2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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. EmployerIdentification No.)
incorporation or organization)
10350 North Torrey Pines Road, La Jolla, California 92037-1020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 622-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On July 28, 1998, the aggregate market value of the common stock held by
nonaffiliates totaled approximately $724,738,000 based on the closing stock
price as reported by The Nasdaq Stock Market.
On July 28, 1998, there were approximately 31,097,000 shares of common
stock, without par value, of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement to be prepared pursuant to
Regulation 14A and filed in connection with solicitation of proxies for its
Annual Meeting of Stockholders, to be held on October 28, 1998, is incorporated
by reference into Part III of this Form 10-K.
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PART I
Item 1. BUSINESS
Except for the historical information contained herein, the following
"Business" section contains forward-looking statements that involve risks and
uncertainties which could cause actual results to differ materially from those
discussed here. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the "Business" section and Exhibit 99 to this Form 10-K. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
General
Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") was organized
and incorporated in California in June 1984. Agouron is an integrated
pharmaceutical company committed to the discovery, development, manufacturing
and marketing of innovative therapeutic products engineered to inactivate
proteins which play key roles in cancer, AIDS and other serious diseases. The
Company, through its own sales and marketing organization, is currently
marketing in the United States its first drug, VIRACEPT(r) (nelfinavir mesylate)
for treatment of HIV infection. The Company is also conducting pivotal phase
II/III clinical trials for AG3340 for treatment of lung and prostate cancer. In
addition, Agouron is expected to initiate a phase II/III pivotal clinical trial
of REMUN(tm) (AG1661), an immune-based therapeutic agent for treatment of HIV
infection and AIDS being co-developed by Agouron and The Immune Response
Corporation ("IRC"). Further, the Company has a number of programs in progress
for discovery or development of other new drugs in the fields of cancer, viral
disease and other serious diseases. The Company is also using the proprietary
core drug discovery technology of Alanex Corporation ("Alanex"), a wholly-owned
subsidiary of the Company, to accelerate the steps necessary to discover
small-molecule drug candidates, from the initial identification of compounds
that exhibit activity against selected biological targets to the progression of
these compounds to drug candidates for human clinical trials.
Agouron's long-term goal is increasing profitability from the sale of drugs
generated from its own drug discovery and development efforts, and from
development and commercialization of drugs originated outside of the Company. To
augment its technical capabilities, to enhance the likelihood of successful
commercialization of its products and to offset some of its operating costs, the
Company has entered into collaborative research and development arrangements
with other companies. The Company has generally retained significant commercial
rights in drugs developed in its collaborative research and development programs
funded in whole or in part by other companies and has secured significant
commercial rights in those products that it has in-licensed from other
companies. The Company anticipates that its successfully developed products will
be commercialized both through its own direct sales and marketing activities in
certain pharmaceutical markets and through manufacturing and marketing
relationships with other pharmaceutical companies.
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The Company's common stock capitalization has evolved through a series of
public offerings and private placements of its equity securities and the
exercise of various warrants and employee stock options. Five public offerings
have generated net proceeds of approximately $211,600,000 and the issuance of
approximately 19,788,000 shares. The most recent public offering in 1996 raised
approximately $77,245,000 through the issuance of 5,470,000 shares. Private
placements have generated approximately $17,100,000 in net proceeds and the
issuance of approximately 5,564,000 shares. The exercise of warrants and
employee stock options (including employee stock purchase plan transactions)
have generated proceeds of approximately $29,750,000 and the issuance of
approximately 4,250,000 shares. In 1997, the Company acquired Alanex in a
purchase transaction through the issuance of approximately 1,444,000 shares of
the Company's common stock valued at approximately $61,000,000. The Company has
also recorded an aggregate increase to common stock of approximately $29,000,000
which reflects the tax benefit of stock options that were exercised through
fiscal 1998.
Narrative Description of Business
Agouron is developing innovative drugs for treatment of cancer, HIV
infection and other serious diseases and has expended approximately $449,000,000
on research and development since its inception, excluding a $57,500,000
write-off for in-process technology purchased in 1997 in the acquisition of
Alanex.
VIRACEPT
In March 1997, the Company received clearance from the Food and Drug
Administration ("FDA") to market its first drug, VIRACEPT, a potent HIV protease
inhibitor that substantially decreases viral load and increases CD4+T cell
counts when used in combination antiretroviral drug therapy. An orally
administered product, VIRACEPT is available in adult and pediatric formulations.
VIRACEPT sales in the United States totaled $358,321,000 in fiscal 1998.
The Company estimated that 85,000 patients in the United States (over 120,000 in
the world) were taking VIRACEPT at the end of June 1998. It is anticipated that
continued increasing VIRACEPT sales will make a substantial contribution toward
profitable financial results in the future.
Agouron developed VIRACEPT in collaboration with the pharmaceutical
division of Japan Tobacco Inc. ("JT"). Agouron and JT have granted exclusive
royalty bearing marketing rights outside of North America and parts of Japan to
F. Hoffmann-La Roche Ltd ("Roche"). The Company and JT share profits and/or
royalties equally from the world-wide commercialization of VIRACEPT.
In January and March 1998, VIRACEPT was approved for marketing in Europe
and Japan, respectively. VIRACEPT license fees and royalties from Roche totaled
$17,852,000 in 1998.
Research and Development Programs
Agouron's research and development programs focus on the areas of cancer,
AIDS and other serious diseases. Agouron's drug discovery programs apply the
Company's core technologies of
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three-dimensional structure based drug design and high-throughput screening of
chemical libraries generated by computation-directed combinatorial chemistry.
The following table outlines the status of various programs in the
Company's research and development portfolio. Agouron is pursuing some of these
programs independently, while others are being undertaken in collaboration with
other companies.
<TABLE>
<CAPTION>
Research
and
Development
Program Indication Stage
- ------------------------------- -------------------------------------------- ------------
<S> <C> <C>
Cancer
AG3340 Solid Tumors Phase II/III
AG3433 Solid Tumors Preclinical
AG2034 Solid Tumors Phase I
AG2037 Solid Tumors Preclinical
cdk Inhibitors Solid Tumors Research
PARP(1) Inhibitors Solid Tumors Research
VEGF Inhibitors Solid Tumors Research
GnRH Antagonist Hormone-Dependent Solid Tumors Research
Viral Disease
VIRACEPT(2) HIV Infection Approved
REMUNE (AG1661)(3) HIV Infection Phase II/III
AG1549 (S-1153)(4) HIV Infection Phase I
AG1776 (JE-2147)(5) HIV Infection Preclinical
AG7088 Common Cold Preclinical
Hepatitis C agents(6) Viral Disease Research
HIV Integrase Inhibitors HIV Infection Research
Ophthalmology
AG3340 Macular Degeneration Phase II
Other MMP Inhibitors Macular Degeneration Preclinical
VEGF Inhibitors Macular Degeneration Research
</TABLE>
(1) In collaboration with Cancer Research Campaign Technology Ltd.
(2) In collaboration with Japan Tobacco Inc. and F. Hoffmann-La Roche Ltd.
(3) In collaboration with The Immune Response Corporation.
(4) In collaboration with Shionogi & Co., Ltd.
(5) In collaboration with Japan Energy Corporation.
(6) In collaboration with Japan Tobacco Inc.
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Cancer
Overview
The development of new drugs for treatment of cancer is a key 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 new
anti-cancer drugs which are less toxic and more efficacious than those currently
available either as tumoricidal (tumor-killing) or tumoristatic
(tumor-controlling) agents.
The Company's anti-cancer drug discovery and development programs pursue
inhibitors of the following enzymes: matrix metalloproteases ("MMPs");
glycinamide ribonucleotide formyltransferase ("GART"); cyclin dependent kinases
("cdk"); gonadotropin releasing hormone ("GnRH"); poly (ADP ribose) polymerase
("PARP"); and vascular endothelial growth factor ("VEGF") kinase.
MMP Inhibitors: AG3340 and AG3433
AG3340 is an orally delivered anti-angiogenesis drug designed to inhibit
the growth, invasion and metastasis of solid tumors by inactivating certain
members of a family of enzymes known as MMPs. AG3340 selectively inhibits those
MMPs believed to be involved in angiogenesis and tumor progression. A primary
goal of clinical studies of AG3340 is to determine whether this distinctive
selectivity results in a favorable clinical profile of safety and efficacy.
In fiscal 1998, Agouron completed two phase I studies of AG3340. In one
phase I study, AG3340 was administered orally twice daily (BID) in patients with
advanced cancer, including lung, prostate, kidney, and colorectal cancers as
well as sarcoma and melanoma.
A separate phase I study found that AG3340 in combination with chemotherapy
was generally well tolerated among patients with advanced prostate cancer whose
disease was resistant to hormonal therapies.
In preclinical studies, AG3340 has been shown to inhibit angiogenesis.
AG3340 was also found to be a potent inhibitor of the growth of
chemotherapy-resistant human non-small cell lung cancer tumors in mice. Here,
administration of AG3340 resulted in a dose-dependent decrease in tumor growth
by up to 65% as compared to controls.
In May 1998, Agouron initiated phase II/III clinical trials in patients
with advanced lung or prostate cancer. The Company presently retains all rights
to AG3340 in the fields of cancer and ophthalmology.
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Agouron is also conducting preclinical research on a stable of
third-generation MMP inhibitors, including AG3433, which has even greater
selectivity than AG3340 for those MMPs related to cancer.
GART Inhibitors: AG2034 and AG2037
AG2034 is a potent, selective inhibitor of 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. The Company is completing dose-ranging phase I clinical
trials that will establish an appropriate dose for AG2034.
AG2037 was designed to have markedly reduced binding to the membrane folate
binding protein ("mFBP") because tight binding to this receptor is one likely
source of the toxicity observed with lometrexol, the first molecule in this
class to be tested clinically by Eli Lilly and Company (assays of mFBP binding
have been routine for compounds generated in this program). AG2037 shows potent
inhibition of GART as a monoglutamate and can be polyglutamylated. Because of
its weaker binding to mFBP, AG2037 access is restricted to only those cells with
reduced folate carrier. Preclinical studies have shown that GART inhibitors are
potentially cytotoxic (kills cells) to at least certain cancer cell types with
mutant p53 genes, a common genetic abnormality in human cancer. The Company
retains all commercial rights to compounds resulting from its GART inhibitor
programs.
cdk Inhibitors
Cdks are enzymes that play key roles in regulating the cell cycle. Certain
members of this family of enzymes, such as cdk4 and cdk2, have been implicated
as drivers of cells from a normally quiescent state to a highly proliferative
state characteristic of human cancer. Agouron is engaged in a drug discovery
program aimed at the design of selective small-molecule drugs with the potential
to inhibit the activity of such cdks and therefore block the transition of
cancer cells into their proliferative phase. The Company retains all commercial
rights to compounds resulting from this program.
PARP Inhibitors
PARP is an enzyme which is activated by DNA-strand breaks and is important
in the immediate cellular response to DNA damage. The activity of PARP is
involved in recruiting repair enzymes to the site of DNA damage so that cell
division can proceed faithfully. Inhibition of PARP has profound effects on the
survival of cells following exposure to DNA-damaging agents; thus, PARP
inhibitors may be useful in conjunction with chemo- and radio-therapy to treat
tumors. PARP inhibitors discovered at Agouron have been confirmed as
chemopotentiating agents in cells and preliminary testing in tumors in animals
is underway. The Company has exclusive commercial rights in compounds resulting
from this program, which are being pursued in collaboration with Cancer Research
Campaign Technology, Ltd.
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VEGF Inhibitors
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
VEGF, which, by binding to a receptor (known as kdr) on the cell surface,
triggers the development of growth factor endothelial cells. Agouron is engaged
in a program to design 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 retains all commercial rights to compounds resulting
from this program.
GnRH Antagonist Program
GnRH is a decapeptide that is synthesized in the brain and controls the
pituitary and gonadal hormones that regulate fertility and the growth of certain
hormone-dependent tumors (in women, this peptide is required for successful
ovulation and, in men, it is necessary for spermatogenesis). The Company,
through its Alanex subsidiary, is currently pursuing a program to discover
certain orally active small-molecule drugs to treat two areas of human disease
that depend on GnRH action: endometriosis and sex-hormone dependent tumors. The
Company retains all commercial rights to compounds resulting from this program.
Viral Disease
Overview
The development of new drugs for the treatment of certain viral diseases is
another important scientific and commercial focus of the Company. The Company is
presently conducting programs aimed at discovery and/or development of several
classes of anti-viral drugs that 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 and
AG1776), an immune-based therapeutic (REMUNE), a non-nucleoside reverse
transcriptase inhibitor (AG1549), rhinovirus 3C protease inhibitors, and
hepatitis C enzymes. Agouron is developing certain of its anti-viral drugs
through collaborations with JT, Roche, IRC, Shionogi & Co., Ltd. and Japan
Energy Corporation.
HIV Protease Inhibitor: VIRACEPT
HIV protease is an enzyme that performs an essential role in the infectious
cycle of HIV, and clinical research has demonstrated that inhibition of the
protease enzyme renders HIV unable to form new infectious virus. Today, five
FDA-approved HIV protease inhibitors (including VIRACEPT) are making a
significant contribution in the management of HIV disease.
VIRACEPT was cleared by the FDA for marketing in the United States in March
1997 pursuant to the FDA's guidelines for accelerated approval. VIRACEPT
development activities now include certain additional phase II/III studies to
facilitate the full approval of the drug and certain phase IV studies designed
to expand the utilization of the product.
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Immune-based therapeutic agent: REMUNE(tm) (AG1661)
An important recent goal in treatment of HIV infection is to combine such
highly active drugs as HIV protease inhibitors, capable of halting replication
of HIV, with agents capable of directly enhancing recovery of the immune system.
REMUNE is an immune-based therapeutic agent, derived from HIV itself, which has
been shown to stimulate the immune system to respond specifically to HIV
infection and to produce the increases in substances such as chemokines that may
provide protection to uninfected cells. Discovered by IRC, REMUNE is
administered as an intramuscular injection every three months, and has been
well-tolerated in clinical trials to date.
In May 1997, enrollment was completed at 74 centers in the United States
for a pivotal phase III, clinical end-point trial in which approximately 2,500
patients were randomized to receive conventional anti-retroviral drug therapy
with or without REMUNE. This study is expected to be completed in March 1999.
More than 250 patients have been enrolled in two other clinical studies which
are evaluating the effect of REMUNE in combination with anti-retroviral drugs on
virologic and immunologic markers in adults. A smaller study of REMUNE for
treatment of HIV infection in children is in progress at the National Institutes
of Health.
In June 1998, Agouron and IRC began a collaboration on the final
development and commercialization of REMUNE. Agouron has exclusive rights to
market REMUNE in North America, Europe and certain other countries; IRC will
manufacture commercial supplies of REMUNE. Agouron and IRC will share equally
all profits from the commercialization of REMUNE in the licensed territory.
Non-nucleoside reverse transcriptase inhibitor (NNRTI): AG1549 (S-1153)
AG1549 is a second-generation NNRTI for the treatment of HIV infection.
Discovered by Shionogi & Co., Ltd. ("Shionogi"), AG1549 is currently the subject
of several clinical trials evaluating its dose and its concomitant use with
other anti-retroviral treatments. AG1549 is of high clinical interest because it
is ten times more potent in vitro than currently approved NNRTIs and because
AG1549 is fully active in vitro against HIV containing the most common genetic
mutation (at position 103) associated with resistance to other NNRTIs.
Agouron has exclusive world-wide rights to the development and
commercialization of AG1549, except in Japan, South Korea and Taiwan, subject to
the payment of royalties to Shionogi.
HIV Protease Inhibitor: AG1776 (JE-2147)
AG1776 is a protease inhibitor for the treatment of HIV infection.
Preclinical data indicate that AG1776, discovered by Japan Energy Corporation
("JE"), works synergistically in vitro with other protease inhibitors. The
compound has also exhibited activity against HIV mutations commonly associated
with resistance to other protease inhibitors.
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Agouron has exclusive world-wide rights to the development and
commercialization of AG1776 except in Japan, South Korea, North Korea and
Taiwan, subject to the payment of royalties to JE; JE will manufacture bulk
compound for use in final drug product.
Rhinovirus 3C Protease Inhibitor: AG7088
Rhinoviruses are believed to be the single most frequent cause of the
common cold. While rhinovirus infections are a periodic annoyance to most
individuals, they may produce more severe and prolonged symptoms in people with
chronic obstructive pulmonary disease, such as asthma and emphysema. 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. Agouron has
designed potent, selective rhinovirus 3C protease inhibitors, including AG7088,
that are currently being evaluated in preclinical pharmacological studies. The
Company retains all commercial rights in compounds resulting from this program.
HIV Integrase Inhibitors
The drugs currently approved in the United States for treatment of HIV
infection consist of reverse transcriptase inhibitors and protease inhibitors
(including VIRACEPT). Another mechanism of action is inhibition of HIV-1
integrase, a key enzyme in catalyzing the integration of HIV into human cells.
Agouron scientists believe that blocking HIV integrase is a viable
therapeutic strategy that will abort completion of the viral life cycle,
preventing infection of new, uninfected target cells. Scientists also believe
that HIV integrase is an attractive target because it is extremely unlikely that
an HIV integrase-specific inhibitor will nonspecifically inhibit other
eukaryotic enzymes. This fact may possibly reduce the incidence of side effects
of an integrase inhibitor used to treat HIV infection. The Company retains all
commercial rights in compounds resulting from this program.
Anti-Hepatitis C Drugs
The hepatitis C virus ("HCV") is a virus that causes illnesses ranging from
a mild flu-like disease to progressive liver disease, cirrhosis and primary
liver cancer. The ability to treat infection by HCV represents a significant
unmet clinical need, particularly in Asian countries. HCV depends upon several
key enzymes for the production of new infectious virus. Agouron scientists have
initiated programs to design new classes of anti-viral drugs that block such
enzymes and disrupt the HCV life cycle. The Company is pursuing this research
program in collaboration with JT.
Ophthalmology
Overview
A hallmark of many serious retinal disorders, such as age-related macular
degeneration, macular edema, retinopathy of prematurity, and proliferative
diabetic retinopathy, is an extensive proliferation of new blood vessels in the
retina and underlying choroid. This process, known as
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angiogenesis or neovascularization, often leads to retinal hemorrage that
results in the loss of ganglion cells, degeneration of the central optic nerve,
and eventually loss of central and/or peripheral vision. The most common
neovascular retinal disorder, namely age-related macular degeneration, has
recently become a leading cause of blindness in the elderly population in the
industrialized world.
In common with other tissues, the growth of new blood vessels is mediated
by many factors including various members of the family of MMPs, VEGF and
Fibroblast Growth Factors ("FGF") and their respective receptors and some
members of the integrin family of receptors involved in cell-cell and
cell-matrix interactions. In ocular tissues, the production of these factors,
receptors and MMPs is increased by local hypoxia, the most notable condition
believed to stimulate retinal and subretinal neovascularization. Most
significantly, in the ocular tissue of patients with any of the above mentioned
diseases, elevated levels of growth factors, integrins and MMPs (in particular
MMP-2 and MT-MMP-1) were consistently identified.
Key mediators of angiogenesis have been associated with ophthalmic
disorders. VEGF and basic FGF are strongly implicated as causative angiogenic
agents in a variety of studies. In ocular tissues, the production of these
growth factors is increased by hypoxia, the most notable condition believed to
stimulate retinal angiogenesis. Most significantly, in patients undergoing
surgery, high levels of VEGF in ocular fluid were found associated with macular
degeneration, active diabetic retinopathy, central vein occlusion and other
disorders.
Current studies in the area of ophthalmology involve an assessment of the
impact that inhibitors of MMPs might have on therapeutic practice and in meeting
medical needs in these areas. Agouron is conducting in animal models a series of
proof-of-principle preclinical studies of ocular diseases with the MMP inhibitor
AG3340 in preparation for the commencement of human clinical studies. Agouron
has recently demonstrated significant accumulation of AG3340 in the vitreous
humor of rats and monkeys following oral dosing.
Likewise, it is anticipated that when suitable inhibitors of VEGF become
available, they will be tested in the existing ocular angiogenesis models prior
to selection of a lead compound for clinical development. The Company retains
all commercial rights in compounds resulting from this program.
Business Relationships/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,
collaborative arrangements and the financial contribution resulting from product
sales. 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 February 1994, the Company entered into a strategic alliance with JT in
the field of anti-viral drugs for the treatment of infections caused by
hepatitis C and the herpes family of viruses. In December 1994, the Company
added its anti-HIV drug, VIRACEPT, to the JT collaboration
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with the execution of a world-wide development and licensing agreement. Agouron
and JT share equally the costs of further development of VIRACEPT.
Currently, Agouron has exclusive commercial rights to VIRACEPT (with the
right to sublicense) in North America and JT has exclusive commercial rights to
VIRACEPT (with the right to sublicense) in certain parts of Japan. The Company
and JT share profits and/or royalties equally from the world-wide
commercialization of VIRACEPT.
Roche
The Company and JT have granted Roche certain exclusive royalty bearing
marketing rights to VIRACEPT outside of North America and parts of Japan.
Further, the Company receives royalties based either on Roche's sales of
VIRACEPT or, in certain circumstances, Invirase(r) and Fortavase(r)
(saquinavir), Roche's HIV protease inhibitors. Roche has the right to
manufacture VIRACEPT for its own use and is expected to commence such
manufacturing in calendar 1999.
