UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission File Number 0-15609
AGOURON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0061928
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10350 North Torrey Pines Road, La Jolla, California 92037-1020
(Address of principal executive offices) (Zip Code)
(619) 622-3000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of December 31, 1997, the
registrant had 30,632,448 shares of Common Stock, no par value, outstanding.
<PAGE>
AGOURON PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - 3
December 31, 1997 and June 30, 1997
Consolidated Statement of Income (Loss) - 4
Three and Six Months Ended
December 31, 1997 and 1996
Consolidated Statement of Cash Flows- 5
Six Months Ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 29,533 $ 52,484
Short-term investments 87,716 38,833
Accounts receivable, net 43,200 31,375
Inventories 78,919 58,800
Current deferred tax assets 407 500
Other current assets 2,757 2,209
-------------- -------------
Total current assets 242,532 184,201
Property and equipment, net of accumulated
depreciation and amortization of $19,802 and $16,161 28,327 22,613
Deferred tax assets 56,843 56,000
Purchased intangibles 3,800 4,100
-------------- -------------
$ 331,502 $ 266,914
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,476 $ 28,833
Accrued liabilities 24,262 8,889
Deferred revenue and advances 40,141 27,567
Current deferred tax liabilities 806 600
Loan payable and current portion of long-term debt 3,345 2,526
-------------- -------------
Total current liabilities 110,030 68,415
-------------- -------------
Long-term liabilities:
Long-term debt, less current portion 4,818 5,940
Accrued rent 1,158 1,277
-------------- -------------
Total long-term liabilities 5,976 7,217
-------------- -------------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares authorized,
30,632,448 and 29,429,920 shares issued and outstanding 332,795 317,133
Accumulated deficit (117,299) (125,851)
-------------- -------------
Total stockholders' equity 215,496 191,282
-------------- -------------
$ 331,502 $ 266,914
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- --------------------------
December 31, December 31,
--------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
----------- ----------- ----------- -----------
Revenues:
Product sales $ 91,800 $ 0 $ 171,302 $ 0
Contracts 12,462 15,109 22,465 32,623
License fees and royalties 400 0 2,752 0
----------- ----------- ----------- ----------
104,662 15,109 196,519 32,623
----------- ----------- ----------- ----------
Operating expenses:
Cost of product sales 37,942 0 72,015 0
Research and development 30,322 23,302 57,254 52,936
Selling, general and administrative 14,045 5,786 26,591 9,522
Royalties 15,432 0 28,808 0
----------- ----------- ----------- ----------
97,741 29,088 184,668 62,458
----------- ----------- ----------- ----------
Operating income (loss) 6,921 (13,979) 11,851 (29,835)
----------- ----------- ----------- ----------
Other income (expenses):
Interest and other income 1,488 1,745 2,769 3,524
Interest expense (206) (16) (367) (80)
----------- ----------- ----------- ----------
1,282 1,729 2,402 3,444
----------- ----------- ----------- ----------
Income (loss) before income taxes 8,203 (12,250) 14,253 (26,391)
Income tax provision 3,281 306 5,701 612
----------- ----------- ----------- ----------
Net income (loss) $ 4,922 $ (12,556) $ 8,552 $ (27,003)
=========== =========== =========== ==========
Earnings (loss) per share:
Basic $ .16 $ (.46) $ .28 $ (1.03)
=========== ========== =========== ==========
Diluted $ .15 $ (.46) $ .26 $ (1.03)
=========== ========== =========== ==========
Shares used in calculation of:
Basic 30,520 27,048 30,242 26,100
Diluted 33,238 27,048 33,298 26,100
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
December 31,
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from product sales, contracts, license fees
and royalties $ 197,268 $ 24,735
Cash paid to suppliers, employees and service providers (173,470) (84,701)
Interest received 2,769 3,524
Interest paid (367) (80)
----------- -----------
Net cash provided (used) by operating activities 26,200 (56,522)
----------- -----------
Cash flows from investing activities:
Proceeds from maturities/sales of short-term investments 56,824 51,266
Purchases of short-term investments (105,707) (68,913)
Purchases of property and equipment (9,382) (3,937)
------------ -----------
Net cash provided (used) by investing activities (58,265) (21,584)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 9,417 78,741
Principal payments under equipment leases (327) (76)
Increase (decrease) in long-term debt, net 24 (183)
----------- -----------
Net cash provided (used) by financing activities 9,114 78,482
----------- -----------
Net increase (decrease) in cash and cash equivalents (22,951) 376
Cash and cash equivalents at beginning of period 52,484 16,451
----------- -----------
Cash and cash equivalents at end of period $ 29,533 $ 16,827
=========== ===========
Reconciliation of net income (loss) to net cash provided (used) by operating
activities:
Net income (loss) $ 8,552 $ (27,003)
Depreciation and amortization 3,968 1,529
Provision for deferred income taxes 5,701 0
Net (increase) decrease in accounts receivable
and other current assets (12,373) (2,755)
Net (increase) decrease in inventories (20,119) (21,400)
Net increase (decrease) in accounts payable, accrued liabilities,
deferred revenue and advances, and other liabilities 40,471 (6,893)
----------- ------------
