdr Research None
Viral Disease
VIRACEPT HIV Infection HIV Protease Phase II/III JT
Rhinovirus Common Cold RhV 3C Protease Research None
Cytomegalovirus CMV Infection CMV Protease Research JT
Herpes simplex Herpes Infection HSV-1 Protease Research JT
Hepatitis C Viral Diseases Hepatitis C Protease Research JT
Inflammatory Disease
MMP Arthritis MMPs Research Roche
AICART Inflammation AICART Research None
</TABLE>
Cancer
Overview
The development of new drugs for treatment of cancer is a primary
scientific and commercial focus of the Company. Cancer is the second leading
cause of death in the United States and most developed nations. While much
progress has been made in the treatment of certain forms of cancer, most
existing anti-cancer drugs display limited efficacy and significant
toxicities that restrict their clinical usefulness. As a result, there
remains a critical need for anti-cancer drugs which are less toxic and more
efficacious either as tumoricidal (tumor-killing) or tumoristatic (tumor-
controlling) agents.
Agouron believes that the next generation of agents for treatment of
the most common human cancers should have a target other than DNA, should be
more capable of evading drug resistance and should retain activity against
non-proliferating tumor cells. The Company's anti-cancer drug discovery and
development programs are aimed at meeting these criteria by focusing on the
discovery and development of inhibitors of the following enzymes:
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thymidylate synthase (TS); glycinamide ribotide formyltransferase ("GART");
matrix metalloproteases (MMPs); aminoimidazole carboxamide ribonucleotide
formyltransferase ("AICART"); cyclin dependent kinase 4 ("cdk4"); and a
receptor for Vascular Endothelial Growth Factor ("VEGF"). Three of these
enzyme targets (TS, GART and AICART) have a common structural motif that
permits lead inhibitors from one program to be useful potentially in others.
TS Inhibitors: THYMITAQ
The enzyme TS catalyzes a critical step in the synthesis of DNA and is
especially crucial to cancer cells undergoing uncontrolled proliferation.
Independent research has established that the efficacy of the anti-tumor
drug 5-fluorouracil derives from its ability to inactivate TS. Inhibition of
TS kills tumor cells by inducing programmed cell death -- a form of natural
cellular suicide by which normal cell growth is usually regulated. It has
been Agouron's goal to design highly specific inhibitors of TS that overcome
the several limitations of 5-fluorouracil. In particular, Agouron has
focused on the design of TS inhibitors of novel chemical character that it
believes may be capable of penetrating fatty membranes and tissues,
circumventing some of the more common forms of drug resistance and passing
into and out of cells by passive diffusion, allowing for much greater
clinical control of toxicity and for a broader spectrum of anti-tumor
activity. Agouron's lead compound in the TS program, THYMITAQ, is in phase
II/III clinical testing.
Phase I studies of THYMITAQ initially conducted at the medical hospital
of the University of Newcastle upon Tyne in England, under the sponsorship
of the British Cancer Research Campaign, evaluated first an intravenous
("i.v.") formulation and then an oral formulation of THYMITAQ. In these
phase I studies, which were ultimately extended into the United States and
involved a total of 45 advanced cancer patients, the maximum tolerated 5-day
dose of THYMITAQ was determined through a series of dose escalations. On the
basis of these studies, a dose of 1000 mg/m/day was determined to be
appropriate for phase II efficacy studies. The phase I studies demonstrated
that THYMITAQ i.v. was well tolerated: at the maximum tolerated dose, the
predominant toxicities were determined to be myelosuppression (suppression
of bone marrow activity) of short duration and mucositis (mouth sores) which
could frequently be mitigated with a simple mouthwash. A subsequent phase I
study involving 32 patients in England demonstrated that oral administration
of THYMITAQ resulted in a pharmacokinetic and safety profile similar to that
of the i.v. formulation.
The Company has conducted six small phase II trials of the i.v.
formulation of THYMITAQ. The six studies have evaluated 5-day courses of
treatment with THYMITAQ in patients with malignant solid tumors associated
with cancer of the colon, lung, liver, pancreas, prostate or head/neck.
Tumor reductions of greater than 50% were observed in patients with
head/neck cancer, liver cancer, lung cancer and colon cancer. Stabilization
of disease was observed in a majority of the remaining evaluable patients in
all groups studied. Of 19 evaluable patients with head/neck cancer, four
experienced reductions in tumor mass greater than 50%, including two
patients with reductions of 100%. Of 18 patients with hepatocellular (liver)
cancer, two experienced tumor reductions greater than 50%; two others
experienced tumor reductions sufficient to permit surgical removal of tumors
previously deemed to be inoperable.
Pivotal phase II/III clinical trials have recently been initiated at
several clinical sites in the United States for evaluation of THYMITAQ as a
single agent treatment in cancer of the head/neck and in liver cancer. For
treatment of head/neck cancer, THYMITAQ is being compared to the
chemotherapeutic agent methotrexate in patients who have failed first-line
therapy. For treatment of liver cancer, THYMITAQ is being evaluated in a
non-comparative clinical trial, as no drugs are currently approved for use
as single agents in this disease. Complete enrollment of these studies is
expected to require several months. The Company intends to supplement the
U.S. clinical trials of THYMITAQ by opening additional clinical studies in
Europe (head/neck cancer) and in Asia (liver cancer). If enrolled in a
timely manner and if successful, the pivotal trials could permit the Company
to file a NDA for THYMITAQ in calendar 1998.
<PAGE>
The binding letter of intent signed by Agouron and Roche in June 1996
provides for the collaborative further development and commercialization for
cancer indications of THYMITAQ. Under provisions of this letter of intent,
Agouron is to receive license fees and subsequent development milestone
payments from Roche. Roche has agreed to bear 80% of future costs of
developing THYMITAQ. Agouron and Roche will cooperatively market THYMITAQ
for cancer indications and share profits from sales of the drug in North
America. Roche has exclusive marketing rights to THYMITAQ for cancer
indications outside North America, subject to possible co-promotion rights
and the payment of royalties to Agouron.
GART Inhibitors: AG2034
An Agouron research program has resulted in the design of AG2034.
AG2034 is a potent, selective inhibitor of glycinamide ribonucleotide
transformylase (GART) -- a key enzyme in the biochemical pathway through
which tumor cells synthesize purines, essential components of DNA. With the
exception of liver cells, all normal human tissues obtain purines through an
alternative pathway (the purine salvage pathway). The Company believes that
inhibitors of GART will show a high degree of selectivity for tumor cells
and less significant bone marrow toxicity than other chemotherapeutic
agents.
AG2034 has demonstrated preclinical anti-tumor activity against a broad
panel of tumor types in preclinical models at various dosing schedules. In
cell culture experiments, AG2034 selectively kills tumor cells missing
certain cell cycle checkpoints, but is inactive against cells with normal
checkpoint functions. Because it has become technically possible to
determine whether biopsied tumor cells are deficient in checkpoint
functions, the Company believes that physicians may be able to determine in
advance of treatment which tumors are most likely to respond to AG2034.
Agouron has completed initial chemical scale-up of AG2034 and initial
preclinical toxicology studies. An Investigational New Drug Application has
been reviewed by the FDA, and Agouron has been cleared to intiate phase I
clinical studies of AG2034 in the fall of calendar 1996. The Company
presently retains all commercial rights to any compounds resulting from this
program.
MMP Inhibitors: AG3340
Independent research has shown MMPs to be involved in many disease
states. Certain MMPs have been associated with tumor growth, the metastasis
of tumor cells to secondary sites within the body and the growth of new
blood vessels (angiogenesis) through which tumor cells obtain nutrients and
growth factors. The Company believes that MMPs represent a new opportunity
for the discovery of novel tumoristatic agents. The Company further believes
that orally active inhibitors of certain combinations of MMPs, but not of
all MMPs, are most likely to have the optimal safety and efficacy profiles
of superior tumoristatic agents.
A three-year program of drug discovery undertaken by Agouron in
collaboration with Roche ("Roche 1993") has resulted in the selection of the
compound designated AG3340 for development by the Company as an anti-cancer
agent. AG3340 selectively inhibits the MMPs known as Gelatinase A and B,
Stromelysin-1 and Collagenase-3, but is relatively inactive against
Fibroblast Collagenase. In preclinical tests, AG3340 has demonstrated
excellent anti-tumor in vivo activity following oral administration in both
mouse and human tumor xenograft models. Significant tumor growth delays in
all models and significant reductions of spontaneous metastases in the mouse
Lewis lung model have been reported at recent scientific meetings.
Toxicology studies are currently underway to support initiation of phase I
clinical studies of AG3340 late in calendar 1996.
Other compounds from the Roche 1993 collaboration on MMP inhibitors are
the subjects of preclinical evaluation including certain compounds being
evaluated by Roche as agents for treatment of arthritis.
<PAGE>
The binding letter of intent signed by Agouron and Roche in June 1996
provides for the collaborative further development and commercialization for
cancer indications of AG3340 and certain other compounds. Under provisions
of this agreement, Agouron is to receive license fees and subsequent
development milestone payments from Roche. Roche has agreed to bear 80% of
future costs of developing AG3340. Agouron and Roche will cooperatively
market AG3340 for cancer indications and share profits from sales of the
drug in North America. Roche has exclusive marketing rights to AG3340 for
cancer indications outside North America, subject to certain co-promotion
rights and the payment of royalties to Agouron.
AICART Inhibitors
The enzyme AICART catalyzes a rate-determining step in the purine
biosynthetic pathway and represents a second target for anti-cancer drugs
which are active by virtue of their anti-purine effects. Research has shown
that inhibiting the rate-limiting enzyme in such a pathway produces the most
significant effects on the growth of cells dependent on that pathway. The
scientific rationale for GART as a target for new anti-tumor drugs applies
equally to AICART. Agouron scientists believe that two inhibitors of the
purine pathway -- an inhibitor of GART and an inhibitor of AICART -- may be
highly synergistic in producing anti-tumor activity when administered in
combination.
The Company's scientists have solved the three-dimensional structure of
AICART and are engaged in design, synthesis and evaluation of AICART
inhibitors intended to be efficacious in the treatment of cancer. The
Company presently retains all commercial rights to any compounds resulting
from this program.
Cell Cycle Control: cdk4
Cyclin dependent kinases are enzymes that play roles in regulating the
transitions between phases in the life cycles of all cells. A member of this
family of enzymes known as cdk4 has been implicated by independent research
in driving cells from a quiescent phase to the highly proliferative phase
characteristic of malignancies -- particularly in familial melanomas,
esophageal carcinomas and pancreatic cancers. Agouron has been engaged in a
drug discovery program aimed at the design of selective small molecule drugs
with the potential to inhibit the activity of cdk4 and therefore block the
transition of cancer cells into their proliferative phase.
Under provisions of the binding letter of intent signed by Agouron and
Roche in June 1996, Roche is to pay to Agouron annual research funding for
three years in support of the cdk4 program. Commercial rights for all
indications in compounds which are generated in the program are similar to
those which Roche has for the MMP inhibitor AG3340.
VEGF Receptor
The process known as angiogenesis, the formation of new blood vessels,
is a key factor in the maintenance and progression of several disease states
including the metastasis of malignant tumors. The ability of cancer cells to
carry out angiogenesis depends in part upon the activity of a protein known
as Vascular Endothelial Growth Factor (VEGF) which, by binding to a receptor
known as kdr, triggers the growth of endothelial cells. Agouron is engaged
in a drug discovery program whose objective is the design of drugs that
block the kdr receptor for VEGF and therefore compromise the ability of
tumors to carry out a key process in angiogenesis. The Company presently
retains all commercial rights to any compounds resulting from this program.
<PAGE>
Viral Disease
Overview
The development of new drugs for the treatment of certain viral
diseases is another scientific and commercial focus of the Company. The
Company is presently conducting programs aimed at discovery and/or
development of four classes of anti-viral drugs which block viral proteases,
enzymes required by several families of pathogenic viruses to carry out
replication and infection. Agouron's anti-viral drug programs include HIV
protease inhibitors (VIRACEPT), rhinovirus 3C protease inhibitors, herpes
virus protease inhibitors and hepatitis C protease inhibitors. Agouron is
developing certain of its anti-viral drugs in collaboration with JT.
HIV Protease Inhibitor: VIRACEPT
Research and development of drugs for treatment of HIV infection and
AIDS in the pharmaceutical industry has thus far produced both successes and
disappointments. Initially, scientists were optimistic that blocking the
essential HIV enzyme reverse transcriptase ("RT") would prove sufficient to
defeat the replication of HIV and curb the progression of HIV infection to
AIDS. As a result of research and development efforts by several
pharmaceutical companies, several RT inhibitors are now approved for use in
the United States. However, the clinical usefulness of this first generation
of anti-HIV drugs has generally been limited by their toxicity and by the
ability of HIV to mutate into forms that are resistant to them. For this
reason, it has been a high priority at Agouron, as well as at other
pharmaceutical companies, to discover and develop new anti-HIV drugs that
work by a mechanism of action other than inhibition of RT.
Inhibitors of the enzyme HIV protease are widely regarded as one of the
most promising new classes of anti-HIV drugs. HIV protease is an enzyme that
performs an essential role in the infectious cycle of HIV. Research shows
that inhibition of the protease enzyme renders HIV unable to form new
infectious virus. Three HIV protease inhibitors have been approved by the
FDA for marketing in the United States during the last year. Agouron
believes that its HIV protease inhibitor, VIRACEPT, has properties that will
permit it to compete effectively with these approved drugs.