The Immune Response Corporation
In June 1998, the Company entered into a binding letter of intent with IRC
to collaborate on final development and commercialization of REMUNE, an
immune-based therapeutic agent discovered by IRC and currently the subject of
several clinical studies including a large phase III clinical trial. The two
companies intend to enter promptly into a definitive agreement and will endeavor
to complete development and registration of REMUNE in 1999. IRC will manufacture
commercial supplies of REMUNE, and Agouron will have exclusive rights to market
REMUNE in North America, Europe and certain other countries. The two companies
will share equally all profits from the commercialization of REMUNE in the
licensed territory. Agouron paid an initial $10,000,000 license fee to IRC in
June 1998 and also purchased 118,256 newly issued common shares of IRC for
$2,000,000. Agouron may pay, assuming ongoing successful development,
registration and approval of REMUNE, to IRC up to $53,000,000 in additional
development and milestone payments and $12,000,000 in purchases of additional
IRC common stock.
Shionogi & Co., Ltd.
In June 1998, the Company entered into a binding letter of intent with
Shionogi to develop and commercialize AG1549, a second-generation NNRTI for the
treatment of HIV infection. Discovered by Shionogi, AG1549 is currently the
subject of several clinical trials evaluating its dose and its concomitant use
with other antiretroviral treatments. AG1549 is of high clinical interest
because it is ten times more potent in vitro than such other NNRTIs as
nevirapine (Viramune(r) and delavirdine (Rescriptor(r) and because AG1549 is
fully active in vitro against HIV containing the most common genetic mutation
(at position 103) associated with resistance to other NNRTIs, including
efavirenz (Sustiva(tm)).
Agouron has exclusive world-wide rights to the development and
commercialization of AG1549 except in Japan, South Korea and Taiwan. Agouron
paid an initial $10,000,000 license fee to Shionogi in June 1998. Agouron may
pay, assuming ongoing successful development, registration and approval of
AG1549, additional license fees of up to $30,000,000. In addition, Agouron will
pay Shionogi royalties based on sales, if any, of AG1549.
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Japan Energy Corporation
In June 1998, the Company entered into an agreement with JE to develop and
commercialize AG1776, a novel protease inhibitor for the treatment of HIV
infection. Preclinical data indicate that AG1776, discovered by JE, works
synergistically in vitro with other protease inhibitors. The compound has also
exhibited activity against mutations commonly associated with resistance to
other protease inhibitors.
Agouron has exclusive world-wide rights to the development and
commercialization of AG1776 except in Japan, South Korea, North Korea and
Taiwan; JE will manufacture bulk compound for use in final drug product. Agouron
incurred an initial $6,000,000 license fee in June 1998. Agouron may incur,
assuming ongoing successful development, registration and approval of AG1776,
additional license fees of up to $20,000,000. In addition, Agouron will pay JE
royalties based on sales, if any, of AG1776.
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. ("Abbott"), Merck & Co., Inc. ("Merck") 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 more 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. Furthermore, many such companies and organizations maintain or pursue
extensive patent portfolios that could now or in the future pose a risk to the
Company's ability to obtain patent protection for, or practice, its proprietary
technology. All of these companies and other research organizations compete with
the Company in recruiting and retaining highly qualified scientific, sales,
marketing, manufacturing, administrative and management personnel.
Agouron was the first company to devote itself to the development and
application of protein structure-based drug design. As such, the Company
believes that it has achieved certain competitive advantages, including
developmental lead-time, level of commitment to the technology and the
development of certain practical or technical capabilities. In recent years,
however, several pharmaceutical companies have undertaken to establish
capabilities in protein structure-based drug design, 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, Novartis, Glaxo Wellcome plc
("Glaxo"), Merck and Roche have developed programs focused on protein
structure-based drug design. The Company expects that the technology for protein
structure-based drug design will become more
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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 (or have
manufactured) 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. Moreover, the Company's competitors could obtain
patents relating to Agouron's products or technology, which could have an
adverse impact on the Company.
Currently, five HIV protease inhibitors are available in the United States.
FDA approval dates and estimated prescription market shares at June 30, 1998 are
noted in the following table:
<TABLE>
<CAPTION>
Company Product Name Generic Name Approval Market Share
<S> <C> <C> <C> <C>
Agouron VIRACEPT(r) nelfinavir March, 1997 32%
Roche INVIRASE(r) saquinavir December, 1995 8%
Roche FORTOVASE(r) saquinavir October, 1997 13%
Abbott NORVIR(r) ritonavir March, 1996 14%
Merck CRIXIVAN(r) indinavir March, 1996 33%
</TABLE>
Future competition from new HIV protease inhibitors is expected from Glaxo
and other pharmaceutical companies. Additional competition may arise from
non-protease inhibitor products as such products enter the market. Furthermore,
competition may arise from generic manufacturers of nelfinavir, notwithstanding
Agouron's patent protection discussed below.
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 governmental patent offices under the patent law of the particular country.
The Company's strategy is to pursue a strong patent portfolio and Agouron
holds several patents, including a United States patent covering the chemical
composition of VIRACEPT and other United States patents covering certain
compounds in development, such as AG3340. 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 and other
proprietary technology. The Company will continue to file patent applications on
its evolving technology, processes and products.
The Company's and/or its collaborators' failure to obtain and maintain
patent protection for its products could have an adverse impact on the Company.
Moreover, since there can be no
13
<PAGE>
assurance that Agouron's patents will be upheld as valid and enforceable in a
court of law, a holding of invalidity or unenforceability of an Agouron (or its
collaborators') patent(s) asserted against an alleged infringer 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 depend upon the skills, knowledge and experience of its
scientific and technical personnel, which skills, knowledge and experience are
not patentable per se. 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.
Moreover, since there can be no assurance that another company has not or
will not obtain any patent relevant to an Agouron product or technology; such a
patent by another company could have an adverse impact on Agouron.
Government Regulation
The production and marketing of the Company's products and its ongoing
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. Pharmaceutical products intended for therapeutic use in
humans are principally governed by the FDA regulations in the United States and
by comparable government regulations in foreign countries. Various federal,
state and local statutes and regulations also govern or influence the research
and development, manufacturing, safety, labeling, storage, record keeping,
distribution and marketing of such products. The process of completing
preclinical and clinical testing and obtaining the approval of the FDA and
similar health authorities in foreign countries to market a new drug product
requires a significant number of years and the expenditure of substantial
resources and may subject the Company to product liability exposure. Failures or
delays by the Company or its collaborators or licensees in obtaining regulatory
approvals would adversely affect the marketing of products being developed by
the Company and the Company's ability to receive product revenues or royalties.
The steps required by the FDA before a new human pharmaceutical or
biological product may be marketed in the United States include: (a) preclinical
laboratory tests, in vivo preclinical studies and formulation studies; (b) the
submission to the FDA of a request for authorization to conduct clinical trials
on an Investigational New Drug application ("IND"), which must become effective
before human clinical trials may commence; (c) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the drug for its
intended use; (d) submission to the FDA of a New Drug Application ("NDA") or
Product License Application ("PLA") and (e) review and approval of a NDA or PLA
by the FDA before the drug product may be shipped or sold commercially. Prior to
obtaining FDA approval for each product, each manufacturing establishment for
new drugs must be registered with and receive appropriate approval by the
14
<PAGE>
FDA. If, after receiving approval from the FDA, a material change is made
in the manufacturing process or location, additional regulatory review may be
required.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the safety and efficacy of the
product. Preclinical test results are submitted to the FDA as a part of the IND.
Clinical trials are typically conducted in three sequential phases, although the
phases may overlap. Phase I represents the initial administration of the drug to
a small group of humans, either healthy volunteers or patients, to test for
safety, dosage tolerance, absorption, distribution, metabolism, excretion and
clinical pharmacology and, if possible, early indications of effectiveness.
Phase II involves studies in a small sample of the actual intended patient
population to assess the efficacy of the investigational drug for a specific
clinical indication, to 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 or PLA to
the FDA for approval.
If a NDA or PLA is submitted to the FDA, there can be no assurance that
such application will be reviewed and approved by the FDA in a timely manner, if
at all. Even after initial FDA approval has been obtained, further studies,
including post-market studies, may be required to provide additional
information. Results of such post-market programs may limit or expand the
further marketing of the product.
The Company is also subject to foreign regulatory requirements governing
development, manufacturing and sales of pharmaceutical products that vary widely
from country to country. Approval of a drug by applicable regulatory agencies of
foreign countries must be secured prior to the marketing of such drug in those
countries. The regulatory approval process may be more or less rigorous from
country to country and the time required for approval may be longer or shorter
than that required in the United States.
In addition to government agencies that promulgate regulations and
guidelines directly applicable to the Company and its products, professional
societies, practice management groups, and health/science organizations may also
publish, from time to time, guidelines or recommendations to the health care and
patient communities that affect the usage of certain therapies, drugs or
procedures, including the Company's products. Such recommendations may relate to
such matters as usage, dosage, route of administration and use of concomitant
therapies and could have a material effect on the Company's results of
operations.
Manufacturing
Agouron utilizes world-wide contract manufacturing to produce VIRACEPT. The
Company procures and transfers raw materials to contracted bulk drug producers,
sends the converted bulk drug to finishing facilities and moves finished goods
into a distribution center. Product supply and associated raw materials have
been available in sufficient quantities to meet business needs. In order to
accommodate anticipated sales volume growth, capacity expansion efforts are
being
15
<PAGE>
pursued. The Company will be dependent upon its contract manufacturers to comply
with good manufacturing practices and to meet its production requirements. There
can be no assurance that the Company's contract manufacturers will timely
deliver sufficient quantities of the Company's products or that the Company
would be able to find substitute manufacturers, if necessary.
Marketing
The Company distributes VIRACEPT in the United States through wholesalers.
Sales volumes in the United States are influenced by underlying demand and
wholesale inventory management practices.
VIRACEPT is covered by Medicaid programs in all states and is covered by
virtually all state AIDS Drug Assistance Programs ("ADAPs"). Currently, VIRACEPT
is paid for predominately by Medicaid, private insurance and ADAPs. The Company
offers a patient assistance program based upon medical need for patients who
have no other means of coverage.
Outside of North America and parts of Japan, VIRACEPT is marketed on behalf
of the Company and JT by Roche. The Company receives a royalty on Roche's
world-wide sales of VIRACEPT.
The Company's sales and marketing efforts utilize a field sales
organization which focuses primarily on office and hospital-based physicians,
including key medical thought leaders. Additionally, the Company has obtained
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.
Human Resources
As of July 28, 1998, the Company had 991 employees, of which 619 and 146
employees, respectively, were engaged in, or directly supported, research and
product development and sales and marketing efforts. The Company's employees are
not covered by a collective bargaining agreement and the Company considers its
relations with its employees to be excellent. The Company has entered into
confidentiality agreements with all of its employees.
Item 2. PROPERTIES
The Company currently leases approximately 317,000 square feet of office
and laboratory space in the Torrey Pines and Sorrento Valley areas of San Diego.
The Company's corporate headquarters and administrative offices currently
comprise approximately 118,000 square feet under lease agreements, most of which
expire in calendar 1999.
Research and development activities are located in approximately 197,000
square feet of leased space under agreements which expire from 1999 to 2004.
These state-of-the-art facilities are designed 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 good manufacturing
16
<PAGE>
practices for use in clinical trials. Additionally, the Company leases
approximately 2,000 combined square feet in the United Kingdom and Canada which
is utilized, respectively, by its European clinical development staff and
Canadian marketing organization.
Item 3. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings generally incidental
to its normal business activities. While the outcome of any such proceedings
cannot be accurately predicted, the Company does not believe the ultimate
resolution of any such existing matters should have a material adverse effect on
its financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended June 30, 1998, no matters were
submitted to a vote of the Company's security holders.
17
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol AGPH. There were approximately 30,000 shareholders of the common stock of
the Company as of July 28, 1998. The Company has not paid cash dividends on its
common stock and does not intend to do so in the foreseeable future.
The following table sets forth the range of high and low selling prices as
reported by The Nasdaq Stock Market for the periods indicated.
<TABLE>
<CAPTION>
High Low
--------- ---------
1997
<S> <C> <C> <C>
First Quarter $ 23.125 $ 14.500
Second Quarter 35.750 21.125
Third Quarter 50.500 33.500
Fourth Quarter 45.500 29.187
1998
First Quarter $ 56.500 $ 39.250
Second Quarter 56.500 26.750
Third Quarter 40.000 29.250
Fourth Quarter 40.250 28.750
</TABLE>
18
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
for each of the five years in the period ended June 30, 1998. The information
presented should be read in conjunction with the consolidated financial
statements included elsewhere in this report.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income (Loss) Data:
Years ended June 30,
Total revenues $ 466,505 $ 132,063 $ 55,955 $ 26,722 $ 16,301
Product sales 409,298 56,969 0 0 0
Research and development expenses(1) 150,657 108,137 71,010 36,317 23,957
Net income (loss) (1) and (2) 13,154 (42,806) (19,523) (12,939) (9,462)
Net income (loss) per share $ .40 $ (1.59) $ (.99) $ (.89) $ (.66)
Shares used in computing net income
(loss) per share 33,214 26,946 19,688 14,592 14,482
Balance Sheet Data:
At June 30,
Working capital $ 127,728 $ 115,786 $ 70,381 $ 8,837 $ 21,039
Total assets 363,337 266,914 102,577 27,097 37,178
Long-term liabilities 6,915 7,217 1,734 1,884 2,285
Stockholders' equity(3) 236,169 191,282 75,583 12,591 24,852
</TABLE>
(1) In 1998, includes in-licensing expenses of $26,000,000 ($15,600,000
net of tax) for commercial rights to three development stage anti-HIV
products.
(2) In 1997, includes the write-off of $57,500,000 of in-process technology
associated with the acquisition of Alanex Corporation, partially offset
by the realization of $43,800,000 of deferred tax assets associated
with the Company's expectation of future taxable income.
(3) The Company has never declared or paid cash dividends on its common
stock.
19
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
This discussion contains 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 this Form 10-K. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
The Company 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)
(nelfinavir mesylate). The net income reported in fiscal 1998 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 clearance from the United States Food
and Drug Administration ("FDA") to market VIRACEPT in the United States. For the
fiscal year ended June 30, 1998, due principally to the increasing product
contribution from VIRACEPT sales, license fees and royalties, the Company
realized a net income of $13,154,000.
Results of Operations
Product sales
Product sales for the fiscal years ended June 30, 1997 and 1998 were
approximately $57,000,000 and $409,300,000 which included sales in the United
States of $55,559,000 and $358,321,000, respectively. The Company anticipates
that VIRACEPT sales in the United States will approximate $430,000,000 to
$440,000,000 for fiscal 1999.
Contract revenues
Collaborative research and development agreements with Japan Tobacco Inc.
("JT"), Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd (collectively "HLR")
accounted for substantially all of the Company's contract revenues for 1998,
1997 and 1996. Total contract revenues for 1998 decreased approximately 40% from
1997 due principally to decreased VIRACEPT program spending by Agouron, which
was partially funded by JT. 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. The increase in contract revenues
20
<PAGE>
from 1996 to 1997 of approximately 59% was due principally to increased program
activity and spending on the JT collaborations.
In December 1997, the Company agreed to end its collaboration with HLR in
the field of cancer. As a result of the termination agreement, Agouron has
regained all rights to its anti-cancer drugs previously within the scope of the
HLR collaboration.
The Company anticipates that contract revenues for fiscal 1999 will
approximate $35,000,000 to $40,000,000.
License fees and royalties
The Company's license fees and royalties for 1998 and 1997 were principally
derived from F. Hoffmann-La Roche Ltd ("Roche"); license fees in 1996 were
earned from HLR. Total revenues for 1998 increased approximately 83% from 1997
due to European marketing approval for VIRACEPT. The 33% decrease from 1996 to
1997 is principally due to $9,000,000 for initial European marketing rights for
VIRACEPT in 1997 versus $15,000,000 for initial world-wide development rights
for two anti-cancer drugs in 1996.
In January and March 1998, VIRACEPT was approved for marketing in Europe
and Japan, respectively. Upon such approvals, the Company realized as revenue
license fees totaling $12,000,000. In July 1997, the Company and JT granted
Roche certain exclusive rights to VIRACEPT in several Asian countries. For such
rights, the Company received a license fee of $2,000,000.
Royalty revenues of approximately $3,852,000 have been recognized in 1998
based on estimated and actual Roche sales of VIRACEPT in its licensed territory.
The Company anticipates that license fees and royalties for fiscal 1999 will
range from $30,000,000 to $35,000,000.
Cost of product sales
The aggregate cost of product sales as a percentage of product sales was
approximately 43% and 42% for 1997 and 1998, respectively. Gross margins on
United States commercial sales were approximately 57% and 65% during 1997 and
1998, respectively. The Company anticipates that gross margins on United States
commercial sales will improve as product sales volumes increase and certain
manufacturing process and scale efficiencies are realized, and will approximate
71% in 1999. Aggregate gross margins will also be impacted by the size of the
Company's patient assistance program (which provides free goods to indigent
individuals), the Company's manufacturing supply arrangement with Roche (whereby
Roche has the right to either purchase product at Agouron's cost plus
contractually determined mark-ups or manufacture drug product for its own use,
subject to contractually determined fees to be paid to Agouron) and the level of
sales subject to Medicaid and other discounts or rebates in the United States.
21
<PAGE>
Research and development
Research and development ("R&D") spending increased by approximately 39%
from 1997 to 1998 due to license fees for three development stage HIV products,
increasing average R&D staff levels (approximately 28%) and staff-related
spending (including occupancy and the addition of Alanex since late 1997) and
increased expenditures for human clinical trial activities associated with the
clinical development of certain of the Company's anti-cancer compounds. R&D
spending increased by approximately 52% from 1996 to 1997 due generally to
increasing average R&D staff levels (approximately 39%) and staff-related
expenditures (including occupancy), increased expenditures in support of human
clinical trials, an expanded access program associated with VIRACEPT and
increased expenditures for clinical trial activities associated with AG3340 and
other anti-cancer compounds. The Company anticipates that total R&D expenses in
fiscal 1999, excluding the impact of any license fees or milestone expenses in
either 1998 or 1999, will exceed fiscal 1998 expenses by approximately 40%.
Selling, general and administrative
Selling, general and administrative ("SG&A") expenses represented
approximately 28% of total operating expenses (excluding the cost of product
sales, royalties and write-off of in-process technology purchased) in 1998, 23%
in 1997 and 10% in 1996. SG&A increased by approximately 76% from 1997 to 1998
due principally to a full year of expenses associated with the sales force and
other marketing personnel. Spending increases from 1996 to 1997 were due chiefly
to increasing staff levels (approximately 214%) and staff-related expenditures,
certain premarketing and advertising and promotion costs associated with the
launch of VIRACEPT in March 1997 and other costs associated with a growing sales
and marketing infrastructure. The Company anticipates that total SG&A expenses
will increase by approximately 40% in fiscal 1999 due to 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 1998 and represents approximately 19% of United States
product sales. Royalties in fiscal 1997 were not significant. It is anticipated
that royalty expense for fiscal 1999 will approximate 24% to 25% of United
States product sales.
Write-off of in-process technology purchased
In 1997, the Company acquired Alanex, a research company engaged in the
discovery of drug leads through the high-speed screening of diverse chemical
libraries designed by computational methods and generated by combinatorial
chemistry. Alanex was acquired in a purchase transaction through the issuance of
approximately 1,992,000 equivalent shares (including 548,000 for options and
warrants) of the Company's common stock valued at approximately $61,000,000,
plus $1,300,000 of related acquisition costs. The purchase price was allocated
to various tangible and intangible assets and either capitalized (approximately
$4,800,000) or expensed (approximately $57,500,000) as in-process technology
based on an
22
<PAGE>
independent valuation of the Alanex assets, technology and research programs at
the date of acquisition.
Interest and other income
Interest income increased by 1% from 1997 to 1998. Interest income
increased by approximately 23% from 1996 to 1997 due principally to a higher
average investment portfolio balance resulting from the July 1996 public
offering, receipt of $15,000,000 and $9,000,000, respectively, in license fees
from HLR (June 1996) and Roche (January 1997), significantly increased contract
funding from JT and HLR and the exercise of employee stock options. The Company
anticipates that, absent additional revenue sources or a significant change in
interest rates, fiscal 1999 interest income will be less than that of fiscal
1998.
Interest expense
Interest expense increased in 1998 from 1997 due to borrowings under a line
of credit which was used to partially fund quarterly royalties paid to JT
throughout the year. Interest expense decreased in 1997 from 1996 by
approximately 38% due to a decreasing level of debt and capital lease
obligations from year to year.
Income tax provision (benefit)
The income tax provision in 1998 has been computed using an effective,
combined federal and state rate of 40%. The cash obligation of such 1998
provision has been mostly offset by the utilization of its deferred tax assets.
Based on its 1998 pre-tax profit and its estimates for future taxable income,
the Company believes it is more likely than not that its deferred tax assets
(comprised mostly of net operating loss carryforwards, deductions generated by
the exercise of stock options, and research credits) will be realized and has,
therefore, recorded the full tax benefit of its deferred tax assets. The
Company's accumulated net deferred tax assets totaled approximately $55,900,000
and $64,100,000 at June 30, 1997 and 1998. The Company anticipates that its
effective income tax rate for fiscal 1999 will range from 10% to 15%. Such
decrease from fiscal 1998 is attributed to greater expected availability of R&D
tax credits due to the anticipated increase in R&D spending and the anticipated
reduction in R&D contract revenues.