Net cash provided (used) by operating activities $ 26,200 $ (56,522)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(December 31, 1997)
Note 1 - The Company and its significant accounting policies
The Company
Agouron Pharmaceuticals, Inc. is an integrated pharmaceutical company committed
to the discovery, development, manufacturing and marketing of small molecule
drugs engineered to inactivate proteins which play key roles in cancer, AIDS,
and other serious diseases. The Company, through its own sales and marketing
force, is currently marketing VIRACEPT(R) (nelfinavir mesylate), an HIV protease
inhibitor which was cleared for marketing by the United States Food and Drug
Administration ("FDA") in March 1997. The Company intends to commercialize any
subsequently developed products through its own direct sales and marketing force
in certain markets or, when appropriate, through manufacturing and marketing
relationships with other pharmaceutical companies.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Financial statements and estimates
The consolidated balance sheet as of December 31, 1997 and the consolidated
statements of income (loss) and cash flows for the three and six-month periods
ended December 31, 1997 and 1996 have been prepared by the Company and have not
been audited. Such financial statements, in the opinion of management, include
all adjustments necessary for their fair presentation in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's June 30, 1997 Annual Report on Form 10-K. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission rules and
regulations. Interim results are not necessarily indicative of results for the
full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures as of the date of the financial statements. Actual results
could differ from such estimates.
At December 31, 1997, it has been assumed that the existing collaborations with
Japan Tobacco Inc. ("JT") will continue in accordance with their agreement
terms. As such, approximately $34,962,000 of cash received from JT has been
classified as deferred contract revenue. Approximately $28,157,000 of the cash
received from JT represents JT's advance
6
<PAGE>
of the Company's VIRACEPT development funding obligation through June 1998. Such
amounts are to be repaid by the Company out of future profits, if any, generated
by sales of VIRACEPT in the United States. The balance of the payments from JT
are non-refundable and are being recognized as contract revenue on a prospective
basis generally as collaborative program expenses are incurred. Should any of
the underlying collaborations with JT be terminated in advance of their contract
terms, any deferred contract revenues related to such collaborations would be
recognized as revenue by the Company.
In December 1997, Agouron and Hoffmann-La Roche Inc. and F. Hoffmann-La Roche
Ltd ("Roche") agreed to end their anti-cancer research and development
collaboration which began in June 1996. Agouron has regained all marketing
rights to its anti-cancer drugs previously within the scope of the
collaboration. Included in deferred contract revenue at December 31, 1997 is
approximately $4,322,000 of cash received from Roche which will be recognized as
contract revenue by the end of fiscal 1998 on a pro-rata basis.
Inventories
The inventories consist of the following components:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- --------------
<S> <C> <C>
Raw materials and work in process $ 71,720 $ 57,883
Finished goods 7,199 917
------------- -------------
$ 78,919 $ 58,800
============= =============
</TABLE>
Product sales
In March 1997, the Company received clearance from the FDA to market its
anti-HIV drug, VIRACEPT. The Company has the exclusive right to market VIRACEPT
in North America. Accordingly, the Company ships VIRACEPT to wholesalers
throughout the United States, and recognizes sales revenue upon shipment. Sales
are reported net of discounts, rebates, chargebacks and product returns.
Also included in product sales for the three and six-month periods ending
December 31, 1997 are approximately $7,292,000 and $11,420,000 of sales (at cost
plus contractually determined mark-ups) to Roche of clinical and commercial drug
supplies to be used by Roche in its licensed territory.
License fees and royalties
License fees are recognized as revenue when earned as generally evidenced by
certain factors including: receipt of such fees, the non-refundable nature of
such fees, and the satisfaction of any performance obligations. In July 1997,
the Company and JT granted Roche certain exclusive rights to VIRACEPT in several
Asian countries. For such rights, the Company has received a license fee of
$2,000,000 and will, upon approval in one of the Asian territories, receive an
additional license fee of $1,000,000 and subsequent royalties.
7
<PAGE>
For the three and six-month periods ending December 31, 1997, the Company has
accrued and/or received royalties of approximately $400,000 and $752,000
resulting from Roche's estimated and actual net sales of VIRACEPT in certain
countries within their licensed territory.
Income tax provision
The Company records a provision for current and deferred income taxes using the
liability method.
Earnings (loss) per share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"), which
establishes new standards for computing earnings per share and which became
effective for financial statements for periods ending after December 15, 1997,
including interim periods. Under the new requirements, historically reported
"primary" and "fully diluted" earnings per share have been replaced with "basic"
and "diluted" earnings per share.
