<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AGOURON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 33-0061928
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
</TABLE>
--------------------------
10350 NORTH TORREY PINES ROAD, LA JOLLA, CALIFORNIA 92037
(619) 622-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PETER JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AGOURON PHARMACEUTICALS, INC.
10350 NORTH TORREY PINES ROAD, LA JOLLA, CALIFORNIA 92037
(619) 622-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Harry J. Proctor, Esq. Jeffrey S. Marcus, Esq.
FERRIS, BRITTON & PROCTOR, A P.C. Laura M. Perz, Esq.
401 West "A" Street MORRISON & FOERSTER LLP
Suite 1600 1290 Avenue of the Americas
San Diego, California 92101 New York, New York 10104-0012
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES MAXIMUM AGGREGATE
TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value........ 2,875,000 $39.25 $112,843,750 $38,912
<FN>
(1) Includes 375,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Calculated in accordance with Rule 457(c) under the Securities Act of 1933.
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 21, 1996
2,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
All of the shares of Common Stock offered hereby are being sold by Agouron
Pharmaceuticals, Inc. The Common Stock is traded on The Nasdaq Stock Market
under the symbol AGPH. On June 19, 1996, the closing sale price of the Common
Stock as reported by Nasdaq was $39.25 per share. See "Price Range of Common
Stock and Dividend Policy."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE
5.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total............................. $ $ $
Total Assuming Full Exercise of $ $ $
Over-Allotment Option(3).........
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $350,000, which are payable by the
Company.
(3) Assuming exercise in full of the 45-day option granted by the Company to the
Underwriters to purchase up to 375,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock offered hereby will be made in New York City on or
about , 1996.
-------------------
PAINEWEBBER INCORPORATED ALEX. BROWN & SONS
INCORPORATED
-------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth Street
N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's regional
offices: Chicago Regional Office, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, Room 1400, 75 Park Place, New
York, New York 10007. Copies of such materials can also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Common Stock of
the Company is quoted on The Nasdaq Stock Market, and such material may also be
inspected at the offices of Nasdaq Operations, 1735 "K" Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits thereto, which may be inspected without charge at, and copies thereof
may be obtained at prescribed rates from, the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Agouron's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, the Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1995, December 31, 1995 and March 31, 1996, and Current Report on
Form 8-K filed June 21, 1996, and the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A having an
effective date of June 16, 1987 (file number 0-15609), are hereby incorporated
by reference in this Prospectus, except as superseded or modified herein. All
documents filed with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") after the date
of this Prospectus and prior to the termination of the offering, shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Prospectus. Agouron will provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the documents
that have been or may be incorporated by reference herein (other than exhibits
to such documents which are not specifically incorporated by reference into such
documents). Such requests should be directed to the Chief Financial Officer at
Agouron's executive offices at 10350 North Torrey Pines Road, La Jolla,
California 92037; (619) 622-8000.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION WILL NOT BE EXERCISED. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED
HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES, INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS."
THE COMPANY
Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") is a pioneer and
leader in technologies for 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- (formerly AG337) for treatment
of malignant solid tumors. In addition, eight preclinical programs are in
progress for discovery or development of other new drugs in the fields of
cancer, viral disease and inflammatory disease.
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 the approved anti-HIV drug stavudine
(d4T) 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 if and when
approved by 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 thymidylate synthase ("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 in calendar 1998. Agouron
intends to engage in the sales and marketing of Thymitaq in North America if and
when approved by FDA.
In June 1996, Agouron signed a binding letter of intent with
Hoffmann-LaRoche Inc. and F. Hoffmann-La Roche Ltd, subsidiaries of Roche
Holding 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
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.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company.......................... 2,500,000 shares of Common Stock, no par value (Common
Stock)
Common Stock to be Outstanding
after the Offering............... 13,170,000 shares (1)
Use of Proceeds................... To fund the manufacturing, marketing and working capital
requirements associated with the anticipated commercial
launch of Viracept; for preclinical and clinical product
development activities; and for capital expenditures,
working capital and other corporate purposes.See Use of
Proceeds.
Nasdaq Stock Market Symbol........ AGPH
</TABLE>
- ------------------------
(1) Based on the shares outstanding at June 14, 1996. Excludes (i) approximately
3,375,800 shares of Common Stock issuable upon the exercise of options
outstanding at June 14, 1996 under the Company's stock option plans (ii)
257,851 shares of Common Stock available for future grants under such plans
and (iii) 172,789 shares available for purchase under the Company's Employee
Stock Purchase Plan.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 4,795 $ 6,847 $ 9,970 $ 17,651 $ 27,961 $ 20,263 $ 30,985
Research and development costs and expenses... 9,353 13,142 17,404 23,957 36,317 24,352 43,780
Net loss...................................... (6,621) (9,132) (9,829) (9,462) (12,939) (7,285) (17,661)
Net loss per common share..................... (1.42) (1.47) (1.40) (1.31) (1.77) (1.00) (1.84)
Shares used in computing net loss per common
share........................................ 4,674 6,199 6,997 7,241 7,296 7,286 9,574
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................................... $ 104,656 $ 196,543
Working capital....................................................................... 72,116 164,003
Total assets.......................................................................... 113,191 205,078
Long-term liabilities................................................................. 1,863 1,863
Stockholders' equity (2).............................................................. 76,196 168,083
</TABLE>
- ------------------------
(1) As adjusted to give effect to the sale of 2,500,000 shares of Common Stock
in this offering assuming a public offering price of $39.25 per share and
net proceeds of approximately $91,887,000.
(2) The Company has never declared or paid dividends on its Common Stock.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES BEING OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE FOLLOWING
"RISK FACTORS" SECTION AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
EARLY STAGE OF PRODUCT DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT AND
MARKET ACCEPTANCE; TECHNOLOGICAL UNCERTAINTY
The Company has not yet completed the development of any products. While the
Company has received regulatory approval to begin human clinical testing for
certain of its compounds, these and other compounds currently being developed by
the Company will require further research and development, including extensive
additional preclinical and human clinical testing, prior to submission of any
regulatory application for commercial sale of such compounds. 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. In addition, clinical testing of a pharmaceutical product is
itself subject to approvals by various governmental regulatory authorities. No
assurance can be given that the Company will be permitted by regulatory
authorities to conduct planned additional clinical testing of the Company's
compounds in any particular country of the world, including the United States,
or that, if permitted, such additional clinical testing will prove that such
drugs are safe and efficacious to the extent necessary to permit the Company to
obtain marketing approvals for them from regulatory authorities. The Company may
encounter problems or delays relating to research and development, regulatory
approval and manufacturing and the failure to address such problems or delays
could have a material adverse effect on the Company's business and prospects.
Even if FDA and foreign regulatory approvals for the marketing of any products
being developed by the Company are obtained, there can be no assurance that such
products will be accepted and successful in the marketplace.
While the Company believes it has demonstrated the utility of certain of its
potential products in preclinical testing and in phase I and phase II human
clinical trials, extensive further clinical testing of these potential products
is required before the Company can seek marketing approval from regulatory
authorities. Furthermore, results obtained in preclinical studies or in phase I
and phase II human clinical trials are not necessarily indicative of results
that will be obtained in subsequent or more extensive preclinical or clinical
testing. Furthermore, one of the Company's potential products, Viracept, is an
HIV protease inhibitor which is currently being tested in large-scale clinical
trials. Technological uncertainty exists regarding the development of resistance
to HIV protease inhibitors by human subjects. There can be no assurance that
disease resistance will not limit the efficacy of the Company's HIV protease
inhibitor. Within the pharmaceutical industry, treatment of the disease
indications being pursued by the Company, especially HIV infection, AIDS and
cancer, has proven difficult. There can be no assurance that drugs resulting
from the approach of protein structure-based drug design employed by the Company
will overcome the difficulties of drug discovery and development in these or
other fields or result in commercially successful products. No drug discovered
by use of structure-based drug design has yet been successfully developed,
approved by FDA or marketed.
UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING
Before seeking regulatory approvals for the commercial sale of any of its
products, Agouron must undertake extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. To date, the Company has
conducted preclinical testing of certain of its drugs including AG3340 and
AG2034 and has tested Viracept and Thymitaq in phase I and phase II clinical
studies in Europe and the United States. The results of such testing of these
and other products under development by the Company are not necessarily
predictive of results that will be obtained from subsequent or more extensive
preclinical and clinical testing. Additionally, the Company has made and may in
the future make changes to the formulation
5
<PAGE>
of its drugs and/or to the processes for manufacturing its drugs. Any such
changes in formulation or manufacturing processes could result in delays in
conducting further preclinical and clinical testing, in unexpected adverse
results in further preclinical and clinical testing, and/or in additional
development expenses. Furthermore, there can be no assurance that clinical
studies of products under development will demonstrate the safety and efficacy
of such products at all or to the extent necessary to obtain regulatory
approvals of such products. Companies in the industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product under development could delay or prevent regulatory approval
of the product, and would have a material adverse effect on the Company.
Any drug is likely to produce some toxicities or undesirable side effects in
animals and in humans when administered at sufficiently high doses and/or for
sufficiently long periods of time. In an attempt to evaluate the potential
toxicities or side effects of Viracept and Thymitaq, the Company has conducted
toxicology studies of these compounds in animals. On the basis of results to
date from such toxicological studies, the Company has selected for human
clinical testing dose levels of its drugs and periods of exposure to its drugs
which, in the Company's judgment, are unlikely to produce unacceptable
toxicities or side effects in humans. However, there can be no assurance that
unacceptable toxicities or side effects will not occur at any dose level at any
time in the course of toxicological studies or of human clinical trials of the
Company's drugs. The appearance of any such unacceptable toxicities or side
effects in toxicology studies or in human clinical trials could cause the
Company or regulatory authorities to interrupt, limit, delay or abort the
development of any of the Company's drugs and could ultimately prevent their
being approved by FDA or foreign regulatory authorities for any or all targeted
indications. Even after being approved by FDA or foreign regulatory authorities,
products may later exhibit adverse effects that prevent their widespread use or
necessitate their withdrawal from the market. There can be no assurance that any
products under development by the Company will be safe when administered to
patients.
The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Patient accrual is a function of
many factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in the Company's current trials or future clinical trials may result in
increased costs, program delays or both, which could have a material adverse
effect on the Company. There can be no assurance that if clinical trials are
completed the Company will be able to submit a NDA as scheduled or that any such
application will be reviewed and approved by FDA in a timely manner, or at all.
HISTORY OF OPERATING LOSSES
To date, most of the Company's revenues have consisted of funds received
pursuant to collaborative research and development arrangements, grants from the
National Institutes of Health ("NIH") and interest income. The Company has not
generated revenues from the commercialization of any products. The Company has
had net operating losses since its inception and, as of March 31, 1996, had an
accumulated deficit of $81,183,000. The Company expects to continue to incur
substantial and increasing net operating losses for at least the next two years.
Such losses may fluctuate from quarter to quarter depending on several factors
including the status of the Company's research, development and clinical trial
programs and on the timing and receipt of fees from collaborative relationships.
Such losses will continue unless and until such time as product approvals are
obtained and product sales generate sufficient revenue to offset expenses and
generate sufficient cash flow to fund continuing operations. The Company's
ability to achieve a profitable level of operations is dependent on successfully
completing the development of certain of its products. There can be no assurance
that any or all of these events will occur or that the Company will ever achieve
product revenues or profitable operations.
ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL
The Company has expended more than $160,000,000 on research and development
activities and intends in the future to expend substantial additional funds to
continue research and development activities,
6
<PAGE>
conduct preclinical studies and tests, conduct human clinical trials, establish
manufacturing, sales and marketing capabilities and market any approved
products. Additional funds may be required in connection with collaborative
arrangements with others and for working capital and other general corporate
needs.
The Company believes that its current capital resources, existing
contractual commitments and the net proceeds of this offering will enable it to
maintain its current and planned operations through at least fiscal 1998. No
assurance can be given that there will be no change in the Company's operations
that would consume available resources more rapidly than anticipated. Additional
funding may be required before the commercialization of any products. The
Company's future capital requirements will depend on many factors, including the
progress of research and development, the scope and results of preclinical
studies and clinical trials, the cost, timing and outcome of regulatory reviews,
the rate of technological advances, the market acceptance of any approved
Company products, administrative and legal expenses and competitive factors. To
the extent the Company's capital resources are insufficient to meet current or
planned operating requirements, the Company will seek to obtain additional funds
through equity or debt financings, collaborative or other arrangements with
corporate partners, licensees and others, and from other sources, which may have
the effect of diluting the holdings of existing shareholders. 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, any of which would
have a material adverse effect on the Company. See "Use of Proceeds."
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, and upon the subsequent success of these partners,
licensees and others in performing preclinical and clinical testing, obtaining
regulatory approvals, manufacturing and marketing. These arrangements may
require the Company to transfer certain material rights to such corporate
partners, licensees and others. In the event the Company determines to license
or sublicense certain of its commercial rights, there can be no assurance such
arrangements will not result in reduced product revenue to the Company. While
the Company believes its partners, licensees and others will have an economic
motivation to succeed in performing their contractual responsibilities, the
amount and timing of resources to be devoted to these activities will be
controlled by others. Consequently, 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 not terminated early or that
the Company will be able to enter into future collaborations.
Under the provisions of certain agreements entered into between the Company
and JT, JT has agreed to collaborate on the development, commercialization and
marketing of certain novel therapeutic drugs including Viracept, anti-hepatitis
C and anti-herpes drugs and to make certain payments related thereto to the
Company. In the event JT fails to make any of the anticipated payments, or
otherwise delays in the making of any of the payments, such event could have a
material adverse effect on the Company. See "Business -- Research and
Development Agreements -- Japan Tobacco Inc."