Year 2000
The Year 2000 issue results from computer programs and systems that were
created to accept only two digit dates. Such systems may not be able to
distinguish 20th century dates from 21st century dates. This could result in
miscalculations and system failures. The Company has established a Year 2000
project team that is currently reviewing computer systems and computer
controlled equipment that could be affected by this issue. In this process, the
Company expects to both replace and upgrade certain systems and equipment.
Additionally, the Company is in the process of contacting all of its significant
external business partners to determine the extent to which the Company is
vulnerable to their failure to obtain Year 2000 compliance. While the total cost
of obtaining Year 2000 compliance is not known at this time, the Company
believes such cost will not have a material effect on the Company's business,
financial position, or results
23
<PAGE>
of operation. However, even though the Company plans to have obtained Year 2000
compliance prior to the year 2000, the inability of the Company or its business
partners to adequately address year 2000 issues could have a significant impact
on the Company's business.
Liquidity and Capital Resources
Prior to fiscal 1998, the Company relied principally on equity financings
and corporate collaborations to fund its operations and capital expenditures. In
fiscal 1998, due primarily to the successful commercialization of VIRACEPT,
operating activities have provided $827,000 of cash compared with using
$73,467,000 in fiscal 1997. Commercial sales of VIRACEPT for 1997 and 1998
resulted in gross margins of approximately $32,370,000 and $236,654,000.
At June 30, 1998, the Company had net working capital of approximately
$127,728,000, an increase of $11,942,000 over June 30, 1997 levels due
principally to the Company's pre-tax profit of $21,924,000. Individual working
capital components significantly impacted by the commercialization of VIRACEPT
include trade accounts receivable (an increase of $18,416,000), inventories (an
increase of $44,906,000), accounts payable (an increase of $15,560,000) and
accrued liabilities (an increase of $26,467,000, primarily 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 June 30, 1998, the Company had cash,
cash equivalents and short-term investments of approximately $87,123,000. The
Company believes that its current capital resources, existing contractual
commitments and anticipated VIRACEPT product sales contribution are sufficient
to maintain its current operations through fiscal 1999. 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 the
planned operating needs after fiscal 1999 if significant and increasing positive
cash flows are not generated from commercial activities. 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 capabilities. 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, cancel licenses from third parties or to license
third parties to commercialize products or technologies that the Company would
otherwise seek to develop or commercialize itself.
During fiscal 1998, capital expenditures totaled $33,086,000 compared with
$14,727,000 and $3,710,000 during 1997 and 1996, of which $1,579,000, $2,355,000
and $457,000 were financed through capital lease obligations. Of the total
capital expenditures during 1998, 1997 and 1996, approximately $14,331,000,
$4,728,000 and $318,000 represented leasehold improvement costs associated with
certain of the Company's facilities. With the exception of the leasehold
improvement costs, virtually all of the capital expenditures during 1998, 1997
and 1996
24
<PAGE>
represented laboratory and office equipment and scientific instrumentation
necessary to support an expanding research, development, and commercial
infrastructure. Capital expenditures during 1999 are expected to be
approximately $18,000,000 to support continued product commercialization,
development and research activities. Of the total expected capital expenditures
during 1999, approximately $4,000,000 is associated with the leasehold
improvement of existing and anticipated new administrative and laboratory
facilities. The Company may utilize lease or debt financing for certain
expenditures if available on acceptable terms.
25
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES PAGE
- ------------------------------------------- ----
Report of Independent Accountants F-1
Consolidated Balance Sheet as of June 30, 1998 and 1997 F-2
Consolidated Statement of Income (Loss) for the years ended F-3
June 30, 1998, 1997 and 1996
Consolidated Statement of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996 F-4
Consolidated Statement of Cash Flows for the years ended
June 30, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
NOTE: All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Agouron Pharmaceuticals, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income (loss), of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Agouron Pharmaceuticals, Inc. and its subsidiaries at June 30, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1998, 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 an audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers, LLP
San Diego, California
July 16, 1998
F-1
<PAGE>
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
---------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 19,098 $ 52,484
Short-term investments 68,025 38,833
Accounts receivable, net 51,341 31,375
Inventories 103,706 58,800
Current deferred tax assets 564 500
Other current assets 5,247 2,209
---------- -----------
Total current assets 247,981 184,201
Property and equipment, net 47,212 22,613
Deferred tax assets 64,644 56,000
Purchased intangibles 3,500 4,100
---------- -----------
$ 363,337 $ 266,914
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,393 $ 28,833
Accrued liabilities 35,356 8,889
Deferred revenue and advances 23,563 27,567
Current deferred tax liabilities 1,139 600
Loan payable and current portion of long-term debt 15,802 2,526
---------- -----------
Total current liabilities 120,253 68,415
---------- -----------
Long-term liabilities:
Long-term debt, less current portion 5,892 5,940
Accrued rent 1,023 1,277
---------- -----------
Total long-term liabilities 6,915 7,217
---------- -----------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares authorized,
31,053,380 and 29,429,920 shares issued and outstanding 348,482 317,133
Unrealized gains (losses) on short-term investments 384 0
Accumulated deficit (112,697) (125,851)
---------- -----------
Total stockholders' equity 236,169 191,282
---------- -----------
Commitments
$ 363,337 $ 266,914
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Product sales $ 409,298 $ 56,969 $ 0
Contracts 38,855 65,094 40,955
License fees and royalties 18,352 10,000 15,000
------------- ------------- -------------
466,505 132,063 55,955
------------- ------------- -------------
Operating expenses:
Cost of product sales 172,644 24,599 0
Research and development 150,657 108,137 71,010
Selling, general and administrative 58,012 32,941 8,082
Royalties 68,423 0 0
Write-off of in-process technology purchased 0 57,500 0
------------- ------------- -------------
449,736 223,177 79,092
------------- ------------- -------------
Operating income (loss) 16,769 (91,114) (23,137)
------------- ------------- -------------
Other income (expenses):
Interest and other income 5,907 5,873 4,776
Interest expense (752) (142) (228)
------------- ------------- -------------
5,155 5,731 4,548
------------- ------------- -------------
Income (loss) before income taxes 21,924 (85,383) (18,589)
Income tax provision (benefit) 8,770 (42,577) 934
------------- ------------- -------------
Net income (loss) $ 13,154 $ (42,806) $ (19,523)
============= ============= =============
Earnings per share:
Basic $ .43 $ (1.59) $ (.99)
============= ============= =============
Diluted $ .40 $ (1.59) $ (.99)
============= ============== =============
Shares used in calculation of:
Basic 30,571 26,946 19,688
Diluted 33,214 26,946 19,688
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
gains
(losses) on
Common Stock short-term Accumulated
Shares Amount investments Deficit Total
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 14,718,564 $ 76,113 $ 0 $ (63,522) $ 12,591
Stock issuances:
Public sale 6,000,000 78,579 -- 78,579
Exercise of stock options 586,412 2,990 -- 2,990
Exercise of stock warrants 90,000 283 -- 283
Employee stock purchase plan 68,398 663 -- 663
Net loss -- -- (19,523) (19,523)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 21,463,374 158,628 0 (83,045) 75,583
Stock issuances:
Public sale 5,470,000 77,245 -- 77,245
Acquisition of Alanex 1,444,236 61,051 -- 61,051
Exercise of stock options 980,472 6,720 -- 6,720
Employee stock purchase plan 71,838 1,389 -- 1,389
Tax benefit of stock options exercised -- 12,100 --
12,100
Net loss -- -- (42,806) (42,806)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 29,429,920 317,133 0 (125,851) 191,282
Stock issuances:
Exercise of stock options 1,344,104 11,031 -- 11,031
Exercise of stock warrants 169,522 680 -- 680
Employee stock purchase plan 109,834 2,742 -- 2,742
Tax benefit of stock options exercised -- 16,896 --
16,896
Change in unrealized gains (losses) on
short-term investments 384 384
Net income -- -- 13,154 13,154
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 31,053,380 $ 348,482 $ 384 $ (112,697) $ 236,169
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from product sales, contracts and licenses $ 442,484 $ 116,692 $ 61,376
Cash paid to suppliers, employees and service providers (446,863) (195,890) (73,738)
Interest received 5,958 5,873 4,776
Interest paid (752) (142) (228)
----------- ----------- -----------
Net cash provided (used) by operating activities 827 (73,467) (7,814)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturities/sales of short-term investments 147,292 127,501 59,686
Purchases of short-term investments (176,100) (91,227) (118,224)
Purchase of property and equipment (31,507) (12,372) (3,252)
Cost to acquire Alanex, net of cash acquired 0 608 0
----------- ----------- -----------
Net cash provided (used) by investing activities (60,315) 24,510 (61,790)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 14,453 85,354 82,515
Proceeds from credit line 53,600 0 0
Principal payments on credit line, long-term debt,
and capital leases (41,951) (364) (818)
----------- ----------- -----------
Net cash provided (used) by financing activities 26,102 84,990 81,697
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (33,386) 36,033 12,093
Cash and cash equivalents at beginning of year 52,484 16,451 4,358
----------- ----------- -----------
Cash and cash equivalents at end of year $ 19,098 $ 52,484 $ 16,451
=========== =========== ===========
Reconciliation of net loss to net cash provided (used)
by operating activities:
Net income (loss) $ 13,154 $ (42,806) $ (19,523)
Depreciation and amortization 9,087 3,910 2,411
Write-off of in-process technology purchased 0 57,500 0
Provision (benefit) for deferred income taxes 8,727 (43,800) 0
Net (increase) decrease in inventories (44,906) (58,547) 0
Net (increase) decrease in accounts receivable and other
current assets (23,004) (28,209) (1,198)
Net increase (decrease) in accounts payable, accrued
liabilities, deferred revenue and advances, and other liabilities 37,769 38,485 10,496
---------- ---------- -----------
Net cash provided (used) by operating activities $ 827 $ (73,467) $ (7,814)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AGOURON PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The Company and its significant accounting policies
The Company
Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") was organized and
incorporated in California in June 1984. Agouron is an integrated pharmaceutical
company committed to the discovery, development, manufacturing and marketing of
innovative therapeutic products engineered to inactivate proteins which play key
roles in cancer, AIDS and other serious diseases. The Company, through its own
sales and marketing organization, is currently marketing in the United States
its first drug, VIRACEPT(r) (nelfinavir mesylate) for treatment of HIV
infection. The Company is also conducting pivotal phase II/III clinical trials
for AG3340 for treatment of lung and prostate cancer. In addition, Agouron is
expected to initiate a phase II/III pivotal clinical trial of REMUN(tm)
(AG1661), an immune-based therapeutic agent for treatment of HIV infection and
AIDS being co-developed by Agouron and The Immune Response Corporation ("IRC").
Further, the Company has a number of programs in progress for discovery or
development of other new drugs in the fields of cancer, viral disease and other
serious diseases. The Company is also using the proprietary core drug discovery
technology of Alanex Corporation ("Alanex"), a wholly-owned subsidiary of the
Company, to accelerate the steps necessary to discover small-molecule drug
candidates, from the initial identification of compounds that exhibit activity
against selected biological targets to the progression of these compounds to
drug candidates for human clinical trials.
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.
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.
Cash and cash equivalents
The Company considers cash equivalents to be only those investments which
are highly liquid, readily convertible to cash and which mature within 90 days
from date of purchase.
F-6
<PAGE>
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, and corporate
equity securities. The Company has classified its short-term investments as
available-for-sale. Included in short-term investments at June 30, 1998 and 1997
is $1,262,000 and $588,000 of accrued interest receivable.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Concentration of credit and market 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
1998, 1997 or 1996.
Financial instruments and risk management
The Company has contract manufacturing operations in Europe and Asia.
Accordingly, the Company from time-to-time enters into forward contracts to
manage its exposure to fluctuations in foreign currency exchange rates. At June
30, 1998, the Company had several forward contracts with maturities of less than
six months to purchase Japanese Yen for approximately $9,426,000. These
contracts are designated and effective as hedges and, accordingly, gains and
losses are recognized in the same period the offsetting gains and losses of
hedged transactions are realized and recognized.
Property and equipment
Property and equipment is recorded at cost. Depreciation is computed using
principally the straight-line method over estimated useful lives of three to
five years. Leasehold improvements are amortized over the life of the lease.
Purchased intangibles
In conjunction with the 1997 acquisition of Alanex, the Company has
recorded purchased intangibles (primarily drug discovery technology and chemical
compound libraries) which are being amortized on a straight-line basis over
their estimated useful lives of seven years.
Deferred revenue and advances
Approximately $22,414,000 of cash received from JT has been classified as
deferred contract revenue and advances. Approximately $21,452,000 of the cash
received from JT represents JT's
F-7
<PAGE>
advance of the Company's VIRACEPT development funding obligation which was
completed in March 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.
Product sales
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 1998 and 1997 are approximately
$50,979,000 and $1,441,000 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. The Company receives a royalty on Roche's subsequent
commercial sales of such drug supplies.
Contract revenues
Contract revenues are earned and recognized generally as contract research
costs are incurred according to the provisions of each underlying agreement.
Amounts received in advance of performance are recorded as deferred revenue.
Contract milestone payments are recognized as revenues upon the completion of
the milestone event or requirement.
License fees and royalties
License fees are recognized as revenue when earned as generally evidenced
by certain factors including: receipt of such fees, satisfaction of any
performance obligations and the non-refundable nature of such fees.
Royalty revenues are recognized based on estimated and actual sales of
licensed products in licensed territories.
Research and development costs
Research and development costs are expensed in the period incurred.
Income tax provision (benefit)
The Company records a provision (benefit) for income taxes using the
liability method. Current income tax expense (benefit) generally is the amount
of income taxes expected to be payable for the current year. Deferred taxes are
recorded by applying applicable tax rates to cumulative temporary differences
based on when and how they are expected to affect the tax return.
F-8
<PAGE>
Earnings (loss) per share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 "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 2,643,000 shares for 1998 were
used to calculate diluted earnings per share. For 1997 and 1996, common stock
equivalents of approximately 3,168,000 and 2,014,000 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.
Stock-based compensation plans
The Company measures compensation expense for its stock-based compensation
plans using the intrinsic method and provides pro-forma disclosures of net
income and earnings (loss) per share as if the fair value-based method had been
applied in measuring compensation expense.
Statement of cash flows
For purposes of the Statement of Cash Flows, cash equivalents are highly
liquid investments purchased with an original maturity of ninety days or less.
Non-cash financing and investing activities are comprised primarily of capital
lease obligations of $1,579,000, $2,355,000 and $457,000 for 1998, 1997 and 1996
and the acquisition of Alanex in 1997.
New accounting standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130") "Reporting
Comprehensive Income," which requires additional disclosures to be adopted
beginning with the quarter ending September 30, 1998. Under FAS 130, the Company
will be required to display comprehensive income and its components as part of
the Company's complete set of financial statements.
In June 1997, the FASB also issued FAS 131, "Disclosures about Segments of
an Enterprise and Related Information," which requires additional disclosures to
be adopted on June 30, 1999. FAS 131 requires that the Company report financial
and descriptive information about its reportable operating segments. The Company
is evaluating the impact on its disclosures, if any.
F-9
<PAGE>
Note 2 - Short-term investments
The cost of the Company's investment portfolio by type of security and
contractual maturity in the balance sheet is as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
(Dollars in thousands)
Type of security:
Corporate debt $ 46,023 $ 24,401
U.S. Treasury and agencies 10,766 11,994
Other interest-bearing 9,462 2,438
Corporate equity 1,774 0
------------- --------------
$ 68,025 $ 38,833
============= ==============
Contractual maturity:
Maturing in less than twelve months $ 41,389 $ 35,827
Maturing between twelve and
thirty-two months 26,636 3,006
------------- --------------
$ 68,025 $ 38,833
============= ==============
</TABLE>
The cost of securities sold, if any, is based upon the specific
identification method. The net unrealized holding gain on available-for-sale
securities included as a separate component of stockholders' equity at June 30,
1998 totaled $384,000. There were no material unrealized gains or losses nor any
material differences between the estimated fair values and costs of securities
in the investment portfolio at June 30, 1997. Realized gains and losses on the
disposal of available-for-sale securities during 1998 totaled $20,000 and
$2,000, respectively. During 1997 such gains and losses totaled $12,000 and
$4,000, respectively. During 1996, such gains totaled $22,000.
F-10
<PAGE>
Note 3 - Composition of certain financial statement captions
<TABLE>
<CAPTION>
June 30,
--------------------------
1998 1997
---------- -----------
(Dollars in thousands)
<S> <C> <C>
Accounts receivable, net:
Trade $ 44,471 $ 26,055
Contract 2,451 4,668
Royalties 2,339 0
Employee 252 269
Other 1,828 383
---------- -----------
$ 51,341 $ 31,375
========== ===========
Inventories:
Raw materials and work in process $ 95,517 $ 57,883
Finished goods 8,189 917
---------- -----------
$ 103,706 $ 58,800
========== ===========
Property and equipment, net:
Scientific instrumentation $ 26,869 $ 16,614
Leasehold improvements 25,135 10,804
Computer equipment 15,619 8,892
Furniture and fixtures 3,910 2,464
---------- -----------
71,533 38,774
Less accumulated depreciation and amortization (24,321) (16,161)
---------- -----------
$ 47,212 $ 22,613
========== ===========
Accrued liabilities:
Royalties $ 21,410 $ 0
License fees 6,000 0
Vacation 2,955 1,932
Clinical studies 2,731 3,578
Other 2,260 3,379
---------- -----------
$ 35,356 $ 8,889
========== ===========
</TABLE>
F-11
<PAGE>
Note 4 - Significant contract arrangements
Japan Tobacco Inc.
In February 1994, the Company entered into a strategic alliance with JT in
the field of anti-viral drugs for the treatment of infections caused by
hepatitis C and the herpes family of viruses. In December 1994, the Company
added its anti-HIV drug, VIRACEPT, to the JT collaboration with the execution of
a world-wide development and licensing agreement. Agouron and JT share equally
the costs of further development of VIRACEPT.
Currently, Agouron has exclusive commercial rights to VIRACEPT (with the
right to sublicense) in North America and JT has exclusive commercial rights to
VIRACEPT (with the right to sublicense) in parts of Japan. The Company and JT
share profits and/or royalties equally from the world-wide commercialization of
VIRACEPT.
Under the combined terms of the JT agreements, the Company has incurred
costs of $51,898,000, $71,825,000 and $46,969,000 and recognized corresponding
contract revenues of $17,359,000, $48,886,000 and $37,197,000 for the years
ended June 30, 1998, 1997 and 1996.
Roche
The Company and JT have granted Roche certain exclusive royalty bearing
marketing rights to VIRACEPT outside of North America and parts of Japan. For
such rights, the Company has received (and recognized as revenue) initial
license fees and additional product approval license fees. The Company also
receives royalties based either on Roche's sales of VIRACEPT or, in certain
circumstances, Invirase(r) and Fortavase(r) (saquinavir), Roche's HIV protease
inhibitors. VIRACEPT license fees and royalties from Roche totaled $17,852,000
and $9,000,000 for the years ended June 30, 1998 and 1997.
HLR
In June 1996, Agouron granted HLR world-wide development rights in two
anti-cancer drugs and agreed to collaborate with HLR on an additional
early-stage anti-cancer drug discovery program. In return for such rights, HLR
paid $15,000,000 in initial license fees and agreed to bear 80% of certain
future development costs and to provide annual research support to the Company
of $3,000,000. In December 1997, Agouron and HLR agreed to end this anti-cancer
research and development collaboration. The Company has regained all commercial
rights to the anti-cancer drugs previously within the scope of the
collaboration.
Under the terms of the anti-cancer agreements with HLR which have been
terminated, the Company incurred costs of $23,486,000 and $17,854,000 and
recognized corresponding contract revenues of $15,428,000 and $14,270,000 for
the years ended June 30, 1998 and 1997.
The Immune Response Corporation
In June 1998, the Company entered into a binding letter of intent with IRC
to collaborate on final development and commercialization of REMUNE, an
immune-based therapeutic agent
F-12
<PAGE>
discovered by IRC and currently the subject of several clinical studies
including a large phase III clinical trial. The two companies intend to enter
promptly into a definitive agreement and will endeavor to complete development
and registration of REMUNE in 1999. IRC will manufacture commercial supplies of
REMUNE, and Agouron will have exclusive rights to market REMUNE in North
America, Europe and certain other countries. The two companies will share
equally all profits from the commercialization of REMUNE in the licensed
territory. Agouron paid an initial $10,000,000 license fee to IRC in June 1998
and also purchased 118,256 newly issued common shares of IRC for $2,000,000. The
Company's development funding obligation commences October 15, 1998 and,
assuming ongoing successful development, registration and approval of REMUNE,
the Company may pay to IRC up to $53,000,000 in additional development and
milestone payments and $12,000,000 in purchases of additional IRC common stock.
Shionogi & Co., Ltd.
In June 1998, the Company entered into a binding letter of intent with
Shionogi & Co., Ltd. ("Shionogi") to develop and commercialize AG1549, a
second-generation non-nucleoside reverse transcriptase inhibitor ("NNRTI") for
the treatment of HIV infection. Discovered by Shionogi, AG1549 is currently the
subject of several clinical trials evaluating its dose and its concomitant use
with other antiretroviral treatments.