Basic earnings (loss) per share is based upon the weighted average number of
common shares outstanding during a period. Diluted earnings (loss) per share is
based upon the weighted average number of common shares outstanding and dilutive
common stock equivalents during a period. Common stock equivalents are options
under the Company's stock option plans which are included in the earnings per
share computation under the treasury stock method and common shares expected to
be issued under the Company's employee stock purchase plan.
Common stock equivalents of approximately 2,718,000 and 3,056,000 shares for the
three and six-month periods ended December 31, 1997 were used to calculate
diluted earnings per share. For the three and six-month periods ended December
31, 1996, common stock equivalents of approximately 2,735,000 and 2,358,000
shares were not used to calculate diluted earnings (loss) per share because of
their anti-dilutive effect. There are no reconciling items in calculating the
numerator for basic and diluted earnings (loss) per share for any of the periods
presented.
Certain concentrations
A portion of the Company's research and development expenditures are related to
programs funded in whole or in part by corporate partners. The termination of
such collaborative research and development programs could result in the absence
of any prospective funding for such programs and the need to evaluate the level
of future program spending, if any.
8
<PAGE>
Note 2 - Commitments
During the first quarter of fiscal 1998, the Company secured a commitment from a
commercial bank for a $20,000,000 revolving line of credit to be used for
general corporate purposes. As of December 31, 1997, borrowings under this line
of credit were approximately $2,600,000.
Note 3 - Stockholders' equity
In August 1997, outstanding shares of common stock were split two-for-one. All
prior period share and per share amounts have been restated to reflect the stock
split.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
When used in this discussion, the words "believes," "anticipates" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. See "Important Factors Regarding
Forward-Looking Statements" attached as Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
reference. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview
The Company is committed to the discovery, development, manufacturing and
marketing of human pharmaceuticals targeting cancer, AIDS, and other serious
diseases. Operations to date have been principally funded from the Company's
equity-derived working capital, various collaborative arrangements and, most
recently, from the gross margin contribution of its first product, VIRACEPT(R).
The net income reported in the current three and six-month periods is
principally due to the commercialization of VIRACEPT while the Company's prior
net operating losses reflect primarily the result of its independent research
and substantial investment in the clinical and commercial development of
VIRACEPT and certain anti-cancer compounds.
In March 1997, the Company received approval from the FDA to market VIRACEPT in
the United States. For the current three and six-month periods, due principally
to the increasing product contribution from VIRACEPT sales, the Company realized
net income of $4,922,000 and $8,552,000.
Results of Operations
Product sales
Product sales for the current three and six-month periods were approximately
$91,800,000 and $171,302,000. The Company anticipates continuing growth in
VIRACEPT sales during fiscal 1998 and that VIRACEPT sales in the United States
will approximate $350,000,000 to $360,000,000 for the fiscal year.
10
<PAGE>
Contract revenues
Collaborative research and development agreements with Japan Tobacco Inc. ("JT")
and Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd (collectively "Roche")
accounted for substantially all of the Company's contract revenues for the three
and six-month periods ended December 31, 1997 and 1996. Total contract revenues
for the three and six-month periods decreased approximately 18% and 31% due
principally to decreased VIRACEPT program spending by Agouron, which was
partially funded by JT, and increased spending by JT and Roche on the VIRACEPT
and AG3340 development programs, which was partially funded by Agouron.
Additionally, the amortization to revenue over a 24 month period of JT's
$24,000,000 milestone payment, which was received in August 1995, was completed
in June 1997.
In December 1997, the Company agreed to end its collaboration with Roche in the
field of cancer. As a result of the termination agreement, Agouron has regained
all marketing rights to its anti-cancer drugs previously within the scope of the
Roche collaboration. The Company does not foresee any significant impact on its
financial results for the current fiscal year due to termination of the Roche
collaboration since a substantial portion of the anticipated fiscal 1998
anti-cancer research and development costs of such collaboration will have been
offset by contract funding received from Roche. The Company anticipates that
contract revenues for fiscal 1998 will approximate $42,000,000.
License fees and royalties
In July 1997, the Company received a $2,000,000 license fee from Roche as
partial consideration for the grant of VIRACEPT marketing rights in certain
Asian territories.
Royalty revenues of approximately $400,000 and $752,000 have been recognized in
the current three and six-month periods based on Roche's sales of VIRACEPT in
certain countries in their licensed territory. The Company anticipates that
license fees and royalties for fiscal 1998 will approximate $18,000,000, due
primarily to the expected approval of VIRACEPT in Europe.
Cost of product sales
The aggregate cost of product sales as a percentage of product sales was
approximately 41% and 42% for the three and six-month periods ended December 31,
1997. Gross margins on United States commercial sales were approximately 63%
during the current quarter and 62% for the six months ended December 31, 1997.