Additionally, under the provisions of the binding letter of intent with
Roche, Roche and Agouron have agreed to collaborate on the development and
commercialization of Thymitaq and the Agouron anti-cancer compound designated
AG3340 and in a collaborative research program focused on cell cycle control.
Roche is obligated to make certain payments under the provisions of the binding
letter of intent to the Company. Additional terms of this collaboration must be
negotiated by the parties. In the event Roche and the Company are unable to
reach agreement on significant terms of this collaboration or Roche fails to
make any of the anticipated payments, or otherwise delays in the making of any
of the payments, such event could have a material adverse effect on the Company.
See "Business -- Research and Development Agreements -- Roche."
7
<PAGE>
LACK OF MANUFACTURING EXPERIENCE
The Company has not yet manufactured at a commercial scale and currently
does not have the facilities to manufacture its product candidates in commercial
quantities under current good manufacturing practices ("GMP") prescribed by FDA.
However, the Company intends to fulfill its commercial manufacturing
requirements through contract manufacturing relationships. To be successful, if
approved by FDA, the Company's products must be manufactured in commercial
quantities under GMP and at acceptable costs. Although the Company is producing
clinical quantities of certain chemical compounds in certain of its laboratory
facilities that have undergone GMP inspections and been approved by the State of
California, and has business relationships with manufacturers to supply
significant portions of its clinical trial material requirements, the current
facilities and existing manufacturing relationships of the Company are not
adequate to meet anticipated commercial production needs. Therefore, the Company
will be dependent upon its collaborators and licensees or upon contract
manufacturers for the commercial manufacture of products it may develop. The
Company has no experience in such commercial manufacturing and related matters
and no assurance can be given that the Company will be able to arrange for
contract manufacturing or that adequate supplies of raw materials will be
available. In the event the Company is unable to obtain contract manufacturing
on acceptable terms, its ability to commercialize or timely deliver its products
at acceptable cost may be adversely affected.
LACK OF SALES AND MARKETING CAPABILITIES
While the Company is currently developing a sales and marketing force, it
has no experience in the sales, marketing and distribution of pharmaceutical
products and may have to rely on collaborators and licensees or on arrangements
with others to provide for the sales, marketing and distribution of any products
approved by FDA or foreign regulatory authorities. 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. Further, there
can be no assurance that any products, if approved, will gain market acceptance.
The Company's results of operations and cash flows will be highly dependent upon
the timing and extent of Viracept sales.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company seeks to protect its proprietary technology by means of patents,
trade secrets and unpatented proprietary know-how. The Company has applied for,
and will in the future apply for United States and foreign patents for certain
of its technology and products. Most of the Company's products are expected to
be synthetic chemical compounds, the patentability of which will be determined
under principles and procedures well established by the United States Patent
Office under United States patent law. 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 Agouron with adequate protection for the covered products
or technology.
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; such skills, knowledge and experience
are not patentable. To help protect its rights, 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 adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. Further, the Company may be exposed to
competitors who independently develop substantially equivalent technology or
otherwise gain access to the Company's trade secrets, know-how or other
proprietary information. The commercial success of the Company will also depend
in part on not infringing patent or proprietary rights of others and not
breaching any licenses granted to the Company. There can be no assurance that
the Company's activities will not infringe on the patents or proprietary rights
of others. Furthermore, there can be no assurance that the Company will be able
to obtain a license to any technology that it may require to conduct its
business or that, if obtainable, such technology can be licensed at a reasonable
cost. Failure by the Company to obtain a license to any technology that it may
require to commercialize any of its products may have a material adverse effect
on the Company.
8
<PAGE>
The cost of obtaining and enforcing patent protection and of protecting
proprietary technology may involve a substantial commitment of the Company's
resources. Any such commitment may divert resources from other areas of the
Company.
TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical and biotechnology industries are subject to intense
competition and rapid technological change. The Company believes that
industry-wide interest in the application of protein structure-based drug design
and related technology will continue and may accelerate as the technology
becomes more widely understood. Competitors of the Company in the United States
and abroad are numerous and include, among others, pharmaceutical, biotechnology
and chemical companies, universities and other research organizations. For
example, HIV protease inhibitors developed by Abbott Laboratories, Inc., Merck &
Co., Inc. and Roche are currently being marketed. There can be no assurance that
these and other competitors will not have products or 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 and marketing capabilities and experience
than the Company. In addition, many of the Company's competitors have
significantly greater experience than the Company in conducting preclinical
testing and human clinical trials of new pharmaceutical products and in
obtaining FDA and other regulatory approvals of products. 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.
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. Rigorous preclinical and clinical testing and obtaining
regulatory approvals can take many years and require 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 developed by the Company and the Company's ability to receive
product revenues or royalties. Further, there can be no assurance that the
Company or its collaborators or licensees will be able to obtain necessary
regulatory approvals. There can be no assurance that clinical data will be
accepted by regulatory agencies or that any approvals will be granted on a
timely basis, if at all. Any significant delays or requests to provide
additional data in the approval process could have a material adverse effect on
the Company. See "Business -- Government Regulation."
If regulatory approval of a drug is obtained, such approval may involve
limitations and restrictions on the drug's use. In addition, any marketed drug
and its manufacturer are subject to continual governmental review and any
subsequent discovery of previously unrecognized problems could result in
restrictions on the product or manufacturer, including, without limitation,
withdrawal of the product from the market. Failure of the Company to comply with
applicable regulatory requirements can, among other things, result in fines,
suspension of regulatory approvals, product recalls, seizure of products,
operating restrictions or criminal prosecution.
Additionally, the Company is or may become subject to various federal, state
and local 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.
9
<PAGE>
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.
Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations, such as HMOs, which
can control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reform health care or reduce
government insurance programs, may result in lower prices for pharmaceutical
products. The cost containment measures that health care providers are
instituting and the effect of any health care reform could materially adversely
affect the Company's ability to sell its products if successfully developed and
approved. Moreover, the Company is unable to predict what additional legislation
or regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future or what effect such
legislation or regulation would have on the Company's business.
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, its
collaborators or its licensees. The Company currently has only limited amounts
of product liability insurance for clinical trials and currently does not have
product liability insurance for commercial sales. 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. Furthermore, there can be no assurance that any
collaborators and licensees of Agouron will agree to indemnify the Company, be
sufficiently insured or have a sufficient net worth to protect the Company from
any product liability 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. In addition, much of the know-how
developed by the Company resides in its scientific and technical personnel and
such know-how is not readily transferable to other scientific and technical
personnel. Further, the Company's anticipated growth and expansion into areas
and activities requiring additional expertise, such as manufacturing and
marketing, will require the addition of new technical and management personnel
and the development of additional expertise by existing personnel. The loss of
or failure to recruit scientific, technical and managerial personnel could have
a material adverse effect on the Company.
DILUTION; ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution in the net tangible book value of their
shares. Further dilution will occur upon the exercise of
10
<PAGE>
outstanding stock options, the expiration dates of which do not occur for a
number of years. The Company has never declared or paid dividends on its Common
Stock to date and does not anticipate paying any dividends in the foreseeable
future. See "Dilution."
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 the Common Stock will fluctuate
in the future. Announcements by the Company or others regarding existing and
future collaborations, results of clinical trials, 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.
USE OF PROCEEDS
The net proceeds to be received by Agouron from the sale of the Common Stock
offered hereby, after deducting estimated underwriting discounts and commissions
and offering expenses, are estimated to be $91,887,000 ($105,720,000 if the
Underwriters' over-allotment option is exercised in full) at an assumed public
offering price of $39.25 per share. The Company currently intends to use the net
proceeds in the following approximate amounts: manufacturing and inventory
commitments for the commercial launch of Viracept, $40,000,000; Viracept product
development and clinical testing, $20,000,000; sales and marketing
infrastructure, $15,000,000; capital equipment and facilities, including
scientific equipment and computers, $5,000,000; and the balance of the net
proceeds, if any, will be added to the Company's working capital and made
available for general corporate purposes. The amounts actually expended for each
purpose may vary significantly depending upon a number of factors, including the
status of competitive products, the progress of the Company's development
programs, timing of regulatory approvals, technological advances and
determinations as to the commercial potential of the Company's products. The
Company reserves the right to reallocate the proceeds of this offering in
response to these and related contingencies. To the extent the offering proceeds
are less than estimated herein, the Company would expect to reduce the proceeds
allocated to the sales and marketing infrastructure and capital equipment. The
Company believes that its current capital resources, existing contractual
commitments and the net proceeds of this offering will enable it to maintain its
current and planned operations through at least fiscal 1998. Additional funding
may be required before the Company generates significant positive cash flows
from commercial activities. See "Risk Factors -- Additional Financing
Requirements and Access to Capital."
Until applied to any of the foregoing uses, the net proceeds of the offering
will be invested by the Company in interest-bearing deposit accounts,
certificates of deposit or similar financial instruments. The Company will
invest its liquid assets in a manner that will not subject it to regulation
under the Investment Company Act of 1940.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to reflect the issuance and sale of the shares of
Common Stock offered hereby. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities.......................................................... $ 1,863 $ 1,863
Stockholders' equity:
Common Stock, no par value, 75,000,000 shares authorized; 10,622,800 shares
issued and outstanding actual; and 13,122,800 shares issued and outstanding
as adjusted (1)............................................................. 157,379 249,266
Accumulated deficit.......................................................... (81,183) (81,183)
---------- -----------
Total stockholders' equity............................................... 76,196 168,083
---------- -----------
Total capitalization................................................. $ 78,059 $ 169,946
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes 3,680,670 shares reserved for issuance under the Company's Stock
Option Plans (of which 2,622,107 shares were subject to outstanding options)
and 45,000 shares reserved for issuance under an outstanding warrant
(subsequently exercised in June 1996).
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock trades on The Nasdaq Stock Market under the symbol AGPH.
The following table sets forth the high and low sale prices as reported by
Nasdaq for the fiscal periods indicated.
<TABLE>
<S> <C> <C>
FISCAL 1994
Quarter ended September 30......................................... $ 101/4 $ 73/4
Quarter ended December 31.......................................... 121/2 83/4
Quarter ended March 31............................................. 163/4 91/2
Quarter ended June 30.............................................. 141/4 93/4
FISCAL 1995
Quarter ended September 30......................................... 133/4 93/4
Quarter ended December 31.......................................... 131/4 10
Quarter ended March 31............................................. 19 107/8
Quarter ended June 30.............................................. 271/4 15
FISCAL 1996
Quarter ended September 30......................................... 391/4 223/4
Quarter ended December 31.......................................... 357/8 221/2
Quarter ended March 31............................................. 475/8 323/4
Quarter ending June 30 (through June 19)........................... 47 32
</TABLE>
On June 19, 1996, the last sale price of the Common Stock as reported by The
Nasdaq Stock Market was $39.25 per share. There were approximately 5,000
beneficial owners of the Common Stock as of such date.
The Company has not declared any dividends on the Common Stock and does not
intend to declare any cash dividends on the Common Stock in the foreseeable
future.
12
<PAGE>
DILUTION
As of March 31, 1996, the net tangible book value of the Company was
$76,196,000, or $7.17 per share. Net tangible book value per share is equal to
net tangible assets (tangible assets of the Company less total liabilities)
divided by the 10,622,800 shares of Common Stock outstanding. After giving
effect to the sale of the 2,500,000 shares of Common Stock by the Company in
this offering and the receipt of the estimated net proceeds therefrom (at an
assumed offering price of $39.25 per share), the pro forma net tangible book
value of the Company as of March 31, 1996 would have been $168,083,000, or
$12.81 per share. This represents an immediate increase in net tangible book
value of $5.64 per share to existing shareholders and an immediate dilution of
$26.44 per share to new investors. The following table illustrates the pro forma
dilution of a new investor's equity in a share of Common Stock as of March 31,
1996:
<TABLE>
<S> <C> <C>
Assumed public offering price................................ $ 39.25
Net tangible book value before offering.................... $ 7.17
Increase attributable to new investors..................... 5.64
---------
---------
Pro forma net tangible book value after offering............. 12.81
---------
---------
Dilution of net tangible book value to new investors......... $ 26.44
---------
---------
</TABLE>
13
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following data for the years ended June 30, 1991, 1992, 1993, 1994 and
1995 have been derived from financial statements audited by Price Waterhouse
LLP, independent accountants. The data as of March 31, 1995 and 1996 have been
derived from unaudited financial statements which, in the opinion of management,
include all adjustments which the Company considers necessary for a fair
presentation of such data. Interim operating results are not necessarily
indicators of operating results for the full year. The information presented for
the fiscal year ended June 30, 1995 should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1995 and the
information presented for the nine months ended March 31, 1995 and 1996 should
be read in conjunction with the quarterly reports on Form 10-Q for the periods
ended March 31, 1995 and 1996. See "Incorporation of Certain Information by
Reference."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract........................ $ 3,781 $ 5,307 $ 8,266 $ 16,301 $ 26,722 $ 19,285 $ 27,465
Interest........................ 1,014 1,540 1,704 1,350 1,239 978 3,520
--------- --------- --------- --------- ---------- --------- ----------
Total revenues................ 4,795 6,847 9,970 17,651 27,961 20,263 30,985
--------- --------- --------- --------- ---------- --------- ----------
Costs and Expenses:
Research and development........ 9,353 13,142 17,404 23,957 36,317 24,352 43,780
General and administrative...... 1,880 2,519 2,127 2,961 4,358 3,027 4,679
Interest........................ 183 318 268 195 225 169 187
--------- --------- --------- --------- ---------- --------- ----------
Total expenses................ 11,416 15,979 19,799 27,113 40,900 27,548 48,646
--------- --------- --------- --------- ---------- --------- ----------
Net loss.......................... $ (6,621) $ (9,132) $ (9,829) $ (9,462) $ (12,939) $ (7,285) $ (17,661)
--------- --------- --------- --------- ---------- --------- ----------
--------- --------- --------- --------- ---------- --------- ----------
Net loss per common share......... $ (1.42) $ (1.47) $ (1.40) $ (1.31) $ (1.77) $ (1.00) $ (1.84)
--------- --------- --------- --------- ---------- --------- ----------
--------- --------- --------- --------- ---------- --------- ----------
Shares used in computing net loss
per common share................. 4,674 6,199 6,997 7,241 7,296 7,286 9,574
BALANCE SHEET DATA:
Working capital................... $ 8,978 $ 35,115 $ 29,933 $ 21,039 $ 8,837 $ 13,821 $ 72,116
Total assets...................... 15,672 45,625 41,721 37,178 27,097 34,529 113,191
Long-term liabilities............. 1,179 3,050 2,613 2,285 1,884 2,015 1,863
Stockholders' equity.............. 10,620 37,517 33,757 24,852 12,591 17,812 76,196
Dividends per common share (1).... -- -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The Company has never declared or paid dividends on the Common Stock.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" 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 "BUSINESS" AND "RISK
FACTORS."