Agouron has exclusive world-wide rights to the development and
commercialization of AG1549 except in Japan, South Korea and Taiwan. Agouron
paid an initial $10,000,000 license fee in June 1998. Agouron may pay, assuming
ongoing successful development, registration and approval of AG1776, additional
license fees of up to $30,000,000. In addition, Agouron will pay Shionogi
royalties based on sales, if any, of AG1549.
Japan Energy Corporation
In June 1998, the Company entered into an agreement with Japan Energy
Corporation ("JE") to develop and commercialize AG1776, a novel protease
inhibitor for the treatment of HIV infection. Agouron has exclusive world-wide
rights to the development and commercialization of AG1776 except in Japan, South
Korea, North Korea and Taiwan; JE will manufacture bulk compound for use in
final drug product. Agouron incurred an initial $6,000,000 license fee in June
1998. Agouron may pay, assuming ongoing successful development, registration and
approval of AG1776, additional license fees of up to $20,000,000. In addition,
Agouron will pay JE royalties based on sales, if any, of AG1776.
F-13
<PAGE>
Note 5 - Long-term debt
Long-term debt and capital lease obligations are as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1998 1997
------------- --------------
(Dollars in thousands)
<S> <C> <C>
Notespayable, secured with personal property and a
certificate of deposit; interest at CD rate plus 1.5%,
paid off in June 1998. $ 0 $ 142
Capital leases with interest rates between 5.86% and 16.5%,
maturing at various dates through June 2003. 3,214 2,462
Line of credit, $20,000,000 secured; interest at bank reference
rate or LIBOR plus 1.5%, expiring September 30, 1998. 15,000 0
Unsecured, non-interest bearing, term obligation;
face value of $4,500,000; discounted to an 8.95%
effective rate, includes imputed interest of $548,000
due June 28, 2001. 3,480 3,194
Term obligation for tenant improvements, interest
at 11% per annum, payable in monthly installments,
paid off in October 1997. 0 2,668
------------- --------------
Total long-term debt and capital lease obligations 21,694 8,466
Current portion (15,802) (2,526)
------------- --------------
$ 5,892 $ 5,940
============= ==============
</TABLE>
Maturities of long-term debt, excluding capital leases, are as follows:
1999 - $15,000,000; 2000- $0; and 2001 - $4,500,000, less imputed interest of
$1,020,000.
F-14
<PAGE>
Note 6 - Income taxes
(Dollars in thousands)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Year ended June 30,
Current:
Federal $ 0 $ 0 $ 0
State 43 1 1
Foreign 0 1,222 933
--------- --------- --------
43 1,223 934
--------- --------- --------
Deferred:
Federal 8,495 (37,800) 0
State 232 (6,000) 0
Foreign 0 0 0
--------- --------- --------
8,727 (43,800) 0
--------- --------- --------
$ 8,770 $ (42,577) $ 934
========= ========= ========
</TABLE>
The income tax reconciliation from income (loss) before income taxes
computed at the federal statutory rate (34%) to the Company's actual income tax
provision is as follows:
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ 7,454 $ (29,030) $ (6,320)
State taxes, net of federal benefit 181 1 1
Foreign taxes 0 1,222 933
Purchase accounting book/ tax basis
differences 0 19,781 0
Change in valuation allowance 0 (42,449) 6,245
Other 1,135 415 75
Adjustments to carryover amounts 0 7,483 0
--------- --------- --------
$ 8,770 $ (42,577) $ 934
========= ========= ========
</TABLE>
The Company's deferred tax assets and liabilities are as follows:
June 30
----------------------
1998 1997
--------- ---------
Book and tax depreciation/amortization
differences $ 5,891 $ 831
Accrued liabilities 1,951 1,363
Net operating loss carryforwards 51,281 49,348
Tax credits 6,956 5,676
Other (2,010) (1,318)
--------- ---------
64,069 55,900
Valuation allowance 0 0
--------- ---------
Deferred taxes, net $ 64,069 $ 55,900
========= =========
The Company has not recorded current provisions for United States federal
income taxes due to net operating losses for tax reporting purposes. At June 30,
1998, the Company had net operating loss carryforwards for federal tax reporting
purposes of approximately $150,000,000 expiring from 2000 to 2013. The net
operating loss includes the tax benefit related to the exercise of stock
options, which benefit was recorded to common stock. The Company also has
F-15
<PAGE>
federal research and development credit carryforwards of approximately
$4,800,000 at June 30, 1998. The future utilization of net operating loss
carryforwards for federal income tax purposes may be impacted by the issuance of
additional equity securities.
Due to California's partial conformity with federal provisions regarding
net operating loss and research and development credit carryforwards, and as a
result of the Company's use of certain state tax planning strategies, for state
tax reporting purposes at June 30, 1998, the Company has no net operating loss
carryforwards and has research and development credit carryforwards of
approximately $2,200,000. Such credits do not expire.
Based on its 1998 operating results and its estimates of future taxable
income, the Company believes that it is more likely than not that its deferred
tax assets (comprised mostly of net operating loss carryforwards and research
credits) will be realized and has therefore recorded the full tax benefit of its
deferred tax assets as of June 30, 1998.
Foreign tax expense represents certain withholding taxes associated with
collaboration payments from JT.
F-16
<PAGE>
Note 7 - Stockholders' equity
Stock Options
The Company's stock option 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 others may be at any price determined by the Board of
Directors. The options expire not later than ten years from the date of the
grant and generally become exercisable ratably over a three or four year period
beginning one year from the grant date. In February 1998, the Board of Directors
adopted the most recent plan and reserved 1,000,000 shares for issuance
thereunder. At June 30, 1998, the Company had 1,898,556 shares of common stock
available for future grant under its stock option plans. The following table
summarizes stock option activity for 1996 through 1998:
<TABLE>
<CAPTION>
Shares Prices
------------- -----------------
<S> <C> <C> <C>
Outstanding June 30, 1995 5,171,384 $ .24- $12.25
Options granted 2,324,950 11.78- 23.00
Options exercised (586,412) 2.70- 9.19
Options canceled (81,208) 3.94- 19.57
-------------
Outstanding June 30, 1996 6,828,714 2.70- 23.00
Alanex options assumed 378,084 .27- 3.98
Options granted 2,798,500 15.19- 47.13
Options exercised (980,472) .27- 22.19
Options canceled (205,536) 4.32- 36.35
-------------
Outstanding June 30, 1997 8,819,290 .27- 47.13
Options granted 1,115,394 28.00- 55.13
Options exercised (1,344,104) .27- 34.82
Options canceled (169,312) .27- 55.13
-------------
Outstanding June 30, 1998 8,421,268 $ .27- $55.13
=============
</TABLE>
F-17
<PAGE>
The following table summarizes information concerning outstanding and
exercisable options as of June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Ranges of Exercise as of Remaining Exercise as of Exercise
Prices June 30, 1998 Life (years) Price June 30, 1998 Price
------------- -------------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Less than $20.00 3,601,287 6.14 $ 8.70 2,810,426 $ 7.47
$20.00 to $40.00 3,276,381 8.25 27.18 1,149,617 23.74
Greater than $40.00 1,543,600 8.99 42.56 370,058 41.26
------------- -------------- -------------- ------------- -------------
8,421,268 7.48 $ 22.10 4,330,101 $ 14.68
============= ============== ============== ============= =============
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock option plans. Had compensation expense for the
Company's stock option plans been determined based upon the fair value method
prescribed under FAS 123, the Company's reported results would have been
impacted as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Net income (loss)
As reported $ 13,154 $(42,806) $(19,523)
Compensation expense:
Stock options (19,891) (9,496) (1,133)
Employee stock purchase plan (1,441) (394) (204)
-------- ------- --------
Pro-forma $ (8,178) $(52,696) $(20,860)
======== ======== ========
Pro-forma earnings (loss) per share:
Basic $ (.27) $ (1.96) $ (1.06)
Diluted $ (.27) $ (1.96) $ (1.06)
</TABLE>
The weighted-average fair value of each option grant is estimated on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions used for 1998, 1997 and 1996, respectively:
expected volatility of 50% each year; risk-free interest rate of 5.7%, 6.1% and
6.1%; an average expected life of 3 years, 4 years and 4 years; and no
dividends. The weighted average fair value of stock option grants was $16.57 in
1998, $15.25 per share in 1997 and $8.97 per share in 1996.
In connection with its 1997 acquisition of Alanex, the Company assumed all
of the issued and outstanding options of Alanex which resulted in options to
purchase an aggregate of 378,084 shares of the Company's common stock at
exercise prices ranging from $.27 to $3.98 per share.
Employee Stock Purchase Plan
The Company has a stock purchase plan in which eligible employees may
purchase shares of the Company's common stock through payroll deductions. A
total of 500,000 shares of common stock have been reserved for issuance under
the plan, of which 131,156 shares remain available for purchase at June 30,
1998. Funds deducted from participating employees' salaries are used to purchase
common stock at prices equal to 85% of the fair market value of the common stock
on either the first or last day of a purchase period. During 1998, 109,834
shares were issued at a
F-18
<PAGE>
price of $24.97 per share. During 1997, 9,730 shares were issued at a price of
$14.29 per share, 47,036 shares were issued at a price of $17.37 per share and
15,072 shares were issued at a price of $28.69 per share. During 1996, 12,262
shares were issued at a price of $4.94 per share, 46,480 shares were issued at a
price of $9.99 per share and 9,656 shares were issued at a price of $14.29 per
share.
Under FAS 123, pro-forma compensation expense equal to the fair value of
the purchase rights granted under the employee stock purchase plan was estimated
using the Black-Scholes model with the following assumptions for 1998, 1997 and
1996: an expected life of one year; expected volatility of 50 percent; a
risk-free interest rate of 5.6 percent; and no dividends. The weighted-average
fair value of purchase rights granted was $13.12 per share in 1998, $5.96 per
share in 1997 and $3.47 per share in 1996.
Warrants
In connection with its 1997 acquisition of Alanex, the Company assumed an
issued and outstanding warrant to purchase Alanex common stock. Accordingly, at
June 30, 1997, a warrant to purchase an aggregate of 169,522 shares of the
Company's common stock at an exercise price of $4.01 per share was outstanding.
In July 1997, the warrant was exercised in its entirety generating net proceeds
to the Company of approximately $679,800.
Stockholder Rights Plan
In November 1996, the Company's Board of Directors declared a dividend
of one preferred stock purchase right ("Right") for each outstanding share of
the Company's common stock held on the date (this dividend now amounts to one
half of a Right per share of common stock now outstanding as a result of the
two-for-one split of common stock in August 1997). The Rights will expire 10
years after issuance, and will be exercisable only if a person or group becomes
the beneficial owner of 15% or more of the common stock (such person or group, a
"15% holder") or commences a tender or exchange offer which would result in the
offeror beneficially owning 15% or more of the common stock. Each Right will
entitle stockholders to buy one one-ten thousandth of a share of Series B
Participating Preferred Stock of the Company at an exercise price of $500.00 per
share subject to certain anti-dilution adjustments.
If a person or group accumulates 15% or more of the common stock, each
Right (other than Rights held by a 15% holder and certain related parties, which
will be voided) will be adjusted so that upon exercise the holder will have the
right to receive that number of shares of common stock (or in certain
circumstances, a combination of securities and/or assets) having a value of
twice the exercise price of the Right. In addition, if following the public
announcement of the existence of a 15% holder, the Company is involved in a
merger or business combination or a sale of 50% or more of the Company's assets
or earning power, each Right (other than Rights held by a 15% holder and certain
related parties, which will be voided) will represent the right to purchase, at
the exercise price, common stock of the acquiring entity having a value of twice
the exercise price at the time. The Board of Directors will also have the right,
following the public announcement of the existence of a 15% holder, to cause
Rights (other than Rights held by the 15% holder and certain related parties,
which will be voided) to be exchanged for one share of common stock (presently
at an exchange ratio of two shares of common stock for each Right).
F-19
<PAGE>
Note 8 - Commitments
Certain scientific instrumentation, computers and other equipment are
subject to leases which are classified as capital leases. At June 30, 1998 and
1997, $4,331,000 ($3,408,000, net) and $2,895,000 ($2,629,000, net) of such
leased equipment are included in property and equipment.
Rental expenses (principally for leased facilities under long-term
operating lease commitments) were $5,031,000, $3,509,000 and $2,548,000 for
1998, 1997 and 1996. Future minimum payments for capital and operating leases at
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
(Dollars in thousands)
<S> <C> <C>
1999 $ 819 $ 7,472
2000 812 5,507
2001 818 5,314
2002 578 3,943
2003 243 2,630
Thereafter 0 2,047
------------ --------------
Total minimum lease payments 3,270 $ 26,913
==============
Less amount representing interest (56)
-------------
Obligations under capital leases $ 3,214
============
</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-20
<PAGE>
Note 9 - Alanex acquisition
In April 1997, the Company executed a merger agreement with Alanex, which
now operates as a wholly-owned subsidiary of Agouron. For all outstanding shares
of Alanex common stock and related options and warrants, approximately 2,000,000
shares of Agouron common stock were issued, subject to certain restrictions.
Such shares had an aggregate fair market value on the measurement date of
approximately $61,000,000 and transaction costs were approximately $1,300,000.
Of the total purchase price (including transaction costs), $57,500,000 was
allocated (as more fully described below) to certain intangible assets and
expensed as in-process technology and approximately $4,800,000 was allocated to
certain tangible and intangible assets and capitalized.
The identifiable intangibles of Alanex include several drug research and
discovery programs, a proprietary drug discovery technology, a chemical compound
library and an assembled work force. These intangibles were valued using either
a replacement cost approach (work force, library and proprietary technology) or
an income approach (research programs). Values assigned to the chemical compound
library and proprietary drug discovery technology have been capitalized, as such
intangibles are of a general nature and may have a number of alternative future
uses. Values assigned to the drug discovery programs have been expensed, as such
programs are pursuing specific drug targets or chemical compounds, the
technological feasibility of which having not been demonstrated, and there may
be no alternative future uses for such targets or chemical compounds if the
programs are ultimately less than successful.
The Company's statement of income (loss) includes the results of operations
related to the acquisition since April 1997. The following are unaudited
pro-forma results of operations as if the transaction had been consummated on
July 1, 1995:
(In thousands except for per share amounts.)
Year ended June 30, 1997 1996
(unaudited) (unaudited)
Revenues $ 138,872 $ 62,392
============= =============
Net income (loss) $ 14,276 $ (19,421)
============= =============
Earnings (loss) per share $ .51 $ (.92)
============= =============
F-21
<PAGE>
Note 10 - Quarterly financial data (unaudited)
(In thousands, except for
per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
September 30 December 31 March 31 June 30
------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
1997
Product sales $ 0 $ 0 $ 13,401 $ 43,568
Gross margin from product sales 0 0 7,378 24,992
Net loss (14,447) (12,556) (4,999) (10,804)
Earnings (loss) per share:
Basic (.57) (.46) (.18) (.38)(1)
Diluted (.57) (.46) (.18) (.38)(1)
1998
Product sales $ 79,502 $ 91,800 $ 111,950 $ 126,046
Gross margin from product sales 45,429 53,858 62,730 74,637
Net income (loss) 3,630 4,922 13,525 (8,923)
Earnings (loss) per share:
Basic .11 .16 .44 (.29)(2)
Diluted .11 .15 .41 (.29)(2)
</TABLE>
(1) During the fourth quarter of 1997, the Company recorded a write-off of
$57,500,000 ($2.03 per share) of in-process technology associated with the
acquisition of Alanex, partially offset by the realization of $43,800,000
($1.54 per share) of deferred tax assets associated with the Company's
expectation of future taxable income.
(2) During the fourth quarter of 1998, the Company incurred in-licensing costs
of $26,000,000 (tax-effected $.50 per share) for commercial rights to three
development stage anti-HIV products.
F-22
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter Johnson 53 President, Chief Executive Officer and Director
Marvin R. Brown, M.D. 51 Vice President, and President of Alanex
Neil J. Clendeninn, M.D., Ph.D. 49 Corporate Vice President, Head of Clinical Affairs
Steven S. Cowell 49 Corporate Vice President, Finance and Chief
Financial Officer
William C. Denby 43 Vice President, Head of Marketing and Sales
Gary E. Friedman 51 Corporate Vice President, General Counsel,
Secretary and Director
Donna C. Nichols 41 Vice President, Head of Corporate Communications
Barry D. Quart, Pharm.D. 41 Senior Vice President, Head of Drug Development
R. Kent Snyder 44 Senior Vice President, Head of Commercial Affairs
Michael D. Varney, Ph.D. 40 Vice President, Head of Research
Stephanie Webber, Ph.D. 50 Vice President, Head of Development Pharmacology
Glenn R. Zinser 55 Corporate Vice President, Head of Operations
John N. Abelson, Ph.D.(1) 59 Director
Patricia M. Cloherty(2) 56 Director
A.E. Cohen(1) 62 Director
Michael E. Herman(1) 57 Director
Irving S. Johnson, Ph.D. 73 Director
Antonie T. Knoppers, M.D.(2) 83 Director
Melvin I. Simon, Ph.D.(2) 61 Director
</TABLE>
(1) Member of Directors Compensation Committee
(2) Member of Audit Committee
30
<PAGE>
Peter Johnson, a founder of the Company, has served as a director and as
president and chief executive officer of the Company since its inception in
1984. Through 1989, Mr. Johnson held various positions with The Agouron
Institute, including executive director. Mr. Johnson received a M.A. from the
University of California, San Diego.
Marvin R. Brown joined the Company in 1997 as vice president, and president
of Alanex. In 1991, Dr. Brown founded Alanex and, from 1993 until joining the
Company, served as president, chief executive officer and chairman of the board
of Alanex. Prior to joining Alanex, Dr. Brown served as professor of medicine
and surgery and director of the peptide biology laboratory at the University of
California, San Diego from 1986 through 1991 and was on the faculty of the Salk
Institute for Biological Studies from 1975 to 1986. Dr. Brown received his M.D.
from the University of Arizona.
Neil J. Clendeninn joined the Company in 1993 as vice president, clinical
affairs. In 1997, Dr. Clendeninn was promoted to corporate vice president, head
of 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 1991 as vice president, finance and
chief financial officer. In 1997, Mr. Cowell was promoted to corporate vice
president. 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.
William C. Denby joined the Company in 1995 and in 1997 was named vice
president, head of marketing and sales. Previously, Mr. Denby served as senior
director of marketing and sales. From 1978 until joining the Company, Mr. Denby
held various positions at Marion Laboratories, Inc. (now Hoechst Marion
Roussel), including strategic planning manager and managed care marketing
manager. Mr. Denby received a B.A. in English from the State University of New
York, and holds a M.B.A. in Finance from Rockhurst College.
Donna C. Nichols joined the Company in 1987 and in 1997 was named vice
president, head of corporate communications. Previously, Ms. Nichols held
various positions within the Company, most recently as senior director,
corporate communications. Ms. Nichols attended Kent State University.
Gary E. Friedman, a founder of the Company, has served as a director since
its inception, as the secretary of the Company since 1986 and as vice president
and general counsel since 1991. In 1997, Mr. Friedman was promoted to corporate
vice president. Previously, from 1982 until joining the Company, 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.
31
<PAGE>
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.
Barry D. Quart joined the Company in 1993 as vice president, regulatory
affairs. In 1997, Mr. Quart was named to senior vice president, head of drug
development. From 1983 until joining the Company, Dr. Quart held various
positions with Bristol-Myers Squibb Company, including executive director of
international regulatory affairs from 1992. Dr. Quart received a Pharm.D. in
clinical pharmacy from the University of California, San Francisco.
R. Kent Snyder joined the Company in 1991 as vice president, business
development. In 1995, Mr. Snyder's title was changed to vice president,
commercial affairs and in 1997, he was named senior vice president, corporate
affairs. From 1982 until joining the Company, Mr. Snyder held various positions
with Marion Laboratories, Inc. (now Hoechst Marion Roussel), including director
of U.S./European licensing. Prior to his employment at Marion, from 1978 to
1982, he held various sales and marketing positions with Hoffmann-LaRoche Ltd.
Mr. Snyder received a M.B.A. from Rockhurst College.
Michael D. Varney joined the Company in 1987 and in 1997 was promoted to
vice president, head of research. A synthetic organic chemist, Dr. Varney has
been involved in all aspects of drug discovery at the Company since its
inception. Dr. Varney received his B.S. in Chemistry from UCLA and Ph.D. in
Natural Product Synthesis from the California Institute of Technology. Before
joining the Company, he completed postdoctoral research in Bioorganic Chemistry
at Columbia University.
Stephanie Webber joined the Company in 1988 and in 1997 was promoted to
vice president, head of development pharmacology. Previously, Dr. Webber served
as senior director, pharmacology and toxicology. From 1980 to 1988, Dr. Webber
was a research fellow at the Scripps Clinic and Research Foundation. She
received her B.S. in Biology from the University of Sussex, England, and holds a
Ph.D. in Zoology from the University of London.
Glenn R. Zinser joined the Company in 1987 and, since 1995, has served as
vice president, operations. In 1997, Mr. Zinser was promoted to corporate vice
president, head of operations. Previously, from 1987 through 1995, Mr. Zinser
held various management positions with the Company, including senior director,
operations from 1993 through 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
1989 until 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.