The Company anticipates that gross margins on United States commercial sales
will approximate 64% for fiscal 1998.
Research and development
Research and development spending increased from the prior year periods due
generally to costs associated with principally increasing average staff levels
and staff related spending, the
11
<PAGE>
acquisition of Alanex during the fourth quarter of fiscal 1997, and increasing
expenses associated with the clinical development of certain of the Company's
anti-cancer compounds.
In December 1997, the Company discontinued further development of its
anti-cancer drug AG337 (THYMITAQ(TM), nolatrexed dihydrochloride) on the basis
of its interim analysis of results from phase II/III trials of the drug and in
order to concentrate available resources on the development of two earlier-stage
anti-cancer agents that the Company believes have greater commercial potential.
The Company believes that the termination of the THYMITAQ development program
will not have a significant impact on current year operating results.
Selling, general and administrative
Selling, general and administrative costs have increased substantially from the
prior year periods due principally to increasing staff levels (notably the sales
force and other marketing personnel) and staff-related expenditures in support
of ongoing VIRACEPT sales and marketing activities subsequent to its approval
and commercial launch in March 1997. The Company anticipates that total selling,
general and administrative expenses will exceed $58,000,000 in fiscal 1998 due
to the full-year effect of fiscal 1997 staff additions, additional occupancy
costs, increasing sales and marketing activities and the support of VIRACEPT
Phase IV marketing studies.
Royalties
The Company's obligation to share VIRACEPT profits with JT is reflected in
royalty expense for the current three and six-month periods and represents
approximately 18% of United States product sales. It is anticipated that royalty
expense for the third and fourth quarters of fiscal 1998 will range from 18% to
21% of United States product sales.
Other income (expense)
Interest income has decreased in the current year periods due principally to a
lower average investment portfolio balance. The prior year's first half
portfolio balance was favorably impacted by the July 1996 public offering of
$77,000,000 and receipt of $15,000,000 in license fees from Roche in June 1996.
Income tax provision
The income tax provision in the current quarter has been computed using an
effective, combined federal and state rate of 40%. The cash obligation of such
provision has been offset by the utilization of deductions generated by the
exercise of stock options and/or the utilization of deferred tax benefits
(comprised mostly of net operating loss carryforwards and research tax credits).
The Company's accumulated net deferred tax assets have increased to
approximately $56,400,000 at December 31, 1997 due to the realization of stock
option exercise deductions. As required by generally accepted accounting
principles, the benefit of stock option exercise deductions has been recorded to
stockholders' equity.
12
<PAGE>
Liquidity and Capital Resources
The Company has relied principally on equity financings and corporate
collaborations to fund its operations and capital expenditures. In March 1997,
the Company received clearance from the FDA to market its anti-HIV drug,
VIRACEPT. Commercial sales of VIRACEPT for the quarters ending June 30, 1997,
September 30, 1997 and December 31, 1997 resulted in gross margins of
approximately $24,992,000, $45,429,000 and $53,858,000. The Company anticipates
that net sales of VIRACEPT will increase from quarter to quarter through at
least fiscal 1998 and provide an increasingly significant contribution toward
funding the Company's operations.
At December 31, 1997, the Company had net working capital of approximately
$132,502,000, an increase of $16,716,000 over June 30, 1997 levels due
principally to the Company's pre-tax profit of $14,253,000 and $9,417,000 in
proceeds from employees' exercise of stock options, partially offset by
$9,382,000 in purchases of property and equipment. Individual working capital
components significantly impacted by the commercialization of VIRACEPT include
trade accounts receivable (an increase of $15,546,000), inventories (an increase
of $20,119,000), accounts payable (an increase of $12,643,000) and accrued
liabilities (an increase of $15,373,000, due to accrued royalties payable to
JT). It is anticipated that these working capital components and cash and
short-term investments will continue to be significantly impacted as VIRACEPT
sales increase. At December 31, 1997, the Company had cash, cash equivalents and
short-term investments of approximately $117,249,000. The Company believes that
its current capital resources, anticipated VIRACEPT product sales contribution,
existing contractual commitments and established credit facilities are
sufficient to maintain its current operations through fiscal 1998. This belief
is based on current research and clinical development plans, anticipated working
capital requirements associated with the expanding commercialization of
VIRACEPT, the current regulatory environment, historical industry experience in
the development of therapeutic drugs and general economic conditions.