A series of small, short-term pilot phase II clinical studies has been
completed evaluating the safety and acute anti-HIV efficacy of several daily
oral doses of VIRACEPT administered orally to HIV-infected subjects. In
these studies, VIRACEPT taken alone, in a two-day combination with stavudine
(d4T) or in a three-drug combination with zidovudine (AZT) and iamivudine
(3TC), produced profound decreases in the amount of HIV detectable in the
blood of patients and significant increases in their CD4+ T cell counts.
Pivotal phase II/III clinical studies of daily doses of 500 mg and 750 mg of
VIRACEPT administered three times daily in a tablet formulation, principally
in combination with other anti-HIV drugs, are currently in progress at a
large number of sites in the United States. In the pilot phase II studies,
such doses of VIRACEPT were safe and well tolerated, the most common side-
effect being loose stool/diarrhea.
If the current phase II/III clinical trials of VIRACEPT are completed
on a timely basis and if results from these trials are satisfactory, Agouron
plans to file a NDA in the first quarter of calendar 1997 and, if the NDA is
approved on a timely basis, to launch VIRACEPT in North America later in
calendar 1997. However, there can be no assurance that any of these events
will occur.
<PAGE>
Rhinovirus 3C Protease Inhibitors
Rhinoviruses are believed to be the single most frequent cause of the
common cold. While rhinovirus infections are a periodic annoyance to most
normal individuals, they produce more severe and prolonged symptoms in
people with asthma, emphysema and chronic obstructive pulmonary disease. The
family of rhinoviruses has eluded attempts to develop a useful vaccine
because it contains more than 100 serotypes. However, all known strains of
rhinoviruses depend on a critical enzyme, the 3C protease, at several stages
of their life-cycle for production of new infectious viruses. It has been
shown both by independent research and by Agouron scientists that
inactivating this enzyme halts rhinovirus production in vitro. Because there
is no known natural counterpart for the 3C protease enzyme in humans,
Agouron scientists believe that the potential for toxicity from selective
inhibitors of the rhinovirus 3C protease is low.
Agouron's rhinovirus protease research has resulted in the design of
potent, selective rhinovirus 3C protease inhibitors currently being
evaluated in preclinical pharmacological studies of anti-viral activity,
cellular toxicity and oral bioavailability. It is the Company's goal to
select one such inhibitor for development within 12 months. The Company
presently retains all commercial rights to any compounds resulting from this
program.
CMV and HSV-1 Protease Inhibitors
Among the most clinically significant members of the family of herpes
viruses are herpes simplex virus-1 (HSV-1) and cytomegalovirus (CMV). Like
HIV and rhinoviruses, HSV-1 and CMV each contain a protease enzyme essential
for virus maturation and infection. Agouron believes that these protease
enzymes represent targets for a new class of anti-viral drugs with the
potential for low toxicity. Agouron scientists have recently solved the
three-dimensional molecular structure of the targeted protease enzyme from
CMV and are seeking to solve the HSV-1 protease in preparation for
application of Agouron's drug design technologies. However, no inhibitor of
HSV-1 or CMV has yet been selected by Agouron for development.
Hepatitis C Protease Inhibitors
The ability to treat infection by hepatitis C virus represents a
significant unmet clinical need, particularly in Asian countries. Hepatitis
C virus depends upon a key protease enzyme for the production of new
infectious viruses. As no human counterpart of the hepatitis C protease
enzyme is known, Agouron scientists believe that the potential for toxicity
of selective hepatitis C protease inhibitors is low. Agouron's anti-
hepatitis C project is an early stage research program in which no inhibitor
has been selected for development.
Inflammatory Disease
Overview
Another scientific and commercial focus of the Company is the
development of drugs for treatment of inflammatory disease. These include
MMP inhibitors for use against degenerative diseases such as rheumatoid
arthritis and osteoarthritis and AICART inhibitors for use as anti-
inflammatory agents and immuno-suppressive agents for treatment of various
neuro-degenerative disorders.
<PAGE>
MMP Inhibitors
In addition to their role in the growth and metastasis of solid tumors,
MMPs display high levels of enzymatic activity in such degenerative diseases
as rheumatoid arthritis and osteoarthritis. Certain members of the MMP
family are associated most closely with these disease states and, Agouron
believes, offer targets for orally active drugs with potential for minimal
toxicity. The development of MMP inhibitors associated with these disease
states are being pursued by an affiliate of Roche. If successfully developed
by the Roche affiliate, the Company believes such selective inhibitors of
certain MMPs have the potential to interrupt the progression of arthritic
disease itself rather than just to treat the symptoms. The Company will
receive a royalty on sales by Roche of any anti-inflammatory products
resulting from the collaborative program.
AICART Inhibitors
AICART is being pursued by Agouron scientists as a target for the
development of novel anti-inflammatory drugs. It is widely believed that the
anti-inflammatory effects observed following administration of low doses of
the anti-cancer drug methotrexate result from the drug's indirect inhibition
of AICART. Used for chronic therapy, methotrexate accumulates in the liver
and other tissues and frequently results in serious toxicity. Agouron
scientists believe that inhibitors of AICART designed to avoid accumulation
in tissues may be superior anti-inflammatory drugs for conditions such as
arthritis. The Company's initial lead compounds in this program are being
used to validate this assertion. Having solved the three-dimensional
molecular structure of the AICART enzyme, Agouron scientists believe they
are uniquely positioned to initiate protein structure-based drug design of
novel inhibitors of the AICART enzyme intended to be efficacious in the
treatment of inflammatory disease. No candidate for development has yet been
identified in this program. The Company presently retains all commercial
rights to any compounds resulting from this program.
Research and Development Agreements
The Company has funded its research and development primarily from
working capital generated from both private and public sales of Agouron
equity and corporate collaborative arrangements. The Company has an ongoing
program of business development which may, from time to time, lead to the
establishment of corporate collaborations in addition to those noted below.
Japan Tobacco Inc.
In December 1992, the Company entered into an agreement with JT to
collaborate on the discovery, development and commercialization of novel
therapeutic drugs which act on key proteins related to the human immune
system (JT 1992). In February 1994, the Company expanded its strategic
alliance with JT into the field of anti-viral drugs for the treatment of
infections caused by hepatitis C, the herpes family of viruses and
rhinoviruses (JT 1994). In December 1994, the Company added its anti-HIV
drug, VIRACEPT, to the JT collaboration with the execution of a worldwide
development and licensing agreement (JT HIV). In January 1995, JT 1992 was
canceled by mutual agreement and JT 1992 resources were reallocated to JT
1994 programs. In February 1996, the portion of the JT 1994 collaboration
targeting rhinovirus was ended and program resources were reallocated to
other JT 1994 programs.
Under the provisions of JT 1994, JT has agreed to make certain research
payments of not less than $8,000,000 to the Company over a two-year period
ending December 1996. Such payments could approximate more than $21,000,000
over a four-year period if certain technical milestones are achieved. In
addition, JT made an up-front payment of $7,778,000, which was amortized to
revenue over a twenty-four month period. Under the provisions of JT HIV, JT
has made payments of $30,000,000 to Agouron representing initial and
subsequent payments of $2,500,000, $3,500,000 and $24,000,000. Agouron and
JT will ultimately share equally the costs of further development of
VIRACEPT.
<PAGE>
Under the provisions of JT 1994, the Company will have exclusive rights
to develop, manufacture and market anti-hepatitis C and anti-herpes drugs in
the United States, Canada and Mexico. JT will have exclusive rights to
develop, manufacture and market these drugs in Japan, Taiwan and South
Korea. Outside the countries in which they respectively have exclusive
rights, Agouron and JT will have co-exclusive rights to manufacture and
market jointly developed anti-hepatitis C and anti-herpes drugs. Each
company will pay royalties to the other based upon their respective sales of
anti-hepatitis C and anti-herpes drugs. Under the provisions of JT HIV,
Agouron will retain exclusive commercial rights to VIRACEPT (with the right
to sublicense, subject to JT's right of first refusal) in the United States,
Canada and Mexico. JT will have exclusive commercial rights to VIRACEPT
(with the right to sublicense, subject to the Company's right of first
refusal) in Japan and certain other countries of Asia. Exclusive commercial
rights (with the right to sublicense) in Europe and all remaining countries
of the world will be held by a joint venture owned equally by Agouron and
JT. The two companies will share royalties or profits equally from the
worldwide commercialization of VIRACEPT.
Under a separate agreement dated December 1992, JT purchased 155,844
shares of newly issued Common Stock for an aggregate purchase price of
$3,000,000. Such purchase represented approximately 2% of the then
outstanding Common Stock.
Roche
In June 1996, the Company completed a three-year agreement entered into
with Syntex (U.S.A.) Inc. (now a subsidiary of Roche) to collaborate on the
discovery of novel matrix metalloprotease inhibitor drugs. Roche has
exclusive worldwide commercial rights in any MMP inhibitors used to treat
arthritis and other degenerative bone diseases, subject to the payment of
royalties to Agouron. Under the terms of the agreement, the Company will
have a royalty position in certain other agreement products, if any, and
other development and commercial rights in other agreement products, if any.
Under a separate agreement dated June 1993, Syntex Corporation (now a
subsidiary of Roche) purchased 155,844 shares of newly issued Common Stock
for an aggregate purchase price of $3,000,000. Such purchase represented
approximately 2% of the then outstanding Common Stock.
In June 1996, Agouron signed a binding letter of intent with Hoffmann-
La Roche Inc. and F. Hoffmann-La Roche Ltd., subsidiaries of Roche,
providing for the collaborative development and commercialization of
THYMITAQ and of the Agouron anti-cancer compound designated AG3340 currently
under preclinical development. Agouron has received initial license fees of
$15,000,000 and, under the provisions of the binding letter of intent, is to
receive additional development milestone payments of up to $40,000,000 from
Roche. Roche has agreed to bear 80% of future costs of developing these
drugs. Agouron and Roche will cooperatively market the two compounds for
cancer indications and share profits in North America, while Roche has
exclusive marketing rights for cancer indications to these compounds outside
North America, subject to possible co-promotion rights and the payment of
royalties to Agouron. Roche is to provide annual research support of
$3,000,000 for three years as well as subsequent milestone payments of up to
$20,000,000 to Agouron for similar commercial rights for all indications in
compounds which are generated in a collaborative research program focused on
cell cycle control. Roche also has agreed to grant Agouron the right in
North America to commercialize a Roche anti-cancer product to be designated
in the future.
<PAGE>
Schering-Plough Corporation
In April 1994, the Company and Schering completed a three-year
collaborative research agreement providing for the discovery and development
of anti-cancer drugs which target oncogenic ras proteins. Each company may
pursue further discovery or development efforts in this program area at its
sole discretion and expense with no subsequent obligations to the other
company.
Competition
The pharmaceutical and biotechnology industries are subject to intense
competition and rapid and significant technological change. Many companies
and organizations, including major pharmaceutical, biotechnology and
chemical companies, universities and other research organizations, are
engaged in discovery and development of drugs for diseases targeted by the
Company. For example, the Company is aware of several pharmaceutical
companies that have HIV protease inhibitors, some of which are currently
being marketed, including those of Abbott Laboratories, Inc., Merck & Co.,
Inc. and Roche. Certain companies and organizations have substantially
greater financial and other resources, larger research and development
staffs and more extensive production and marketing organizations, experience
and capabilities than the Company. In addition, many companies have
significantly greater experience than the Company in preclinical testing and
in conducting human clinical trials of potential pharmaceutical products and
in obtaining the FDA and other regulatory approvals. All of these companies
and other research organizations compete with the Company in recruiting and
retaining highly qualified scientific and management personnel.
Agouron was the first company to devote itself to the development and
application of protein structure-based drug design. As such, the Company
believes that it has achieved certain competitive advantages including
developmental lead time, level of commitment to the technology and the
development of certain practical or technical capabilities. However, in
recent years several pharmaceutical companies have undertaken to establish
capabilities in protein x-ray crystallography, either internally or through
academic collaborations, and can be presumed to be engaged in the use of
such technology for the same purposes as is the Company. Certain
biotechnology companies and other companies have also entered into the field
of protein structure-based drug design. For example, Abbott Laboratories,
Ciba-Geigy Limited, Glaxo Wellcome plc, Merck and Roche have developed
programs focused on structure-based drug design. The Company expects that
the technology for protein structure-based drug design will become more
widely implemented over time and will ultimately become more common in the
pharmaceutical industry.
The Company believes that its ability to compete successfully will be
based on its ability to create and maintain scientifically advanced
technology, attract and retain scientific personnel with a broad range of
expertise, obtain patent protection or otherwise develop proprietary
products or processes, conduct clinical trials and obtain required
government approvals on a timely basis, select and pursue drug design
projects in areas in which significant market opportunities exist or are
likely to develop, manufacture its products on a cost-effective basis and
successfully market its products either alone or in conjunction with others.
Many of the Company's competitors have substantially greater financial
resources, clinical and regulatory experience, manufacturing capabilities
and sales and marketing organizations than Agouron.
Patents and Trade Secrets
The Company seeks patent protection for its proprietary technology and
potential products in the United States and in foreign countries. Most of
the Company's products are expected to be synthetic chemical compounds which
may be afforded patent protection under principles and procedures well
established by the United States Patent and Trademark Office under United
States patent law.