32
<PAGE>
Patricia M. Cloherty joined the Board in 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. From1993 until 1997, she was president
of Patricof. From 1997 to the present, Ms. Cloherty has been executive
co-chairman as well as general partner of Patricof. Ms. Cloherty also served as
deputy administrator for the U.S. Small Business Administration in 1977 and
1978. Ms. Cloherty also serves on the board of directors of several private
companies.
A.E. Cohen joined the Board in 1992. Mr. Cohen is an independent management
consultant. From 1957 until his retirement in 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 Nobel N.v., Teva Pharmaceutical Industries Ltd.,
Smith Barney (Mutual Funds), and Pharmaceutical Product Development, Inc., all
of which are public companies. Mr. Cohen also serves as a consultant to The
Population Council and Chugai Pharmaceutical Co. Ltd., Tokyo ("Chugai"), and
serves as chairman of the board of Chugai's U.S. subsidiary companies. Mr. Cohen
also is a member of the board of directors of Lung Check, Inc.
Michael E. Herman joined the Board in 1992. Mr. Herman is a private
investor, as well as president and chief operating officer of the Kansas City
Royals Baseball Team. From 1974 until his retirement in 1990, Mr. Herman held
various positions at Marion Laboratories, Inc. (now Hoechst Marion Roussel),
including executive vice president and chief financial officer. Currently, Mr.
Herman serves as chairman of the finance committee of the Ewing Marion Kauffman
Foundation, a private foundation located in Kansas City, where from 1985 through
1990, he was the president and chief operating officer. Mr. Herman is also a
member of the board of directors of Cerner Corporation, Seafield Capital and SLH
Corporation, all of which are public companies, and serves on the board of
directors of several private companies.
Irving S. Johnson joined the Board in 1989. Dr. Johnson is an independent
consultant in biomedical research working with numerous private companies. From
1953 until his retirement in 1988, Dr. Johnson held various positions at Eli
Lilly and Company, including vice president of research from 1973 until 1988.
Dr. Johnson also served on several committees of the National Academy of
Sciences, the Office of Technology Assessment and the National Institutes of
Health. Currently, he is a member of the board of directors of Allelix
Biopharmaceuticals Inc. and Ligand Pharmaceuticals Incorporated, and is on the
scientific advisory board of ELAN Corporation, 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 1991. Dr. Knoppers is an
independent management consultant. From 1952 until his retirement in 1975, Dr.
Knoppers held various positions at Merck & Co., Inc., including vice chairman of
the board and president and chief operating officer. Dr. Knoppers is a member of
the board of directors of Centocor, Inc., a public biotechnology company. In
addition, he is a former chairman of the U.S. Council of the International
Chamber of Commerce and a member of the advisory board of PaineWebber
Development Corporation, an affiliate of PaineWebber Incorporated. Dr. Knoppers
received a
33
<PAGE>
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.
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under Part III, Items 10 (in part), 11, 12 and 13
has been omitted from this report since the Company intends to file with the
Securities and Exchange Commission, not later than 120 days after the close of
its fiscal year, a definitive proxy statement prepared pursuant to Regulation
14A, which information is hereby incorporated by reference.
34
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data
Reference is made to the Index to Financial Statements and
Schedules under Item 8 in Part II hereof, where these
documents are listed.
(2) Exhibits - see (c) below
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal 1998.
(c) Exhibits
Exhibit
Number Exhibit
-------- ----------------------------------------------------------
2.1(a) Agreement and Plan of Reorganization dated as of April 28,
1997, between Agouron Pharmaceuticals, Inc., Agouron
Acquisition Corporation and Alanex Corporation.
3.1(b) Restated Articles of Incorporation (December 10, 1992).
3.2(c) Amended and Restated Bylaws (Restated June 17, 1991).
4.1(d) Rights Agreement dated November 7, 1996, as amended on
November 27, 1996, between the Company and Chase Mellon
Shareholder Services. L.L.C., which includes, as Exhibit
A, the Certificate of Determination, Preferences and
Rights of Series B Participating Preferred Stock as filed
with the California Secretary of State on November 20,
1996.
10.01(h) 1990 Stock Option Plan (Restated November 2, 1995).
10.02(k) Form of 1990 Incentive Stock Option Agreement.
10.03(k) Form of 1990 Non-Statutory Stock Option Agreement for
Employees/Officers/Directors.
10.04(k) Form of 1990 Non-Statutory Stock Option Agreement for
Consultants.
10.05(c) 1985 Stock Option Plan (Last Amended August 14, 1991).
10.06(e) Agouron Pharmaceuticals, Inc. 401(k) Plan
(Amended August 1992).
10.07(b) Agouron Pharmaceuticals, Inc. Employee Stock Purchase Plan
(October 15, 1992).
10.08(b) Agouron Pharmaceuticals, Inc. Flexible Benefits Plan
(December 10, 1992).
10.09(f) Agreement Two dated February 28, 1994 between Japan
Tobacco Inc. and the Company.
(Portions of the agreement receive confidential treatment
pursuant to an application filed April 25, 1994; File No.
0-15609).
35
<PAGE>
Exhibit
Number Exhibit
-------- ----------------------------------------------------------
10.10(g) Development and License Agreement dated December 1, 1994
between Japan Tobacco Inc. and the Company (Portions of
the agreement receive confidential treatment pursuant to
an application dated January 31, 1995).
10.11(h) First Amendment to Development and License Agreement
effective December 1, 1994 between Japan Tobacco Inc. and
the Company. (Confidential treatment has been requested
for portions of this agreement pursuant to an application
dated January 31, 1996. The underlying agreement was filed
as Exhibit 10.54 on Form 10-Q for the period ended
December 31, 1994, and portions thereof receive
confidential treatment pursuant to an order of the
Securities and Exchange Commission dated June 28, 1995.)
10.12(i) Amendment effective January 1, 1996 to the Agouron
Pharmaceuticals, Inc. 401(k) Plan.
10.13(j) 1996 Stock Option Plan.
10.14(j) Form of 1996 Incentive Stock Option Agreement.
10.15(j) Form of 1996 Non-Statutory Stock Option Agreement
for Employees/Officers/Directors.
10.16(j) Form of 1996 Stock Option
Agreement for Consultants 10.17(l) Second Amendment to
Development and License Agreement effective January 17,
1997 between Japan Tobacco Inc. and the Company
(Confidential treatment has been requested for
portions of this agreement pursuant to an application
dated August 21, 1997, as separately filed with the
Securities and Exchange Commission. The underlying
agreement was filed as Exhibit 10.54 on Form 10-Q for the
period ended December 31, 1994, and portions thereof
receive confidential treatment pursuant to an orde
of the Securities and Exchange Commission dated
June 28, 1995.)
10.18(l) Third Amendment to Development and License Agreement
effective December 1, 1996 between Japan Tobacco Inc. and
the Company. (Confidential treatment has been requested
for portions of this agreement pursuant to an application
dated August 21, 1997, as separately filed with the
Securities and Exchange Commission. The underlying
agreement was filed as Exhibit 10.54 on Form 10-Q for the
period ended December 31, 1994, and portions thereof
receive confidential treatment pursuant to an order of the
Securities and Exchange Commission dated June 28, 1995.)
10.19(l) VIRACEPT License Agreement between the Company and Japan
Tobacco Inc. and F. Hoffmann-La Roche Ltd dated June 30,
1997. (Confidential treatment has been requested for
portions of this agreement pursuant to an application
dated August 21, 1997, as separately filed with the
Securities and Exchange Commission.)
10.20(m) Form of 1998 Employee Stock Option Plan.
10.21(m) Form of 1998 Employee Non-Statutory Stock Option
Agreement.
36
<PAGE>
Exhibit
Number Exhibit
-------- ----------------------------------------------------------
10.22 License and Supply Agreement between the Company and Japan
Energy Corporation effective as of June 30, 1998.
(Confidential treatment has been requested for portions of
this agreement pursuant to an application dated August 4,
1998, as separately filed with the Securities and Exchange
Commission.)
10.23 Common Stock Purchase Agreement between The Immune
Response Corporation and the Company dated June 11, 1998.
(Confidential treatment has been requested for portions of
this agreement pursuant to an application dated August 4,
1998, as separately filed with the Securities and Exchange
Commission.)
10.24 Amendment to the VIRACEPT License Agreement between the
Company and Japan Tobacco Inc. and F. Hoffmann-La Roche
Ltd as of May 1, 1998. (Confidential treatment has been
requested for portions of this agreement pursuant to an
application dated August 4, 1998, as separately filed with
the Securities and Exchange Commission.)
21 Subsidiaries of Agouron Pharmaceuticals, Inc.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule. (Exhibit 27 is submitted as
an exhibit only in the electronic format of this Annual
Report on Form 10-K submitted to the Securities and
Exchange Commission.)
99 Important Factors Regarding Forward-Looking Statements.
(a) Incorporated by Reference to Form 8-K filed on May 23, 1997.
(b) Incorporated by Reference to Form 10-Q filed for the quarter ended
December 31, 1992. (c) Incorporated by Reference to Form 10-K filed for the
year ended June 30, 1991. (d) Incorporated by Reference for Form 8-K/A
filed on December 20, 1996. (e) Incorporated by Reference to Form 10-K
filed for the year ended June 30, 1992. (f) Incorporated by Reference to
Form 10-Q/A filed for the quarter ended March 31, 1994. (g) Incorporated by
Reference to Form 10-Q filed for the quarter ended December 31, 1994. (h)
Incorporated by Reference to Form 10-Q filed for the quarter ended December
31, 1995. (i) Incorporated by Reference to Form 10-Q filed for the quarter
ended March 31, 1996. (j) Incorporated by Reference to Form S-8 filed on
November 26, 1996. (k) Incorporated by Reference to Form 10-Q for the
quarter ended December 31, 1996. (l) Incorporated by Reference to Form 10-K
for the year ended June 30, 1997. (m) Incorporated by Reference to Form S-8
filed on February 19, 1998.
37
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AGOURON PHARMACEUTICALS, INC.
August 4, 1998 By: /s/ Peter Johnson
---------------------------------
Peter Johnson
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Peter Johnson President, Chief Executive August 4, 1998
- ------------------------------------
Peter Johnson Officer and Director
/s/ Steven S. Cowell Corporate Vice President, Finance August 4, 1998
- ------------------------------------
Steven S. Cowell and Chief Financial Officer
/s/ Gary E. Friedman Corporate Vice President, August 4, 1998
- ------------------------------------
Gary E. Friedman General Counsel, Secretary
and Director
/s/ John N. Abelson Director August 4, 1998
John N. Abelson, Ph.D.
/s/ Patricia M. Cloherty Director August 4, 1998
- ------------------------------------
Patricia M. Cloherty
/s/ A. E. Cohen Director August 4, 1998
A. E. Cohen
/s/ Michael E. Herman Director August 4, 1998
- ------------------------------------
Michael E. Herman
/s/ Irving S. Johnson Director August 4, 1998
Irving S. Johnson, Ph.D.
/s/ Antonie T. Knoppers Director August 4, 1998
Antonie T. Knoppers, M.D.
/s/ Melvin I. Simon Director August 4, 1998
Melvin I. Simon, Ph.D.
</TABLE>
38
LICENSE AND SUPPLY AGREEMENT
This License and Supply Agreement ("Agreement"), effective as of the 30th
day of June 1998, is by and between Japan Energy Corporation, a corporation duly
organized and existing under the laws of Japan and having its principal place of
business at 10-1, Toranomon 2-chome, Minato-ku, Tokyo 105-8407, Japan
(hereinafter referred to as "JE"), and Agouron Pharmaceuticals, Inc., a
corporation duly organized and existing under the laws of the State of
California, U.S.A., and having its principal place of business at 10350 North
Torrey Pines Road, La Jolla, California 92037, U.S.A. (hereinafter referred to
as "Agouron"). JE and Agouron are sometimes hereinafter each referred to as a
Party (collectively "Parties") to this Agreement.
BACKGROUND
JE possesses technical information and know-how pertaining to a certain
pharmaceutical compound designated JE-2147 and its related compounds that may be
useful in the treatment and prevention of Human Immunodeficiency Virus
infections and other diseases.
The Parties entered into a Confidentiality Agreement effective December 31,
1997 (the "Confidentiality Agreement") and a Material Transfer Agreement
effective December 31, 1997 (the "Material Transfer Agreement"), pursuant to
which Agouron has undertaken certain evaluations of JE-2147.
JE holds patents rights pertaining to JE-2147 and its related compounds.
Agouron desires to obtain a license from JE to enable Agouron to develop
and commercialize Product (as hereinafter defined) in certain countries of the
world, and JE is willing to grant such license on the terms and conditions
hereinafter set forth.
The Parties wish to cooperate under the terms of this Agreement to optimize
the development and commercialization of Product.
The Parties also wish to confirm their arrangement regarding the supply of
Compound by JE to Agouron and the supply of Product by Agouron to JE (both terms
as hereinafter defined).
On June 30, 1998, the parties executed and delivered to each other, by
telefax, a prior version of this Agreement. The parties now wish to supersede
such prior version of this Agreement and to formally enter into this revised
version of this Agreement.
NOW, THEREFORE, in consideration of the premises, and the mutual covenants,
benefits and obligations set forth herein, the Parties agree as follows:
<PAGE>
ARTICLE I - DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set out in this Article I. Except as otherwise explicitly provided, all
references to Articles and Sections shall refer to the Articles and Sections of
this Agreement, and all references to Attachments, Exhibits and Schedules shall
refer to the Attachments, Exhibits and Schedules to this Agreement, all of which
are incorporated herein by reference.
Section 1.01 "Affiliate" means any person, organization or entity that is,
directly or indirectly, controlling, controlled by, or under common control with
JE or Agouron, as the case may be. The term "control" (including, with
correlative meaning, the terms "controlled by" and "under common control with"),
as used with respect to any person, organization or entity, means the
possession, directly or indirectly, of the power to direct, or cause the
direction of, the management and policies of such person, organization or
entity, whether through the ownership of voting securities, or by contract or
court order or otherwise. The ownership of voting securities of a person,
organization or entity shall not, in and of itself, constitute "control" for
purposes of this definition, unless said ownership is of a majority of the
outstanding securities entitled to vote of such person, organization or entity.
Affiliate shall also mean a limited partnership in which a subsidiary of Agouron
and/or JE is a general partner.
Section 1.02 "Combination Product" means *
Section 1.03 "Compound" means the chemical compound known by the JE code
name JE-2147 ("JE-2147"), whose chemical structure is as follows:
*
(chemical structure)
The definition of Compound also means: (i) *
Section 1.04 "Compound Supply Plan" means the supply plan under which JE
will provide Compound to Agouron in accordance with the provisions of Section
4.04.
Section 1.05 "Control," "Controlled" or "Controlling" means *
2
<PAGE>
Section 1.06 "Development Program" means *
Section 1.07 "Development Program Patent Rights" means *
Section 1.08 "Development Program Technology" means *
3
<PAGE>
Section 1.09 "Dossier" means the document that is filed with and approved
by a government or health authority for purposes of Registration, for example, a
Marketing Authorization Application.
Section 1.10 "Effective Date" means June 30, 1998.
Section 1.11 "EMEA" means the European Agency for the Evaluation of
Medicinal Products.
Section 1.12 "FDA" means the United States Food and Drug Administration.
Section 1.13 "Field" means *
Section 1.14 "Initial Commercial Sale" means the first commercial sale of a
Product *
Section 1.15 "JE Territory" means Japan, Taiwan, South Korea and North
Korea.
Section 1.16 "JE Patent Rights" means: *
Section 1.17 "JE Technology" means *
Section 1.18 "Licensed Territory" means all countries of the world, except
for Japan, Taiwan, South Korea and North Korea.
Section 1.19 "MAA" means Marketing Authorization Application.
4
<PAGE>
Section 1.20 "Major Market European Country" means the United Kingdom,
France, Germany, Spain or Italy.
Section 1.21 "Net Sales" means the gross amount invoiced for Product by
Agouron, its Affiliates and sublicensees to non-Affiliated third parties, other
than separately itemized transportation costs, and sales taxes and other taxes
that are directly linked to and included in the gross amount invoiced, as
computed on a product-by-product basis for the countries concerned, less: *
Section 1.22 "New Drug Application" or "NDA" means a new drug application,
product license application or comparable regulatory submission to the FDA, the
EMEA or an equivalent agency of a country in the Territory for permission to
commence commercial sale of a Product.
Section 1.23 "Patent Rights" means, collectively, *
Section 1.24 "Product" means any *
Section 1.25 "Registration" means the official approval by the government
or health authority in a country (or supra-national organization, such as the
European Agency for the Evaluation of Medicinal Products) that is required for a
Product to be offered for sale in such country, including such authorizations as
may be required for the production, importation, pricing, reimbursement and sale
of such Product, and for subsequent regulatory filings for line extensions
and/or additional indications of such Product.
Section 1.26 "Territory" means *
Section 1.27 "Trade Dress" means any materials directly supporting the
commercialization of a Product, including, but not limited to, packaging,
package inserts, advertising or selling aids, brochures, mailings and/or other
marketing or packaging materials.
Section 1.28 "Trademark(s)" means any trademark selected and owned by a
Party and registered (or applied for) by such Party, its Affiliate(s) and
sublicensee(s) in the Territory for use in connection with the marketing of
Products. The definition of Trademark(s) shall not refer to trade names or
designs such as logos used by a Party to designate the name of such Party.
5
<PAGE>
Section 1.29 "United States" or "U.S." means the United States of America,
its territories, possessions and protectorates (including Puerto Rico), and the
District of Columbia.
Section 1.30 "Valid Claim" means a *
ARTICLE II - COMMERCIAL RIGHTS
Section 2.01 License Grants. To implement the development and
commercialization of Compound and/or Products, the Parties, subject to the other
applicable provisions of this Agreement, grant and accept the license rights
provided below in this Article II.
(a) Subject to the provisions of Section 2.01(c), and Article V, JE grants
Agouron the exclusive right, even as to JE (with right of sublicense), to use,
offer for sale, sell and/or import in or into the Licensed Territory, Compound
and Products under applicable JE Patent Rights and Development Program Patent
Rights, and using applicable JE Technology and Development Program Technology.
(b) *
(c) *
6
<PAGE>
(d) *
(e) Agouron grants JE *
(f) Agouron grants JE *
(g) Agouron grants JE *
7
<PAGE>
(h) Subject to the provisions of Section 4.04, Agouron shall have *
Subject to the provisions of Section 4.04, JE shall have a *
(i) *
(j) *
(k) *
8
<PAGE>
(l) Agouron agrees to use reasonable efforts to not sell Product in the
Licensed Territory to persons who it knows, or has reason to know, will resell
and/or transfer such Product outside of the Licensed Territory.
Section 2.02 Discontinuance of the Development Program
(a) Agouron shall, in a timely manner, use reasonable diligence in the
development and Registration of a Product in the Field in the Licensed
Territory. Reasonable diligence means a commercially reasonable standard of
effort based on the commercial potential for such Product in the Licensed
Territory. Development efforts undertaken by Agouron's Affiliates and
sublicensees shall be attributed to Agouron. *
(b) *
9
<PAGE>
Section 2.03 Diligent Efforts to Market *
ARTICLE III - SHARING AND PROTECTION OF INTELLECTUAL PROPERTY
Section 3.01 Patents.
(a) *
10
<PAGE>
(b) *
(c) *
(d) *
(e) *
11
<PAGE>
(f) *
(g) *
(h) *
(i) *
12
<PAGE>
(j) *
(k) *
(l) *
Section 3.02 Infringement of Patents of Third Parties. Each Party, its
Affiliates and sublicensees, and their respective employees and agents shall use
diligent efforts to avoid known
13
<PAGE>
infringement of patents of any third party *
Section 3.03 Trademarks. *
14
<PAGE>
Section 3.04 Information Exchange. *
Section 3.05 Confidentiality. Except as otherwise expressly specified
in this Agreement and except for the proper exercise of any license rights
granted or rights reserved under this Agreement, JE and Agouron shall each
keep in confidence and shall each use its best efforts to cause its
respective Affiliates, employees, directors, agents, consultants, clinical
research associates, outside contractors, clinical investigators and
sublicensees to whom it is permitted to disclose information pursuant to
the terms of this Agreement to retain in confidence all confidential and
proprietary information of the other Party, including the *
Without limiting the foregoing, JE and Agouron shall each exercise the
same degree of diligence and care with respect to the above-described
information as it exercises with respect to its other proprietary
information. Each Party represents to the other Party that it maintains
policies and procedures designed to prevent the unauthorized disclosure of
its proprietary data and information. *
15
<PAGE>
The preceding obligations of confidentiality shall be waived as to
information that the Party claiming waiver can demonstrate, based on
written records: (i) was in the public domain at the time of disclosure
hereunder; (ii) comes into the public domain through no fault of the Party
claiming waiver; (iii) was known to the Party claiming waiver prior to its
disclosure under this Agreement, unless such information was obtained from
the other Party on a confidential basis; (iv) is disclosed on a
non-confidential basis to the Party claiming waiver by a third party having
a lawful right to make such disclosure on a non-confidential basis; (v) is
published with the prior mutual agreement of the Parties, after having
given consideration to appropriate commercial factors; (vi) comes into the
public domain through governmental publication of a patent application; or
(vii) is required to be disclosed to file a patent or other regulatory
application or to comply with applicable laws and regulations. *
The Parties acknowledge and agree that the Parties' rights and
obligations under the Confidentiality Agreement and the Material Transfer
Agreement between the Parties which were both originally entered into on
December 22, 1997 are hereby superseded by the provisions of this Section
3.05.