The Company believes that additional financing may be required to meet operating
needs beyond 1998 if its commercial activities do not generate significant,
positive operating results on a consistent and timely basis or if the scope of
its research, development, manufacturing or commercial operations is
substantially increased. Such needs would include the expenditure of substantial
funds to continue and expand research and development activities, conduct
existing and planned preclinical studies and human clinical trials and to
support the increasing working capital requirements of a growing commercial
infrastructure including manufacturing, sales and marketing. As a result, the
Company anticipates pursuing various financing alternatives such as
collaborative arrangements and additional public offerings or private placements
of securities. If such alternatives are not available, the Company may be
required to defer or restrict certain commercial activities, 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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
The Company is involved in certain legal or administrative
proceedings generally incidental to its normal business
activities. While the outcome of any such proceedings cannot
be accurately predicted, the Company does not believe the
ultimate resolution of any such existing matters should have a
material adverse effect on its financial position or results
of operations.
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submission of Matters to a Vote of Security Holders:
The Company held its Annual Meeting of Shareholders on
November 6, 1997. At the meeting, the shareholders elected
nine directors to serve until the next annual meeting and
ratified the selection of Price Waterhouse LLP as independent
accountant of the Company for the fiscal year ending June 30,
1998.
Of the 30,312,168 shares of Common Stock of the Company
outstanding as of the September 23, 1997 record date for the
Annual Meeting (the "Outstanding Shares"), the number of votes
cast for and the number of votes withheld or voted against
each nominee for director were as follows:
<TABLE>
<CAPTION>
Votes
Votes Against or
For Withheld
----------- ----------
<S> <C> <C>
John N. Abelson 26,664,607 27,636
Patricia M. Cloherty 26,662,647 29,596
A. E. Cohen 26,662,939 29,304
Gary E. Friedman 26,665,589 26,654
Michael E. Herman 26,658,089 34,154
Irving S. Johnson 26,660,580 31,663
Peter Johnson 26,664,107 28,136
Antonie T. Knoppers 26,658,670 33,573
Melvin I. Simon 26,666,439 25,804
</TABLE>
Of the Outstanding Shares, 26,618,768 were voted for the
ratification of the selection of Price Waterhouse LLP as
independent accountants, 32,176 were voted against or withheld
and 41,299 abstained.
Item 5. Other Information: None
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
10.41 Amendment to the Agouron-Roche Collaboration
between F. Hoffmann-La Roche Ltd and
Hoffmann-La Roche Inc. and the Company dated
December 1, 1997. (Confidential treatment has
been requested for portions of this agreement
pursuant to an application dated January 14,
1998, as separately filed with the Securities
and Exchange Commission).
27. Financial Data Schedule. (Exhibit 27 is
submitted as an exhibit only in the electronic
format of this Quarterly Report on Form 10-Q
Submitted to the Securities and Exchange
Commission).
b. Reports on Form 8-K: None.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGOURON PHARMACEUTICALS, INC.
Date: January 14, 1998 /s/ Steven S. Cowell
----------------------
Steven S. Cowell
Corporate Vice President, Finance
Chief Financial Officer
Chief Accounting Officer
16
EXHIBIT 10.41
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED (DESIGNATED BY AN
ASTERISK (*) AND WHITE SPACE) AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT
DATED January 14, 1998; FILE NO. 0-15609
AMENDMENT TO AGOURON-ROCHE COLLABORATION
This Amendment to the Agouron-Roche Collaboration, dated for reference
purposes only this 1st day of December, 1997, is between Agouron
Pharmaceuticals, Inc., a corporation duly organized and existing under the laws
of the State of California, having a principal place of business at 10350 North
Torrey Pines Road, La Jolla, California, United States of America (hereinafter
referred to as "Agouron," the first party), and F. Hoffmann-La Roche Ltd, a
corporation duly organized and existing under the laws of Switzerland, having a
principal place of business at CH-4070-Basel, Switzerland, and Hoffmann-La Roche
Inc., a corporation duly organized and existing under the laws of the State of
New Jersey, having a principal place of business at 340 Kingsland Street,
Nutley, New Jersey, United States of America (hereinafter collectively referred
to as "Roche," the second party). Agouron and Roche are sometimes hereinafter
each referred to as a party (collectively "parties"). The parties hereby agree
as follows:
ARTICLE I - BACKGROUND
1.01 Defined terms used herein and not expressly defined (i.e., terms
with initial capitalization) shall have the meanings given to them in the
applicable agreements referred to below.
1.02 On June 19, 1996, Agouron and Roche entered into a Letter of
Intent ("LOI") to confirm the parties' formation of a collaboration (sometimes
referred to herein as the "Collaboration") on terms substantially in accordance
with those contained in Exhibit A to the LOI ("Exhibit A"). The components of
such Collaboration include programs for the development and commercialization of
the chemical compounds known as THYMITAQ(TM) (sometimes referred to herein as
AG337) and AG3340 and in certain circumstances substituted or additional backup
compounds, the Cell Cycle Control Research Program, and in certain circumstances
Agouron's right to commercialize a Roche Cancer Product. While Exhibit A
contains the basic terms of the understanding between the parties, the parties
agreed that the terms of the Collaboration would be subject to further
negotiation and preparation of further agreements that contain the full terms of
the Collaboration between the parties.