OVERVIEW
The Company has been primarily 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 from the
Company's equity-derived working capital, through collaborative arrangements
with other companies and through grants from the National Institutes of Health.
The Company's net operating losses incurred since inception are primarily a
result of the Company's independent research and development activities and
continued increasing investment in clinical development activities concentrated
on the Company's lead compounds in cancer and AIDS. Net losses for the fiscal
years ended June 30, 1993, 1994 and 1995 and the nine months ended March 31,
1996 were $9,829,000, $9,462,000, $12,939,000 and $17,661,000. It is anticipated
that substantial net operating losses will continue and will possibly increase
through at least the next two years.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
The increase in the net loss for the nine months ended March 31, 1996
compared to the year-earlier period is due principally to the Company's
commitment to support expanding clinical activities and establish a commercial
infrastructure associated with the Company's two leading product candidates.
These spending increases were only partially offset by increased revenues.
Contract revenues in the current nine-month period have increased compared
to the year-earlier period due mainly to the anti-HIV collaboration with JT.
Interest income has increased significantly from the prior-year nine-month
period due to a higher average investment portfolio balance resulting from the
receipt of a milestone payment from JT in August 1995 and a public offering of
common stock in September 1995.
Research and development costs and expenses increased from the prior-year
nine-month period due generally to increasing average research and development
staff levels (approximately 20%) and staff-related expenditures, including
occupancy, and significantly increased expenditures for human clinical trial
activities associated with Thymitaq and Viracept.
The increase in general and administrative costs and expenses in the current
nine-month period is due chiefly to increasing average staff levels
(approximately 25%) and staff related expenditures and certain costs associated
with a growing sales and marketing infrastructure.
Interest expense in the current-year period is generally decreasing as the
level of debt and capital lease obligations declines. However, these general
decreases were offset by the exercise costs associated with certain lease
buy-out options.
FISCAL YEARS ENDED JUNE 30, 1993, 1994 AND 1995
Collaborative research and development agreements with Japan Tobacco Inc.
("JT"), Syntex (U.S.A.) Inc. (now a subsidiary of Roche Holding Ltd) ("Roche"),
Schering-Plough Corporation ("Schering") and Eli Lilly and Company ("Lilly")
accounted for approximately 94%, 94% and 97% of the Company's total contract
revenue for 1993, 1994 and 1995. Total contract revenue for 1994 increased
approximately 97% over 1993 due principally to the effect of a full year of
activities on the collaborative programs covered by the 1992 agreement with JT
("JT 1992"), the June 1993 collaborative agreement with Roche and the initiation
of work on additional collaborative programs with JT under expanded research
arrangements established in February 1994 ("JT 1994"). Partially offsetting
these increases was the absence of any funding in 1994 from Lilly due to the
completion of a collaborative research program in April 1993. Total contract
revenues for 1995
15
<PAGE>
increased approximately 64% over 1994 due principally to an anti-HIV
collaboration with JT initiated in December 1994 ("JT HIV"), the effect of a
full year of program activities associated with JT 1994 and increased activities
for the research program 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 1996 will exceed the level of such revenues recognized in
1995.
Interest income decreased by approximately 21% from 1993 to 1994 and 8% from
1994 to 1995, primarily due to a generally declining portfolio of cash, cash
equivalents and short-term investments which were utilized to fund operations.
The Company anticipates that interest income will increase in 1996.
Research and development spending increased by approximately 38% from 1993
to 1994 and by approximately 52% from 1994 to 1995, due principally to
staff-related expenses and third-party costs associated with increasing
preclinical and clinical development activities associated with the Company's
leading product candidates: Thymitaq for the treatment of cancer and Viracept
for the treatment of HIV infections and AIDS. Collaborator-funded program
expenditures representing 55%, 45% and 65% of total research and development
costs and expenses in 1993, 1994 and 1995 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 45%, 55%
and 35% of total research and development costs and expenses in 1993, 1994 and
1995. Of such self-funded costs during 1993, 1994 and 1995, approximately 60%,
44% and 49% was dedicated to the preclinical and clinical development of
anti-proliferative drugs in the Company's most advanced programs. The Company
anticipates that total research and development costs and expenses will increase
in 1996 in response to expanding drug design efforts on various projects and
increasing preclinical 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 1993, 1994 and 1995. The increase in
absolute dollar spending for such costs from 1993 to 1994 was due mainly to
certain administrative costs associated with the JT collaborations and increased
occupancy costs related to additional leased facilities. The increase from 1994
to 1995 was due to increasing average staff levels (approximately 36%) and
staff-related expenditures and certain administrative costs associated with the
JT collaborations. The Company anticipates that total general and administrative
costs and expenses will increase in 1996 due to additional staff, costs
associated with planned facility expansion and increasing commercial development
and sales and marketing activities.
Interest expense declined by approximately 27% from 1993 to 1994 and
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.
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 operations and
capital expenditures. To date, the Company has raised net equity proceeds of
approximately $157,400,000, principally from corporate and venture capital
investors and through its public offerings in calendar 1987, 1989, 1991 and
1995. The Company believes that its current capital resources, existing
contractual commitments and the net proceeds of this offering, will enable it to
maintain its current and planned operations through at least fiscal 1998. This
belief is based on current research and clinical development plans, anticipated
working capital requirements associated with the commercial launch of Viracept,
the current regulatory environment, historical industry experience in the
development of therapeutic drugs and general economic conditions. The Company
believes that additional funding may be required before significant positive
cash flows are generated from commercial activities. As a result, the Company
anticipates pursuing various financing alternatives such as collaborative
arrangements and additional public offerings or private placements of the
Company's securities. If such alternatives are not
16
<PAGE>
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.
During 1995, capital expenditures totaled $2,032,000 compared with
$1,829,000 and $3,186,000 during 1994 and 1993, of which $17,000, $58,000 and
$85,000 were financed through capital lease obligations. Of the total capital
expenditures during 1993, 1994 and 1995, approximately $1,202,000, $119,000 and
$130,000 represented leasehold improvement costs associated with certain of the
Company's scientific and administrative facilities. With the exception of the
leasehold improvement costs incurred during 1993, 1994 and 1995, virtually all
of the capital expenditures during 1993, 1994 and 1995 represented laboratory
equipment and scientific instrumentation necessary to support an expanding
research and development effort.
Capital expenditures during 1996 are expected to be approximately $2,500,000
to support product manufacturing, 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 (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This Statement defines a fair value method of accounting for an
employee stock option or similar equity instrument and encourages adoption of
that method. The Statement also requires that an employer's financial statements
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.
The Company is currently evaluating the financial impact and disclosure
requirements associated with the adoption of SFAS No. 123.
17
<PAGE>
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 HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES,
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS "BUSINESS" SECTION AND
IN "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
OVERVIEW
Agouron is a pioneer and leader in technologies for 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- (formerly AG337) for treatment of malignant solid tumors. In
addition, eight preclinical programs are in progress for discovery or
development of other new drugs in the fields of cancer, viral disease and
inflammatory disease.
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 the approved anti-HIV drug stavudine
(d4T) 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 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 thymidylate synthase ("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 in calendar 1998. Agouron
intends to engage in the sales and marketing of Thymitaq in North America upon
its approval by FDA.
In June 1996, Agouron signed a binding letter of intent with
Hoffmann-LaRoche Inc. and F. Hoffmann-La Roche Ltd, subsidiaries of Roche
Holding 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
North America, subject to the payment of royalties to Agouron.
18
<PAGE>
Roche also is to provide annual research funding support and subsequent
milestone payments to Agouron for similar commercial rights for cancer
indications in compounds which are generated in a collaborative research program
focused on cell cycle control.
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. See
"Drug Design Technology."
The following table outlines Agouron's 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>
DEVELOPMENT
PROGRAM INDICATION PROTEIN TARGET STAGE PARTNER
- --------------------- ------------------- ----------------------- ---------------- ----------
<S> <C> <C> <C> <C>
CANCER
Thymitaq- i.v. Solid Tumors TS Phase II/III Roche
Thymitaq- oral Solid Tumors TS Phase I Roche
AG2034 Solid Tumors GART Preclinical 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: 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.
19
<PAGE>
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 1000mg/m(2)/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 covering for Thymitaq in calendar 1998.
See "Risk Factors -- Uncertainty Associated with Clinical Trials."
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 certain co-promotion rights and the payment of royalties to Agouron.
See "Research and Development Agreement -- Roche."
20
<PAGE>
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 preclinical
toxicology studies are in progress. The Company plans to initiate phase I
clinical studies of AG2034 in late 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 in late
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. See "Inflammatory Disease -- MMP
Inhibitors."
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. See "Inflammatory Disease" and "Research and Development Agreements --
Roche."
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
21
<PAGE>
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 molecular
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 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. See "Research and Development Agreement -- Roche."
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.
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. See "Research and Development Agreements -- Japan Tobacco
Inc."
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.
22
<PAGE>
Research shows that inhibition of the protease enzyme renders HIV unable to form
new infectious virus. Three HIV protease inhibitors have been approved by 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. See "Competition" and "Risk
Factors -- Technological Change and Competition."
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 or in combination with the approved drug stavudine
(d4T), 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. See
"Risk Factors -- Uncertainty Associated with Clinical Trials," and "Research and
Development Agreements -- Japan Tobacco Inc."
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. See "Research and Development Agreements -- Japan
Tobacco Inc."
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. See
"Research and Development Agreements -- Japan Tobacco Inc."
23
<PAGE>
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.
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. See "Research and Development Agreements -- Roche."
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.
DRUG DESIGN TECHNOLOGY
Common to all of Agouron's drug discovery programs is the design of novel
drugs based upon the structure of proteins which play key roles in human
disease. It is the centrality of this protein structure-based approach to
rational drug design which distinguishes the Company from most other
pharmaceutical and biotechnology companies.
BACKGROUND: CONVENTIONAL DRUG DISCOVERY
Historically, the pharmaceutical industry has relied upon drug discovery by
screening-sifting through vast inventories of naturally-occurring and man-made
chemicals in search of previously undiscovered substances with therapeutic uses.
While screening has been the basis for the discovery of virtually all drugs
currently in use, the Company believes it has become an increasingly
unsatisfactory approach as it is both costly and inefficient and the rate of
discovery of new therapeutic compounds has declined over the last decade. Most
importantly, there remain many important therapeutic needs for which
screening-based research has failed to yield acceptably safe and effective
drugs.
THE IDEA OF DESIGNING DRUGS
With the ability to synthesize chemical compounds of predetermined
composition, came the desire to overcome the limitations and unpredictability of
screening by building molecules specifically designed to perform therapeutic
tasks. This vision of "rational drug design" was made more plausible by the
discovery that, despite many differences between them, drugs work according to
the same general scheme.
Nearly every drug molecule works through a structural interaction with a
"target" or "receptor" molecule or protein which play key roles in all
biological processes. In the most common model for this
24
<PAGE>
interaction, the drug molecule inserts itself into a functionally important
crevice of its target protein like a key in a lock, binds there and either
induces or, more commonly, inhibits the protein's normal function. This
universal drug-target scheme suggested a powerful alternative approach to drug
discovery: if it were possible to identify in advance the appropriate protein
target for a given therapeutic need and if enough were known about the
distinguishing structure of that target protein, it ought to be feasible to
design the structure of an ideal drug to interact with it.
PROTEIN STRUCTURE-BASED DRUG DESIGN
Agouron's scientists have developed an approach for drug discovery which
exploits the three-dimensional structures of molecular targets. At the heart of
the Company's strategy is the analytical technique of protein x-ray
crystallography, which enables Agouron scientists to determine the
three-dimensional atomic structures of target proteins and the drugs which bind
to them. The Company's approach to drug design integrates genetic engineering
techniques, which allow the identification, purification and modification of
appropriate target proteins, with innovations in protein x-ray crystallography
and the use of increasingly sophisticated programs run on high speed computers
which permit chemists to predict and simulate molecular structure, dynamics and
energetics.
GENETIC ENGINEERING
In contrast to the biotechnology industry, Agouron employs genetic
engineering techniques to produce proteins not as products, but as drug targets.
Genetic engineering techniques can assist scientists in identifying appropriate
molecular targets for particular therapeutic objectives, produce target proteins
in sufficient amounts to permit structural studies and modify proteins to probe
the connections between a target protein's structure and function.
PROTEIN X-RAY CRYSTALLOGRAPHY
The only method which has been successful in determining the precise
three-dimensional atomic structure of large proteins is an analytic technique
known as protein x-ray crystallography. Agouron believes it has assembled the
largest and most experienced group of protein crystallographers in the
pharmaceutical industry.