Section 3.06 Publication. JE and Agouron each acknowledges the
interests of the other Party in publishing certain of the results of its
development and Registration of a Product to obtain recognition within the
scientific community and to advance the state of scientific knowledge. The
Parties also recognize their mutual interests in obtaining valid patent
protection for their drug products. Consequently, a Party, its employees or
consultants wishing to make a publication shall *
16
<PAGE>
ARTICLE IV - DEVELOPMENT AND COMMERCIALIZATION STRUCTURE
Section 4.01 Coordination. Coordination of the Parties' development
and commercialization efforts for Compound and Products in the Licensed
Territory shall be carried out as specified in Sections 4.02 and 4.03.
Section 4.02 Development and Registration; Responsibility for
Development Costs. JE and Agouron acknowledge their mutual intention to
cooperate in a commercially reasonable manner in the timely development of
Compound and Products in the Territory. The Parties further acknowledge
their mutual willingness to discuss ad hoc agreements to establish
appropriate mechanisms for such cooperation. Recognizing the importance of
timely initiation of development activities, however, JE and Agouron agree
to the following basic approach to development of Compound and Products in
the Licensed Territory, and to the conduct and funding of their respective
development activities.
(a) *
(b) The Parties acknowledge that it will be necessary to amend and
update the Development Program as additional information becomes available
concerning the prerequisites necessary for Registration of Product in the
Licensed Territory. *
17
<PAGE>
(c) As soon as possible after the execution of this Agreement, the
Parties shall promptly reach agreement on the basic terms under which JE
will manufacture and supply Compound to Agouron, its Affiliates and
sublicensees *
(d) Agouron shall be responsible *
(e) Agouron,* , shall be responsible for submission of Dossiers for a
Product to the regulatory authorities in the Licensed Territory in pursuit
of approvals to sell such Product and *
All Dossiers for Product in the Licensed Territory shall be owned by
and be in the name of Agouron.
(f) JE shall cooperate with Agouron to *
(g) JE will be responsible for *
(h) JE shall be responsible *
(i) To the extent required to support Registrations of a Product (such
as for Investigational New Drug Applications and New Drug Applications),
Agouron shall have
18
<PAGE>
*
(j) Each Party agrees to use its diligent efforts in responding in a
timely manner, *
(k) Agouron shall keep JE informed of its progress in the development
and Registration of Products. This information exchange shall include, *
(l) JE and Agouron shall each use qualified persons in the development
activities of the Development Program.
(m) All work in connection with the development of Compound or
Products, to the extent required by applicable laws or regulations, shall
be conducted in accordance with Good Laboratory Practices, Good
Manufacturing Practices and Good Clinical Practices, as such rules of
practice are amended from time to time. Each Party in the conduct of its
activities shall comply with all applicable laws, rules and regulations of
each jurisdiction within the Territory
19
<PAGE>
that are applicable to the development, testing, manufacture, labeling,
packaging, storage, marketing, distribution, sale, promotion and
import or export of Product.distribution, sale, promotion and import
or export of Product.
(n) *
Section 4.03 Marketing. * JE and Agouron agree to the following basic
approach to the marketing of Products in the Licensed Territory, and to the
conduct of their marketing activities in their respective marketing
territories.
(a) Agouron shall be responsible for *
(b) *
(c) Agouron shall keep JE informed of Agouron's current and planned
marketing activities in the Licensed Territory. *
JE shall keep Agouron informed of JE's marketing activities in the JE
Territory. *
(d) Unless prohibited by law or regulation, the labeling for a Product
in the countries in the Licensed Territory shall *
20
<PAGE>
(e) *
(f) Agouron and JE shall each use qualified persons in its marketing
activities for a Product in its respective marketing territories.
(g) Agouron shall be responsible for responding, in a timely manner, *
(h) Each Party, its Affiliates and sublicensees, agrees throughout the
duration of this Agreement to notify the other Party immediately in English
of *
21
<PAGE>
(i) Each Party further agrees to immediately notify the other Party of
any information *
The information to be provided hereunder shall be provided in English.
(j) Without limiting the foregoing, it is also understood that each
Party may notify its Affiliates or sublicensees of *
Section 4.04 Supply of Compound. It is anticipated that timely
development of Compound and/or a Product will require the manufacture of
significant amounts of the Compound, and that successful worldwide
commercialization of a Product will require annual production of large
quantities of the Compound.
(a) In accordance with the provisions of Section 4.04, Agouron shall
purchase from JE, and JE shall timely deliver Compound for use in the
development and Registration activities for Compound and/or Product,
including using Compound to make Product to be used in clinical studies and
trials and for special license sales. *
22
<PAGE>
(b) In accordance with the provisions of Section 4.04, Agouron shall
purchase from JE, and JE shall timely deliver Compound for use in making
the finished dosage form(s) of Product to be sold in the Licensed
Territory, *
(c) JE shall maintain books of account and complete and accurate
records of all of its FBMCC of procuring and/or producing such Compound *
(d) *
23
<PAGE>
(e) *
(i)
(ii)
(iii)
24
<PAGE>
(iv) Sale and delivery of Compound will be subject to an agreed-upon
form of purchase order being issuedby Agouron and accepted by JE. *
(v) *
(vi) *
(vii) *
(f) *
25
<PAGE>
(i) *
(ii) *
(g) *
Section 4.05 Supply of Product. The details for manufacturing Product
will be determined after the execution of this Agreement, according to the
following conditions:
(a) Agouron shall be responsible for manufacturing Product.
(b) *
(c) *
26
<PAGE>
(d) *
(e) *
(i) *
(ii) *
27
<PAGE>
(iii) *
(iv) *
(v) *
(f) *
(g) *
28
<PAGE>
(h) *
ARTICLE V - ADVANCE PAYMENTS AND ROYALTIES
Section 5.01 Advanced Payments and Royalties.
(a) Subject to the terms and conditions of this Agreement and in
consideration for the rights granted to Agouron under this Agreement,
Agouron shall make the following one-time-only payments to JE:
<TABLE>
<CAPTION>
PAYMENT
MILESTONE EVENT (U.S. Dollars)
<S> <C> <C>
(i) Within thirty (30)days of execution of this Agreement
(actually paid July 17, 1998) $6,000,000
(ii) Within thirty (30) days of the earlier of: (1) the first completion
of a Phase I Clinical Study for any Product;
or (2) September 30, 2000* $3,000,000
(iii)Within thirty (30) days of the earlier of: (1)
the first completion of a Pilot Phase II Study
for any Product; or (2) December 31, 2000* $3,000,000
(iv) Within thirty (30) days of first U.S. NDA or
EMEA filing for any Product $6,000,000
(v) Within thirty (30) days of first U.S. NDA
approval for any Product $3,000,000
(vi) Within thirty (30) days of the first European Commission
approval for any Product (but not before receipt
of pricing approval for such Product in
at least one (1) Major Market European Country) $5,000,000
TOTAL PAYMENTS: $26,000,000
* *
</TABLE>
29
<PAGE>
*
(b) *
(c) The Parties agree that the calculation of the amount of royalties
due shall be subject to and in accordance with the following provisions:
(i) *
(ii) *
(iii) *
30
<PAGE>
(iv) *
(v) *
(vi) *
(vii) *
(viii) *
31
<PAGE>
Section 5.02 General Licensing Terms.
(a) *
(b) The Parties agree that the accounting and payment of royalties
shall comply with the following terms and conditions:
(i) *
(ii) *
32
<PAGE>
(iii) *
(iv) Agouron shall maintain and cause its Affiliates and sublicensees
to maintain books of account and complete and accurate records pertaining
to the sale or other disposition of Products and of the royalties and other
amounts payable under this Agreement in sufficient detail to *
33
<PAGE>
(c) *
(d) *
Section 5.03 Foreign Currency.
(a) Net Sales and any milestone and royalty amounts shall be stated in
United States dollars. Remittal of milestone payments and royalties shall
be made in United States dollars. *
(b) *
ARTICLE VI - TERM AND TERMINATION
Section 6.01 Termination for Breach *
34
<PAGE>
Section 6.02 Termination by Agouron.
(a) *
(b) *
35
<PAGE>
(c) *
Section 6.03 Termination by Mutual Agreement. The Parties may at any
time terminate this Agreement, in part or in its entirety, by mutual
written agreement.
Section 6.04 Termination Upon Bankruptcy.. In the event that a Party
is subject to any proceeding under the bankruptcy laws, including
appointment of a receiver, trustee, liquidator or other custodian of its
business or substantially all of its assets, and such proceeding, if
involuntary, is not dismissed or discharged within one hundred fifty (150)
days after such proceeding is instituted, or upon the liquidation,
dissolution, or winding up of its business, then this Agreement, at the
election of the other Party, shall be terminated in its entirety for cause
upon a notice in writing of at least fifteen (15) days from the Party who
is not bankrupt or insolvent.
Section 6.05 Disposition of Inventory In the event of the cancellation
or termination of any license rights with respect to a Product, the
inventory of such Product may be sold for up to * after date of
cancellation or termination, provided the required payments, if any, are
paid thereon.
Section 6.06 Effect of Termination. *
ARTICLE VII - WARRANTIES AND COVENANTS;
INDEMNITIES; INSURANCE; DISPUTE RESOLUTION
Section 7.01 Warranties and Covenants.
(a) Each Party represents and warrants to the other Party that it has
the legal power, authority and right to enter into this Agreement and to
perform all of its respective obligations set forth herein, including the
attachments hereto.
36
<PAGE>
(b) JE acknowledges and represents that the patents and patent
applications listed in Schedule 2 are the only patents and patent
applications included within the JE Patent Rights that are jointly owned by
JE and a third party, and that such patents and patent applications are
only subject to the conditions and restrictions noted on Schedule 2 and,
except as otherwise noted on Schedule 2, that the license of such JE Patent
Rights to Agouron under the terms of this Agreement do not require the
consent of such joint owner. *
(c) JE represents and warrants that, as of the date this Agreement is
executed, it was not aware of the existence of any patent applications or
patents owned and Controlled by a third party covering Compound that might
materially prevent the Parties from commercializing Compound in the
Licensed Territory, except for the patent application listed in Schedule
7.01(c).
(d) JE represents and warrants that: (i) it has the right to grant the
licenses set forth in Article II; and (ii) there are no suits, claims or
proceedings pending in any court or by or before any governmental body or
agency with respect to the JE Patent Rights or JE Technology that would
materially interfere with the ability of Agouron to fully exercise the
licenses granted to it under this Agreement, including the exclusive
license rights under Section 2.01(a). Agouron represents that, to the best
of its knowledge, it does not have any know-how, trade secret, experimental
data, formula, expert opinion, experimental procedure or other confidential
and/or proprietary information specifically concerning the Compound,
intermediates thereof, or a Product that was developed or acquired by or on
behalf of Agouron before the Effective Date of this Agreement that is
necessary for either: (i) the formulation (including sustained-release
formulations), manufacture, use and/or application of Product; or (ii)
obtaining Registration of Product, including, but not limited to,
information and data arising out of pre-clinical and clinical trials
involving Product and all NDA applications for Product, and which is under
the Control of Agouron.
(e) Each Party covenants that it shall not commit any act or fail to
take any action that, in any significant way, would be in conflict with its
material obligations under this Agreement and the attachments hereto.
(f) Each Party promises to comply in all material respects with the
terms of the licenses granted to it under this Agreement, and with all
federal, state, local and foreign laws, rules and regulations applicable to
the development, manufacture, distribution, import and export, and sale of
pharmaceutical products pursuant to this Agreement.
(g) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, EACH OF
THE PARTIES MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER INCLUDED WITHIN
THE CLAIMS OF THE PATENT RIGHTS, INCLUDING THE COMPOUND. THE PARTIES
UNDERSTAND AND AGREE THAT DEVELOPMENT AND COMMERCIALIZATION OF COMPOUND
AND/OR PRODUCTS WILL INVOLVE APPROVAL BY REGULATORY AUTHORITIES, AND THAT
NO PARTY IS GUARANTEEING THE SAFETY OR EFFICACY OF COMPOUND AND/OR
PRODUCTS,
37
<PAGE>
OR THAT COMPOUND AND/OR PRODUCTS WILL RECEIVE THE REQUIRED APPROVALS.
Section 7.02 Indemnities; Insurance.
(a) Agouron shall indemnify and hold harmless JE and its Affiliates,
employees, and agents (a "JE Indemnified Party") from and against any and
all liabilities, losses, damages, costs, or expenses (including reasonable
investigative and attorneys' fees) which the JE Indemnified Party may
incur, suffer or be required to pay resulting from or arising in connection
with any product liability or other claims (other than claims for patent
infringement) arising from the use by any person of any Product, to the
extent such product liability or other claim results from the negligent,
reckless or intentional misconduct of Agouron, its Affiliates or
sublicensees, or their respective employees and agents, or on account of
Agouron's failure to fulfill its obligations or undertakings under this
Agreement; provided, however, that in no event shall Agouron be liable to a
JE Indemnified Party for any indirect, incidental, special or consequential
damages, including loss of revenues or profits from sales of Products.
(b) JE shall indemnify and hold harmless Agouron and its Affiliates,
employees, and agents (an "Agouron Indemnified Party") from and against any
and all liabilities, losses, damages, costs, or expenses (including
reasonable investigative and attorneys' fees) that the Agouron Indemnified
Party may incur, suffer or be required to pay, resulting from or arising in
connection with any product liability or other claims (other than claims
for patent infringement) arising from the use by any person of any Product,
to the extent such product liability or other claim results from the
negligent, reckless or intentional misconduct of JE, its Affiliates or
sublicensees, or their respective employees and agents, or on account of
JE's failure to fulfill its obligations or undertakings under this
Agreement; provided, however, that in no event shall JE be liable to an
Agouron Indemnified Party for any indirect, incidental, special or
consequential damages, including loss of revenues or profits from sales of
Products.
(c) To the extent that a product liability or other claim (other than
a claim for patent infringement) results from the negligent, reckless or
intentional misconduct of more than one Party, their Affiliates,
sublicensees, or their respective employees and agents, the Parties agree
to share in an equitable manner such liabilities, losses, damages, costs,
or expenses in proportion to the relative fault of each of the Parties,
their Affiliates, sublicensees, or their respective employees and agents.
(d) Unless the Parties agree otherwise, all other liabilities, losses,
damages, costs, or expenses (including reasonable investigative and
attorneys' fees) under this Section 7.02 relating to or involving a Product
in a country, except as provided by the terms of Sections 7.02(a), (b) and
(c), shall be the responsibility of the Party marketing such Product in
such country. The Party marketing a Product in a country shall indemnify
the non-marketing Party in such country from and against any and all
liabilities, losses, damages, costs, or expenses (including reasonable
investigative and attorneys' fees) which such non-marketing Party may
incur, suffer or be required to pay resulting from or arising in connection
with any product liability or other claims (other than claims for patent
infringement) arising from the use by any person of such Product in
38
<PAGE>
such country. Section 3.02 sets forth the Parties' liability obligations
arising from claims for patent infringement.
(e) The aforesaid obligations of the indemnifying Party shall be
subject to the indemnified Party fulfilling the following obligations:
(i) The indemnified Party shall fully cooperate with the indemnifying
Party in the defense of any claims, actions, etc., which defense shall be
controlled by the indemnifying Party.
(ii) The indemnified Party shall not, except at its own cost,
voluntarily make any payment or incur any expense with respect to any claim
or suit without the prior written consent of the indemnifying Party, which
consent such Party shall not be required to give.
(iii) The indemnified Party shall notify the indemnifying Party
promptly after receipt of a notice of the commencement of any litigation or
threat thereof that may reasonably lead to a claim for indemnification.
(f) The Parties agree to maintain appropriate amounts of product
liability insurance coverage and to have the other Party included as an
additional insured on such policies.
Section 7.03 Dispute Resolution. In the event of any controversy or
claim arising out of or relating to any provision of this Agreement or any
term or condition hereof, or the performance by a Party of its obligations
hereunder, the Parties shall try to settle their differences amicably
between themselves. If the representatives of the Parties are unable to
reach agreement on any such issue, the issue shall be submitted for
consideration, in the case of Agouron, to a designee of its Chief Executive
Officer and, in the case of JE, to a designee of its Managing Director of
Pharmaceuticals and Biobusiness Division. If such designees are unable to
agree, then the issue shall be resolved, in the case of Agouron, by its
Chief Executive Officer and, in the case of JE, by its Managing Director of
Pharmaceuticals and Biobusiness Division. Any unresolved issues arising
between the Parties relating to, arising out of, or in any way connected
with this Agreement or any term or condition hereof, or the performance by
a Party of its obligations hereunder, whether before or after termination
of this Agreement, except as otherwise provided in this Agreement, shall be
finally resolved by binding arbitration. Whenever a Party shall decide to
institute arbitration proceedings, it shall give written notice to that
effect to the other Party. The Party giving such notice shall refrain from
instituting the arbitration proceedings for a period of sixty (60) days
following such notice. If JE is the Party initiating the arbitration, the
arbitration shall be held in San Diego, California, according to the rules
of the American Arbitration Association ("AAA"). If Agouron is the Party
initiating the arbitration, the arbitration shall be held in Tokyo, Japan,
according to the rules of the Japan Commercial Arbitration Association
"JCAA"). The arbitration shall be conducted by a single arbitrator
mutually chosen by the Parties. If the Parties cannot agree upon a single
arbitrator within fifteen (15) days after the institution of the
arbitration proceeding, then the arbitration shall be conducted by a panel
of three arbitrators appointed in accordance with applicable AAA or JCAA
39
<PAGE>
rules; provided, however, that each Party shall, within thirty (30) days
after the institution of the arbitration proceedings, appoint one
arbitrator with the third arbitrator being chosen by the other two
arbitrators. If only one Party appoints an arbitrator, then such arbitrator
shall be entitled to act as the sole arbitrator to resolve the controversy.
Any arbitration hereunder shall be conducted in the English language, to
the maximum extent possible. All arbitrator(s) eligible to conduct the
arbitration must agree to render their opinion(s) within thirty (30) days
of the final arbitration hearing. The arbitrator(s) shall have the
authority to grant injunctive relief and specific performance and to
allocate between the Parties the costs of arbitration in such equitable
manner as he/she determines; provided, however, that each Party shall bear
its own costs and attorneys' and witness' fees. Notwithstanding the terms
of this Section 7.03, a Party shall also have the right to obtain, prior to
the arbitrator(s) rendering the arbitration decision, provisional remedies,
including injunctive relief or specific performance, from a court having
jurisdiction thereof. The arbitrator(s) shall, upon the request of either
Party, issue a written opinion of the findings of fact and conclusions of
law and shall deliver a copy to each of the Parties. Decisions of the
arbitrator(s) shall be final and binding on all of the Parties. Judgment on
the award so rendered may be entered in any court having jurisdiction
thereof.
ARTICLE VIII - DISCLOSURE OF AGREEMENT
Section 8.01 Disclosure of Agreement Except as agreed to by the
Parties, and as required for the performance of its obligations
hereunder, neither JE nor Agouron shall release any information to any
third party with respect to any of the terms of this Agreement without
the prior written consent of the other Party, which consent shall not
unreasonably be withheld. This prohibition includes, but is not
limited to, press releases, educational and scientific conferences,
promotional materials and discussions with the media. The Parties
shall jointly prepare and release a public announcement regarding the
existence of this Agreement. If a Party determines that it is required
by law, including securities laws and regulations pertaining to
publicly traded companies, to release information to any third party
regarding the terms of this Agreement, it shall notify the other Party
of this fact prior to releasing the information. The notice to the
other Party shall include the text of the information proposed for
release. The other Party shall have the right to confer with the
notifying Party regarding the necessity for the disclosure and the
text of the information proposed for release, but the notifying Party
shall have the discretion to release the information as it deems
necessary to fulfill its requirements under law. Notwithstanding the
preceding, JE and Agouron shall each have the right to disclose the
terms of this Agreement to persons it proposes to enter into business
relationships with, if such persons are subject to confidentiality and
use obligations equivalent to those applicable to the disclosing Party
hereunder.
ARTICLE IX - GENERAL PROVISIONS
Section 9.01 No Implied Licenses Only the licenses granted
pursuant to the express terms of this Agreement shall be of any legal
force and effect. No license rights shall be created by implication or
estoppel.
40
<PAGE>
Section 9.02 No Waiver Any failure by a Party to enforce any
right which it may have hereunder in any instance shall not be deemed
to waive any right which it or the other Party may have in any other
instance with respect to any provision of this Agreement, including
the provision which such Party has failed to enforce.
Section 9.03 Severability; Government Acts. In the event that any
provision of this Agreement is judicially, or by a competent
authority, determined to be unenforceable, in part or in whole, with
regard to any or all of the countries in the Territory, the remaining
provisions or portions of this Agreement shall be valid and binding to
the fullest extent possible, and the Parties shall endeavor to
negotiate additional terms, as feasible, in a timely manner so as to
fully effectuate the original intent of the Parties, to the extent
possible, in the applicable countries. In the event that any act,
regulation, directive, or law of a country, including its departments,
agencies or courts should make impossible or prohibit, restrain,
modify or limit any material act or obligation of a Party under this
Agreement, and if any Party to this Agreement is materially adversely
affected thereby, the Parties shall attempt in good faith to negotiate
a lawful and enforceable modification to this Agreement that
substantially eliminates the material adverse effect; provided that,
failing any agreement in that regard, the Party who is materially
adversely affected shall have the right, at its option, to suspend or
terminate this Agreement as to such country.