<PAGE>
The Company's strategy is to pursue a strong patent portfolio and
Agouron holds several patents, including a patent covering the chemical
composition of VIRACEPT. The Company is currently prosecuting a number of
patent applications in the United States and in various other countries
seeking protection for certain series of compounds, including, THYMITAQ and
VIRACEPT and certain proprietary technology. The Company will continue to
file patent applications on its evolving technology, processes and products.
The Company has recently received one United States patent covering
processes of making THYMITAQ and related compounds and intermediates
thereof. The Company's failure to obtain patent protection for its products
could have an adverse impact on the Company.
Many of the processes and much of the know-how of importance to the
Company's technology are dependent upon the skills, knowledge and experience
of its scientific and technical personnel, which skills, knowledge and
experience are not patentable. To protect its rights in these areas, the
Company requires all employees, significant consultants and advisors, and
collaborators to enter into confidentiality agreements with Agouron. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure of such trade
secrets, know-how or proprietary information. Further, in the absence of
patent protection, the Company may be exposed to competitors who
independently develop substantially equivalent technology or otherwise gain
access to the Company's trade secrets, knowledge or other proprietary
information.
Government Regulation
The production and marketing of the Company's products and its ongoing
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United
States and other countries. Pharmaceutical products intended for therapeutic
use in humans are principally governed by the FDA regulations in the United
States and by comparable government regulations in foreign countries.
Various federal, state and local statutes and regulations also govern or
influence the research and development, manufacturing, safety, labeling,
storage, record keeping, distribution and marketing of such products. The
process of completing preclinical and clinical testing and obtaining the
approval of the FDA and similar health authorities in foreign countries to
market a new drug product requires a significant number of years and the
expenditure of substantial resources. Failures or delays by the Company or
its collaborators or licensees in obtaining regulatory approvals would
adversely affect the marketing of products being developed by the Company
and the Company's ability to receive product revenues or royalties.
The steps required by the FDA before a new human pharmaceutical product
may be marketed in the United States include: (a) preclinical laboratory
tests, in vivo preclinical studies and formulation studies; (b) the
submission to the FDA of a request for authorization to conduct clinical
trials on an Investigational New Drug Application ("IND"), which must become
effective before human clinical trials may commence; (c)adequate and well-
controlled human clinical trials to establish the safety and efficacy of the
drug for its intended use; (d) submission to the FDA of a NDA; and
(e) review and approval of the NDA by the FDA before the drug product may be
shipped or sold commercially. Prior to obtaining FDA approval for each
product, each manufacturing establishment for new drugs must be registered
with and receive appropriate approval by the FDA.
Preclinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the safety and efficacy
of the product. Preclinical test results are submitted to the FDA as a part
of the IND. Clinical trials are typically conducted in three sequential
phases, although the phases may overlap. Phase I represents the initial
administration of the drug to a small group of humans, either healthy
volunteers or patients, to test for safety, dosage tolerance, absorption,
distribution, metabolism, excretion and clinical pharmacology and, if
possible, early indications of effectiveness. Phase II involves studies in a
small sample of the actual intended patient population to assess the
efficacy of the investigational drug for a specific clinical indication, to
<PAGE>
ascertain dose tolerance and the optimal dose range and to collect
additional clinical information relating to safety and potential adverse
effects. Once an investigational drug is found to have some efficacy and an
acceptable clinical safety profile in the targeted patient population, phase
III studies are often initiated to further establish safety and efficacy of
the investigational drug in a broader sample of the target patient
population. The results of the clinical trials together with the results of
the preclinical tests and complete manufacturing information are submitted
in a NDA to the FDA for approval.
If a NDA is submitted to the FDA, there can be no assurance that such
application will be reviewed and approved by the FDA in a timely manner, if
at all. Even after initial FDA approval has been obtained, further studies,
including post-market studies, may be required to provide additional
information. Results of such post-market programs may limit or expand the
further marketing of the product.
The Company is also subject to foreign regulatory requirements
governing development, manufacturing and sales of pharmaceutical products
that vary widely from country to country. Approval of a drug by applicable
regulatory agencies of foreign countries must be secured prior to the
marketing of such drug in those countries. The regulatory approval process
may be more or less rigorous from country to country and the time required
for approval may be longer or shorter than that required in the United
States.
In addition to the regulatory framework for pharmaceutical product
approvals, the Company is and may become subject to various federal, state,
local and foreign laws, regulations and recommendations relating to safe
working conditions, laboratory and manufacturing practices, the experimental
use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with Agouron's research and development work. The
Company is unable to predict the extent of restrictions that might arise
from any governmental or administrative action.
Manufacturing
The Company currently has no manufacturing facilities for production of
commercial quantities of any compounds under development as pharmaceutical
products. The Company's facilities include scale-up laboratories in which
the Company intends to produce, under GMP, amounts of its drug product
candidates sufficient for use in certain early clinical trials. The Company
is and will be relying upon third parties to manufacture its products in
quantities sufficient to meet both clinical and commercial needs. The
Company will be dependent upon these manufacturers to comply with GMP and to
meet its production requirements. There can be no assurance that these
manufacturers will timely deliver sufficient quantities of the Company's
products or that the Company would be able to find substitute manufacturers,
if necessary.
Marketing
The Company does not currently market any pharmaceutical products but
intends to market any approved cancer and anti-HIV products in North America
through its own sales and marketing organization. The Company has begun to
establish its sales and marketing organization by hiring key sales and
marketing management personnel who possess significant pharmaceutical
industry experience. Additional sales and marketing personnel will be hired
and certain programs will be implemented upon the achievement of clinical
development milestones, including the successful completion of pivotal
clinical trials and the submission of a NDA. The Company intends to possess
the capability to launch products concurrent with their approval by the FDA.
The Company's sales and marketing efforts will utilize a field sales
organization focused primarily on office and hospital based physicians
including key medical thought leaders Additionally, the Company will seek
to ensure market access and availability for its products in part by
establishing relationships within key market segments including health
maintenance organizations, third-party payers and governmental agencies.
<PAGE>
Human Resources
As of June 30, 1996, the Company had 374 employees, 96 of whom hold
Ph.D. or M.D. degrees. Three hundred employees are engaged in, or directly
support, research and product development. The Company's employees are not
covered by a collective bargaining agreement and the Company considers its
relations with its employees to be excellent. The Company has entered into
confidentiality agreements with all of its employees.
Item 2. PROPERTIES
The Company leases space in four facilities located in La Jolla,
California which provide a total of approximately 145,000 square feet of
office and laboratory space. The Company's corporate headquarters are
located at 10350 North Torrey Pines Road, La Jolla, California 92037, where
the Company occupies approximately 36,000 square feet under three leases
which expire in April 1997. Additional administrative facilities are
located at 3301 Torrey Pines Court, La Jolla, California 92037, where the
Company is the sole tenant and is to occupy approximately 41,300 square feet
of office space pursuant to a lease expiring August 31, 1999. Research and
development activities are conducted at 3565 General Atomics Court, San
Diego, California 92121 (where the Company is the sole tenant and occupies
approximately 43,500 square feet under a lease which expires September 2001)
and at 11099 North Torrey Pines Road, La Jolla, California 92037 (where the
Company occupies approximately 24,500 square feet under a lease which
expires in September 2000). These two research and development buildings
provide state-of-the-art facilities designed specifically to implement and
support the Company's innovative approach to drug design. Included in the
facilities are approved scale-up laboratories in which kilogram quantities
of Company-designed drug compounds are manufactured under current GMP for
use in clinical trials. Additionally, the Company leases approximately 1,000
square feet of office space in the United Kingdom which it utilizes for its
European clinical staff. The Company is negotiating an additional lease for
a total of approximately 24,000 square feet to provide additional laboratory
space. Additional facilities will be necessary if the Company undertakes
commercial manufacturing.
Item 3. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings generally
incidental to its normal business activities. While the outcome of any such
proceedings cannot be accurately predicted, the Company does not believe the
ultimate resolution of any such existing matters should have a material
adverse effect on its financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
June 30, 1996 to a vote of the Company's security holders.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and
prices are quoted on The Nasdaq Stock Market under the symbol AGPH. The
following table sets forth the high and low selling prices as reported by
The Nasdaq Stock Market for the periods indicated.
1995
First Quarter $ 13 3/4 $ 9 3/4
Second Quarter 13 1/4 10
Third Quarter 19 10 7/8
Fourth Quarter 27 1/4 15
1996
First Quarter $ 39 1/4 $ 22 3/4
Second Quarter 35 7/8 22 1/2
Third Quarter 47 5/8 32 3/4
Fourth Quarter 47 32
On September 13, 1996, the closing price of the Company's common stock
as reported by The Nasdaq Stock Market was $41.00 per share. There were
approximately 10,000 shareholders of the common stock of the Company as of
such date. The Company has not paid cash dividends on its common stock and
does not intend to do so in the foreseeable future.
Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data for each
of the five years in the period ended June 30, 1996. The information
presented should be read in conjunction with the financial statements
included elsewhere in this report.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Years ended
June 30, 1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 60,731 $ 27,961 $ 17,651 $ 9,970 $ 6,847
Net loss (19,523) (12,939) (9,462) (9,829) (9,132)
Net loss per common share (1.98) (1.77) (1.31) (1.40) (1.47)
Shares used in computing
net loss per common share 9,844 7,296 7,241 6,997 6,199
Balance Sheet Data:
Working capital $ 70,381 $ 8,837 $ 21,039 $ 29,933 $ 35,115
Total assets 100,224 27,097 37,178 41,721 45,625
Long-term liabilities 1,734 1,884 2,285 2,613 3,050
Stockholders' equity 75,583 12,591 24,852 33,757 37,517
</TABLE>
The Company has never declared or paid dividends on its common stock.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
This discussion contains forward-looking statements and such statements
are subject to certain risks and uncertainties which could cause actual
results to differ materially from those projected. See "Important Factors
Regarding Forward-Looking Statements" attached as Exhibit 99 to this annual
report on Form 10-K. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
The Company has been engaged in the research and development of human
pharmaceuticals utilizing protein structure-based drug design since its
inception in 1984. Such research and development has been funded
principally from the Company's equity-derived working capital and through
collaborative arrangements with other companies. The Company's net
operating losses incurred since inception are primarily a result of the
Company's independent research and development activities and an increasing
investment in the clinical development of (and the implementation of a
commercial infrastructure in support of) its two leading compounds in cancer
and AIDS. Net losses for the fiscal years ended June 30, 1996, 1995 and
1994 were $19,523,000, $12,939,000 and $9,462,000. It is anticipated that
net operating losses will continue and will possibly increase through at
least the next two years.
Results of Operations
Collaborative research and development agreements with Japan Tobacco
Inc. ("JT"), Schering-Plough Corporation ("Schering") and Syntex (U.S.A.)
Inc., Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd. (collectively
"Roche") accounted for approximately 99%, 97% and 94% of the Company's total
contract and license revenues for 1996, 1995 and 1994. Total contract and
license revenues for 1996 increased approximately 109% over 1995 due mainly
to the effect of a full year of increasing program activities on the anti-
HIV collaboration with JT (initiated in December 1994 -- "JT HIV") and the
initial payments associated with a new (June 1996) collaboration with Roche.
The increase in contract and license revenues from 1994 to 1995 of
approximately 64% was due principally to the JT HIV collaboration, the
effect of a full year of program activities on the anti-viral collaboration
with JT initiated in February 1994 ("JT 1994") and increased activities for
research programs with Roche. These increases were partially offset by the
absence of funding in 1995 from Schering due to the completion of a
collaborative research program in April 1994. The Company anticipates that
its contract revenues for 1997 will exceed the level of such revenues
recognized in 1996.
Interest income increased from 1995 to 1996 due to a higher average
balance of cash, cash equivalents and short-term investments resulting from
the receipt of a $24,000,000 payment from JT in August 1995 and a public
offering of common stock in September 1995. Interest income decreased from
1994 to 1995 primarily due to a generally declining balance of cash, cash
equivalents and short-term investments which were utilized to fund
operations. The Company anticipates that interest income will increase in
1997.
Research and development spending increased by approximately 96% from
1995 to 1996 and 52% from 1994 to 1995 due generally to increasing average
research and development staff levels (approximately 23% and 22%) and staff-
related expenditures, including occupancy, and significantly increased
expenditures for human clinical trial activities associated with the
Company's leading product candidates: THYMITAQ for the treatment of cancer
<PAGE>
and VIRACEPT for the treatment of HIV infection and AIDS. Collaborator-
funded program expenditures representing 72%, 65% and 45% of total research
and development costs and expenses in 1996, 1995 and 1994, generated a
significant majority of the increases in research and development costs and
expenses. The Company's self-funded research and development programs
generated approximately 28%, 35% and 55% of total research and development
costs and expenses in 1996, 1995 and 1994. Of such self-funded costs during
1996, 1995 and 1994, approximately 33%, 49% and 44% was dedicated to the
preclinical and clinical development of the Company's most advanced cancer
programs. The Company anticipates that total research and development costs
and expenses will increase in 1997 in response to expanding preclinical
activities and clinical studies associated with several of the Company's
product development programs.