X-ray crystallographic studies require that a target protein be in
crystalline form. Once such crystals are obtained, a single crystal is bombarded
with a powerful x-ray beam. The protein crystal diffracts the x-ray beam and
generates a definitive diffraction pattern. A complex analytical process
involving extensive mathematical computations is then performed on the x-ray
diffraction data. From the results of these calculations, it is possible to
determine the exact three-dimensional structure of the target protein. It is
this elusive information which provides the critical starting point for
three-dimensional drug design.
DRUG DESIGN
Having determined the architecture of the target protein in
three-dimensional atomic detail and having identified its functionally critical
regions, Agouron chemists, crystallographers and molecular biologists are
positioned to begin the process of drug design. The structure of the target
protein along with representations of its chemical and electronic properties
(most of which can be computed accurately if the protein structure is known) are
displayed on an interactive computer graphics system. Ideas for the structure of
a drug molecule which complements the unique structure and electronic
environment of the target protein are developed by members of the design team
and are then simulated and evaluated on the computer with the aid of more than
100 specialized analytical software programs.
The most promising computer designs of drug candidates are chemically
synthesized by the Company's medicinal chemists. As in conventional drug
development strategies, experimental measurements are taken of the ability of
such a newly synthesized drug candidate to produce the intended effect upon the
target protein. Company crystallographers then re-determine the structure of the
protein target, now in combination with the candidate drug molecule, and are
able to see in detail the structural interactions actually achieved by the
candidate drug with its target. Agouron scientists are positioned to relate the
performance of such a compound measured by familiar biochemical techniques to
its structural interactions with the target as revealed crystallographically.
The design team can then incorporate the results of this specialized analysis
into the next generation of its compounds.
25
<PAGE>
In summary, Agouron's drug design methodology consists of iterative cycles
of design, simulation, synthesis, structural assessment and redesign. Its power
lies in the ability of Agouron's drug design team to see the primary event in
drug action -- the interaction of the drug with its target -- as it actually
occurs and to be guided in the design and optimization of drugs by the details
of this interaction. This "look" at the heart of drug and target interaction is
provided by Agouron's protein x-ray crystallography research group, which the
Company believes to be unique in the pharmaceutical industry by virtue of its
configuration and experience.
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,
corporate collaborative arrangements and federal grants. 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 is being 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 an initial payment of $2,500,000, a
milestone payment of $3,500,000 in recognition of the satisfactory completion of
a phase I clinical study and second milestone payment of $24,000,000 in
recognition of the satisfactory completion of a pilot phase II clinical study of
Viracept. Agouron and JT are currently sharing 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 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.
26
<PAGE>
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-LaRoche 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 is to receive initial license fees of
$15,000,000 and 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 certain 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. See
"Research and Development Programs -- Cancer -- Cell Cycle Control: cdk4."
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.
ELI LILLY AND COMPANY
In April 1993, the Company and Lilly completed a five-year collaborative
research program in several therapeutic categories. Further development of any
discoveries made in the program will be undertaken at each company's sole
discretion and expense. Agouron has continuing commercial rights and/or
financial interests in certain of these discoveries.
NATIONAL INSTITUTES OF HEALTH
The Company is the grantee organization for two grants from the NIH to
conduct research related to HIV.
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 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.
27
<PAGE>
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. See "Risk
Factors -- Technological Change and Competition" and "Risk Factors -- Attraction
and Retention of Personnel."
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.
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. See "Risk Factors -- Patents and
Proprietary Technology."
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 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
28
<PAGE>
research and development, manufacturing, safety, labeling, storage,
recordkeeping, distribution and marketing of such products. The process of
completing preclinical and clinical testing and obtaining the approval of 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 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 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 FDA of a NDA; and (e) review and approval of the NDA by 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 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 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 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 FDA for
approval. See "Risk Factors -- Uncertainty Associated with Clinical Trials."
If a NDA is submitted to FDA, there can be no assurance that such
application will be reviewed and approved by 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. See "Risk Factors -- Government
Regulation."
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
29
<PAGE>
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. See "Risk Factors -- Lack
of Manufacturing Experience."
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 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. See "Risk Factors -- Lack of Sales and Marketing Capabilities."
HUMAN RESOURCES
As of May 31, 1996, the Company had 353 employees, 91 of whom hold Ph.D. or
M.D. degrees. Two hundred eighty-three 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.
FACILITIES
The Company leases space in three facilities located in La Jolla, California
which provide a total of approximately 110,000 square feet of office and
laboratory space. The Company's corporate headquarters are located at 10350
North Torrey Pines Road, Suite 100, La Jolla, California 92037, where the
Company occupies approximately 42,000 square feet under three leases which
expire in April 1997. 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. While the Company believes that its facilities are
adequate for its current operations, it is negotiating two further leases for a
total of approximately 70,000 square feet to provide additional laboratory and
administrative space. Additional facilities will be necessary if the Company
undertakes commercial manufacturing.
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.
30
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Peter Johnson (2)(4)................................. 51 President, Chief Executive Officer and Director
Neil J. Clendeninn, M.D., Ph.D....................... 47 Vice President, Clinical Affairs
Steven S. Cowell (2)................................. 47 Vice President, Finance and Chief Financial Officer
Gary E. Friedman (2)................................. 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...................................... 52 Vice President, Operations
John N. Abelson, Ph.D. (1)........................... 56 Director
Patricia M. Cloherty (3)(4).......................... 54 Director
A.E. Cohen (1)(4).................................... 60 Director
Michael E. Herman (1)(4)............................. 55 Director
Irving S. Johnson, Ph.D. (4)......................... 71 Director
Antonie T. Knoppers, M.D., Ph.D. (3)................. 81 Director
Melvin I. Simon, Ph.D. (3)........................... 59 Director
</TABLE>
- ------------------------
(1) Member of Directors Compensation Committee
(2) Member of Management Compensation Committee
(3) Member of Audit Committee
(4) Member of Executive Committee
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.
31
<PAGE>
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 management
positions with the 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. and its successor organization, Marion
Merrell Dow 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, Inc. Mr.
Snyder received a M.B.A. from Rockhurst College.
GLENN R. ZINSER joined the Company in 1987 and, since July 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.
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 and is the chairman of the
National Venture Capital Association.
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., Macrochem
Corporation, 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
32
<PAGE>
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 Lilly, 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., Athena Neurosciences, 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 member of the board of trustees of the Salk Institute, was the
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, a representative of the Underwriters in
this offering. Dr. Knoppers received a M.D. from the University of Amsterdam and
a Ph.D. from the University of Leiden, The Netherlands.
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.
The Board consists of nine directors elected by the holders of the Common
Stock. All directors of the Company hold office until the next annual meeting of
the shareholders and the election and qualification of their successors.
Non-officer members of the Board of Directors of the Company receive cash
compensation in the amount of $250 per meeting attended for their services as a
director.
33
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, without par value, and 2,000,000 shares of preferred stock,
without par value ("Preferred Stock"). There is no Preferred Stock outstanding.
The Board of Directors is authorized to determine the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences and sinking fund terms on any series of the Preferred
Stock, the number of shares constituting such series and the designation
thereof. The Company has no present plans to issue any shares of Preferred
Stock. The issuance of Preferred Stock could have the effect of aiding the Board
of Directors in opposing takeover attempts and could adversely affect the voting
power of the holders of the Common Stock.
COMMON STOCK
At May 31, 1996, there were approximately 10,670,000 shares of Common Stock
outstanding held by approximately 5,000 beneficial owners. The holders of shares
of Common Stock are entitled to elect all directors. The bylaws of the Company
provide that there are nine directors. Upon giving notice of intent to cumulate,
holders of Common Stock may cumulate votes in the election of directors. In
general, the approval of proposals submitted to shareholders at a meeting
requires a favorable vote of the majority of the holders of the shares of the
Common Stock represented and voting at the meeting on which the matter is to be
adopted. Each share of Common Stock entitles its owner to one vote.
Additionally, under California law, certain fundamental matters affecting the
Company may require a favorable vote of a greater percentage. As an example,
sale or transfer of all Company assets or merger or dissolution of the Company
would each require the affirmative vote of a majority of the outstanding shares.
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors. Under the Company's articles of
incorporation, holders of Common Stock have no preemptive, subscription,
redemption or conversion rights and there are no sinking fund provisions with
respect to the Common Stock. All of the outstanding shares of Common Stock are,
and the shares to be issued in this offering will be, validly issued, fully paid
and non-assessable.
As of June 14, 1996, options to purchase a total of 3,375,800 shares of
Common Stock were outstanding. Certain of the Company's current shareholders,
including all directors and executive officers, have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of any of
the Common Stock owned by them for a period of 90 days after the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters. See "Underwriting."
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more
series, and to fix the rights, preferences, privileges and restrictions thereof,
including, but not limited to, dividend rights, conversion rights, voting
rights, rights and terms of redemption, and liquidation preferences. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without any further action by the
stockholders. The Board of Directors, without stockholder approval, can issue
Preferred Stock, with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. In addition, such Preferred
Stock may have other rights, including economic rights, senior to the Common
Stock and, as a result, the issuance thereof could have a material adverse
affect on the market value of the Common Stock. The Company has no present plan
to issue any shares of Preferred Stock. However, the Board of Directors is
evaluating the appropriateness of adopting a shareholder rights agreement which
would provide certain protections for the Company and its shareholders from
certain changes in control of the Company not approved by the Board of
Directors. If adopted, such an agreement could result in the issuance of
warrants to acquire shares of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Wells Fargo Bank
N.A., Los Angeles, California.
34
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions of the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the Underwriters named
below (the "Underwriters"), for whom PaineWebber Incorporated and Alex. Brown &
Sons Incorporated are acting as Representatives (the "Representatives"), the
Underwriters severally have agreed to purchase from the Company and the Company
has agreed to sell to the Underwriters, 2,500,000 shares of Common Stock, which
in the aggregate equal the number of shares set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------- ---------
<S> <C>
PaineWebber Incorporated...............................
Alex. Brown & Sons Incorporated........................
---------
Total.............................................. 2,500,000
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to certain conditions, to purchase all of the shares of Common Stock being sold
pursuant to such Agreement (other than those covered by the over-allotment
option described below), if any are purchased. The Underwriting Agreement
provides that, in the event of a default by an Underwriter, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock in part to the public at the price
to the public set forth on the cover page of this Prospectus, and in part to
certain securities dealers (who may include the Underwriters) at such price less
a concession not in excess of $ per share; and that the Underwriters and such
dealers may reallow a discount not in excess of $ per share to other dealers,
including the Underwriters. After the commencement of the public offering, the
public offering price, the concession to selected dealers and the discount to
other dealers may be changed by the Representatives and the Managers.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, under which the
Underwriters may purchase up to 375,000 additional shares of Common Stock from
the Company at the price to the public, less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only to cover over-allotments, if any, made in connection
with the offering of the shares of Common Stock offered hereby. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as it was obligated to purchase pursuant to
the Underwriting Agreement.
The Company and certain of the Company's current shareholders, including all
directors and executive officers of the Company, have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, or rights
to acquire shares of Common Stock, for a period of 90 days after the date of
this Prospectus without the prior written consent of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
PaineWebber Incorporated was a representative of the underwriters in a
public offering by the Company of 3,000,000 shares of Common Stock in September
1995, for which PaineWebber Incorporated received customary underwriting
discounts and commissions.
The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters from making a market in the Common Stock
during the two business day period prior to commencement of sales in this
offering (the "Cooling Off Period"). The Commission has, however, adopted
35
<PAGE>
Rule 10b-6A under the Securities Exchange Act of 1934, as amended ("Rule
10b-6A"), which provides an exemption from such prohibition for certain passive
market making transactions. Such passive market making transactions must comply
with applicable price and volume limits and must be identified as passive market
making transactions. In general, pursuant to Rule 10b-6A, a passive market maker
may display its bid for a security at a price not in excess of the highest
independent bid for the security. If all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded. Further, net purchases by a passive market maker
on each day are generally limited to a specified percentage of the passive
market maker's average daily trading volume in a security during a specified
prior period and must be discontinued when such limit is reached. Pursuant to
the exemption provided by Rule 10b-6A, certain of the Underwriters and selling
group members may engage in passive market making in the Common Stock during the
Cooling Off Period. Passive market makers may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby has been passed upon
for the Company by Ferris, Britton & Proctor, a Professional Corporation, San
Diego, California. A shareholder of Ferris, Britton & Proctor, a Professional
Corporation, owns 1,000 shares of Common Stock of the Company. Morrison &
Foerster LLP, New York, New York, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the Common Stock
offered hereby.
EXPERTS
The financial statements as of June 30, 1995 and 1994 and for each of the
three years in the period ended June 30, 1995 included in this Prospectus and
the financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended June 30, 1995 have been so
included and incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Price Waterhouse LLP, Independent
Accountants........................................... F-2
Financial Statements:
Balance Sheet........................................ F-3
Statement of Operations.............................. F-4
Statement of Stockholders' Equity.................... F-5
Statement of Cash Flows.............................. F-6
Notes to Financial Statements........................ F-7
Supplemental Financial Information (unaudited)....... F-15
</TABLE>
F-1
<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, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1995, 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.
PRICE WATERHOUSE LLP
San Diego, California
July 25, 1995, except as to Notes 1, 4 and 9
which are as of August 24, 1995
F-2
<PAGE>
AGOURON PHARMACEUTICALS, INC.
BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------ MARCH 31,
1994 1995 1996
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 2,104 $ 4,358 $14,547
Short-term investments........................................................ 27,757 15,886 90,109
Accounts receivable........................................................... 328 344 350
Other current assets.......................................................... 891 871 2,242
-------- -------- ---------
Total current assets.......................................................... 31,080 21,459 107,248
Property and equipment, net..................................................... 6,098 5,638 5,943
-------- -------- ---------
$ 37,178 $ 27,097 $113,191
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,514 $ 5,426 $ 8,752
Accrued liabilities........................................................... 519 683 1,075
Deferred revenue.............................................................. 6,818 5,745 24,763
Current portion of long-term debt............................................. 1,190 768 542
-------- -------- ---------
Total current liabilities..................................................... 10,041 12,622 35,132
-------- -------- ---------
Long-term liabilities:
Long-term debt, less current portion.......................................... 992 580 606
Accrued rent.................................................................. 1,293 1,304 1,257
-------- -------- ---------
Total long-term liabilities................................................... 2,285 1,884 1,863
-------- -------- ---------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares authorized, 7,278,488 and
7,359,282 shares issued and outstanding at June 30, 1994 and 1995 and
10,622,800 shares at March 31, 1996.......................................... 75,435 76,113 157,379
Accumulated deficit........................................................... (50,583) (63,522) (81,183 )
-------- -------- ---------
Total stockholders' equity.................................................... 24,852 12,591 76,196
-------- -------- ---------
Commitments and contingencies (Note 8).......................................... -- -- --
-------- -------- ---------
$ 37,178 $ 27,097 $113,191
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS
------------------------------------------- ENDED MARCH 31,
1993 1994 1995 ----------------------------
------------- ------------- ------------- 1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
Revenues:
<S> <C> <C> <C> <C> <C>
Contract........................................ $ 8,266 $ 16,301 $ 26,722 $ 19,285 $ 27,465
Interest........................................ 1,704 1,350 1,239 978 3,520
------------- ------------- ------------- ------------- -------------
9,970 17,651 27,961 20,263 30,985
------------- ------------- ------------- ------------- -------------
Costs and expenses:
Research and development........................ 17,404 23,957 36,317 24,352 43,780
General and administrative...................... 2,127 2,961 4,358 3,027 4,679
Interest........................................ 268 195 225 169 187
------------- ------------- ------------- ------------- -------------
19,799 27,113 40,900 27,548 48,646
------------- ------------- ------------- ------------- -------------
Net loss.......................................... $ (9,829) $ (9,462) $ (12,939) $ (7,285) $ (17,661)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net loss per common share......................... $ (1.40) $ (1.31) $ (1.77) $ (1.00) $ (1.84)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Shares used in computing net loss per common
share............................................ 6,997,000 7,241,000 7,296,000 7,286,000 9,574,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-4
<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, 1992...................................... 6,903,933 $ 68,809 $ (31,292) $ 37,517
Stock issuances:
Private sales............................................... 311,688 5,940 -- 5,940
Exercise of stock options................................... 2,500 21 -- 21
Employee stock purchase plan................................ 8,425 70 -- 70
Options granted for services provided....................... -- 38 -- 38
Net loss...................................................... -- -- (9,829) (9,829)
------------ ---------- ------------ ----------
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 (unaudited):
Public sale................................................. 3,000,000 78,579 -- 78,579
Exercise of stock options................................... 245,694 2,393 -- 2,393
Employee stock purchase plan................................ 17,824 294 -- 294
Net loss (unaudited).......................................... -- -- (17,661) (17,661)
------------ ---------- ------------ ----------
Balance at March 31, 1996 (unaudited)......................... 10,622,800 $ 157,379 $ (81,183) $ 76,196
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AGOURON PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
YEAR ENDED JUNE 30, 31,
---------------------------- -------------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from contracts............................................ $ 7,973 $ 20,307 $ 25,633 $ 21,018 $ 46,477
Cash paid to suppliers, employees and service providers................. (16,962) (24,955) (34,113) (22,405) (44,419)
Interest received....................................................... 1,704 1,350 1,239 978 3,520
Interest paid........................................................... (268) (195) (225) (169) (187)
-------- -------- -------- ----------- -----------
Net cash provided (used) by operating activities...................... (7,553) (3,493) (7,466) (578) 5,391
-------- -------- -------- ----------- -----------
Cash flows from investing activities:
Net (increase) decrease in short-term investments....................... 6,878 (840) 11,871 7,561 (74,223)
Expenditures for property and equipment................................. (2,655) (1,783) (1,978) (1,749) (1,588)
-------- -------- -------- ----------- -----------
Net cash provided (used) by investing activities...................... 4,223 (2,623) 9,893 5,812 (75,811)
-------- -------- -------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock.............................. 6,031 522 678 245 81,266
Principal payments under equipment leases............................... (572) (550) (613) (460) (304)
Increase (decrease) in long-term debt, net.............................. (312) 465 (238) (68) (353)
-------- -------- -------- ----------- -----------
Net cash provided (used) by financing activities...................... 5,147 437 (173) (283) 80,609
-------- -------- -------- ----------- -----------
Net increase (decrease) in cash and cash equivalents...................... 1,817 (5,679) 2,254 4,951 10,189
Cash and cash equivalents at beginning of period.......................... 5,966 7,783 2,104 2,104 4,358
-------- -------- -------- ----------- -----------
Cash and cash equivalents at end of period............................ $ 7,783 $ 2,104 $ 4,358 $ 7,055 $ 14,547
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
Reconciliation of net loss to net cash provided (used) by operating
activities:
Net loss................................................................ $ (9,829) $ (9,462) $(12,939) $ (7,285) $(17,661)
Depreciation and amortization........................................... 1,755 2,180 2,455 1,858 1,740
Net (increase) decrease in accounts receivable and other current
assets................................................................. (172) (635) 4 (53) (1,377)
Net increase (decrease) in accounts payable, accrued liabilities,
deferred revenue and other liabilities................................. 655 4,389 3,014 4,902 22,689
Options granted for services provided................................... 38 35 -- -- --
-------- -------- -------- ----------- -----------
Net cash provided (used) by operating activities...................... $ (7,553) $ (3,493) $ (7,466) $ (578) $ 5,391
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
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. The Company is engaged in the
development of human pharmaceuticals utilizing protein structure-based drug
design.
UNAUDITED FINANCIAL INFORMATION
In the opinion of management, the unaudited financial statement information
included in these financial statements contains all adjustments (consisting only
of normal, recurring items) necessary to present fairly the financial position
of the Company as of March 31, 1996 and the results of its operations and cash
flows for the nine month periods ended March 31, 1995 and 1996. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the full year.
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.
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. Included in
short-term investments at June 30, 1994 and 1995 and March 31, 1996 is $246,000,
$172,000 and $1,544,000 of accrued interest receivable.
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115")
for investments held as of or acquired after July 1, 1994. The Company has
classified its short-term investments as available-for-sale. The adoption of FAS
115 did not have a material impact on the Company's financial position or
results of operations.
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
1993, 1994 or 1995 or in the nine months ended March 31, 1996.
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 $508,000, $534,000, $422,000
and $433,500 for the years ended June 30, 1993, 1994 and 1995 and the nine
months ended March 31, 1996.
REVENUE RECOGNITION
Contract revenues (including profit, if any) are earned and recognized as
work is performed. Contract payments received in advance of performance are
recorded as deferred revenue. Subsequent contract revenues are recognized
according to the provisions of each collaborative agreement, generally on a
percentage-of-completion basis over the life of the contract.
F-7
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 were not significant in 1993, 1994 or 1995 or in
the nine months ended March 31, 1996.
INCOME TAXES
Effective July 1, 1993, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("FAS 109"). Under FAS 109, deferred tax is recognized 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.
The adoption of FAS 109 did not have a material impact on the Company's
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Company believes that its current capital
resources, existing contractual commitments and the JT milestone payment of
$24,000,000 (see Note 4), will be sufficient to meet its operating needs through
fiscal 1996.
As of March 31, 1996, the Company believes that its current capital
resources and existing contractual commitments will be sufficient to meet its
operating needs through fiscal 1996. This belief is based on current research
and clinical development plans, the current regulatory environment, historical
industry experience in the development of therapeutic drugs and general economic
conditions. However, the Company will need additional financing to meet the
planned operating needs of fiscal 1997 and beyond. 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 establish 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 common or preferred stock. 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 itself.
NOTE 2 -- SHORT-TERM INVESTMENTS
At June 30, 1995, the amortized cost and estimated fair value of short-term
investments held as available-for-sale were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government securities.............................. $10,236 $ 5 $ (60) $10,181
Corporate obligations............................................ 3,037 2 (16) 3,023
Other interest bearing securities................................ 2,613 -- -- 2,613
--
--------- --- -------
$15,886 $ 7 $ (76) $15,817
--
--
--------- --- -------
--------- --- -------
</TABLE>
F-8
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 2 -- SHORT-TERM INVESTMENTS (CONTINUED)
At March 31, 1996, the amortized cost and estimated fair value of short-term
investments held as available-for-sale were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government securities............ $ 72,770 $ 110 $ (88) $ 72,792
Corporate obligations.......................... 13,945 97 (2) 14,040
Other interest bearing securities.............. 3,394 -- -- 3,394
----------- ----- --- ---------
$ 90,109 $ 207 $ (90) $ 90,226
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
Realized gains and losses on the disposal of available-for-sale securities
during 1995 totaled $3,000 and $7,000, respectively. During the nine months
ended such gains totaled $22,000. The cost of securities sold is based upon the
specific identification method. At June 30, 1995, scheduled maturities for
available-for-sale securities were less than one year for $14,720,000 and
between one and two years for $1,166,000. At March 31, 1996 such maturities were
$59,699,000 and $30,410,000, respectively. At June 30, 1995 and March 31, 1996,
short-term investments are carried on the balance sheet at amortized cost. The
difference between amortized cost and fair value has not been reflected in
stockholders' equity as such difference is not material.
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------------- -----------
1994 1995 1996
------- -------- -----------
<S> <C> <C> <C>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Accounts receivable:
Employee receivables............................ $ 270 $ 262 $ 148
Other receivables............................... 58 82 202
------- -------- -----------
$ 328 $ 344 $ 350
------- -------- -----------
------- -------- -----------
Property and equipment, net:
Scientific instrumentation...................... $ 6,748 $ 7,787 $ 9,110
Computer equipment.............................. 4,838 5,453 5,704
Leasehold improvements.......................... 2,535 2,798 3,110
Furniture and fixtures.......................... 794 944 1,073
------- -------- -----------
14,915 16,982 18,997
Less accumulated depreciation and amortization.. (8,817) (11,344) (13,054)
------- -------- -----------
$ 6,098 $ 5,638 $ 5,943
------- -------- -----------
------- -------- -----------
Accrued liabilities:
Accrued vacation................................ $ 489 $ 623 $ 789
Other........................................... 30 60 286
------- -------- -----------
$ 519 $ 683 $ 1,075
------- -------- -----------
------- -------- -----------
</TABLE>
F-9
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 4 -- SIGNIFICANT CONTRACT AND GRANT ARRANGEMENTS
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 (formerly AG1343), 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 is being amortized to revenue over
a twenty-four month period. Under the provisions of JT HIV, JT has made
milestone payments of $30,000,000 to Agouron representing an initial payment of
$2,500,000, a milestone payment of $3,500,000 in recognition of the satisfactory
completion of a phase I clinical study and a second milestone payment of
$24,000,000 in recognition of results from a pilot phase II clinical study of
Viracept. 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 of 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 $1,144,000, $5,043,000, $19,211,000 and $28,514,000 and recognized
corresponding revenues of $2,156,000, $11,144,000, $22,880,000 and $24,416,000
for the years ended June 30, 1993, 1994 and 1995 and the nine months ended March
31, 1996.
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 total outstanding common stock.
SYNTEX (U.S.A.) INC.
In June 1993, the Company entered into an agreement with Syntex (U.S.A.)
Inc. (now a subsidiary of Roche Holding Ltd) ("Roche"), to collaborate on the
discovery of novel matrix metalloprotease inhibitor drugs for use against cancer
and degenerative diseases such as rheumatoid arthritis and osteoarthritis.
F-10
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 4 -- SIGNIFICANT CONTRACT AND GRANT ARRANGEMENTS (CONTINUED)
Under the provisions of the agreement, Roche has agreed to make certain research
payments to the Company over a three-year period ending June 1996 of
approximately $8,500,000. Under the agreement, the Company has incurred costs
and recognized corresponding revenues of $120,000, $2,307,000, $3,043,000 and
$2,465,000 during the years ended June 30, 1993, 1994 and 1995 and the nine
months ended March 31, 1996. The Company is funding a portion of the activities
associated with this collaboration on its own account. Under the terms of the
agreement, the Company will have a royalty position in certain 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 (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 total
outstanding common stock.
SCHERING-PLOUGH CORPORATION
In April 1994, the Company and Schering-Plough Corporation 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 $2,570,000 and $1,894,000 during the years ended June
30, 1993 and 1994.
ELI LILLY AND COMPANY
In April 1993, the Company and Eli Lilly and Company completed a five year
collaborative research program in several therapeutic categories. Further
development of any discoveries made in the program will be undertaken at each
company's sole discretion and expense. Agouron has continuing commercial rights
and/or financial interests in certain of these discoveries. During the
collaborative research program, the Company has been reimbursed for certain
costs incurred and has recognized revenues of $2,941,000 during 1993.
NATIONAL INSTITUTES OF HEALTH
The Company is currently the grantee organization for two grants from the
National Institutes of Health to conduct research related to the Human
Immunodeficiency Virus. Costs incurred and the corresponding reimbursement
revenues recognized under various grant programs were $479,000, $956,000,
$799,000 and $554,000 for the years ended June 30, 1993, 1994 and 1995 and the
nine months ended March 31, 1996.