1.03 On June 11, 1997, the parties entered into the THYMITAQ
Development and License Agreement and the AG3340 Development and License
Agreement, which set forth the full terms of the Collaboration between the
parties with respect to the AG337 and AG3340 chemical compounds (and certain
substituted or additional backup compounds).
1.04 The parties have not entered into further agreements which set
forth the definitive terms under which the parties shall collaborate in the Cell
Cycle Control Research Program or Agouron's right to commercialize a Roche
Cancer Product.
<PAGE>
1.05 Pursuant to the terms of the LOI and the THYMITAQ Development and
License Agreement ("THYMITAQ Agreement"), the parties are conducting the
THYMITAQ Development Program.
1.06 Pursuant to the terms of the LOI and the AG3340 Development and
License Agreement ("AG3340 Agreement"), the parties are conducting the AG3340
Development Program and a Backup MMP Inhibitor Research Program.
1.07 Pursuant to the terms of the LOI, the parties are conducting the
Cell Cycle Control Research Program.
1.08 The LOI and Sections 2.04 and 6.02(a) of the THYMITAQ Agreement
and Sections 2.04 and 6.02(a) of the AG3340 Agreement permit Roche to cancel the
development programs being conducted pursuant to such agreements.
1.09 Roche has informed Agouron that it has undertaken a review of its
internal and external research and development programs, and has determined to
refocus certain of its research and development efforts. As part of such
refocusing efforts, Roche has decided to terminate the THYMITAQ and AG3340
Development Programs and its rights to elect to develop and commercialize
substituted or additional backup compounds. Additionally, the parties have
decided to terminate the Cell Cycle Control Research Program and Agouron's right
to commercialize a Roche Cancer Product.
1.10 To effect the preceding and clarify the parties' rights and
obligations under the Collaboration, the parties wish to amend the Collaboration
as noted below.
ARTICLE II - AMENDMENT
2.01 Roche hereby irrevocably elects to terminate the THYMITAQ
Development Program effective December 8, 1997 pursuant to the provisions of
Sections 2.04 and 6.02(a) of the THYMITAQ Agreement. Effective December 1, 1997
Roche hereby irrevocably releases and terminates its rights under the provisions
of Sections 2.01(l) and (m) and 2.02 of the THYMITAQ Agreement to develop and
commercialize AG337, the free base form of AG337 and/or another salt thereof.
Roche further elects to terminate its rights under the THYMITAQ Trademark
License including its right to use the THYMITAQ Trademark.
2.02 Roche hereby irrevocably elects to terminate the AG3340
Development Program effective May 20, 1998 pursuant to the provisions of
Sections 2.04 and 6.02(a) of the AG3340 Agreement. Effective December 1, 1997,
Roche hereby irrevocably releases and terminates its rights under the provisions
of Sections 2.01(l) and (m) and 2.02 of the AG3340 Agreement to develop and
commercialize AG3340 and Backup MMP Inhibitors including the compounds listed on
Schedule 2 to the AG3340 Agreement.
2
<PAGE>
2.03 Roche shall continue to be obligated for its share of the
Development Costs for the THYMITAQ Development Program until the effective
termination date of the THYMITAQ Development Program (December 8, 1997) and
shall fund and reimburse such obligation as described in Attachment 1 of the
applicable agreement. The parties further agree that no further license issuance
fees payments (other than the initial US$5 million fee) shall be due Agouron
pursuant to the provisions of Section 5.01(a) of the THYMITAQ Agreement.
2.04 Roche shall pay Agouron on or before December 15, 1997 *
in full satisfaction and
settlement of its share of the Development Costs for the AG3340 Development
Program for the period from October 1, 1997 until the effective termination date
of the AG3340 Development Program (May 20, 1998); provided, however, that Roche
shall be entitled to receive a credit against the amount due Agouron equal to
Roche's pre-payment of AG3340 Development Program Development Costs for the
calendar quarter ending December 31, 1997. Agouron shall have no obligation to
account to Roche for any Development Costs which Agouron incurs on or after
October 1, 1997 and shall be entitled to retain and use such * payment from
Roche for any purposes it sees fit, including uses unrelated to the AG3340
Development Program. Agouron shall reimburse Roche for any Development Costs
which Roche incurs after October 1, 1997 in performing development tasks
assigned to it by Agouron or agreed to by the parties including, but not limited
to, Development Costs incurred by Roche in performing the activities described
in Paragraphs 2.16, 2.17, 2.18 and 2.19 of this Amendment; Roche shall invoice
Agouron for such Development Costs in accordance with the provisions described
in Attachment 1 of the AG3340 Agreement. The parties further agree that no
further license issuance fees payments (other than the initial US$10 million
fee) shall be due Agouron pursuant to the provisions of Section 5.01(a) of the
AG3340 Agreement.