General and administrative costs and expenses represented approximately
11% of total costs and expenses in each of 1996, 1995 and 1994. Spending
increases from 1995 to 1996 and 1994 to 1995 are due principally to
increasing average staff levels (approximately 38% and 36%) and staff-
related expenditures including occupancy. Also contributing to the 1996
increase are certain costs associated with a growing sales and marketing
infrastructure. The Company anticipates that total general and
administrative costs and expenses will increase in 1997 due to additional
staff and occupancy costs and increasing commercial development and sales
and marketing activities.
Interest expense decreased in 1996 due to a decreasing level of debt
and capital lease obligations but such decrease was totally offset by the
exercise costs associated with certain lease buy-out options. Interest
expense increased by approximately 15% from 1994 to 1995 due to fluctuations
in interest rates and the level of debt and capital lease obligations from
year to year.
Financial Condition
Liquidity and Capital Resources
Since its inception, the Company's cash expenditures have substantially
exceeded its revenues and the Company has relied primarily on equity, lease
and debt financing and various collaborative arrangements to fund its
proceeds of approximately $236,000,000, principally from corporate and
venture capital investors and through its public offerings in calendar 1987,
1989, 1991, 1995 and 1996. The Company believes that its current capital
resources, existing contractual commitments and the proceeds from a
secondary public offering in July 1996 (see Note 9) are sufficient to
maintain its current and planned operations through fiscal 1998. This
belief is based on current research and clinical development plans,
anticipated working capital requirements associated with the planned
commercial launch of VIRACEPT during fiscal 1997, the current regulatory
environment, historical industry experience in the development of
therapeutic drugs and general economic conditions.
The Company believes that additional financing may be required to meet
the planned operating needs of fiscal 1999 if significant positive cash
flows are not generated from commercial activities. Such needs would
include the expenditure of substantial funds to continue research and
development activities, conduct existing and planned preclinical studies and
tests, conduct human clinical trials and to support a growing commercial
infrastructure, including certain manufacturing, sales and marketing
capabilities. As a result, the Company anticipates pursuing various
financing alternatives such as collaborative arrangements and additional
public offerings or private placements of Company securities. If such
alternatives are not available, the Company may be required to delay or
eliminate expenditures for certain of its potential products under
development or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop or
commercialize itself.
<PAGE>
Capital Expenditures
During 1996, capital expenditures totaled $3,710,000 compared with
$2,032,000 and $1,829,000 during 1995 and 1994, of which $457,000, $17,000
and $58,000 were financed through capital lease obligations. Of the total
capital expenditures during 1996, 1995 and 1994, approximately $318,000,
$130,000 and $119,000 represented leasehold improvement costs associated
with certain of the Company's facilities. With the exception of the
leasehold improvement costs, virtually all of the capital expenditures
during 1996, 1995 and 1994 represented laboratory and office equipment and
scientific instrumentation necessary to support an expanding research,
development, and commercial infrastructure.
Capital expenditures during 1997 are expected to be approximately
$3,300,000 to support product commercialization, development and research
activities. The Company may utilize lease or debt financing for certain
expenditures if available on acceptable terms.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("FAS 123"). This Statement defines a fair value method
of accounting for an employee stock option or similar equity instrument and
encourages adoption of that method. Under FAS 123, an employer's financial
statements should include certain disclosures about stock-based compensation
arrangements regardless of the method used to account for them. The
Statement is effective for financial statements for fiscal years that begin
after December 15, 1995. As permitted by FAS 123, the Company will continue
to follow the existing accounting requirements for stock options and stock-
based awards contained in APB Opinion No. 25 ("Accounting for Stock Issued
to Employees"). However, beginning in fiscal 1997, the Company will provide
the pro-forma disclosures required by FAS 123 for entities electing not to
adopt the fair value accounting method specified in FAS 123. The adoption
of FAS 123 in fiscal 1997 will have no material impact on liquidity or
capital resources.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES PAGE
Report of Independent Accountants F-1
Balance Sheet as of June 30, 1996 and 1995 F-2
Statement of Operations for the years ended F-3
June 30, 1996, 1995 and 1994
Statement of Stockholders' Equity for the F-4
years ended June 30, 1996, 1995 and 1994
Statement of Cash Flows for the years ended F-5
June 30, 1996, 1995 and 1994
Notes to Financial Statements F-6
NOTE: All schedules are omitted because they are either not
applicable or not required or the information is shown
elsewhere in the financial statements or in the notes
thereto.
PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Agouron Pharmaceuticals, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Agouron Pharmaceuticals, Inc.
at June 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
San Diego, California
August 7, 1996
F-1
PAGE>
AGOURON PHARMACEUTICALS, INC.
BALANCE SHEET
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30,
Current assets: 1996 1995
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 16,451 $ 4,358
Short-term investments 74,424 15,886
Accounts receivable 613 344
Other current assets 1,800 871
---------- ----------
Total current assets 93,288 1,459
Property and equipment, net 6,936 5,638
--------- ----------
$ 100,224 $ 7,097
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,177 $ 5,426
Accrued liabilities 809 683
Deferred revenue 11,435 5,745
Current portion of long-term debt 486 768
---------- ----------
Total current liabilities 22,907 12,622
---------- ----------
Long-term liabilities:
Long-term debt, less current portion 501 580
Accrued rent 1,233 1,304
---------- ----------
Total long-term liabilities 1,734 1,884
---------- ----------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares
authorized, 10,731,687 and 7,359,282 shares
issued and outstanding 158,628 76,113
Accumulated deficit (83,045) (63,522)
---------- ----------
Total stockholders' equity 75,583 12,591
---------- ----------
Commitments (Note 8) -- --
---------- ----------
$ 100,224 $ 27,097
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Contract and license $ 55,955 $ 26,722 $ 16,301
Interest 4,776 1,239 1,350
---------- ---------- ----------
60,731 27,961 17,651
---------- ---------- ----------
Costs and expenses:
Research and development 71,010 36,317 23,957
General and administrative 9,016 4,358 2,961
Interest 228 225 195
---------- ---------- ----------
80,254 40,900 27,113
---------- ---------- ----------
Net loss $ (19,523) $ (12,939) $ (9,462)
========== ========== ==========
Net loss per common share $ (1.98) $ (1.77) $ (1.31)
========== ========== ==========
Shares used in computing net loss
per common share 9,844 7,296 7,241
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------- ----------------------
Shares Amount Deficit Total
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 7,226,546 $ 74,878 $ (41,121) $ 33,757
Stock issuances:
Exercise of stock options 32,649 352 -- 352
Employee stock purchase plan 19,293 170 -- 170
Options granted for services
provided -- 35 -- 35
Net loss -- -- (9,462) (9,462)
---------- --------- ---------- ---------
Balance at June 30, 1994 7,278,488 75,435 (50,583) 24,852
Stock issuances:
Exercise of stock options 49,125 382 -- 382
Employee stock purchase plan 31,669 296 -- 296
Net loss -- -- (12,939) (12,939)
---------- --------- ---------- ---------
Balance at June 30, 1995 7,359,282 76,113 (63,522) 12,591
Stock issuances:
Public sale 3,000,000 78,579 -- 78,579
Exercise of stock options 293,206 2,990 -- 2,990
Exercise of stock warrants 45,000 283 -- 283
Employee stock purchase plan 34,199 663 -- 663
Net loss -- -- (19,523) (19,523)
---------- --------- ---------- ---------
Balance at June 30, 1996 10,731,687 $158,628 $ (83,045) $ 75,583
========== ========= ========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from contracts and
licenses $ 61,376 $ 25,633 $ 20,307
Cash paid to suppliers, employees
and service providers (73,738) (34,113) (24,955)
Interest received 4,776 1,239 1,350
Interest paid (228) (225) (195)
Net cash provided (used) by operating
activities (7,814) (7,466) (3,493)
---------- ---------- ----------
Cash flows from investing activities:
Net (increase) decrease in short-term
investments (58,538) 11,871 (840)
Expenditures for property and equipment (3,252) (1,978) (1,783)
---------- ---------- ----------
Net cash provided (used) by investing
activities (61,790) 9,893 (2,623)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 82,515 678 522
Principal payments under equipment leases (373) (613) (550)
Increase (decrease) in long-term debt, net (445) (238) 465
---------- ---------- ----------
Net cash provided (used) by financing
activities 81,697 (173) 437
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 12,093 2,254 (5,679)
Cash and cash equivalents at beginning
of year 4,358 2,104 7,783
---------- ---------- ----------
Cash and cash equivalents at end of year $ 16,451 $ 4,358 $ 2,104
========== ========== ==========
Reconciliation of net loss to net cash
provided (used) by operating activities:
Net loss $ (19,523) $ (12,939) $ (9,462)
Depreciation and amortization 2,411 2,455 2,180
Net (increase) decrease in accounts
receivable and other current assets (1,198) 4 (635)
Net increase (decrease) in accounts
payable, accrued liabilities,
deferred revenue and other liabilities 10,496 3,014 4,389
Options granted for services provided -- -- 35
---------- ---------- ----------
Net cash provided (used) by operating
activities $ (7,814) $ (7,466) $ (3,493)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - The Company and its significant accounting policies
The Company
Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") was
incorporated in the state of California on June 22, 1984 and is engaged in
the development of human pharmaceuticals utilizing protein structure-based
drug design.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosures as of the date of the
financial statements. Actual results could differ from such estimates.
At June 30, 1996, it has been assumed that the existing collaborations
with Japan Tobacco Inc. ("JT") will continue in accordance with their
agreement terms. As such, approximately $11,435,000 of cash received from
JT has been classified as deferred contract revenue, is non-refundable and
is being recognized as revenue on a prospective basis as collaborative
program expenses are incurred. Should any of the underlying collaborations
be terminated in advance of their contract terms, any deferred contract
revenues related to such collaborations would immediately be recognized as
revenue by the Company.
Short-term investments
Short-term investments consist principally of government or government
agency securities, corporate notes and bonds, commercial paper and
certificates of deposit with original maturities of three to thirty-six
months. The Company has classified its short-term investments as available-
for-sale. Included in short-term investments at June 30, 1996, 1995 and
1994 is $1,156,000, $172,000 and $246,000 of accrued interest receivable.
Concentration of credit and market risk and off balance sheet risk
The Company invests its excess cash principally in marketable
securities from a diversified portfolio of institutions with strong credit
ratings and, by policy, limits the amount of credit exposure at any one
institution. These investments are generally not collateralized and
primarily mature within one year. The Company has not realized any material
losses from such investments in 1996, 1995 or 1994.
Property and equipment
Property and equipment is recorded at cost. Depreciation is computed
using the straight-line method over estimated useful lives of three to five
years. Leasehold improvements are amortized over the life of the lease.
Charges to costs and expenses for repairs and maintenance were $580,000,
$422,000 and $534,000 for the years ended June 30, 1996, 1995 and 1994.
F-6
<PAGE>
Revenue recognition
Contract revenues are earned and recognized according to the provisions
of each collaborative agreement on a percentage-of-completion basis.
Amounts received in advance of performance are recorded as deferred revenue.
Contract milestone payments are recognized as revenues upon the completion
of the milestone event or requirement. Initial license fee payments are
recognized as revenue when earned.
Statement of cash flows
For purposes of the Statement of Cash Flows, cash equivalents are
highly liquid investments purchased with an original maturity of three
months or less. Non-cash financing activities are comprised primarily of
capital lease obligations and were $457,000, $17,000 and $58,000 for 1996,
1995 and 1994.
Income taxes
The Company recognizes deferred taxes using the liability method,
whereby tax rates are applied to cumulative temporary differences based on
when and how they are expected to affect the tax return.
Note 2 - Short-term investments
At June 30, 1996, the amortized cost and estimated fair value of short-
term investments held as available-for-sale were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States government
securities $ 62,883 $ 25 $ (111) $ 62,797
Corporate obligations 8,535 2 (1) 8,536
Other interest bearing
securities 3,006 -- -- 3,006
--------- --------- ----------- ---------
$ 74,424 $ 27 $ (112) $ 74,339
========= ========= =========== =========
</TABLE>
Realized gains on the disposal of available-for-sale securities during
1996 totaled $22,000. During 1995 such gains and losses totaled $3,000 and
$7,000, respectively. The cost of securities sold is based upon the
specific identification method. At June 30, 1996, scheduled maturities for
available-for-sale securities were less than twelve months for $69,414,000
and between twelve and twenty-one months for $5,010,000.
F-7
<PAGE>
Note 3 - Composition of certain financial statement captions
<TABLE>
<CAPTION>
June 30,
----------------------
1996 1995
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Accounts receivable:
Employee receivables $ 211 $ 262
Other receivables 402 82
---------- ----------
$ 613 $ 344
========== ==========
Property and equipment, net:
Scientific instrumentation $ 9,353 $ 7,787
Computer equipment 6,881 5,453
Leasehold improvements 3,184 2,798
Furniture and fixtures 1,228 944
---------- ----------
20,646 16,982
Less accumulated depreciation and amortization (13,710) (11,344)
---------- ----------
$ 6,936 $ 5,638
========== ==========
Accrued liabilities:
Accrued vacation $ 735 $ 623
Other 74 60
---------- ----------
$ 809 $ 683
========== ==========
</TABLE>
Note 4 - Significant contract arrangements
Roche
In June 1996, Agouron signed a binding letter of intent (LOI) with
Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd. (subsidiaries of Roche
Holdings, Inc. -- "Roche") providing for the worldwide development of two
anti-cancer drugs currently being developed by the Company and to
collaborate on an additional early-stage anti-cancer drug discovery program.