F-11
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 5 -- LONG-TERM DEBT
At June 30, 1994 and 1995 and March 31, 1996, long-term debt and capital
lease obligations were as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Notes payable, secured with personal property and
a certificate of deposit for $400,000; interest
at prime plus 1.5%; maturing September 1995, June
1997 and November 1998........................... $ 1,169,000 $ 931,000 $ 578,000
Capital leases, with interest rates between 6.00%
and 16.5%, maturing at various dates through
December 2000.................................... 1,013,000 417,000 570,000
----------- ---------- -----------
Total long-term debt and capital lease
obligations...................................... 2,182,000 1,348,000 1,148,000
Current portion of long-term debt................. (1,190,000) (768,000) (542,000)
----------- ---------- -----------
Long-term debt.................................... $ 992,000 $ 580,000 $ 606,000
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
Maturities of long-term debt, excluding capital leases, are as follows: 1996
- -$445,000, 1997 - $344,000, 1998 - $100,000, 1999 - $42,000 and 2000 and
thereafter $0.
NOTE 6 -- INCOME TAXES
At June 30, 1994 and 1995, the Company has total deferred income taxes of
$23,609,000 and $30,299,000, which have been fully reserved as follows:
<TABLE>
<CAPTION>
JUNE 30, 1994 JUNE 30, 1995
-------------- --------------
<S> <C> <C>
Deferred revenue.............................................. $ 2,737,000 $ 2,358,000
Book and tax depreciation differences......................... 1,588,000 1,664,000
Accrued liabilities........................................... 715,000 790,000
Net operating loss carryforwards.............................. 14,437,000 19,638,000
Foreign tax credits........................................... 1,237,000 1,913,000
Research and development tax credits.......................... 2,895,000 3,936,000
-------------- --------------
23,609,000 30,299,000
Valuation allowance........................................... (23,609,000) (30,299,000)
-------------- --------------
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, 1995, the
Company had net operating loss carryforwards for federal tax reporting purposes
of approximately $53,509,000, expiring from 2000 through 2010. The Company also
has federal research and development credit carryforwards of approximately
$2,721,000 at June 30, 1995, expiring from 2000 through 2010. 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.
F-12
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 6 -- INCOME TAXES (CONTINUED)
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 $15,055,000 and $1,215,000 for state tax
reporting purposes at June 30, 1995, expiring from 1996 through 2010.
Included in general and administrative costs and expenses at June 30, 1993,
1994, 1995 and the nine months ended March 31, 1996, is approximately $116,000,
$611,000, $863,000 and $628,000 of foreign tax expense associated with the
contract research payments from JT.
NOTE 7 -- STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company has two stock option plans whereby 4,220,000 shares of 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. As of June 30, 1995, 293,636 of these options had been exercised,
1,107,922 were exercisable and 340,672 shares of common stock remain available
for option grant. At March 31, 1996, 539,330 of these options had been
exercised, 1,144,763 options were exercisable and 1,058,563 shares of common
stock remain available for option grant. The following table summarizes stock
option activity for 1993 through March 31, 1996:
<TABLE>
<CAPTION>
SHARES PRICE
---------- -----------------
<S> <C> <C>
Outstanding June 30, 1992..................................... 803,278
Options granted............................................... 494,239 $ 7.88 - $13.88
Options exercised............................................. (2,500) $ 7.38 - $ 9.15
Options canceled.............................................. (20,550) $ 7.38 - $15.50
----------
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 $ 5.40 - $24.50
Options granted (unaudited)................................... 314,125 $ 23.56 $44.38
Options exercised (unaudited)................................. (245,694) $ 5.40 $17.38
Options canceled (unaudited).................................. (32,016) $ 7.88 $39.13
----------
Outstanding March 31, 1996 (unaudited)........................ 2,622,107 $ 5.40 $44.38
----------
----------
</TABLE>
F-13
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 7 -- STOCKHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In December 1992, the shareholders approved an Employee Stock Purchase Plan
("ESPP") which commenced on January 1, 1993. Under the ESPP, 250,000 shares of
common stock have been reserved for issuance and 190,613 shares were available
for purchase at June 30, 1995 and 172,789 shares remain available for purchase
at March 31, 1996. Eligible employees may purchase shares of the Company's
common stock through payroll deductions 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 the nine months ended March 31, 1996, 11,693 shares were issued
at a price of $19.98 per share and 6,131 shares were issued at a price of $9.88
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 $8.2875 per share and 9,220 shares were issued
at a price of $9.35 per share. During 1993, 8,425 shares were issued at a price
of $8.2875 per share.
STOCK WARRANT
As part of certain financing arrangements in 1986, the Company issued a
warrant to purchase 45,000 shares of the Company's common stock at a per share
price of $6.30. This warrant is currently exercisable and expires in July 1996.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
Certain scientific instrumentation and computer and other equipment are
subject to leases which are classified as capital leases. At June 30, 1994 and
1995 and March 31, 1996, $2,601,000 ($624,000, net), $2,364,000 ($227,000, net)
and $1,118,000 ($532,000, net) of such leased equipment were included in
property and equipment.
Rental expenses (principally for leased facilities under long-term operating
lease commitments) were $1,502,000, $1,973,000, $2,198,000 and $1,874,000 for
1993, 1994, 1995 and the nine months ended March 31, 1996. Future minimum
payments for capital and operating leases at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
------------- ----------------
<S> <C> <C>
1996........................................................ $ 350,000 $ 2,579,000
1997........................................................ 56,000 2,565,000
1998........................................................ 37,000 2,244,000
1999........................................................ 8,000 2,295,000
2000........................................................ -- 2,411,000
Thereafter.................................................. -- 2,291,000
------------- ----------------
Total minimum lease payments................................ 451,000 $ 14,385,000
----------------
----------------
Less amount representing interest........................... (34,000)
-------------
Obligation under capital leases............................. $ 417,000
-------------
-------------
</TABLE>
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.
F-14
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
NOTE 9 -- SUBSEQUENT EVENT
On August 24, 1995, the Company received a $24,000,000 milestone payment
from JT along with JT's commitment to continue with the clinical development of
Viracept. JT's actions were taken after their review and evaluation of a number
of factors including certain results from two pilot phase II clinical studies of
Viracept.
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
ROCHE LETTER OF INTENT
On June 19, 1996, the Company and F. Hoffmann-La Roche Ltd of Basel,
Switzerland, and Hoffmann-La Roche Inc. of Nutley, New Jersey, signed a binding
letter of intent to jointly complete the worldwide development of two
anti-cancer drugs currently being developed by Agouron (Thymitaq, an inhibitor
of the enzyme thymidylate synthase, and AG3340, an inhibitor of certain matrix
metalloprotease enzymes) and to collaborate on an additional early-stage
anti-cancer drug discovery program (initially targeting cdk4, a member of a
family of enzymes (cyclin dependent kinases) that regulate the transitions
between phases in the life cycles of all cells). In connection with the signing
of the letter of intent, the Company is to receive an initial license fee of $15
million for Thymitaq and AG3340 and an initial first year research payment of $3
million for cdk4. Additional payments of up to $40 million for Thymitaq and
AG3340 and $20 million for cdk4 will accrue to the Company if certain
development milestones are satisfied in the future. Roche is to fund 80% of the
future development costs of Thymitaq and AG3340. Roche is to pay an annual
research fee of $3 million in support of cdk4 and 80% of any post-research
development costs of cdk4. In North America, Agouron and Roche will
cooperatively market and share the profits from the sales of any approved
products from the three programs. Outside of North America, Roche will lead the
commercialization of any products and will pay Agouron a royalty on net sales
or, in certain circumstances, will share profits with Agouron.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................................................... 2
Incorporation of Certain Information By Reference....................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 11
Capitalization.......................................................... 12
Price Range of Common Stock and Dividend Policy......................... 12
Dilution................................................................ 13
Selected Financial Data................................................. 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 15
Business................................................................ 18
Management.............................................................. 31
Description of Securities............................................... 34
Underwriting............................................................ 35
Legal Matters........................................................... 36
Experts................................................................. 36
Financial Statements.................................................... F-1
2,500,000 SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
PAINEWEBBER INCORPORATED
ALEX. BROWN & SONS
INCORPORATED
---------------------
1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. All amounts shown are estimates, except the
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 38,912
NASD Filing Fee........................................................... 11,785
Transfer Agent's Fee and Expenses......................................... *
Accounting Fees and Expenses.............................................. *
Legal Fees and Expenses................................................... *
Blue Sky Fees and Expenses (including legal fees and expenses)............ *
Printing and Engraving.................................................... *
Miscellaneous............................................................. *
---------
$ 350,000
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law generally provides
indemnification to officers and directors of the Company against expenses,
judgments, fines and amounts paid in settlement under certain conditions and
subject to certain limitations.
Article VII of the articles of incorporation of the Company provides that
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. Further,
Article VIII of the articles of incorporation authorizes the Company to provide
indemnification of agents (as defined in Section 317) for breach of duty to the
Company and its shareholders through bylaw provisions or through agreements with
such agents, or both, in excess of the indemnification otherwise permitted by
Section 317, subject to the limits on such excess indemnification set forth in
Section 317.
Section 3.15 of the bylaws of the Company authorizes the Company to
indemnify any person who was or is a party, or is threatened to be made a party,
to any proceeding (other than actions by or in the right of the Company to
procure a judgment in its favor) by reason of the fact that such person is or
was an agent of the Company, against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in the best interests of the Company. Section 3.15
also authorizes the Company to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that such person is or was an agent of the Company against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action if such person acted in good faith.
Any indemnification under Section 3.15 is to be made by the Company only if
authorized in the specific case upon determination that indemnification of the
agent is proper in the circumstances because the agent has met the applicable
standard of conduct required by Paragraphs 3.15.2 or 3.15.3 of the bylaws.
Pursuant to authorization provided under the articles of incorporation and
the bylaws, the Company has entered into indemnification agreements with each of
its present directors. The Company has also entered into similar agreements with
certain of the Company's officers who are not directors. Generally, the
indemnification agreements attempt to provide the maximum protection permitted
by California law as it may be amended from time to time. Moreover, the
indemnification agreements provide for certain additional indemnification. Under
such additional indemnification provisions, however, an individual will not
receive indemnification for judgments, settlements or expenses if he or she is
found liable to the Company (except to the extent the court determines he or she
is fairly and reasonably entitled to indemnity for
II-1
<PAGE>
expenses) for settlements not approved by the Company or for settlements and
expenses if the settlement is not approved by the court. The indemnification
agreements provide for the Company to advance to the individual any and all
reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding. In order to
receive an advance of expenses, the individual must submit to the Company copies
of invoices presented to him or her for such expenses. Also, the individual must
repay such advances upon a final judicial decision that he or she is not
entitled to indemnification.
Section 3.15 of the bylaws also provides that, in the event of a
determination by the Board of Directors of the Company to purchase insurance for
certain of its agents, the Company shall purchase and maintain insurance on
behalf of any such agent against liability asserted against or incurred by the
agent in such capacity or arising out of the agent's status, whether or not the
Company would have the power to indemnify the agent against such liability under
the provisions of Section 3.15.
The Company has in effect directors and officers liability insurance
policies which insure directors and officers of the Company. The policies expire
on October 13, 1996 and provide a combined total limit of $5,000,000 per policy
year. Although the Company intends to renew the policies on or before their
expiration date, there can be no assurance that the policies will be renewed on
terms acceptable to the Company. Under the policies, the directors and officers
of the Company are insured against loss arising from claims made against them
due to wrongful acts while acting in their individual and collective capacities
as directors and officers, subject to certain exclusions. In addition, the
policies insure the Company against losses for which its directors and officers
are entitled to indemnification, subject to a retention of $250,000 payable by
the Company. The policies are "claims made" policies and provide coverage only
for losses arising out of claims first made against the Company and reported to
the insurer during the policy period.
ITEM 16. EXHIBITS
The following is a list of all exhibits filed as part of the Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement (Proof of June 21, 1996).
4* Restated Articles of Incorporation.
5** Opinion of Ferris, Britton & Proctor, A P.C., Regarding Legality.
23.1 Consent of Independent Accountants.
23.2** Consent of Counsel for Company (contained in Exhibit 5).
24 Power of Attorney of Board of Directors (contained on signature page
of this Registration Statement).
</TABLE>
- ------------------------
* Incorporated by Reference to Form 10-Q for the Quarter ended December 31,
1992.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant,
pursuant to the foregoing provisions, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES THAT:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
Annual Report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 19th day of
June, 1996.
AGOURON PHARMACEUTICALS, INC.
By: /s/ PETER JOHNSON
-----------------------------------
Peter Johnson,
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter Johnson, Steven S. Cowell and Gary E.
Friedman, or any of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any or
all amendments to this registration statement, including post-effective
amendments, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ PETER JOHNSON
------------------------------------------- President, Chief Executive Officer and June 19, 1996
Peter Johnson Director
/s/ STEVEN S. COWELL
------------------------------------------- Vice President, Finance and Chief June 19, 1996
Steven S. Cowell Financial Officer
/s/ GARY E. FRIEDMAN
------------------------------------------- Vice President, General Counsel, June 19, 1996
Gary E. Friedman Secretary and Director
/s/ JOHN N. ABELSON
------------------------------------------- Director June 19, 1996
John N. Abelson
/s/ PATRICIA M. CLOHERTY
------------------------------------------- Director June 19, 1996
Patricia M. Cloherty
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ A.E. COHEN
------------------------------------------- Director June 19, 1996
A.E. Cohen
/s/ MICHAEL E. HERMAN
------------------------------------------- Director June 19, 1996
Michael E. Herman
/s/ IRVING S. JOHNSON
------------------------------------------- Director June 19, 1996
Irving S. Johnson
/s/ ANTONIE T. KNOPPERS
------------------------------------------- Director June 19, 1996
Antonie T. Knoppers
/s/ MELVIN I. SIMON
------------------------------------------- Director June 19, 1996
Melvin I. Simon
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement (Proof of June 21, 1996)..........
4* Restated Articles of Incorporation
5** Opinion of Ferris, Britton & Proctor, A P.C., Regarding Legality
23.1 Consent of Independent Accountants...............................
23.2** Consent of Counsel for Company (contained in Exhibit 5)
24 Power of Attorney of Board of Directors (contained on signature
page of this Registration Statement)............................