2.05 Roche agrees to cooperate with and provide reasonable assistance
to Agouron to effect an orderly transition of Roche's development and
Registration responsibilities for the THYMITAQ and AG3340 Development Programs
to Agouron. Agouron shall lead implementation of the AG3340 Development Program
during such transition. The parties will use reasonable efforts to transition to
Agouron by December 31, 1997 Roche's clinical, regulatory and project management
responsibilities for the AG3340 Development Program. The parties will use
reasonable efforts to complete substantially all of the transition on or before
the effective termination date of the applicable development programs. To the
extent that Roche's reasonable costs of conducting the transition activities
assigned to it by Agouron do not otherwise qualify as Development Costs, such
transition costs shall nevertheless be deemed to be Development Costs if Agouron
pre-approves of a budget for each of Roche's requested transition activites
detailing the basis of the calculation of such costs for each transition
activity and the maximun amount of costs which Roche may incur for each
transition activity; Roche shall be reimbursed for such pre-approved budgeted
transition costs in accordance with the provisions described in Attachment 1 of
the AG3340 Agreement. Roche does not warrant that it will be
3
<PAGE>
able to complete any specific transition activity requested by Agouron within
the pre-approved maximun budgeted amount. If Roche determines that an additional
amount will be required to complete such transition activity, it will notify
Agouron of such fact before incurring any costs in excess of the pre-approved
maximun budgeted amount and will receive Agouron's approval for such additional
amount; if Agouron does not reasonably approve such additional amount, Roche
shall be relieved of its obligation to complete such transition activity.
2.06 In recognition of Agouron's continuing commercial interest in
THYMITAQ and AG3340 and the termination of Roche's commercial interest therein,
and notwithstanding any provision contained in the LOI, the THYMITAQ Agreement
and/or the AG3340 Agreement, Roche, its Affiliates, and their employees,
clinical investigators and consultants *
2.07 The parties agree that no New MMP Compound Patent Rights have
arisen from the conduct of the parties' research activities under the
Collaboration, and that effective December 1, 1997, the parties' collaborative
research activities conducted pursuant to the provisions of Section 4.05 of the
AG3340 Agreement shall terminate.
2.08 The parties agree effective December 1, 1997 to terminate the Cell
Cycle Control Research Program, and that the last day of the Cell Cycle Control
Research Term shall be December 1, 1997.
2.09 The parties agree that Agouron shall be deemed to have fully
earned and shall be entitled to retain all research support funding paid to it
by Roche pursuant to the provisions of Section B(2) of Exhibit A to the LOI and
that after November 30, 1997 Agouron shall have no obligation to assign its
scientists to work on the Cell Cycle Control Research Program. Additionally, the
parties agree that Roche shall not be obligated to pay Agouron for the amount of
the research support funding obligation which it would otherwise be
contractually obligated to pay Agouron on the second anniversary of the signing
of the LOI.
2.10 The parties agree that no Program Compounds, as such term is
defined in Section B(1) of Exhibit A to the LOI, shall be deemed to have been
invented by Roche and/or Agouron, separately or jointly, in the Cell Cycle
Control Research Program during the
4
<PAGE>
Cell Cycle Control Research Term. *
The parties further acknowledge that Roche and/or Agouron,
separately or jointly, may each in the future file patent application(s) on
compounds invented by its employees during the Cell Cycle Control Research Term,
that such compounds shall be assigned to and owned by the employer(s) of the
employee(s) inventing such compounds and that the owner(s) of such compounds
shall determine the most appropriate manner to prepare, file, prosecute,
maintain and extend patent applications and issued patents to protect its
commercial interests in such compounds.
2.11 The parties agree that no Cell Cycle Control Research Program
Patent Rights have arisen from the conduct of the parties' research activities
under the Cell Cycle Control Research Program.
2.12 During the Research Term of the Cell Cycle Control Research
Program, the parties acknowledge that the parties have made *
2.13 The parties agree that each party shall be free, without any
further obligation to the other, to continue work in pursuit of the objectives
of the Cell Cycle Control Research Program (CDK4) on its own or with any third
party, and to retain, use and disclose to any such third party, information and
materials which have been developed in the Cell Cycle Control
5
<PAGE>
Research Program (CDK4), provided that a party shall not disclose to such third
party the confidential and proprietary information of the other party and shall
not use such confidential and proprietary information for purposes other than in
pursuit of the objectives of the Cell Cycle Control Research Program (CDK4).
2.14 Upon written request from a party, the other party shall return to
the requesting party all remaining samples of any materials or compounds
provided to such party during the Collaboration. Each parties shall return all
copies of patent applications received from the other party as a result of the
negotiation and conduct of the Collaboration. *
2.15 Except as is necessary for Agouron's development and
commercialization of AG337 and AG3340 (and other backup compounds) or as
otherwise stated in this Amendment, each party shall have no further obligation
to disclose to the other party information, data or results, patents and/or
patent applications and/or to report or consult on its research, development,
commercialization and/or patent activities under the Collaboration.