Under the terms of the LOI, in return for rights to the Company's most
advanced anti-cancer drug (THYMITAQ) and a preclinical anti-cancer compound
(AG3340), Roche has paid $15,000,000 in initial license fees and has agreed
to pay milestone payments of up to $40,000,000 and to bear 80% of the future
development costs of these two drugs. In North America, the Company and
Roche will cooperatively market the two drugs and will share equally in
resulting profits. Outside of North America, Roche will lead
commercialization efforts and pay royalties to the Company or, in certain
circumstances, will share profits with the Company. For similar commercial
rights to compounds generated in a collaborative research program focused on
cell cycle control (initially targeting the enzyme cdk4), Roche is to
provide annual research support to the Company of $3,000,000 as well as
subsequent milestone payments of up to $20,000,000 and has agreed to bear
80% of any post-research development costs. The Company also has a right in
North America to commercialize a Roche anti-cancer product to be named in
the future. Under the LOI, the Company received and recognized as revenue,
the initial license payment of $15,000,000.
In June 1996, the Company completed a three-year agreement with Syntex
(U.S.A.) Inc. (now a subsidiary of Roche), to collaborate on the discovery
of novel matrix metalloprotease inhibitor drugs. Each company may pursue
further discovery or development efforts in this program area at its sole
discretion and expense with no subsequent obligations to the other company.
F-8
<PAGE>
Under the agreement, the Company incurred costs and recognized corresponding
revenues of $3,013,000, $3,043,000 and $2,307,000 during the years ended
June 30, 1996, 1995 and 1994. The Company funded a portion of the
activities associated with this collaboration on its own account.
Under a separate agreement dated June 1993, Roche purchased 155,844
shares of newly issued common stock of the Company for an aggregate purchase
price of $3,000,000. Such purchase represented approximately 2% of the then
outstanding common stock of the Company.
Japan Tobacco Inc.
In December 1992, the Company entered into an agreement with Japan
Tobacco Inc. ("JT") to collaborate on the discovery, development and
commercialization of novel therapeutic drugs which act on key proteins
related to the human immune system ("JT 1992"). In February 1994, the
Company expanded its strategic alliance with JT into the field of anti-viral
drugs for the treatment of infections caused by hepatitis C, the herpes
family of viruses and the rhinoviruses ("JT 1994"). In December 1994, the
Company added its anti-HIV drug, VIRACEPT, to the JT collaboration with the
execution of a worldwide development and licensing agreement ("JT HIV"). In
January 1995, JT 1992 was canceled by mutual agreement and JT 1992 resources
were reallocated to JT 1994 programs. In February 1996, JT 1994 was
modified to delete rhinoviruses from the strategic alliance.
Under the provisions of JT 1994, JT has agreed to make certain research
payments to the Company of not less than $8,000,000 over a two year period
ending December 1996. Such payments could approximate more than $21,000,000
over a four year period if certain technical milestones are achieved. In
addition, JT made an up-front payment of $7,778,000, which was amortized to
revenue over a twenty-four month period. Under the provisions of JT HIV, JT
has made payments of $30,000,000 to Agouron representing initial and
subsequent payments of $2,500,000, $3,500,000 and $24,000,000. Additional
payments representing JT's share of VIRACEPT development costs have also
been received. Agouron and JT will ultimately share equally the costs of
further development of VIRACEPT.
Under the provisions of JT 1994, the Company will have exclusive rights
to develop, manufacture and market anti-hepatitis C and anti-herpes drugs in
the United States, Canada and Mexico. JT will have exclusive rights to
develop, manufacture and market these drugs in Japan, Taiwan and South
Korea. Outside the countries in which they respectively have exclusive
rights, Agouron and JT will have co-exclusive rights to manufacture and
market jointly developed anti-hepatitis C and anti-herpes drugs. Each
company will pay royalties to the other based upon their respective sales of
anti-hepatitis C and anti-herpes drugs. Under the provisions of JT HIV,
Agouron will retain exclusive commercial rights to VIRACEPT (with the right
to sublicense, subject to JT's right of first refusal) in the United States,
Canada and Mexico. JT will have exclusive commercial rights to VIRACEPT
(with the right to sublicense, subject to Agouron's right of first refusal)
in Japan and certain other countries in Asia. Exclusive commercial rights
(with the right to sublicense) in Europe and all remaining countries in the
world will be held by a joint venture owned equally by Agouron and JT. The
two companies will share profits equally from the worldwide
commercialization of VIRACEPT.
Under the combined terms of the agreements, the Company has incurred
costs of $46,969,000, $19,211,000 and $5,043,000 and recognized
corresponding revenues of $37,197,000, $22,881,000 and $11,144,000 for the
years ended June 30, 1996, 1995 and 1994.
Under a separate agreement dated December 1992, JT purchased 155,844
shares of newly issued common stock of the Company for an aggregate purchase
price of $3,000,000. Such purchase represented approximately 2% of the then
outstanding common stock of the Company.
F-9
<PAGE>
Schering-Plough Corporation
In April 1994, the Company and Schering-Plough Corporation ("Schering")
completed a three year collaborative research agreement providing for the
discovery and development of anti-cancer drugs which target oncogenic ras
proteins. Each company may pursue further discovery or development efforts
in this program area at its sole discretion and expense with no subsequent
obligations to the other company. Under the agreement, the Company has
incurred costs and recognized corresponding revenues of $1,894,000 during
the year ended June 30, 1994.
Note 5 - Long-term debt
Long-term debt and capital lease obligations are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1996 1995
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Notes payable, secured with personal property
and a certificate of deposit; interest
at CD rate plus 1.5%, maturing June 1997
and November 1998 $ 486 $ 931
Capital leases with interest rates between 7.1%
and 16.5%, maturing at various dates through
December 2000 501 417
---------- ----------
Total long-term debt and capital lease obligations 987 1,348
Current portion of long-term debt (486) (768)
---------- ----------
Long-term debt $ 501 $ 580
========== ==========
</TABLE>
Maturities of long-term debt, excluding capital leases, are as follows:
1997 - $344,000, 1998 - $100,000, 1999 - $42,000 and 2000 and thereafter $0.
F-10
<PAGE>
Note 6 - Income taxes
The Company has deferred income taxes which have been fully reserved as
follows:
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Deferred revenue $ 4,694 $ 2,358
Book and tax depreciation differences 2,117 1,664
Accrued liabilities 807 790
Net operating loss carryforwards 26,593 19,638
Foreign tax credits 3,746 1,913
Research and development tax credits 4,492 3,936
------------ ------------
42,449 30,299
Valuation allowance (42,449) (30,299)
------------ ------------
Deferred taxes, net $ -- $ --
============ ============
</TABLE>
The Company has not recorded provisions for any United States income
taxes due to net operating losses for tax reporting purposes. At June 30,
1996, the Company had net operating loss carryforwards for federal tax
reporting purposes of approximately $72,428,000, expiring from 2000 through
2011. The Company also has federal research and development credit
carryforwards of approximately $2,657,000 at June 30, 1996. The future
utilization of, or limitation as to the use of, net operating loss
carryforwards for federal and state income tax purposes may be impacted by
the issuance of additional equity securities.
As a result of California's partial conformity with federal provisions
regarding net operating loss and research and development credit
carryforwards, the Company has net operating loss and research and
development credit carryforwards of approximately $20,179,000 and $1,731,000
for state tax reporting purposes at June 30, 1996, expiring from 1997
through 2001.
Included in General and Administrative costs and expenses at June 30,
1996, 1995 and 1994 is approximately $934,000, $863,000 and $611,000 of
foreign tax expense associated with the contract research payments from JT.
F-11
<PAGE>
Note 7 - Stockholders' equity
Stock Options
The Company has two stock option plans whereby 4,220,000 shares of the
Company's common stock have been reserved for issuance to its officers,
directors, employees and consultants. The plans, as amended, are
administered by the Board of Directors or its designees and provide
generally that, for incentive stock options, the exercise price shall not be
less than the fair market value of the shares at the date of grant and, for
certain non-qualified stock options, the price shall not be less than 85% of
the fair market value of the shares at the date of grant and may be at any
price determined by the Board of Directors for others. The options expire
not later than ten years from the date of the grant and generally become
exercisable ratably over a four year period beginning one year from the
grant date. At June 30, 1996, 586,842 of these options have been exercised,
1,330,965 were exercisable and 218,801 shares of common stock remain
available for grant. The following table summarizes stock option activity
for 1994 through 1996:
<TABLE>
<CAPTION>
Shares Price
---------- -----------------
<S> <C> <C>
Outstanding June 30, 1993 1,274,467
Options granted 703,450 $ 8.63 - $ 16.00
Options exercised (32,649) $ 5.40 - $ 12.00
Options canceled (39,829) $ 7.88 - $ 15.50
----------
Outstanding June 30, 1994 1,905,439
Options granted 773,275 $ 10.13 - $ 24.50
Options exercised (49,125) $ 5.40 - $ 15.50
Options canceled (43,897) $ 7.88 - $ 16.13
----------
Outstanding June 30, 1995 2,585,692
Options granted 1,162,475 $ 23.56 - $ 46.00
Options exercised (293,206) $ 5.40 - $ 18.38
Options canceled (40,604) $ 7.88 - $ 39.13
----------
Outstanding June 30, 1996 3,414,357
==========
</TABLE>
Employee Stock Purchase Plan
The Company has a stock purchase plan in which eligible employees may
purchase shares of the Company's common stock through payroll deductions. A
total of 250,000 shares of common stock have been reserved for issuance
under the plan, of which 156,414 shares remain available for purchase at
June 30, 1996. Funds deducted from participating employees' salaries are
used to purchase common stock at prices equal to 85% of the fair market
value of the common stock on either the first or last day of a purchase
period. During 1996, 6,131 shares were issued at a price of $9.88 per
share, 23,240 shares were issued at a price of $19.98 per share and 4,828
shares were issued at a price of $28.58 per share. During 1995, 25,524
shares were issued at a price of $9.24 per share and 6,145 shares were
issued at a price of $9.88 per share. During 1994, 10,073 shares were
issued at a price of $8.29 per share and 9,220 shares were issued at a price
of $9.35 per share.
F-12
<PAGE>
Note 8 - Commitments
Certain scientific instrumentation, computer and other equipment are
subject to leases which are classified as capital leases. At June 30, 1996
and 1995, $897,000 ($484,000, net) and $2,364,000 ($227,000, net) of such
leased equipment are included in property and equipment.
Rental expenses (principally for leased facilities under long-term
operating lease commitments) were $2,548,000, $2,198,000 and $1,973,000 for
1996, 1995 and 1994. Future minimum payments for capital and operating
leases at June 30, 1996 are as follows (dollars in thousands):
Capital Leases Operating Leases
--------------- ----------------
1997 $ 148 $ 2,793
1998 128 2,266
1999 100 2,313
2000 91 2,411
2001 41 1,872
Thereafter -- 419
--------------- ----------------
Total minimum lease payments 508 $ 12,074
Less amount representing interest (7) ================
---------------
Obligation under capital leases $ 501
===============
The Company is involved in certain legal proceedings generally
incidental to its normal business activities. While the outcome of any such
proceedings cannot be accurately predicted, the Company does not believe the
ultimate resolution of any such existing matters should have a material
adverse effect on its financial position or results of operations.
Note 9 - Subsequent event
Subsequent to the end of fiscal 1996, the Company concluded a public
offering of 2,735,000 shares of its common stock at $30.00 per share which
generated net proceeds, before offering expenses, of approximately
$77,537,000.
F-13
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
Name Age Position
------------------------------ --- ---------------------------------
Peter Johnson 51 President, Chief Executive
Officer and Director
Neil J. Clendeninn, M.D., Ph.D. 47 Vice President, Clinical
Affairs
Steven S. Cowell 47 Vice President, Finance and
Chief Financial Officer
Gary E. Friedman 49 Vice President, General
Counsel, Secretary and
Director
Robert C. Jackson, Ph.D. 53 Vice President, Research and
Development
Barry D. Quart, Pharm.D. 39 Vice President, Regulatory
Affairs
R. Kent Snyder 42 Vice President, Commercial
Affairs
Glenn R. Zinser 53 Vice President, Operations
John N. Abelson, Ph.D.(1) 57 Director
Patricia M. Cloherty(2) 54 Director
A.E. Cohen(1) 60 Director
Michael E. Herman(1) 55 Director
Irving S. Johnson, Ph.D. 71 Director
Antonie T. Knoppers, M.D.(2) 81 Director
Melvin I. Simon, Ph.D.(2) 59 Director
- ----------
(1) Member of Directors Compensation Committee
(2) Member of Audit Committee
<PAGE>
Peter Johnson, a founder of the Company, has served as a director and
as president and chief executive officer of the Company since its inception
in 1984. Through 1989, Mr. Johnson held various positions with The Agouron
Institute, including executive director. Mr. Johnson received a M.A. from
the University of California, San Diego.
Neil J. Clendeninn joined the Company in February 1993 as vice
president, clinical affairs. From 1985 until joining the Company, Dr.
Clendeninn held various positions with Burroughs Wellcome Co., including
head of the chemotherapy section from 1988. From 1981 through 1985, Dr.
Clendeninn worked with the clinical oncology and clinical pharmacology
groups at the National Institutes of Health. Dr. Clendeninn received a M.D.
and a Ph.D. in pharmacology from New York University.