</TABLE>
- ------------------------
* Incorporated by Reference to Form 10-Q for the Quarter ended December 31,
1992.
** To be filed by amendment.
<PAGE>
EXHIBIT 1.1
PROOF OF JUNE 21, 1996
2,500,000 Shares
AGOURON PHARMACEUTICALS, INC.
Common Stock
UNDERWRITING AGREEMENT
July _____, 1996
PAINEWEBBER INCORPORATED
ALEX. BROWN & SONS INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Agouron Pharmaceuticals, Inc., a California corporation (the "Company"),
proposes to sell an aggregate of 2,500,000 shares (the "Firm Shares") of the
Company's Common Stock, no par value (the "Common Stock"), to you and to the
several other Underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), in connection with the offering and sale of such shares of
Common Stock. The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 375,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section l(b). The Firm Shares and the Option Shares are referred to
collectively herein as the "Shares."
The initial public offering price per share for the Shares and the purchase
price per share for the Shares to be paid by the several Underwriters shall be
agreed upon by the Company and the Representatives, acting on behalf of the
several Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company and the Representatives and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the Shares will be governed by
this Agreement, as supplemented by the Price Determination Agreement. From and
after the date of the execution and
<PAGE>
2
delivery of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and, unless the context otherwise indicates, all references
contained herein to "this Agreement" and to the phrases "herein" shall be deemed
to include the Price Determination Agreement.
1. AGREEMENT TO SELL AND PURCHASE.
(a) On the basis of the respective representations, warranties
and agreements of the Company herein contained and subject to all the terms and
conditions of this Agreement, (i) the Company agrees to sell to the several
Underwriters and (ii) each of the Underwriters, severally and not jointly,
agrees to purchase from the Company at the purchase price per share for the Firm
Shares to be agreed upon by the Representatives and the Company in accordance
with Section l(c) or l(d) and set forth in the Price Determination Agreement,
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I, plus such additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to Section 8 hereof. If the Company
elects to rely on Rule 430A (as hereinafter defined), Schedule I may be attached
to the Price Determination Agreement.
(b) Subject to all the terms and conditions of this Agreement,
the Company grants the Option to the several Underwriters to purchase, severally
and not jointly, up to 375,000 Option Shares from the Company at the same price
per share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 45th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 45th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company no
later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date") setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Company will issue and sell to the Underwriters the number of Option
Shares set forth in the Option Shares Notice, and each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, as adjusted by the Representatives
in such manner as they deem advisable to avoid fractional shares.
(c) If the Company has elected not to rely on Rule 430A, the
initial public offering price per share for
<PAGE>
3
the Firm Shares and the purchase price per share for the Firm Shares to be paid
by the several Underwriters shall be agreed upon and set forth in the Price
Determination Agreement, which shall be dated the date hereof, and an amendment
to the Registration Statement (as hereinafter defined) containing such per share
price information shall be filed before the Registration Statement becomes
effective.
(d) If the Company has elected to rely on Rule 430A, the initial
public offering price per share for the Firm Shares and the purchase price per
share for the Firm Shares to be paid by the several Underwriters shall be agreed
upon and set forth in the Price Determination Agreement. In the event such price
has not been agreed upon and the Price Determination Agreement has not been
executed by the close of business on the fourteenth business day following the
date on which the Registration Statement becomes effective, this Agreement shall
terminate forthwith, without liability of any party to any other party except
that Section 7 shall remain in effect.
2. DELIVERY AND PAYMENT.
(a) Delivery of the Firm Shares shall be made to the
Representatives for the accounts of the Underwriters against payment of the
purchase price by credit to the account of the Company with the Depository Trust
Company. Such payment shall be made at 10:00 a.m., New York City time, on the
fourth business day following the date of this Agreement or, if the Company has
elected to rely on Rule 430A, the third business day after the date on which the
first bona fide offering of the Shares to the public is made by the Underwriters
or at such time on such other date as may be agreed upon by the Company and the
Representatives (such date is hereinafter referred to as the "Closing Date").
(b) To the extent the Option is exercised, delivery of the
Option Shares against payment by the Underwriters (in the manner specified
above) will take place at the time and date (which may be the Closing Date)
specified in the Option Shares Notice.
(c) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Firm Shares and Option Shares by the
Company to the respective Underwriters shall be borne by the Company. The
Company will pay and save each Underwriter and any subsequent holder of the
Shares harmless from any and all liabilities with respect to or resulting from
any failure or delay in paying Federal and state stamp and other transfer taxes,
if any, which may be payable or determined to be payable in connection with the
original issuance or sale to such Underwriter of the Firm Shares and Option
Shares.
<PAGE>
4
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents,
warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-3 and a
registration statement (Registration No. 33-_______) on Form S-3 relating to the
Shares, including a preliminary prospectus and such amendments to such
registration statement as may have been required to the date of this Agreement,
has been prepared by the Company under the provisions of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (collectively
referred to as the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. The registration statement contains a form of preliminary prospectus
to be used in connection with the offering and sale of the Shares. The term
"preliminary prospectus" as used herein means a preliminary prospectus as
contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments have been delivered to the Representatives
and copies of each related preliminary prospectus have been delivered to the
Representatives. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A will be filed
by the Company with the Commission in accordance with Rule 424(b) of the Rules
and Regulations promptly after execution and delivery of the Price Determination
Agreement. The term "Registration Statement" means the registration statement as
amended at the time it becomes or became effective (the "Effective Date"),
including financial statements and all exhibits and any information deemed to be
included by Rule 430A. The term "Prospectus" means a prospectus relating to the
Shares in the form it is first filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the Effective Date.
Any reference herein to the Registration Statement, any preliminary prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which were
filed under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), on or before the Effective Date or the date of such preliminary
prospectus or the Prospectus, as the case may be. Any reference herein to the
terms "amend,"
<PAGE>
5
"amendment" or "supplement" with respect to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to refer to and include
the filing of any document under the Exchange Act after the Effective Date, or
the date of any preliminary prospectus or the Prospectus, as the case may be,
and deemed to be incorporated therein by reference.
(b) On the Effective Date, the date the Prospectus is first
filed with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included or
incorporated by reference in the Prospectus, did or will comply with all
applicable provisions of the Act, the Exchange Act, the rules and regulations
thereunder (the "Exchange Act Rules and Regulations") and the Rules and
Regulations and will contain all statements required to be stated therein in
accordance with the Act, the Exchange Act, the Exchange Act Rules and
Regulations and the Rules and Regulations. On the Effective Date and when any
post-effective amendment to the Registration Statement becomes effective, no
part of the Registration Statement or any such amendment did or will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or omissions made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. For all purposes of this Agreement, the amounts of the
selling concession and reallowance set forth in the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the Company
by the Representatives specifically for inclusion in the preliminary prospectus,
the Registration Statement or the Prospectus. The Company has not distributed
any offering material in connection with the offering or sale of the Shares
other than the Registration Statement, the
<PAGE>
6
preliminary prospectus, the Prospectus or any other materials, if any, permitted
by the Act.
(c) The documents which are incorporated by reference in the
preliminary prospectus and the Prospectus or from which information is so
incorporated by reference, when they become effective or were filed with the
Commission, as the case may be, complied in all material respects with the
requirements of the Act or the Exchange Act, as applicable, the Exchange Act
Rules and Regulations and the Rules and Regulations; and any documents so filed
and incorporated by reference subsequent to the Effective Date shall, when they
are filed with the Commission, conform in all material respects with the
requirements of the Act and the Exchange Act, as applicable, the Exchange Act
Rules and Regulations and the Rules and Regulations.
(d) The Company has no subsidiaries (as defined in the Rules and
Regulations). The Company is, and at the Closing Date will be, a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has, and at the Closing Date will have, full
power and authority to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company is, and
at the Closing Date will be, duly licensed or qualified to do business and in
good standing as a foreign corporation in all jurisdictions in which the nature
of the activities conducted by it or the character of the assets owned or leased
by it makes such licensing or qualification necessary. Except as disclosed in
the Registration Statement, the Company does not own, and at the Closing Date
will not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the articles of incorporation and of the by-laws of the
Company and all amendments thereto have been delivered to the Representatives or
their counsel, and no changes therein will be made subsequent to the date hereof
and prior to the Closing Date or, if later, the Option Closing Date.
(e) The outstanding shares of Common Stock have been, and the
Shares to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive or similar right (any such rights having been validly waived
with respect to the issuance and sale of the Shares). The description of the
Common Stock in the Registration Statement and the Prospectus is, and at the
Closing Date will be, complete and accurate in all respects. Except pursuant to
the Company's Stock Option Plans and
<PAGE>
7
Employee Stock Purchase Plan or as otherwise set forth in the Prospectus, the
Company does not have outstanding, and at the Closing Date will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of Common Stock, or any such warrants,
convertible securities or obligations.
(f) The financial statements and schedules included or
incorporated by reference in the Registration Statement or the Prospectus
present fairly the financial condition of the Company as of the respective dates
thereof and the results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved, except as otherwise disclosed in the Prospectus. No other financial
statements or schedules of the Company are required by the Act, the Exchange Act
or the Rules and Regulations to be included in the Registration Statement or the
Prospectus. Price Waterhouse LLP (the "Accountants") who have reported on such
financial statements and schedules, are independent accountants with respect to
the Company as required by the Act and the Rules and Regulations. The statements
included in the Registration Statement with respect to the Accountants pursuant
to Rule 509 of Regulation S-K of the Rules and Regulations are true and correct
in all material respects.
(g) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
material change in the capitalization of the Company, or in the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company, arising for any reason whatsoever, (ii) the Company
has not incurred nor will it incur any material liabilities or obligations,
direct or contingent, nor has it entered into nor will it enter into any
material transactions other than
<PAGE>
8
pursuant to this Agreement and the transactions referred to herein and (iii) the
Company has not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock.
(i) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
(j) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its officers in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
materially and adversely affect the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of operations.
(k) Except as expressly set forth in the Prospectus, the Company
has, and at the Closing Date will have, (i) all governmental licenses, permits,
consents, orders, approvals and other authorizations necessary to carry on its
business as contemplated in the Prospectus, (ii) complied in all material
respects with all laws, regulations and orders applicable to it or its business
and has not received notice or otherwise obtained knowledge that it is in
violation of any such law, regulation or order, and (iii) performed all its
material obligations required to be performed by it, and is not, and at the
Closing Date will not be, in default in any material respect, under any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement, lease, contract or other agreement or
instrument (collectively, a "Contract or Other Agreement") to which it is a
party or by which its property is bound or affected. To the best knowledge of
the Company, no other party under any Contract or Other Agreement to which it is
a party is in default in any material respect thereunder. The Company is not,
nor at the Closing Date will it be, in violation of any provision of its
articles of incorporation or by-laws.
(l) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, transfer, sale or delivery of
the Shares by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking by
the Company of any action contemplated hereby, except such as have been obtained
under
<PAGE>
9
the Act or the Rules and Regulations and such as may be required under state
securities or Blue Sky laws or the by-laws and rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by the Company.
(m) The Company has full corporate power and authority to enter
into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company and is enforceable against the Company in accordance with the terms
hereof. The performance of this Agreement, the consummation of the transactions
contemplated hereby and the application of the net proceeds from the offering
and sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" will not result in the creation or imposition
of any lien, charge or encumbrance upon any of the assets of the Company
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the articles of incorporation or by-laws
of the Company, any Contract or Other Agreement to which the Company is a party
or by which the Company or any of its properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to the
business or properties of the Company.
(n) The Company has good and marketable title to all properties
and assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are described in
the Prospectus or are not material to the business of the Company. The Company
has valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it, with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such
properties by the Company.
(o) There is no document or contract of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and binding
agreements of the Company and are enforceable against the Company in accordance
with the terms thereof, except as such enforceability may be affected by
application of the bankruptcy laws or equitable remedies.
<PAGE>
10
(p) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when made,
inaccurate, untrue or incorrect.
(q) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(r) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
(s) The Shares are eligible for listing on The Nasdaq National
Market.
(t) The Company is not involved in any material labor dispute
nor, to the knowledge of the Company, is any such dispute threatened.
(u) The Company owns, or possesses adequate rights to use, (i)
all patents, patent rights, trademarks, service marks, trade names and
copyrights described in the Prospectus as owned or used by it or that are
necessary for the material conduct of its business and activities as described
in the Prospectus and (ii) all inventions, trade secrets, know-how and
proprietary techniques, including processes and substances, described in the
Prospectus as owned or used by it or which are necessary for the material
conduct of its business and activities. The Company has not received any written
notice (or oral notice delivered to any executive officer of the Company who is
named in the Prospectus) of infringement of or conflict with asserted rights of
others with respect to any patents, patent rights, inventions, trade secrets,
know-how or proprietary techniques, including processes and substances,
trademarks, service marks, trade names or copyrights of others, which
infringement or conflict could reasonably be expected to have a material adverse
effect on the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.
(v) Except as disclosed in the Registration Statement or the
Prospectus, the Company maintains insurance of the types and in amounts
generally deemed adequate for its business and activities and consistent with
insurance coverage maintained by similar companies and businesses, all of which
insurance is in full force and effect.
<PAGE>
11
(w) Neither the Company nor, to the Company's knowledge, any
employee or agent of the Company has made any payment of funds of the Company or
received or retained any funds in violation of any law, rule or regulation or of
a character required to be disclosed in the Prospectus.
(x) The Company has complied, and until the completion of the
distribution of the Shares will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075 of
the Florida Securities and Investor Protection Act and regulation 3E-900.001
issued thereunder with respect to the offering and sale of the Shares.
(y) The Company is not and has never been a United States real
property holding corporation" as defined in section 897(c)(2) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the Treasury Department
regulations promulgated thereunder.