Section 9.04 Ambiguities. Ambiguities, if any, in this Agreement
shall not be construed against any Party, irrespective of which Party
may be deemed to have authored the ambiguous provision.
Section 9.05 Notification and Governmental Approvals. After
execution of this Agreement, to the extent required by law, Agouron,
after consultation with JE, shall notify the appropriate authorities
in the Licensed Territory about the terms of this Agreement; JE, after
consultation with Agouron, shall notify the appropriate authorities in
the JE Territory about the terms of this Agreement. JE and Agouron
shall obtain any government approval(s) required to enable this
Agreement to become effective, or to enable any payment hereunder to
be made, or any other obligation hereunder to be observed or
performed. Third-party costs and expenses incurred in notifying
governmental authorities or obtaining governmental approval shall be
shared equally between the Parties. Each Party shall keep the other
Party informed of its progress in notifying such governmental
authorities and obtaining such government approval, and shall
cooperate with the other Party in any such efforts.
Section 9.06 U.S. Export Controls The Parties agree to comply
with the United States laws and regulations governing exports and
re-exports of the Compound, intermediates thereof, Products,
Development Program Technology, JE Technology or any other technology
or software developed or disclosed as a result of this Agreement. The
Parties acknowledge that any performance under this Agreement is
subject to any restrictions which may be imposed by the United States
laws and regulations governing exports and re-exports. Each Party
agrees to provide the other Party with any reasonable assistance,
including written assurances which may be required by a competent
governmental authority and by applicable laws and regulations as a
precondition for any disclosure of technology or software by the other
Party under the terms of
41
<PAGE>
this Agreement. The obligations of this Section 9.06 shall
survive termination or expiration of this Agreement.
Section 9.07 No Agency. JE and Agouron shall have the status of
independent contractors under this Agreement and, except as otherwise
explicitly provided in this Agreement, nothing in this Agreement shall
be construed as an authorization of a Party to act as an agent of the
other Party.
Section 9.08 Captions; Number; Official Language. The captions of
the articles and sections of this Agreement are for general
information and reference only, and this Agreement shall not be
construed by reference to such captions. Where applicable in this
Agreement, the singular includes the plural and vice versa. To the
extent appropriate, the meaning of terms whose first letters are
capitalized, but which are variations of terms that are defined
elsewhere in this Agreement, shall each have the same meaning as the
defined term. English shall be the official language of this Agreement
and any license agreement provided for hereunder, and all
communications between the Parties hereto shall be conducted in that
language.
Section 9.09 Force Majeure. A Party shall not be responsible to
the other Party for any failure, delay or interruption in the
performance of any of its obligations under this Agreement if such
failure, delay or interruption is caused by any act of God,
earthquake, fire, casualty, flood, war, epidemic, riot, insurrection,
or any act, exercise, assertion or requirement of a governmental
authority, or other cause beyond the reasonable control of the Party
affected if the Party affected shall have used its best efforts to
avoid such occurrence. If a Party believes that the performance of any
of its obligations under this Agreement shall be delayed or
interrupted as a result of any of the reasons stated in this Section
9.09, and provided such Party is able to do so, such Party shall
promptly notify the other Party of such delay or interruption and the
cause therefor, and shall provide such other Party with its estimate
of when the performance of its obligations shall recommence. When the
Party affected is able to recommence the performance of obligations
delayed or interrupted as a result of any of the reasons stated in
this Section 9.09, it shall so notify the other Party and, except as
otherwise provided in this Agreement, it shall promptly resume the
performance of such obligations.
Section 9.10 Amendment. This Agreement, including the
Attachments, Exhibits and Schedules, constitutes the full agreement of
the Parties with respect to the subject matter of this Agreement, and
incorporates any prior discussions between them with respect to such
subject matter. This Agreement supersedes the rights and obligations
of JE and Agouron under the Confidential Disclosure Agreement and the
Material Transfer Agreement between the Parties which were both
originally entered into on December 22, 1997. This Agreement,
including the attachments hereto, shall not be amended, supplemented
or otherwise modified, except by an instrument in writing signed by
duly authorized officers of the Parties.
Section 9.11 Applicable Law. This Agreement shall be construed
and the rights of the Parties shall be determined in accordance with
the laws of Japan; provided, however, that with regard to issues
concerning the validity and construction of patents, trademarks and
other
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<PAGE>
intellectual property, the rights of the Parties shall be
determined in accordance with the laws of the country under which such
intellectual property rights were granted.under which such
intellectual property rights were granted.
Section 9.12 Notices. Any notice required or permitted to be
given under this Agreement shall be in writing and shall be given in
person, delivered by recognized overnight delivery service, sent by
mail (certified or registered, or air mail for addresses outside of
the continental U.S.), or by telefax (or other similar means of
electronic communication), whose receipt is confirmed by confirming
telefax, and addressed, in the case of JE, to its Managing Director of
Pharmaceuticals and Biobusiness Division and, in the case of Agouron,
to the Senior Vice President, Commercial Affairs (with a copy to the
Legal Department), at the addresses shown at the beginning of this
Agreement, or such other person and/or address as may have been
furnished in writing to the notifying Party in accordance with the
provisions of this Section 9.12. Except as otherwise provided herein,
any notice shall be deemed delivered upon the earliest of: (i) actual
receipt; (ii) four (4) business days after delivery to such recognized
overnight delivery service; (iii) eight (8) business days after
deposit in the mail; or (iv) the date of receipt of the confirming
telefax.
Section 9.13 Assignment. This Agreement shall be assignable by a
Party to its Affiliates; if this Agreement is assigned by a Party to
an Affiliate, the Party shall still be responsible for all of its
obligations as specified in this Agreement. This Agreement shall only
be assignable by a Party to a non-Affiliated third party with the
prior written consent of the other Party, which consent may be
withheld at the sole discretion of such other Party. Any such
assignment without the prior written consent of the other Party shall
be void. Notwithstanding the preceding, in the event of: (i) a sale or
transfer of all or substantially all of a Party's assets; or (ii) the
merger or consolidation of a Party with another company, this
Agreement shall be assignable to the transferee or successor company.
Section 9.14 Succession. This Agreement shall be binding upon all
successors in interest, assigns, trustees and other legal
representatives of the Parties.
43
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement at a formal signing ceremony on July 28, 1998, in duplicate
originals, by their respective officers thereunto duly authorized.
JAPAN ENERGY CORPORATION AGOURON PHARMACEUTICALS, INC.
By: /s/ Akihiko Nimoyama By: /s/ Peter Johnson
Name: Akihiko Nimoyama Name: Peter Johnson
Title: Representative Director and Title: Chief Executive Officer
President and President
By: /s/ Ken Irino By: /s/ Gary Friedman
Name: Ken Irino Name: Gary E. Friedman, Esq.
Title: Senior Management Director Title: Corporate V.P. and General Counsel
WITNESSED BY:
By: /s/ Toshinobu Miyake By: /s/ R. Kent Snyder
Name: Toshinobu Miyake Name: R. Kent Snyder
Title: Assoc. Dir., General Mgr. of Title: Senior Vice President
Coordination Business Development
Pharmaceuticals & Biobusines
Division
44
<PAGE>
S1-1
SCHEDULE 1
JE PATENTS AND PATENT APPLICATIONS
*
S1-1
<PAGE>
S2-1
SCHEDULE 2
*
S2-1
<PAGE>
*
SCHEDULE 7.01(c)
*
S7.01(c)-1
<PAGE>
*
EXHIBIT 1
DEVELOPMENT PROGRAM
*
E1-1
<PAGE>
ATTACHMENT 1
TRADEMARK LICENSE
*
A1-1
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement") is made and entered
into as of June 11, 1998 by and between THE IMMUNE RESPONSE CORPORATION., a
Delaware corporation (hereinafter referred to as the Company) and AGOURON
PHARMACEUTICALS, INC., a California corporation ("Agouron"), which parties
hereby agree as follows:
1. Authorization; Commitment; Closing
1.01 Authorization. The Company proposes to authorize, issue and sell to
Agouron on or before January 15, 2000, certain amounts of its common stock,
$.0025 par value ("Common Stock"), as described and determined below.
1.02 Commitment. Subject to Paragraph 5.06 and the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to Agouron, and Agouron agree to
purchase from the Company as of the dates and for the consideration set forth
below, the number of shares of the Company's Common Stock as determined below.
The Common Stock which Agouron is acquiring pursuant to the terms of this
Agreement is hereinafter referred to as "Restricted Common Stock". Agouron is
hereinafter sometimes referred to as the "Purchaser." The purchases of the
Common Stock shall occur on the seven purchase dates set forth below. On each
purchase date, Agouron shall be entitled to acquire such number of shares of
Restricted Common Stock (rounded up to the nearest whole share) as may be
purchased for $2,000,000, at a purchase price equal to the stated premium set
forth opposite the applicable purchase date, over the then fair market value
("FMV") of the Common Stock on The NASDAQ Stock Market. FMV shall be defined as
the average closing price of the Common Stock on The NASDAQ Stock Market for the
five (5) trading days immediately preceding the referenced purchase date. In the
event the FMV is * on any purchase date, the premium
applicable to such purchase date shall be adjusted to *
<TABLE>
<CAPTION>
Purchase Date Purchase Price *
------------- --------------
<S> <C> <C>
June 11, 1998 $2,000,000 *
October 15, 1998 $2,000,000 *
January 15, 1999 $2,000,000 *
April 15, 1999 $2,000,000 *
July 15, 1999 $2,000,000 *
October 15, 1999 $2,000,000 *
January 15, 2000 $2,000,000 *
</TABLE>
1.03 Closing. Separate closings of the purchase and sale of the
Restricted Common Stock ("Closings") shall occur on each of the purchase dates
set forth above and shall take place at such time and place as the Company and
Purchaser shall agree. At each Closing the Company shall deliver to Purchaser
the number of shares of Restricted Common Stock required by Paragraph 1.02,
above, upon delivery to the Company by Purchaser of a certified check or wire
transfer of funds in the amount of $2,000,000. The Restricted Common Stock to be
delivered to Agouron hereunder at each Closing will be evidenced by a single
certificate
<PAGE>
registered in Agouron's name or in the name of such nominee as Agouron may
specify and, when issued in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly authorized, validly issued, fully
paid, nonassessable and free and clear of any liens or encumbrances caused or
created by the Company (except that such Restricted Common Stock of the Company
will be subject to restrictions on transfer under federal and applicable state
securities laws).
2. Representations
2.01 Representations of the Company. The Company represents and warrants
as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority which are
necessary to own and operate its business and properties and
to carry on its business as it is being conducted. The Company
is duly licensed and qualified and in good standing in the
State of California and in such other jurisdictions in which
the ownership or lease of property or the conduct of its
business makes such licensing or qualification necessary.
(b) There are no proceedings pending or, to the knowledge of
the Company, threatened against or affecting the Company in
any court or before any governmental authority or agency or
arbitration board or tribunal which involve the possibility of
materially and adversely affecting the properties, business,
prospects or condition (financial or otherwise) of the
Company.
(c) The issuance and sale of the Restricted Common Stock and
compliance by the Company with all of the provisions of this
Agreement are within the corporate powers of the Company and
have been duly authorized by all proper corporate action on
the part of the Company and will not (i) conflict with or
result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Articles of
Incorporation of the Company or the Bylaws of the Company,
(ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default
under or give any party the right to terminate or accelerate
performance under any other agreement or instrument to which
the Company is a party (iii) require consent under any other
contract to which the Company is a party, (iv) result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to the terms of
any other contract to which the Company is a party or (v)
conflict with any provision of any applicable judgment,
decree, order, statute, rule, or regulation of any court or
any public, governmental or regulatory agency or body having
jurisdiction over the Company.
(d) This Agreement is a valid and binding agreement of the
Company and is enforceable against the Company in accordance
with the terms hereof, except as such enforceability may be
affected by applicable bankruptcy laws and equitable remedies.
2
<PAGE>
(e) The authorized capital stock of the Company consists of
5,000,000 shares of preferred stock (preferred stock) and
40,000,000 shares of common stock. As of the date hereof, 200
shares of its Series F Convertible Preferred Stock are
outstanding. This preferred stock is convertible into common
stock initially at a conversion price equivalent to $14.07 per
share of common stock. If the Company's common stock does not
trade at prices higher than $14.07 per share over a period of
time, the conversion price will be adjusted downward on April
24, 1999 (or sooner if the Company issues common stock at less
than $14.07 per share) and quarterly thereafter. As of June 9,
1998, 22,900,350 shares of voting common stock are
outstanding. As of the date hereof, 4,497,749 stock options
issued pursuant to the Company's stock option plans and two
(2) warrants to purchase a total of 2,051,281 shares of voting
stock are outstanding. Up to 6,180,000 shares of common stock
may be issued under the Company's stock option plans. Except
as set forth above, there are no other options, warrants,
conversion privileges, preemptive rights, or rights of first
refusal granted by the Company in favor of any other person
presently outstanding or in existence to purchase or acquire
any of the authorized but unissued Common Stock of the
Company, other than any of such items granted pursuant to this
Agreement. The Company has provided to Purchaser copies of its
currently in effect Articles of Incorporation and Bylaws, its
Form 10-K for the year ended December 31, 1997, its 1997
Annual Report, its Proxy statement dated April 27, 1998 and
its Form 10-Q for the quarter ended March 31, 1998. The
Company warrants that the information contained in such
documents as updated and supplemented prior to the date of the
Closing is true and correct and when taken as a whole does not
omit a fact necessary to make the information contained
therein in light of the circumstance under which the documents
were made (taking into account, without limitation, the type
of transaction contemplated by this Agreement and the
sophistication and nature of the Purchaser), not misleading.
The Company acknowledges that the Purchaser is relying on the
written documentation provided by the Company to Purchaser as
described above in making its decision to purchase the
Restricted Common Stock.
(f) Since March 31, 1998, except for the sale of 200 shares of
Series F Convertible Preferred Stock for $10 million, there
has not been any change in the assets, liabilities, financial
condition or operations of the Company other than changes in
the ordinary course of business, none of which individually or
in the aggregate have had a material adverse affect on such
assets, liabilities, financial condition or operations of the
Company.
2.02 Representations of the Purchaser. The Purchaser represents and
warrants as follows:
(a) It is the intent of the Purchaser that its purchase of the
Restricted Common Stock contemplated by this Agreement shall
constitute a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") and
any applicable state securities laws.
3
<PAGE>
(b) Purchaser will not offer or sell any Restricted Common
Stock except pursuant to an effective registration statement
under the Securities Act or in transactions which do not
require registration under the Securities Act.
(c) Purchaser is a corporation duly organized and validly
existing under the laws of the State of California is in good
standing under such laws and has all requisite corporate
powers and authority to enter into this Agreement.
(d) On or prior to the date of the initial Closing, Purchaser
will have taken all action necessary for the authorization,
execution, delivery and performance of this Agreement.
(e) Purchaser has (i) reviewed this Agreement, and the written
statements, and documents, delivered to Purchaser as described
in Section 2.01(e); and, (ii) received satisfactory response
from the Company as to matters about which Purchaser has
inquired relating to this Agreement, and other documents
described in Section 2.01(e) and relating to the Company's
business condition, prospects and plans as necessary to
evaluate the merits and risks of acquiring the Restricted
Common Stock. Purchaser has informed the Company that
Purchaser is relying on all such information and documents in
making its decision to purchase the Restricted Common Stock.
(f) Purchaser (i) has had the risks involved in the investment
represented by this Agreement explained; (ii) has knowledge
and experience in financial and business matters to evaluate
the merits and risks of the investment represented by this
Agreement; (iii) is able to bear the economic risk of the
investment represented by this Agreement (including a complete
loss of this investment); and (iv) has determined that this
investment is suitable for Purchaser in light of Purchaser's
financial circumstances and available investment
opportunities.
(g) Purchaser is acquiring the Restricted Common Stock for its
own account and with its general assets for the purpose of
investment and not with a view to the resale, transfer or
distribution thereof, and has no present intention of selling,
transferring, negotiating or otherwise disposing of any
Restricted Common Stock. Notwithstanding anything in this
Agreement to the contrary, it is agreed that the Purchaser
shall have the right to assign or transfer the Restricted
Common Stock to its Affiliates at any time without the consent
of the Company.
3. Non-Disclosure. Except as agreed to by the parties neither the Company nor
the Purchaser shall release any information to any third party with respect to
any of the terms of this Agreement without the prior written consent of the
other, which consent shall not unreasonably be withheld. This prohibition
includes, but is not limited to, press releases, promotional materials and
discussions with the media. If the Company determines that it is required by law
to release information to any third party regarding the terms of this Agreement,
it shall notify the Purchaser of this fact prior to releasing the information.
The notice to the Purchaser shall include the text of the information proposed
for release. The Purchaser shall
4
<PAGE>
have the right to confer with the Company regarding the necessity for the
disclosure and the text of the information proposed for release.
4. Compliance with Securities Act
4.01 Certain Definitions. As used herein, the following terms shall have
the following respective meanings:
(a) Commission. Shall mean the Securities and Exchange
Commission, or any other Federal agency at the time
administering the Securities Act or the Trust Indenture Act,
as the case may be.
(b) Securities Act. Shall mean the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
(c) Exchange Act. Shall mean the Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect at the relevant time.
(d) Restricted Common Stock. Shall mean the Common Stock of
the Company issued and sold pursuant to this Agreement which
by the terms hereof is required to bear the legend specified
in Section 4.02 hereof.
4.02 Restriction of Transferability; Legend. Shares of Restricted Common
Stock shall not be resold or transferred unless registered under the Securities
Act or unless an exemption from registration is available for such sale or
transfer. The conditions specified below are intended to ensure compliance with
the provisions of the Securities Act in respect of any transfer of stock. Each
certificate for shares of Restricted Common Stock shall be stamped or otherwise
imprinted with a legend in substantially the following form:
The shares evidenced by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be sold or transferred in the
absence of such registration or an exemption
therefrom under said Securities Act and the transfer
of such shares is subject to terms and conditions
specified in the Common Stock Purchase Agreement
dated as of June 11, 1998, between the Company and
Agouron Pharmaceuticals, Inc.
If shares of Restricted Common Stock evidenced by certificates bearing a legend
required by this Section 4.02 are sold in accordance with a registration
statement which has become effective under the Securities Act, or if the Company
shall receive an opinion of its counsel to the effect that any legend required
under this Section 4.02 is not, or is no longer, necessary or required with
respect to such shares (including, without limitation, because of the
availability of the exemption afforded by Rule 144 of the General Rules and
Regulations of the Commission), the Company shall, or shall instruct its
transfer agent and registrar to, remove such legend or issue new certificates
without such legend in lieu thereof.
5
<PAGE>
4.03 Information Requirements. The Company agrees to:
(a) Make and keep public information available, as such term
is understood and defined in Commission Rule 144 and Rule
144A, under the Securities Act;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and
(c) Furnish to any holder of Restricted Common Stock a copy of
the most recent annual or quarterly report of the Company, and
such other publicly available reports and documents of the
Company, so that such holder may avail itself of any rule or
regulation of the Commission allowing it to sell any such
securities without registration.
4.04 Piggy-Back Registration Rights. If the Company before January 15,
2001 contemplates a public offering of shares of its Common Stock to be
registered under the Securities Act, the Company shall so notify the Purchaser
in writing of its intention to do so, at least twenty (20) days prior to the
filing of a registration statement for such offering. If Purchaser gives written
notice to the Company, within ten (10) days of receipt of the notice from the
Company, of Purchaser's desire to have its Restricted Common Stock included in
such registration statement, Purchaser may, subject to the provisions of this
Section 4.04, have its Restricted Common Stock included in such registration
statement. The Company shall bear all expenses in connection with the
registration and sale of any such Restricted Common Stock, other than the fees
or disbursements of any special counsel which the Purchaser may retain in
connection with the registration of its Restricted Common Stock or any portion
of the underwriter's commission, discounts and expenses attributable to the
Restricted Common Stock being offered and sold by the Purchaser. Notwithstanding
the foregoing, if the managing underwriter of any such offering determines that
the number of shares proposed to be sold by the Company, by other shareholders
having piggy-back rights, and/or by the Purchaser is greater than the number of
shares which the underwriter believes feasible to sell at the time, at the price
and upon the terms approved by the Company, then the number of shares which the
underwriter believes may be sold shall be allocated for inclusion in the
registration statement in the following order of priority: (i) shares being
offered by the Company; and (ii) pro rata among the other shareholders and the
Purchaser, based on the number of shares of Common Stock each shareholder
requested to be registered. The Company shall have the right to designate the
managing underwriter in respect of a public offering pursuant to this
Section 4.04.
4.05 Additional Covenants Concerning Sale of Shares.
(a) The Company will notify the Purchaser of the effectiveness
of any registration statement in which Purchaser has exercised
registration rights granted pursuant to the terms of Section
4.04, together with a list of the jurisdictions where the
Company has qualified or is exempt from registration under
applicable state securities laws.
6
<PAGE>
(b) The Company will prepare and file with the Commission such
amendments and supplements to any registration statement filed
pursuant to the terms of Section 4.04 (and any prospectus used
in connection with such registration statement) as may be
necessary to comply with the provisions of the Securities Act
with respect to the sale of Restricted Common Stock by the
Purchaser.