Steven S. Cowell joined the Company in August 1991 as vice president,
finance and chief financial officer. From 1982 until joining the Company,
Mr. Cowell held various positions, the most recent of which was vice
president and controller at Cetus Corporation, a public biotechnology
company primarily engaged in the development, manufacture and marketing of
pharmaceutical products. Mr. Cowell is a Certified Public Accountant in
California and received a B.S. in business administration from the
University of California, Berkeley.
Gary E. Friedman, a founder of the Company, has served as a director
since its inception, as the secretary of the Company since May 1986 and as
vice president and general counsel since December 1991. Previously, from
1982 until December 1991, Mr. Friedman was a principal of the law firm of
Friedman, Jay & Cramer, a Professional Corporation. Mr. Friedman is a
California Certified Specialist in Taxation. Mr. Friedman received a
J.D. and a M.B.A. from the University of California, Berkeley and a L.L.M.
in taxation from the University of San Diego.
Robert C. Jackson joined the Company in March 1991 as vice president,
research and development. From June 1990 to February 1991, Dr. Jackson was
group director of the anti-cancer drug discovery program at The DuPont Merck
Pharmaceutical Company and, from 1982 to June 1990, held various positions
with the Parke-Davis Pharmaceutical Research Division of the Warner-Lambert
Company, including director of tumor biology and director of the
chemotherapy department. Dr. Jackson received a Ph.D. in biochemistry from
the University of London.
Barry D. Quart joined the Company in June 1993 as vice president,
regulatory affairs. From 1983 until joining the Company, Dr. Quart held
various positions with Bristol-Myers Squibb Company, including executive
director of international regulatory affairs from 1992. Dr. Quart received
a Pharm.D. in clinical pharmacy from the University of California, San
Francisco.
R. Kent Snyder joined the Company in July 1991 as vice president,
business development. In June 1995, Mr. Snyder's title was changed to vice
president, commercial affairs. From 1982 until joining the Company, Mr.
Snyder held various positions with Marion Laboratories, Inc. (now Hoechst
Marion Roussel), including director of U.S./European licensing. Prior to
his employment at Marion, from 1978 to 1982, he held various sales and
marketing positions with Hoffmann-La Roche Ltd. Mr. Snyder received a M.B.A.
from Rockhurst College.
Glenn R. Zinser joined the Company in 1987 and, since July 1, 1995, has
served as vice president, operations. Previously, from 1987 through June
1995, Mr. Zinser held various management positions with the Company,
including senior director, operations from July 1993 through June 1995. Mr.
Zinser received a M.B.A. from the University of California, Los Angeles.
<PAGE>
John N. Abelson, a founder of the Company, has served as a director
since its inception. Dr. Abelson, a molecular biologist, is a member
of the National Academy of Sciences. Since 1982, Dr. Abelson has been a
member of the faculty of the Division of Biology at the California Institute
of Technology where, from October 1989 until June 1995, he served as
chairman. Previously, Dr. Abelson was a member of the faculty in the
Department of Chemistry at the University of California, San Diego. Dr.
Abelson received a Ph.D. in biophysics from The Johns Hopkins University and
was a postdoctoral fellow at the Laboratory of Molecular Biology in
Cambridge, England. Dr. Abelson also serves as a director of The Agouron
Institute.
Patricia M. Cloherty joined the Board in December 1988. Since 1970,
Ms. Cloherty has been associated with Patricof & Co. Ventures, Inc.
(formerly Alan Patricof Associates, Inc.), a New York venture capital firm
("Patricof"), and has been a general partner of its funds since 1973. In
1993, she was elected president of Patricof. Ms. Cloherty also served as
deputy administrator for the U.S. Small Business Administration in 1977 and
1978. Ms. Cloherty also serves on the board of directors of several private
companies.
A.E. Cohen joined the Board in March 1992. Mr. Cohen is an independent
management consultant. From 1957 until his retirement in January 1992, Mr.
Cohen held various positions at Merck & Co., Inc., including senior vice
president and president of the Merck Sharp & Dohme International Division.
Currently, Mr. Cohen is the chairman of the board of Neurobiological
Technologies, Inc. and is a member of the board of directors of Akzo N.V.,
Immunomedics, Inc., Teva Pharmaceutical Industries Ltd. and Vasomedical,
Inc., all of which are public companies. Mr. Cohen also serves on the board
of directors of several private companies.
Michael E. Herman joined the Board in October 1992. Mr. Herman is a
private investor, as well as president and chief operating officer of the
Kansas City Royals Baseball Team. From October 1974 until his retirement in
1990, Mr. Herman held various positions at Marion Laboratories, Inc. (now
Hoechst Marion Roussel), including executive vice president and chief
financial officer. Currently, Mr. Herman serves as chairman of the finance
committee of the Ewing Marion Kauffman Foundation, a private foundation
located in Kansas City, where from 1985 through 1990, he was the president
and chief operating officer. Mr. Herman is also a member of the board of
directors of Cerner Corporation and Seafield Capital, both of which are
public companies, and serves on the board of directors of several private
companies.
Irving S. Johnson joined the Board in May 1989. Dr. Johnson is an
independent consultant in biomedical research working with numerous private
companies. From 1953 until his retirement in November 1988, Dr. Johnson
held various positions at Eli Lilly and Company, including vice president of
research from 1973 until 1988. Dr. Johnson also served on several
committees of the National Academy of Sciences, the Office of Technology
Assessment and the National Institutes of Health. Currently, he is a member
of the board of directors of Allelix Biopharmaceuticals Inc. and Ligand
Pharmaceuticals Incorporated, all of which are public companies. Dr.
Johnson received a Ph.D. in developmental biology from the University of
Kansas.
Antonie T. Knoppers joined the Board in July 1991. Dr. Knoppers is an
independent management consultant. From 1952 until his retirement in 1975,
Dr. Knoppers held various positions at Merck & Co., Inc., including vice
chairman of the board and president and chief operating officer. Dr.
Knoppers is a member of the board of directors of Centocor, Inc., a public
biotechnology company. In addition, he is a former chairman of the U.S.
Council of the International Chamber of Commerce and a member of the
advisory board of PaineWebber Development Corporation, an affiliate of
PaineWebber Incorporated. Dr. Knoppers received a M.D. from the University
of Amsterdam and a Ph.D. from the University of Leiden, The Netherlands.
<PAGE>
Melvin I. Simon, a founder of the Company, has served as a director
since its inception. Dr. Simon, a molecular geneticist, is a (member of the
National Academy of Sciences. Currently, Dr. Simon is chairman of the
Division of Biology at the California Institute of Technology where he has
been a member of the faculty since 1982. Previously, Dr. Simon was a member
of the faculty in the Department of Biology at the University of California,
San Diego. Dr. Simon received a Ph.D. in biochemistry from Brandeis
University. Dr. Simon also serves as a director of The Agouron Institute.
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under Part III, Items 10 (in part), 11, 12 and
13 has been omitted from this report since the Company intends to file with
the Securities and Exchange Commission, not later than 120 days after the
close of its fiscal year, a definitive proxy statement prepared pursuant to
Regulation 14A, which information is hereby incorporated by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data Reference is
made to the Index to Financial Statements and Schedules
under Item 8 in Part II hereof, where these documents are
listed.
(2) Exhibits - see (c) below
(b) Reports on Form 8-K
A report on Form 8-K dated June 21, 1996 was filed during the fourth
quarter of fiscal 1996. Such report related to a binding letter of intent
between the Company and Hoffmann-La Roche Inc. of Nutley, New Jersey and F.
Hoffmann-La Roche Ltd. of Basel, Switzerland.
(c) Exhibits
Exhibit
Number Exhibit
------- ----------------------------------------------------------
3.1(b) Articles of Incorporation (as Amended).
3.3(d) Amended and Restated Bylaws (Restated June 17, 1991).
3.4(h) Restated Articles of Incorporation (December 10, 1992).
4.1(h) Restated Articles of Incorporation.
4.3(a) Seaport Ventures, Inc. Warrant dated June 30, 1986.
10.33(n) 1990 Stock Option Plan (Restated November 2, 1995).
10.34(d) Form of 1990 Incentive Stock Option Agreement.
10.35(d) Form of 1990 Non-Statutory Stock Option Agreement--
Employee/Officer/ Director.
10.36(d) Form of 1990 Non-Statutory Stock Option Agreement--
Consultant.
10.37(d) 1985 Stock Option Plan (Last Amended August 14, 1991).
10.38(d) Form of 1985 Incentive Stock Option Agreement (Last
Amended December 5, 1990).
10.39(d) Form of 1985 Non-Statutory Stock Option Agreement--
Employee/Officer/ Director (Last Amended December 5,
1990).
10.40(d) Form of 1985 Stock Option Agreement--Consultant (Last
Amended December 5, 1990).
10.41(e) Business Loan Agreement and Promissory Note dated
September 24, 1991 between the Company and First National
Bank.
10.42(f) Agouron Pharmaceuticals, Inc. 401(k) Plan (Amended August
1992).
10.43(k) Second Amendment and Restatement of Agreement One dated
April 22, 1994 (effective December 18, 1992) between Japan
Tobacco Inc. and the Company. (Portions of the agreement
receive confidential treatment pursuant to an application
filed September 9, 1994; File No. 0-15609).
10.44(g) Common Stock Purchase Agreement dated December 18, 1992
between Japan Tobacco Inc. and the Company.
10.45(h) Agouron Pharmaceuticals, Inc. Flexible Benefits Plan
(December 10, 1992).
10.46(h) Agouron Pharmaceuticals, Inc. Employee Stock Purchase Plan
(October 15, 1992).
<PAGE>
Exhibit
Number Exhibit
------- ---------------------------------------------------------
10.47(i) Agreement dated June 8, 1993 between Syntex (U.S.A.) Inc.
and the Company. (Portions of the agreement receive
confidential treatment pursuant to an application filed
September 1, 1993; File No. 0-15609).
10.48(i) Common Stock Purchase Agreement dated June 8, 1993 between
Syntex Corporation and the Company.
10.49(c) Office Lease dated March 16, 1990 between Nexus Science
Centre--Torrey Pines Associates and the Company.
10.50(c) First Amendment to Lease dated May 22, 1990 between Nexus
Science Centre--Torrey Pines Associates and the Company.
10.51(d) Second Amendment to Lease dated January, 1991 between
Nexus Science Centre--Torrey Pines Associates and the
Company.
10.52(j) Agreement Two dated February 28, 1994 between Japan
Tobacco Inc. and the Company. (Portions of the agreement
receive confidential treatment pursuant to an application
filed April 25, 1994; File No. 0-15609).
10.53(j) Agreement Three dated February 28, 1994 between Japan
Tobacco Inc. and the Company. (Portions of the agreement
receive confidential treatment pursuant to an application
filed April 25, 1994; File No. 0-15609).
10.54(l) Development and License Agreement dated December 1, 1994
between Japan Tobacco Inc. and the Company (Portions of
the agreement receive confidential treatment pursuant to
an application dated January 31, 1995).
10.55(l) Third Amendment of Agreement One effective January 15,
1995 between Japan Tobacco Inc. and the Company (Portions
of the agreement receive confidential treatment pursuant
to an application dated January 31, 1995).
10.56(m) Amended and Restated Lease dated September 13, 1995
between Health Science Properties, Inc. and the Company.
10.57(m) Lease Amendment dated February 17, 1994 between Koll
Hancock Torrey Pines and the Company.
10.58(n) First Amendment to Development and License Agreement
effective December 1, 1995 between Japan Tobacco Inc. and
the Company. (Confidential treatment has been requested
for portionsof this agreement pursuant to an application
dated January 31, 1996. The underlying agreement was
filed as Exhibit 10.54 on Form 10-Q for the period ended
December 31, 1994, and portions thereof receive
confidential treatment pursuant to an order of the
Securities and Exchange Commission dated June 28, 1995.)
10.59(o) First Amendment to Agreement Three effective February 29,
1996 between Japan Tobacco, Inc. and the Company.
10.60(o) Amendment effective January 1, 1996 to the Agouron
Pharmaceuticals, Inc. 401(k) Plan.
10.61(p) Binding Letter of Intent between Hoffmann-La Roche Inc. of
Nutley, New Jersey, F. Hoffmann-La Roche Ltd. of Basel,
Switzerland (Roche) and the registrant dated June 19,
1996. (Portions of the Letter of Intent receive
confidential treatment pursuant to a request filed June
21, 1996.)
10.62 Sub-sublease dated July 24, 1996, between ITT Residential
Capital Serving Corporation and the Company.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule. (Exhibit 27 is submitted as an
exhibit only in the electronic format of this Annual
Report on Form 10-K submitted to the Securities and
Exchange Commission.)
<PAGE>
Exhibit
Number Exhibit
------- ----------------------------------------------------------
99 Important Factors Regarding Forward-Looking Statements.
- ----------
(a) Incorporated by Reference to Form S-18 filed on March 20, 1987,
File No. 33-12110-LA.
(b) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1988.
(c) Incorporated by Reference to Form 8-K filed on May 25, 1990
(Exhibits 10.49 and 10.50 originally filed as Exhibits 28.1 and
28.2, respectively).
(d) Incorporated by Reference to Form 10-K filed for the year
ended June 30, 1991 (Exhibit 10.51 originally filed as Exhibit
28.3).
(e) Incorporated by Reference to Form S-1 filed on October 4, 1991,
File No. 33-43162.