4. AGREEMENTS OF THE COMPANY. The Company agrees with the several Underwriters
as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by a Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective, (2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (4) of the happening of any
event during the period mentioned in the second sentence of Section 4(e) that in
the judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes in
the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading
and (5) of receipt by the Company or any representative or attorney of the
Company of any other
<PAGE>
12
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement pursuant to Rule 430A,
the Company will use its best efforts to comply with the provisions of, and make
all requisite filings with the Commission pursuant to, said Rule 430A and to
notify the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without
charge, two signed copies of the Registration Statement and of any post-
effective amendment thereto, including financial statements and schedules, and
all exhibits thereto (including any document filed under the Exchange Act and
deemed to be incorporated by reference into the Prospectus), and will furnish to
the Representatives, without charge, for transmittal to each of the other
Underwriters, a copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules but without
exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time
during the periods of time set forth in the following sentence, the Company will
deliver to each of the Underwriters, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver to
each of the Underwriters, without charge, such number of copies of such
supplement or amendment to the Prospectus as the Representatives may reasonably
request. The Company shall not file any document under the Exchange Act before
the termination of the offering of the Shares by the Underwriters
<PAGE>
13
if such document would be deemed to be incorporated by reference into the
Prospectus which is not approved by the Representatives after reasonable notice
thereof, which approval shall not unreasonably be withheld or delayed.
(f) Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Representatives may
request, including, without limitation, the provinces and territories of Canada
and other jurisdictions outside of the United States; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the Effective
Date, the Company will furnish to the Representatives and each other Underwriter
who may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally
(without obligations of confidentiality) to the holders of any class of its
capital stock, and will furnish to the Representatives and each other
Underwriter who may so request a copy of each annual or other report it shall be
required to file with the Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay,
or reimburse if paid by the Representatives, all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including but not limited to costs and expenses of or relating to (1) the
preparation, printing and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, Prospectus and any amendment or supplement to
the Registration Statement or Prospectus, (2) the preparation and delivery of
certificates representing the Shares, (3) the printing of this Agreement, any
Dealer Agreements and any Underwriters' Questionnaire, (4) furnishing (including
costs of shipping, mailing and courier)
<PAGE>
14
such copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold, (5) the listing of the Shares on The
Nasdaq National Market, (6) any filings required to be made by the Underwriters
with the NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (7) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of counsel (including counsel in Canadian
provinces and territories, if applicable) to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (8) counsel to the Company, (9) the transfer agent for
the Shares and (10) the Accountants.
(j) If this Agreement shall be terminated by the Company
pursuant to any of the provisions hereof (otherwise than pursuant to Section 7
hereof) or if for any reason the Company shall be unable to perform its
obligations hereunder, the Company will reimburse the several Underwriters for
all out-of-pocket expenses (including the fees, disbursements and other charges
of counsel to the Underwriters) reasonably incurred by them in connection
herewith.
(k) The Company will not at any time, directly or indirectly,
take any action intended, or which might reasonably be expected, to cause or
result in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering
and sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds."
(m) During the period of 90 days commencing at the Closing Date,
the Company will not, without the prior written consent of the Representatives,
grant options to purchase shares of Common Stock at a price less than the public
offering price set forth on the cover page of the Prospectus, except options
granted pursuant to the Company's Stock Option Plans or Employee Stock Purchase
Plan at prices permitted under such plans.
(n) The Company will not, and will cause each of its executive
officers, directors and each beneficial owner of Common Stock named on Schedule
II hereto to enter into agreements with the Representatives to the effect that
<PAGE>
15
they will not, for a period of 90 days (or such other time period as may be
agreed to the Representatives) after the commencement of the public offering of
the Shares, without the prior written consent of the Representatives, sell,
contract to sell or otherwise dispose of any shares of Common Stock or rights to
acquire such shares (other than pursuant to employee stock option plans,
employee stock purchase plans or in connection with other employee incentive
compensation arrangements).
(o) The Company will (i) furnish to each Underwriter on the
Closing Date a certification, as contemplated by and in compliance with Treasury
Department regulations section 1.897-2(h), that, as of the Closing Date, the
Shares are not United States real property interests as defined in section
897(c)(1) of the Code, (ii) file such certification with the Internal Revenue
Service in the manner and within the time period specified in Treasury
Department regulations section 1.897-2(h) and (iii) promptly after such filing,
furnish to each Underwriter proof of such filing.
5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. In addition to the
execution and delivery of the Price Determination Agreement, the obligations of
each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m., New
York City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings required
by Rule 424 of the Rules and Regulations and Rule 430A shall have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Representatives and the Representatives do
not object thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and
<PAGE>
16
the Option Closing Date and signed by the Chief Executive Officer or the
Chairman of the Board of Directors of the Company and the Chief Financial
Officer of the Company (who may, as to proceedings threatened, rely upon the
best of their knowledge), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) there shall not have been
a material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree, which is not set forth in the
Registration Statement and the Prospectus, if in the judgment of the
Representatives any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.
(d) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company.
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing Date
as if made at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company and all conditions contained herein to be
fulfilled or complied with by the Company at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled or complied with.
<PAGE>
17
(f) The Representatives shall have received opinions, each dated
the Closing Date and, with respect to the Option Shares, the Option Closing
Date, and satisfactory in form and substance to counsel for the Underwriters,
from Ferris, Britton & Proctor, a professional corporation, counsel to the
Company, and Gary E. Friedman, General Counsel of the Company, to the effect set
forth in Exhibit B.
(g) The Representatives shall have received an opinion, dated
the Closing Date and, with respect to the Option Shares, the Option Closing
Date, from Morrison & Foerster LLP, counsel to the Underwriters, with respect to
the Registration Statement, the Prospectus and this Agreement, which opinion
shall be satisfactory in all respects to the Representatives.
(h) Concurrently with the execution and delivery of this
Agreement or, if the Company elects to rely on Rule 43OA, on the date of the
Prospectus, the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery, addressed to the Representatives and in
form and substance satisfactory to the Representatives, confirming that they are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations and with respect to the financial and other
statistical and numerical information contained in the Registration Statement or
incorporated by reference therein. At the Closing Date and, as to the Option
Shares, the Option Closing Date, the Accountants shall have furnished to the
Representatives a letter, dated the date of its delivery, which shall confirm,
on the basis of a review in accordance with the procedures set forth in the
letter from the Accountants, that nothing has come to their attention during the
period from the date of the letter referred to in the prior sentence to a date
(specified in the letter) not more than five days prior to the Closing Date and
the Option Closing Date, as the case may be, which would require any change in
their letter dated the date hereof or, if the Company elects to rely on Rule
430A, on the date of the Prospectus, if it were required to be dated and
delivered at the Closing Date and the Option Closing Date.
(i) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Representatives, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus (including any
documents filed under the Exchange Act and deemed to be incorporated by
reference
<PAGE>
18
into the Prospectus) and (A) as of the date of such certificate, such
documents are true and correct in all material respects and do not omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not untrue or misleading and (B) since the Effective Date,
no event has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in light
of the circumstances under which they were made, not untrue or misleading
in any material respect and there has been no document required to be filed
under the Exchange Act and the Exchange Act Rules and Regulations that upon
such filing would be deemed to be incorporated by reference into the
Prospectus that has not been so filed.
(ii) Each of the representations and warranties of the
Company contained in this Agreement were, when originally made, and are,
at the time such certificate is dated, true and correct in all material
respects.
(iii) Each of the covenants required to be performed
by the Company herein on or prior to the date of such certificate has
been duly, timely and fully performed and each condition herein required
to be satisfied or fulfilled on or prior to the date of such certificate
has been duly, timely and fully satisfied or fulfilled.
(j) on or prior to the Closing Date, the Representatives shall
have received the executed agreements referred to in Section 4(n).
(k) The Shares shall be qualified for sale in such jurisdictions
as the Representatives may reasonably request, each such qualification shall be
in effect and not subject to any stop order or other proceeding on the Closing
Date or the Option Closing Date.
(l) Prior to the Closing Date, the Shares shall have been
qualified for listing on The Nasdaq National Market.
(m) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
this Registration Statement or the Prospectus or any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus, as
to the accuracy at the Closing Date and the Option Closing Date of
<PAGE>
19
the representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Representatives.
6. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter, within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities, expenses
or damages arise out of or are based on any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or in any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus, or
the omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it (with
respect to statements in any preliminary prospectus, Prospectus or supplement
thereto, in light of the circumstances under which they were made) not
misleading, provided that the Company will not be liable to any Underwriter, the
directors, officers, employees and agents of such Underwriter, or any person
controlling such Underwriter, with respect to any untrue statement or omission
made in any preliminary prospectus which is corrected by the Prospectus if the
person asserting any such loss, claim, liability, expense or damage purchased
shares from such Underwriter but was not sent or given a copy of the Prospectus
at or prior to the written confirmation of such Shares to such person, and
provided further that the Company will not be liable to the extent that such
loss, claim, liability, expense or damage arises from the sale of the Shares in
the public offering to any person by a Underwriter and is based on an untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives on behalf of any Underwriter
expressly for inclusion in the Registration Statement, the preliminary
prospectus or the
<PAGE>
20
Prospectus. This indemnity agreement will be in addition to any liability that
the Company might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer of the Company who signs the Registration Statement to
the same extent as the foregoing indemnity from the Company to each Underwriter,
but only insofar as losses, claims, liabilities, expenses or damages arise out
of or are based on any untrue statement or omission or alleged untrue statement
or omission made in reliance on and in conformity with information relating to
any Underwriter furnished in writing to the Company by the Representatives on
behalf of such Underwriter expressly for use in the Registration Statement, the
preliminary prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 6 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 6, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 6 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably
<PAGE>
21
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. An indemnifying party will
not be liable for any settlement of any action or claim effected without its
written consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the
<PAGE>
22
allocation of contribution shall be made in such proportion as is appropriate to
reflect not only the relative benefits referred to in the foregoing sentence but
also the relative fault of the Company, on the one hand, and the Underwriters,
on the other, with respect to the statements or omissions which resulted in such
loss, claim, liability, expense or damage, or action in respect thereof, as well
as any other relevant equitable considerations with respect to such offering.
Such relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
6(d) were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, liability, expense or damage, or action in respect thereof,
referred to above in this Section 6(d) shall be deemed to include, for purpose
of this Section 6(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 6(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
<PAGE>
23
(e) The indemnity and contribution agreements contained in this
Section 6 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of the Underwriters, (ii) acceptance
of any of the Shares and payment therefor or (iii) any termination of this
Agreement.
7. TERMINATION.
The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from the Representatives, without liability on the part of
any Underwriter to the Company, if, prior to delivery and payment for the Shares
(or the Option Shares, as the case may be), in the sole judgment of the
Representatives, (i) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists such
securities or by the Nasdaq National Market, (ii) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
governmental authority, (iii) a general banking moratorium shall have been
declared by either Federal or New York State authorities or (iv) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall have occurred, the
effect of any of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus.
8. SUBSTITUTION OF UNDERWRITERS.
If any one or more of the Underwriters shall fail or refuse
to purchase any of the Firm Shares which it or they have agreed to purchase
hereunder, and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of Firm Shares, the other Underwriters
shall be obligated, severally, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to
<PAGE>
24
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such nondefaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representatives may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 8 by more than one-ninth of the number of Firm Shares
agreed to be purchased by such Underwriter without the prior written consent of
such Underwriter. If any Underwriter or Underwriters shall fail or refuse to
purchase any Firm Shares and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Firm Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company for the purchase or sale of any Shares under this Agreement. In any such
case either the Representatives or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. Any action taken
pursuant to this Section 8 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
9. MISCELLANEOUS.
(a) Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 10350 North
Torrey Pines Road, La Jolla, California 92037, Attention: President, or (b) if
to the Underwriters, to the Representatives at the offices of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019, Attention:
Corporate Finance Department. Any such notice shall be effective only upon
receipt. Any notice under Section 6 or 7 may be made by telex, telephone or
other electronic means and shall be effective at the time such communication is
received if subsequently confirmed in writing within a reasonable period of
time.
(b) This Agreement has been and is made solely for the benefit
of the several Underwriters and the Company and of the controlling persons,
directors and officers referred to in Section 6, and their respective successors
and assigns and no other person shall acquire or
<PAGE>
25
have any right under or by virtue of this Agreement. The term "successors and
assigns" as used in this Agreement shall not include a purchaser, as such
purchaser, of Shares from any of the several Underwriters.
(c) Any action required or permitted to be taken by the
Representatives under this Agreement may be taken by them jointly or by
PaineWebber Incorporated acting alone.
(d) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT
OF LAWS PRINCIPLES OF SUCH STATE.
(e) This Agreement may be signed in two or more counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
(f) In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
(g) The Company and the Underwriters each hereby irrevocably
waive any right they may have to a trial by jury in respect of any claim based
upon or arising out of this Agreement or the transactions contemplated hereby.
(h) This Agreement may not be amended or otherwise modified or
any provision hereof waived except by an instrument in writing signed by the
Representatives and the Company.
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
AGOURON PHARMACEUTICALS, INC.
By:
-------------------------
Title:
<PAGE>
26
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
ALEX. BROWN & SONS INCORPORATED
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
BY: PAINEWEBBER INCORPORATED
By:
-------------------------
Title:
BY: ALEX. BROWN & SONS INCORPORATED
By:
-------------------------
Title:
<PAGE>
27
SCHEDULE I
UNDERWRITERS
Number of
Firm Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
PaineWebber Incorporated
Alex. Brown & Sons Incorporated
---------------
Total 2,500,000
---------------
---------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated July 25, 1995, except
as to Notes 1, 4 and 9, which are as of August 24, 1995, relating to the
financial statements of Agouron Pharmaceuticals, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
PRICE WATERHOUSE LLP
San Diego, California
June 19, 1996