(c) The Company will furnish to the Purchaser a reasonable
number of copies of the prospectus used in connection with a
registration statement filed pursuant to the terms of Section
4.04, including a preliminary prospectus, which prospectus
conforms to the requirements of the Securities Act, and such
other documents as the Purchaser may reasonably request, in
order to facilitate the disposition of the Purchaser's
Restricted Common Stock.
(d) In connection with any registration statement referred to
in Section 4.04 of this Agreement, Purchaser will furnish to
the Company such information as the Company may reasonably
require from Purchaser for inclusion in the registration
statement (and the prospectus included therein).
(e) The Company's obligations under Section 4.04 shall be
conditioned upon Purchaser executing and delivering to the
Company its agreement, in a form satisfactory to counsel for
the Company, that it will comply with all applicable
provisions of the Securities Act, the Exchange Act, the
securities acts of applicable states and any rules and
regulations promulgated under such acts and will furnish to
the Company information about sales made in such public
offering.
4.06 Indemnification
In the event any of the Restricted Common Stock of Purchaser is
included in a registration statement under Section 4.04 of this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Purchaser and its Affiliates and their
respective officers, directors and employees, against any
losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (hereinafter sometimes
collectively referred to as a "Violation(s)"): (i) any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein
not misleading; or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law;
and the Company will
7
<PAGE>
reimburse each such indemnified party for any legal or other
expenses reasonably incurred by it in connection
with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 4.06 shall
not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent
shall not be unreasonably withheld or delayed), nor shall the
Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of
or is based upon a Violation which occurs in reliance upon,
and in conformity with, written information furnished
expressly for use in connection with such registration, by any
such indemnified party.
(b) To the extent permitted by law, the Purchaser will
indemnify and hold harmless the Company and its Affiliates and
their respective officers, directors and employees against any
losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any Violations, in
each case to the extent (and only to the extent) that such
Violation occurs in reliance upon, and in conformity with,
written information furnished by the Purchaser and its
Affiliates and their respective officers, directors and
employees to the Company expressly for use in connection with
such registration; and the Purchaser will reimburse each such
indemnified party for any legal or other expenses reasonably
incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this
Section 4.06 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Purchaser,
which consent shall not be unreasonably withheld or delayed.
(c) Promptly after receipt by an indemnified party under this
Section 4.06 of notice of the commencement of any action
(including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 4.06, notify the
indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, to
assume the defense thereof with counsel mutually satisfactory
to the parties.
5. Miscellaneous
5.01 Expenses; Finders Fees. Neither party shall pay expenses and finder
fees for or to the other in connection with this transaction. Each party agrees
to indemnify and hold the other party harmless from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person (and the costs and expenses of defending against such liability or
asserted liability) claiming to have been hired or engaged by the party.
5.02 Replacement of Certificates for Restricted Common Stock. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of
8
<PAGE>
any certificate evidencing any Restricted Common Stock, the Company will
execute, register and deliver, in lieu thereof, a new certificate for an equal
number of shares of Restricted Common Stock. In the case of loss, theft or
destruction of a certificate, at the election of the Company, the Purchaser may
be required to provide an indemnity reasonably satisfactory to the Company or to
post a surety bond in an amount equal to the value of the shares represented by
the new certificate.
5.03 Notice. Any notice required to be given under the terms of this
Agreement shall be in writing, and shall be given in person, transmitted by
telecopier, e-mail or similar electronic communication, delivered by a
recognized overnight delivery service such as Federal Express or sent by mail
(certified or registered or air mail for addresses outside of the country of
origin), return receipt requested, postage prepaid and addressed to the Company
at 5935 Darwin Court, Carlsbad, California 92008, or such other address as the
Company may designate to Purchaser in writing and to the Purchaser, at the
address appearing at the beginning of this Agreement or such other address as
Purchaser may designate to the Company in writing. Except as otherwise provided
herein, any notice so given shall be deemed delivered upon the earlier of (i)
actual receipt; (ii) receipt by sender of confirmation if telecopied or sent by
e-mail or similar electronic communication; (iii) two business days after
delivery to such overnight delivery service; or (iv) five business days after
deposit in the mail.
5.04 Successors and Assigns. This Agreement shall be binding upon the
parties and their respective successors and assigns.
5.05 Survival of Representations, Etc. All covenants, representations and
warranties made by the parties herein shall survive the Closings and the
delivery of this Agreement and the shares of Restricted Common Stock purchased
hereunder.
5.06 Termination. Purchaser's obligation to purchase Restricted Common
Stock under this Agreement shall terminate with respect to any purchase
obligations whose purchase dates under Paragraph 1.02 occur after Purchaser has
elected to terminate, in its entirety, all of Purchaser's rights and obligations
under the Letter of Intent ("LOI") dated June 11, 1998 and the Definitive
Agreement (as defined in the LOI) between the parties.
5.07 Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
5.08 Governing Law. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of California without
regard to its conflict of law provisions.
5.09 Captions, Form of Pronouns. The descriptive headings of the various
sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof. All pronouns
used in this Agreement shall be deemed to include masculine, feminine and neuter
forms.
9
<PAGE>
5.10 Agreement is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto related to the purchase and sale of
Restricted Common Stock and no party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein.
5.11 Third Parties. Nothing in this Agreement is intended to confer upon
any party, other than the parties hereto, and their respective permitted
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided herein.
5.12 Amendment and Waiver. Any provision of this Agreement may be amended
and the observance of any term hereof may be waived (either prospectively or
retroactively and either generally or in a particular instance) only with the
written consent of the Company and the Purchaser.
5.13 Affiliates. References to Purchaser in this Agreement shall be
deemed to include direct or indirect subsidiaries of Purchaser. The term
"Affiliate" shall have the meaning defined in the LOI.
5.14 Dispute Resolution. In the event of any controversy or claim arising
out of or relating to any provision of this Agreement, the parties shall try to
settle their differences amicably between themselves. Any unresolved disputes
arising between the parties relating to, arising out of or in any way connected
with this Agreement or any term or condition hereof, or the performance by
either party of its obligations hereunder, whether before or after termination
of this Agreement, shall be finally resolved by binding arbitration. Whenever a
party shall decide to institute arbitration proceedings, it shall give written
notice to that effect to the other party. The party giving such notice shall
refrain from instituting the arbitration proceedings for a period of sixty (60)
days following such notice The arbitration shall be held in San Diego,
California according to the rules of the American Arbitration Association
("AAA") applicable to commercial securities matters of this nature. The
arbitration shall be conducted by a panel of three arbitrators appointed in
accordance with AAA rules; provided, however, that each party shall within
thirty (30) days after the institution of the arbitration proceedings appoint
one arbitrator with the third arbitrator being chosen by the other two
arbitrators. If only one party appoints an arbitrator, then such arbitrator
shall be entitled to act as the sole arbitrator to resolve the controversy. Any
arbitration hereunder shall be conducted in the English language and the
arbitrator(s) shall apply the law set forth in SectionE5.08. All arbitrator(s)
eligible to conduct the arbitration must agree to render their opinion(s) within
thirty (30) days of the final arbitration hearing. The arbitrator(s) shall have
the authority to grant injunctive relief and specific performance, and to
allocate between the parties the costs of arbitration in such equitable manner
as he determines; provided, however, that each party shall bear its own costs
and attorney's and witness' fees. Notwithstanding the terms of this Section
5.14, a party shall also have the right to obtain prior to the arbitrator(s)
rendering the arbitration decision, provisional remedies including injunctive
relief or specific performance from a court having jurisdiction thereof. The
arbitrator(s) will, upon the request of either party, issue a written opinion of
the findings of fact and conclusions of law and shall deliver a copy to each of
the parties. Decisions of the arbitrator(s) shall be final and binding on all of
the parties. Judgment on the award so rendered may be entered in any court
having jurisdiction thereof.
10
<PAGE>
The execution hereof by Purchaser shall constitute a contract between us
for the uses and purposes hereinabove set forth, and this Agreement may be
executed in any number of counterparts, each executed counterpart constituting
an original but all together only one agreement.
THE IMMUNE RESPONSE CORPORATION
By /s/ Dennis J. Carlo
By /s/ Charles J. Cashion
ACCEPTED AND AGREED TO AS OF THE DAY AND YEAR AFORESAID.
PURCHASER:
AGOURON PHARMACEUTICALS, INC
By /s/ Peter Johnson
Peter Johnson
President and Chief Executive Officer
By /s/ Gary Friedman
Gary Friedman
Secretary
11
AMENDMENT TO THE VIRACEPT (Nelfinavir Mesylate) LICENSE AGREEMENT
This Amendment ("Amendment") to the VIRACEPT (Nelfinavir Mesylate) License
Agreement ("the Agreement"), effective as of this 1st day of May, 1998
("Effective Date"), 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"),
Japan Tobacco Inc., a corporation duly organized and existing under the laws of
Japan, having its principal place of business at JT Building, 2-1, Toranomon
2-chome, Minato-ku, Tokyo, Japan (hereinafter referred to as "JT"), and
F. Hoffmann-La Roche Ltd, a corporation duly organized and existing under the
laws of Switzerland, having its principal place of business at CH-4002-Basel,
Switzerland (hereinafter referred to as "Roche"). Agouron, JT and Roche are each
sometimes hereinafter referred to as a party (collectively "parties"). The
parties for good and valuable consideration hereby agree as follows:
RECITALS
1. Background
1.01 All capitalized terms, except as expressly otherwise defined herein,
shall have the meanings set forth in the Agreement.
1.02 Agouron, JT and Roche entered into a Letter of Intent on January 17,
1997 and the VIRACEPT (nelfinavir mesylate) License Agreement dated for
reference purposes only June 30, 1997, under which Agouron and JT granted, and
Roche received, a license in the Licensed Territory to use, offer for sale, sell
and/or import Products in the Field under applicable Agouron/JT Patent Rights
and Development Program Patent Rights and using applicable Agouron/JT
Technology, Roche Technology and Development Program Technology.
1.03 Roche has certain capacities to manufacture Compound as well as
formulate Product. Roche has informed Agouron and JT of its desire to
manufacture Compound and formulate Product to be sold and/or distributed in the
Licensed Territory with such Roche manufacturing and formulating
responsibilities to be phased-in over an agreed-to period of time.
1.04 The parties, in accordance with the provisions of Section 4.04(f) of
the Agreement, have discussed in good faith an arrangement under which Roche
could be the manufacturer of Compound and the formulator of Product to be sold
and/or distributed in the Licensed Territory.
1.05 Agouron and JT under certain conditions are willing to grant Roche
certain rights to manufacture Compound and formulate Product to be sold and/or
distributed in the Licensed Territory.
1.06 *
<PAGE>
1.07 *
1.08 To effect the preceding and clarify the parties' rights and
obligations under the Agreement, the parties wish to amend the Agreement as
provided below.
AMENDMENT
2. Grant of Rights to Roche
2.01 *
2.02 *
2.03 *
2
<PAGE>
2.04 Except as otherwise specifically provided in the Agreement, *
2.05 All licenses granted Roche in this Amendment in a country shall become
*
2.06 Roche shall not have the right to use *
3. Limitations
3.01 Roche's rights to manufacture Compound and formulate Product shall *
3.02 *
3
<PAGE>
(a) *
(b) *
(c) *
(d) *
4
<PAGE>
3.03 *
5
<PAGE>
4. Markup
4.01 For the rights granted pursuant to the provisions of Paragraphs
2.01-2.04, *
5. License grant to Agouron and JT
5.01 Roche grants Agouron and JT *
5.02 For the rights granted pursuant to the provisions of Paragraph 5.01, *
5.03 *
6
<PAGE>
6. Exchange of Information
6.01 Immediately after execution of this Amendment by the parties, and
on an ongoing basis thereafter, *
7. Supply obligations
7.01 *
7.02 *
7.03 *
(a) *
(b) *
7
<PAGE>
(c) *
(d) *
(e) *
(f) *
7.04 *
8
<PAGE>
7.05 *
8. Schedule 2 of Agreement
8.01 *
9. Trademark/Labeling
9.01 The labeling for any Product to be sold and/or distributed by Roche, *
9
<PAGE>
10. Remaining Agreement Terms
10.01 Except as expressly amended by the terms contained in this
Amendment, the provisions of the Agreement, as previously amended, shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Amendment to the VIRACEPT(TM)(Nelfinavir
Mesylate) License Agreement, effective as of the Effective Date.
AGOURON PHARMACEUTICALS, INC. JAPAN TOBACCO INC.
By: /s/ Gary Friedman By: /s/ Masakazu Kakei
Name: Gary Friedman Name: Masakazu Kakei
Title: Corp. Vice President Title: Executive Director
By:/s/ R. Kent Snyder By: /s/ Tatsuya Yoneyama
Name: R. Kent Snyder Name: Tatsuya Yoneyama
Title: Sr. Vice President Title: Vice President, Business Devel.,
Pharmaceuticals Division
F. HOFFMANN-LA ROCHE LTD
By /s/ St. Arnold
Name: St. Arnold
Title: Vice Director
By: /s/ B. Scholl
Name: B. Scholl
Title: Vice Director
10
<PAGE>
SCHEDULE 1
*
S1-1
<PAGE>
SCHEDULE 2
ROCHE DEMAND SCHEDULE FOR VIRACEPT PRODUCT
*
S2-1
<PAGE>
SCHEDULE 2
ROCHE DEMAND SCHEDULE FOR VIRACEPT PRODUCT
*
S2-2
<PAGE>
SCHEDULE 2
ROCHE DEMAND SCHEDULE FOR VIRACEPT PRODUCT
*
S2-3
<PAGE>
SCHEDULE 2
ROCHE DEMAND SCHEDULE FOR VIRACEPT PRODUCT
*
SCHEDULE 2
ROCHE DEMAND SCHEDULE FOR VIRACEPT PRODUCT
*
S2-4
<PAGE>
SCHEDULE 2
ROCHE DEMAND SCHEDULE FOR VIRACEPT PRODUCT
*
S2-5
<PAGE>
ATTACHMENT 1
1. *
2. *
3. *
4. *
5. *
6. *
Subsidiaries of Agouron Pharmaceuticals, Inc.
<TABLE>
<CAPTION>
Subsidiary % State of
Corporation Owned Incorporation
<S> <C> <C>
Alanex Corporation 100% Delaware
Agouron Pharmaceuticals Canada Inc. 100% New Brunswick,
Canada
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-46531) of Agouron Pharmaceuticals, Inc. of our
report dated July 16, 1998 appearing on page F-1 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
San Diego, California
August 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and the statement of income (loss) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000811210
<NAME> Agouron Pharmaceuticals, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Jun-30-1998
<CASH> 19,098
<SECURITIES> 68,025
<RECEIVABLES> 51,669
<ALLOWANCES> 328
<INVENTORY> 103,706
<CURRENT-ASSETS> 247,981
<PP&E> 71,533
<DEPRECIATION> 24,321
<TOTAL-ASSETS> 363,337
<CURRENT-LIABILITIES> 120,253
<BONDS> 0
0
0
<COMMON> 348,482
<OTHER-SE> (112,313)
<TOTAL-LIABILITY-AND-EQUITY> 363,337
<SALES> 409,298
<TOTAL-REVENUES> 466,505
<CGS> 172,644
<TOTAL-COSTS> 259,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 752
<INCOME-PRETAX> 21,924
<INCOME-TAX> 8,770
<INCOME-CONTINUING> 13,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,154
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.40
</TABLE>
Agouron Pharmaceuticals, Inc.
Important Factors Regarding
Forward-Looking Statements
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time.
Uncertainty of Product Development and Market Acceptance: The Company has
completed the development and commercialization of only one product and does not
expect to have any additional products commercially available until calendar
2000, if at all. There can be no assurance that further research and development
of these additional products will be successful or will result in drugs that
will qualify for approval by regulatory authorities for commercial sale or be
accepted and successful in the marketplace.
Uncertainty Associated with Clinical Testing: Historical results of clinical
testing of approved products and those under development are not necessarily
predictive of future results. There can be no assurance that clinical studies of
products under development will demonstrate the safety and efficacy of such
products. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product could delay or prevent regulatory approval of the product.
There can be no assurance that unacceptable toxicities or side effects will not
occur at any time in the course of human clinical trials or commercial use of
the Company's drugs. The appearance of any such unacceptable toxicities or side
effects could interrupt, limit, delay or abort the development of any of the
Company's drugs or, if previously approved, necessitate their withdrawal from
the market. Furthermore, there can be no assurance that disease resistance will
not limit the efficacy of the Company's current and future drugs, if any. Delays
in planned patient enrollment in the Company's current clinical trials or future
clinical trials may result in increased costs, program delays or both.
Future Profitability: While the Company has recently generated significant
revenues from the commercialization of its first product and has reported
operating profits on a quarterly basis, there can be no assurance that the
Company will maintain profitable operating results.
Additional Financing Requirements and Access to Capital: Additional funding may
be required for future product or business organization opportunities, capital
expenditures, working capital and other general corporate needs. No assurance
can be given that additional financing will be available when needed or on terms
acceptable to the Company. If adequate funds are not available, the Company may
be required to delay or eliminate expenditures for certain of its programs or
activities or to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop and commercialize itself.
Dependence on Others: The Company's strategy for development and
commercialization of certain of its products entails entering into various
arrangements with corporate partners, licensees and others. There can be no
assurance that any revenues or profits will be derived from such
<PAGE>
arrangements, that any of the Company's current strategic arrangements will be
continued, or that the Company will be able to enter into future collaborations.
Products Acquired from Third Parties: The Company has recently acquired rights
in three development stage products focusing on the HIV/AIDS market. There can
be no assurance that the Company will be successful with the commercial
development of such products or, if successfully developed, that such products
will make a significant contribution to the Company's future operating results.
Manufacturing Capabilities: The Company is, and for the foreseeable future
expects to be, dependent on a number of contract manufacturers for the
commercial manufacture of its current and future products (if any) under current
Good Manufacturing Practices ("GMP"). Failure to meet GMP standards would have
an adverse impact on the Company's business. No assurance can be given that such
manufacturers can be established or retained or that such manufacturers will
timely deliver sufficient product quantities at acceptable costs.
Sales and Marketing Capabilities: The Company has established its capabilities
in the sales, marketing and distribution of pharmaceutical products. There can
be no assurance that such capabilities will be sufficient or successfully
maintained.
Patents and Proprietary Technology: No assurance can be given that the Company's
patent applications, and those applications to which the Company has obtained
license rights, will issue as patents or that any patents that are or may be
issued will provide the Company with adequate protection for the covered
products or technology. Additionally, there can be no assurance that the
Company's confidentiality agreements will adequately protect its trade secrets,
know-how or other proprietary information. Further, there can be no assurance
that the Company's activities will not infringe on the patents or proprietary
rights of others or that the Company will be able to obtain licenses to any
technology that it may require to conduct its business or that, if obtainable,
such technology can be licensed at a reasonable cost.
Technological Change and Competition: There can be no assurance that competitors
will not succeed in developing technologies and products that are more effective
than any which have been or are being developed by the Company or which would
render the Company's technology and products obsolete and noncompetitive. Many
of the Company's competitors have substantially greater financial and technical
resources and production, marketing and development capabilities and experience
than the Company. Accordingly, certain of the Company's competitors may succeed
in obtaining regulatory approvals more rapidly or effectively than the Company
or enjoy greater manufacturing efficiencies and sales and marketing
capabilities, areas in which the Company has less experience than its
competitors.
Volatility of Stock Price: The market price of the Common Stock has in recent
years fluctuated significantly, and it is likely that the price of Common Stock
will fluctuate in the future. Announcements by the Company or others regarding
its operating results, corporate reorganization matters, existing and future
collaborations, results of clinical trails, scientific discoveries,
technological innovations, commercial products, patents or proprietary rights or
regulatory actions
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may have a significant effect on the market price of the Common Stock.
Fluctuations in financial performance from period to period also
may have a significant impact on the market price of the Common Stock.
Government Regulation: Preclinical studies, clinical trials and the production
and marketing of the Company's products and its ongoing research and development
activities are subject to regulation by numerous governmental authorities in the
United States and other countries. If regulatory approval of a drug is obtained,
such approval may involve limitations and restrictions on the drug's use.
Failure of the Company, or its corporate partners, to comply with applicable
regulatory requirements can, among other things, result in fines, suspension of
regulatory approvals or product recalls. Additionally, the Company is or may
become subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions and the use and disposal of
hazardous or potentially hazardous substances. The Company is unable to predict
the extent of restrictions that might arise from any governmental or
administrative action.
Uncertainty of Third-Party Reimbursement and Product Pricing: The Company's
ability to commercialize products successfully will depend in part on the
availability of reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations.
There can be no assurance that reimbursement in the United States or foreign
countries will be available for any products the Company has developed or may
develop or, if available, will either remain available or will not be decreased
in the future, or that reimbursement amounts, if any, will not reduce the demand
for, or the price of, the Company's products, thereby adversely affecting 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. There can be no assurance that the Company will
be able to obtain or maintain product liability insurance on acceptable terms or
that such insurance will provide adequate coverage against any potential claims.
Use of Hazardous Materials: The Company's research and development activities
involve the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any liability could have an 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, sales and marketing and managerial personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to attract and retain the personnel necessary for
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the ongoing development of its business. The loss of or failure to recruit
such personnel could have an adverse effect on the Company.