(f) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1992.
(g) Incorporated by Reference to Form 8-K filed on December 30,
1992.
(h) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1992.
(i) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1993.
(j) Incorporated by Reference to Form 10-Q/A filed for the quarter
ended March 31, 1994.
(k) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1994.
(l) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1994.
(m) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1995.
(n) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1995.
(o) Incorporated by Reference to Form 10-Q filed for the quarter
ended March 31, 1996.
(p) Incorporated by Reference to Form 8-K filed on June 21, 1996.
Note: Certain previously filed exhibits are no longer being incorporated
by reference (and therefore not numerically listed) as the underlying
documents have either expired or are no longer material or relevant.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
AGOURON PHARMACEUTICALS, INC.
September 16, 1996 By:/s/ Peter Johnson
Peter Johnson
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- -------------------------- ------------------
/s/ Peter Johnson President, Chief Executive September 16, 1996
Officer and Director
/s/ Steven S. Cowell Vice President, Finance and September 16, 1996
Chief Financial Officer
/s/ John N. Abelson Director September 16, 1996
/s/ Patricia M. Cloherty Director September 16, 1996
/s/ A. E. Cohen Director September 16, 1996
/s/ Gary E. Friedman Vice President, General September 16, 1996
Counsel, Secretary and
Director
/s/ Michael E. Herman Director September 16, 1996
/s/ Irving S. Johnson Director September 16, 1996
/s/ Antonie T. Knoppers Director September 16, 1996
/s/ Melvin I. Simon Director September 16, 1996
<PAGE>
Exhibit Page
Number Exhibit Number
------- ---------------------------------------------- ------
3.1(b) Articles of Incorporation (as Amended).
3.3(d) Amended and Restated Bylaws (Restated June 17,
1991).
3.4(h) Restated Articles of Incorporation (December
10, 1992).
4.1(h) Restated Articles of Incorporation.
4.3(a) Seaport Ventures, Inc. Warrant dated June 30,
1986.
10.33(n) 1990 Stock Option Plan (Restated November 2,
1995).
10.34(d) Form of 1990 Incentive Stock Option Agreement.
10.35(d) Form of 1990 Non-Statutory Stock Option
Agreement--Employee/Officer/ Director.
10.36(d) Form of 1990 Non-Statutory Stock Option
Agreement--Consultant.
10.37(d) 1985 Stock Option Plan (Last Amended August 14,
1991).
10.38(d) Form of 1985 Incentive Stock Option Agreement
(Last Amended December 5, 1990).
10.39(d) Form of 1985 Non-Statutory Stock Option
Agreement--Employee/Officer/ Director (Last
Amended December 5, 1990).
10.40(d) Form of 1985 Stock Option Agreement--
Consultant (Last Amended December 5, 1990).
10.41(e) Business Loan Agreement and Promissory Note
dated September 24, 1991 between the Company
and First National Bank.
10.42(f) Agouron Pharmaceuticals, Inc. 401(k) Plan
(Amended August 1992).
10.43(k) Second Amendment and Restatement of Agreement
One dated April 22, 1994 (effective December 18,
1992) between Japan Tobacco Inc. and the Company.
(Portions of the agreement receive confidential
treatment pursuant to an application filed
September 9, 1994; File No. 0-15609).
10.44(g) Common Stock Purchase Agreement dated December
18, 1992 between Japan Tobacco Inc. and the
Company.
10.45(h) Agouron Pharmaceuticals, Inc. Flexible Benefits
Plan (December 10, 1992).
10.46(h) Agouron Pharmaceuticals, Inc. Employee Stock
Purchase Plan (October 15, 1992).
10.47(i) Agreement dated June 8, 1993 between Syntex
(U.S.A.) Inc. and the Company. (Portions of
the agreement receive confidential treatment
pursuant to an application filed September 1,
1993; File No. 0-15609).
10.48(i) Common Stock Purchase Agreement dated June 8,
1993 between Syntex Corporation and the Company.
10.49(c) Office Lease dated March 16, 1990 between Nexus
Science Centre--Torrey Pines Associates and the
Company.
10.50(c) First Amendment to Lease dated May 22, 1990
between Nexus Science Centre--Torrey Pines
Associates and the Company.
10.51(d) Second Amendment to Lease dated January, 1991
between Nexus Science Centre--Torrey Pines
Associates and the Company.
<PAGE>
10.52(j) Agreement Two dated February 28, 1994 between
Japan Tobacco Inc. and the Company. (Portions
of the agreement receive confidential treatment
pursuant to an application filed April 25, 1994;
File No. 0-15609).
10.53(j) Agreement Three dated February 28, 1994 between
Japan Tobacco Inc. and the Company. (Portions
of the agreement receive confidential treatment
pursuant to an application filed April 25, 1994;
File No. 0-15609).
10.54(l) Development and License Agreement dated December
1, 1994 between Japan Tobacco Inc. and the Company
(Portions of the agreement receive confidential
treatment pursuant to an application dated
January 31, 1995).
10.55(l) Third Amendment of Agreement One effective January
15, 1995 between Japan Tobacco Inc. and the Company
(Portions of the agreement receive confidential
treatment pursuant to an application dated January
31, 1995).
10.56(m) Amended and Restated Lease dated September 13, 1995
between Health Science Properties, Inc. and the
Company.
10.57(m) Lease Amendment dated February 17, 1994 between
Koll Hancock Torrey Pines and the Company.
10.58(n) First Amendment to Development and License
Agreement effective December 1, 1995 between
Japan Tobacco Inc. and the Company. (Confidential
treatment has been requested for portionsof this
agreement pursuant to an application dated January
31, 1996. The underlying agreement was filed as
Exhibit 10.54 on Form 10-Q for the period ended
December 31, 1994, and portions thereof receive
confidential treatment pursuant to an order of the
Securities and Exchange Commission dated June 28,
1995.)
10.59(o) First Amendment to Agreement Three effective
February 29, 1996 between Japan Tobacco, Inc. and
the Company.
10.60(o) Amendment effective January 1, 1996 to the Agouron
Pharmaceuticals, Inc. 401(k) Plan.
10.61(p) Binding Letter of Intent between Hoffmann-La
Roche Inc. of Nutley, New Jersey, F. Hoffmann-La
Roche Ltd. of Basel, Switzerland (Roche) and the
registrant dated June 19, 1996. (Portions of the
Letter of Intent receive confidential treatment
pursuant to a request filed June 21, 1996.)
10.62 Sub-sublease dated July 24, 1996, between ITT
Residential Capital Serving Corporation and
the Company.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule. (Exhibit 27 is
submitted as an exhibit only in the electronic
format of this Annual Report on Form 10-K submitted
to the Securities and Exchange Commission.)
99 Important Factors Regarding Forward-Looking
Statements.
- ----------
(a) Incorporated by Reference to Form S-18 filed on March 20, 1987,
File No. 33-12110-LA.
(b) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1988.
(c) Incorporated by Reference to Form 8-K filed on May 25, 1990
(Exhibits 10.49 and 10.50 originally filed as Exhibits 28.1 and
28.2, respectively).
(d) Incorporated by Reference to Form 10-K filed for the year
ended June 30, 1991 (Exhibit 10.51 originally filed as Exhibit
28.3).
(e) Incorporated by Reference to Form S-1 filed on October 4, 1991,
File No. 33-43162.
(f) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1992.
(g) Incorporated by Reference to Form 8-K filed on December 30,
1992.
(h) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1992.
(i) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1993.
(j) Incorporated by Reference to Form 10-Q/A filed for the quarter
ended March 31, 1994.
(k) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1994.
(l) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1994.
(m) Incorporated by Reference to Form 10-K filed for the year ended
June 30, 1995.
(n) Incorporated by Reference to Form 10-Q filed for the quarter
ended December 31, 1995.
(o) Incorporated by Reference to Form 10-Q filed for the quarter
ended March 31, 1996.
(p) Incorporated by Reference to Form 8-K filed on June 21, 1996.
<PAGE>
Exhibit 10.62
. SUB-SUBLEASE
READ CAREFULLY, THIS AGREEMENT AFFECTS YOUR LEGAL RIGHTS
1. PARTIES
This Sub-SubLease is entered into by and between ITT Residential Capital
Serving Corporation, Sub-Sublandlord, and Agouron Pharmaceuticals, Sub-
Subtenant, as a Sub-Sublease under the Master Lease dated May 27, 1983,
entered into by Torrey Executive Centre, Ltd. as Landlord and Bowest
Corporation as Tenant and under the Sublease dated April 1, 1992 entered into
by Bowest Corporation as Sublandlord and Sub-Sublandlord under this Sub-
Sublease as Subtenant; a copy of the Master Lease and Sublease are attached
hereto as Exhibit A. Sub-Sublandlord is the successor-in-interest to ITT
Mortgage.
2. PROVISIONS CONSTITUTING SUB-SUBLEASE
(a) This Sub-Sublease is subject to all of the terms and
conditions of the Master Lease and Sublease in Exhibit A and Sub-Subtenant
shall assume and perform the obligations of Sub-Sublandlord and Subtenant in
said Master Lease and Sublease, to the extent said terms and conditions are
applicable to the Premises Sub-Subleased pursuant to this Sub-Sublease. Sub-
Subtenant shall not commit or permit to be committed on the Premises any act
or omission which shall violate any term or condition of the Master Lease or
Sublease.
(b) All of the terms and conditions contained in the Exhibit A
Master Lease and Sublease are incorporated herein, except for the terms and
conditions as modified in paragraph 3 through 9 of this Sub-Sublease and the
attached Addendum, as terms and conditions of this Sub-Sublease (with each
reference therein to Landlord and Tenant and Sublandlord and Subtenant to be
deemed to refer to Sub-Sublandlord and Sub-Subtenant) and, along with all of
the following Sections set out in this Sub-Sublease, shall be the complete
terms and conditions of this Sub-Sublease.
3. PREMISES
Sub-Sublandlord leases to Sub-Subtenant and Sub-Subtenant hires from
Sub-Sublandlord the following described Premises together with the
appurtenances, situated in the City of La Jolla, County of San Diego, State
of California, located at 3301 Torrey Pines Court, and further described as
approximately 41,254 rentable square feet in a freestanding four story
building.
4. RENTAL
Sub-Subtenant shall pay to Sub-Sublandlord as rent for the Premises in
advance on the first day of each calendar month of the term of this Sub-
Sublease without deduction, offset, prior notice or demand, in lawful money
of the United States, the sum of Thirty Six Thousand Dollars and 00/100
($36,000.00). If the commencement date is not the first day of the month, or
if the Sub-Sublessee termination date is not the last day of the month, a
prorated monthly installment shall be paid at the then current rate for the
fractional month during which the Sub-Sublease commences and/or terminates.
See Addendum paragraph 1.
Receipt of $ Thirty Six Thousand Dollars and 00/100 is hereby
acknowledged for rental for the seventh month, and the additional amount of $
Thirty Six Thousand Dollars and 00/100 as non-interest bearing security for
performance under this Sub-Sublease. In the event Sub-Subtenant has
performed all of the terms and conditions of this Sub-Sublease throughout the
term, upon Sub-Sublessee vacating the Premises, the amount paid as a security
deposit shall be returned to Sub-Subtenant after first deducting any sums
owing to Sub-Sublandlord.
<PAGE>
5. TERM
(a) The term of this Sub-Sublease shall be for a period of 37
months commencing on August 1, 996, and ending on August 31, 1999.
(b) In the event Sub-Sublandlord is unable to deliver
possession of the Premises at the commencement of the term, Sub-Sublandlord
shall not be liable for any damage caused thereby, nor shall this Sub-
Sublease be void or avoidable but Sub-Subtenant shall not be liable for rent
until such time as Sub-Sublandlord offers to deliver possession of the
Premises to Sub-Subtenant, but the term thereof shall not be extended by such
delay. If Sub-Subtenant, with Sub-Sublandlord's consent, takes possession
prior to the commencement of the term, Sub-Subtenant shall do so subject to
all of the covenants and conditions hereof and shall pay rent for the period
ending with the commencement of the term at the same rental as that
prescribed for the first month of the term, prorated at the rate of 1/30th
thereof per day.
6. USE
Subtenant shall use the Premises for general office use and for no other
purpose without the prior written consent of Sub-Sublandlord and Landlord.
Sub-Subtenant's business shall be established and conducted throughout
the term hereof in a first class manner. Sub-Subtenant shall not use the
Premises for, or carry on, or permit to be carried on, any offensive, noisy
or dangerous trade, business, manufacture or occupation nor permit any
auction sale to be held or conducted on or about the Premises. Sub-Subtenant
shall not do or suffer anything to be done upon the Premises which will cause
structural injury to the Premises or the building of which the Premises form
a part. The Premises shall not be overloaded and no machinery, apparatus or
other appliance shall be used or operated in or upon the Premises which will
in any manner injure, vibrate or shake the Premises or the building of which
it is a part. No use shall be made of the Premises which will in any way
impair the efficient operation of the sprinkler system within the building
containing the Premises. No musical instrument of any sort, or any noise
making device will be operated or allowed upon the Premises for the purpose
of attracting trade or otherwise. Sub-Subtenant shall not use or permit the
use of the Premises or any part thereof for any purpose which will increase
the existing rate of insurance upon the building in which the Premises are
located, or cause a cancellation of any insurance policy covering the
building or any part thereof. If any act on the part of Sub-Subtenant or use
of the Premises by Sub-Subtenant shall cause, directly or indirectly, any
increase of Sub-Sublandlord's insurance expense, said additional expense
shall be paid by Sub-Subtenant to Sub-Sublandlord upon demand. No such
payment by Sub-Subtenant shall limit Sub-Sublandlord in the exercise of any
other rights or remedies, or constitute a waiver of Sub-Sublandlord's right
to require Sub-Subtenant to discontinue such act or use.