2.16 Roche agrees to complete and provide Agouron, in written and/or
electronic format as appropriate, within 10 days after it becomes available to
Roche, the interim and final results, as well as supporting data, for all of its
ongoing toxicology and other pre-clinical studies *
2.17 Except for supplies of AG3340 needed by Roche to complete its
ongoing toxicology and other pre-clinical studies for AG3340, Roche agrees to
ship to Agouron (or its designee)* all existing bulk supply and finished product
of AG3340 which it then currently possesses. If requested by Agouron, Roche
agrees to use its reasonable efforts to complete the in-process *
Additionally, if
requested by Agouron, * Roche will use its reasonable efforts to
complete production of *
Roche agrees to
ship to Agouron (or its designee) as soon as it is available for shipment the *
Product(and copies of applicable batch records, manufacturer's certificates and
certificates of analysis), * and all remaining raw materials and
intermediates which were specifically purchased for AG3340
manufacturing activities that remain in Roche's possession
6
<PAGE>
after completion of the manufacture of the above described batches. Agouron
plans to use the AG3340 Product in clinical trials and for other purposes.
2.18 Roche agrees to provide Agouron with all relevant available data
created in the applicable Development Program and samples to facilitate
Agouron's manufacture of AG337, AG3340, and any Backup MMP Inhibitors,
including*
2.19 Prior to May 20, 1998, Roche agrees to make its relevant personnel
available for reasonable consulting to assist in the manufacture of AG3340 and
any Backup MMP Inhibitors and in the transition of the manufacturing process
from Roche.
2.20 The parties shall jointly prepare and release a statement about
the amendment of the Collaboration between Agouron and Roche. Agouron shall be
entitled to release any further information about the THYMITAQ and AG3340
Development Programs which it deems appropriate; provided, however, Agouron
shall not use the Roche name in releases about the THYMITAQ and AG3340
Development Programs without the prior written consent of Roche. Roche shall not
release any further information to any third party who is not under an
obligation of confidentiality with respect thereto about any of the terms of
this Amendment or of the THYMITAQ and AG3340 Development Programs without the
prior written consent of Agouron, which consent may be withheld in Agouron's
sole discretion. This prohibition includes, but is not limited to, press
releases, educational and scientific conferences, promotional materials and
discussions with the media, investors and analysts. If Roche determines that it
is required by law to release information to any third party regarding the
subject matter of the THYMITAQ and AG3340 Development Programs, it shall use
reasonable efforts to notify Agouron of this fact prior to releasing the
information. The notice to Agouron shall include the text of the information
proposed for release. If possible Agouron shall have the right to confer with
Roche regarding the necessity for the disclosure and the text of the information
proposed for release.
2.21 Effective December 1, 1997, Agouron hereby irrevocably elects to
release and terminate its rights under the provisions of Section C(1) of Exhibit
A to the LOI to receive
7
<PAGE>
marketing or acquisition rights in a Roche Cancer Product in the United States
and under Section C(2) of Exhibit A to the LOI to receive co-promotion rights in
a CDK2 Inhibitor in North America.
2.22 The parties agree to execute such further documents, instruments,
assignments, confirmations, certificates and assurances which are necessary or
desirable to carry out the purposes of this Amendment and to document, confirm
and certify the transfer of rights and obligations provided for hereunder.
2.23 Except as expressly amended by the terms contained herein, the
provisions of the LOI (including Exhibit A), the THYMITAQ Agreement, and the
AG3340 Agreement (including Section 5.01(c)) shall remain in full force and
effect unless the further application of any specific provision can not
reasonably be construed to remain in full force and effect after a good faith
consideration of the termination of the THYMITAQ and AG3340 Development
Programs, the Cell Cycle Control Research Program and/or Agouron's rights in a
Roche Cancer Product.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Amendment to the Agouron-Roche Collaboration
effective as of the dates set forth above.
F. HOFFMANN-LA ROCHE LTD AGOURON PHARMACEUTICALS, INC.
By: /s/ R. Schaffner By: /s/ R. Kent Snyder
Name: R. Schaffner Name: R. Kent Snyder
Title: Head of Licensing Title: Sr. Vice President
By: /s/ St. Arnold By: /s/ Gary Friedman
Name: St. Arnold Name: Gary Friedman
Title: ppa Title: Corp. Vice President
HOFFMANN-LA ROCHE INC.
By: /s/ George W. Johnston
Name: George W. Johnston
Title: Vice President
By: /s/ William H. Epstein
Name: William H. Epstein
Title: Assistant Secretary
9
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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