7. NOTICES
All notices or demands of any kind required or desired to be given by
Sub-Sublandlord or Sub-Subtenant thereunder shall be in writing and shall be
deemed delivered forty-eight (48) hours after depositing the notice or demand
in the United States mail, certified or registered, postage prepaid, at the
addresses set forth after the signatures at the end of this Sub-Sublease.
All rent and other payments due under the Sub-Sublease shall be made by Sub-
Subtenant to Sub-Sublandlord at the appropriate address.
<PAGE>
8. SEE ADDENDUM
9. Nothing contained in this Sub-Sublease shall be construed to
release Tenant or Subtenant from any obligations to perform the terms,
conditions and covenants of the Sublease or Master Lease.
Dated: July 24, 1996
Sub-Sublandlord: ITT CELCO Sub-Subtenant: Agouron
Pharmaceuticals, Inc.
By: /s/ ITT CELCO By: /s/ Glenn Zinser
Vice President
By: /s/ Gary Friedman
Vice President
Address: 645 Mayville Center Address: 10350 N. Torrey Pines Rd.,
St. Louis, MO 63144 La Jolla, CA 92037
The undersigned, Landlord under the Master Lease, attached as Exhibit A
and Sublandlord under the Sublease attached as Exhibit A, hereby consent to
the sub-subletting of the Premises described herein on the terms and
conditions contained in this Sub-Sublease. This consent shall apply only to
this Sub-Sublease and shall not be deemed to be a consent to any other Sub-
Sublease.
Successor in Interest to ITT Mortgage -
Bowest
Dated: July 24, 1996 Sublandlord: ITT CELCO
By: /s/ Thomas Stiffler
Landlord: Torrey Pines Centre, Ltd.
By: /s/ Torrey Pines Centre, Ltd.
By: /s/
(If Sub-Sublandlord or Sub-Subtenant is a corporation, the corporate
seal must be affixed and the authorized officers must sign on behalf of the
corporation. The Sub-Sublease must be executed by the President or a Vice
President and the Secretary or Assistant Secretary unless the Bylaws or a
Resolution of the Board of Directors shall otherwise provide, in which event
the Bylaws or a certified copy of the Resolution, as the case may be must be
furnished.)
This Sub-Sublease has been prepared for submission to your attorney who
will review the document and assist you to determine whether your legal
rights are adequately protected. Colliers Iliff Thorn is not authorized to
give legal or tax advice; no representation or recommendation is made by
Colliers Iliff Thorn or its agents or employees as to the legal sufficiency,
legal effect or tax consequences of this document or any transaction relating
thereto. These are questions for your attorney, with whom you should consult
before signing this document.
<PAGE>
ADDENDUM TO SUB-SUBLEASE
Addendum to the Sub-Sublease by and between ITT Residential Capital
Servicing Corporation ("Sub-Sublandlord") and Agouron Pharmaceuticals ("Sub-
Subtenant"), commencing August 1, 1996 and terminating August 31, 1999.
1. RENT DUE:
Months Total Monthly Rent Due
------ ----------------------
1-6 $ 0.00
7-32 $36,000.00
33-37 $30,000.00
During months one (1) through six (6), Sub-Subtenant will only be
responsible for paying utility and janitorial expenses for the Premises.
2. TENANT IMPROVEMENTS:
Sub-Sublandlord shall cause the Premises to be in clean and swept
condition. Additionally, HVAC, elevator and other building systems will be
in good working order and adequate for normal office use upon commencement of
the Sub-Sublease. Sub-Subtenant shall be responsible for all governmental
permits necessary to operate within the Premises.
Sub-Sublandlord shall not be responsible for the costs of any
tenant improvements constructed by Sub-Subtenant's. Sub-Sublandlord shall
have the right to approve the tenant improvements to be made by Sub-
Subtenant.
3. OPERATING EXPENSES:
Sub-Subtenant shall only be responsible for utility and janitorial
expenses for the Premises. Sub-Sublandlord will be responsible for all other
building and project operating expenses during the term of the Sub-Sublease.
4. PARKING:
Sub-Sublandlord will provide Sub-Subtenant with the exclusive use
of 104 parking spaces in the subterranean parking garage at no cost during
the Sub-Sublease term.
5. SUBLANDLORD AND SUB-SUBLANDLORD TO PAY RENT:
The parties to this Sub-Sublease acknowledge that in order to
protect this Sub-Sublease, Sub-Sublandlord and Sublandlord must pay the rent
due and owing under the Sublease and Master Lease. Sub-Sublandlord and
Sublandlord hereby covenant that they shall pay the rent under the Sublease
and Master Lease for the term of the Sublease and Master Lease respectively,
and satisfy and perform all other obligations thereunder. Sub-Subtenant
agrees that upon notice from Sublandlord or Landlord, that Sub-Sublandlord is
in default under the Sublease or that Tenant is in default under the Master
Lease, Sub-Subtenant shall pay the rent due under this Sub-Sublease directly
to the Landlord.
<PAGE>
6. SIGNAGE:
Any signage required by Sub-Subtenant will be subject to Landlord's
approval, which shall not be unreasonably withheld and subject to Sub-
Subtenant's receipt of all necessary approvals for such signage. Sub-
Subtenant shall be responsible for all costs associated with said signage,
including fabrication, installation, maintenance and removal.
7. MASTER LEASE PROVISIONS:
Sub-Subtenant will have the right to exercise the option to extend
and any expansion rights contained in the Master Lease, dated May 27, 1983.
Additionally, to the extend provided in the Master Lease, or Sublease, Sub-
Subtenant's employees will have the use of the amenities associated with the
Premises (i.e., pool, workout room, racquetball courts, etc.).
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-64415) of Agouron Pharmaceuticals, Inc. of
our report dated August 7, 1996 appearing on page F-1 of this Annual Report
on Form 10-K.
/s/ PRICE WATERHOUSE LLP
San Diego, California
September 16, 1996
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMAY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND THE STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,451
<SECURITIES> 74,424
<RECEIVABLES> 613
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 93,288
<PP&E> 20,646
<DEPRECIATION> 13,710
<TOTAL-ASSETS> 100,224
<CURRENT-LIABILITIES> 22,907
<BONDS> 0
<COMMON> 158,628
0
0
<OTHER-SE> (83,045)
<TOTAL-LIABILITY-AND-EQUITY> 100,224
<SALES> 0
<TOTAL-REVENUES> 55,955
<CGS> 0
<TOTAL-COSTS> 51,099
<OTHER-EXPENSES> 28,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (19,523)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,523)
<EPS-PRIMARY> (1.98)
<EPS-DILUTED> (1.98)
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<PAGE>
Exhibit 99
Agouron Pharmaceuticals, Inc.
Important Factors Regarding
Forward-Looking Statements
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time. Reference is
also made to the "Risk Factors" described in the Company's Prospectus dated
July 26, 1996.
Uncertainty of Product Development: The Company has not yet completed the
development of any products and does not expect to have any products
commercially available until calendar 1997, if at all. There can be no
assurance that further research and development will be successful or will
result in drugs that will qualify for approval by regulatory authorities for
commercial sale.
Uncertainty Associated with Clinical Testing: Historical results of clinical
testing of VIRACEPT (TM) and THYMITAQ (TM) are not necessarily predictive of
future results. There can be no assurance that clinical studies of products
under development will demonstrate the safety and efficacy of such products.
The failure to adequately demonstrate the safety and efficacy of a
therapeutic product could delay or prevent regulatory approval of the
product. There can be no assurance that unacceptable toxicities or side
effects will not occur at any time in the course of human clinical trials or
commercial use of the Company's drugs. The appearance of any such
unacceptable toxicities or side effects could interrupt, limit, delay or
abort the development of any of the Company's drugs or, if previously
approved, necessitate their withdrawal from the market. Futhermore, there
can be no assurance that disease resistance will not limit the efficacy of
VIRACEPT or other of the Company's drugs, if any. Delays in planned patient
enrollment in the Company's current clinical trials or future clinical trials
may result in increased costs, program delays
or both.
History of Operating Losses: The Company has not generated revenues from the
commercialization of any products and expects to incur substantial net
operating losses during the next few years. There can be no assurance that
the Company will ever achieve product revenues or profitable operations.
Additional Financing Requirements and Access to Capital: Additional funding
may be required for future working capital and other general corporate needs.
No assurance can be given that additional financing will be available when
needed or on terms acceptable to the Company. If adequate funds are not
available, the Company may be required to delay or eliminate expenditures for
certain of its programs or to license third parties to commercialize products
or technologies that the Company would otherwise seek to develop and
commercialize itself.
Dependence on Others: The Company's strategy for development and
commercialization of certain of its products entails entering into various
arrangements with corporate partners, licensees and others. There can be no
assurance that any revenues or profits will be derived from such
arrangements, that any of the Company's current strategic arrangements will
be continued, or that the Company will be able to enter into future
collaborations.
Lack of Manufacturing Capabilities: The Company has not yet manufactured its
product candidates in commercial quantities under current Good Manufacturing
Practices. No assurance can be given that the Company, on a timely basis,
will be able to make the transition to commercial production successfully or
be able to arrange for contract manufacturing.
<PAGE>
Lack of Sales and Marketing Capabilities: The Company has no experience in
the sales, marketing and distribution of pharmaceutical products. There can
be no assurance that the Company will be able to establish sales, marketing
and distribution capabilities or make arrangements with its collaborators,
licensees or others to perform such activities or that such efforts will be
successful.
Patents and Proprietary Technology: No assurance can be given that the
Company's patent applications will issue as patents or that any patents that
may be issued will provide the Company with adequate protection for the
covered products or technology. Additionally, there can be no assurance that
the Company's confidentiality agreements will adequately protect its trade
secrets, know-how or other proprietary information. Further, there can be no
assurance that the Company's activities will not infringe on the patents or
proprietary rights of others or that the Company will be able to obtain
licenses to any technology that it may require to conduct its business or
that, if obtainable, such technology can be licensed at a reasonable cost.
Technological Change and Competition: There can be no assurance that
competitors will not succeed in developing technologies and products that are
more effective than any which have been or are being developed by the Company
or which would render the Company's technology and products obsolete and
noncompetitive. Many of the Company's competitors have substantially greater
financial and technical resources and production, marketing and development
capabilities and experience than the Company. Accordingly, certain of the
Company's competitors may succeed in obtaining regulatory approval for
products more rapidly or effectively than the Company. If the Company
commences commercial sales of its products, it will also be competing with
respect to manufacturing efficiency and sales and marketing capabilities,
areas in which it currently has no experience.
Volatility of Stock Price: The market price of the Common Stock has in
recent years fluctuated significantly, and it is likely that the price of
Common Stock will fluctuate in the future. Announcements by the Company or
others regarding its existing and future collaborations, results of clinical
trails, scientific discoveries, technological innovations, commercial
products, patents or proprietary rights or regulatory actions may have a
significant adverse effect on the market price of the Common Stock.
Fluctuations in financial performance from period to period also may have a
significant impact on the market price of the Common Stock.
Government Regulation: Preclinical studies, clinical trials and the
production and marketing of the Company's products and its ongoing research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. If regulatory approval
of a drug is obtained, such approval may involve limitations and restrictions
on the drug's use. Failure of the Company to comply with applicable
regulatory requirements can, among other things, result in fines, suspension
of regulatory approvals or product recalls. Additionally, the Company is or
may become subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditionsand the use and disposal
of hazardous or potentially hazardous substances. The Company is unable to
predict the extent of restrictions that might arise from any governmental or
administrative action.
Uncertainty of Third-Party Reimbursement and Product Pricing: The Company's
ability to commercialize products successfully will depend in part on the
availability of reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). There can be no assurance that reimbursement in the United States
or foreign countries will be available for any products the Company may
develop or, if available, will not be decreased in the future, or that
reimbursement amounts will not reduce the demand for, or the price of, the
Company's products, thereby adversely affecting the Company's business.
<PAGE>
Product Liability; Limited Insurance Coverage: The testing, marketing and
sale of human health care products entail an inherent risk of allegations of
product liability and there can be no assurance that product liability claims
will not be asserted against the Company. There can be no assurance that the
Company will be able to obtain or maintain product liability insurance on
acceptable terms or that such insurance will provide adequate coverage
against any potential claims.
Use of Hazardous Materials: The Company's research and development
activities involve the controlled use of hazardous materials, chemicals,
viruses and various radioactive compounds. Although the Company believes that
its safety procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held
liable for any damages that result and any liability could have a material
adverse effect on the Company.
Attraction and Retention of Personnel: The future success of the Company
will depend in large part on its ability to continue to attract and retain
highly qualified scientific, technical and managerial personnel. Competition
for such personnel is intense and there can be no assurance that Agouron will
be able to attract and retain the personnel necessary for the development of
its business. The loss of or failure to recruit scientific, technical and
managerial personnel could have a material adverse effect on the Company.
<PAGE>
